Summary
In State Fidelity Fed. Sav. Loan Assn. v. Wehrly, 25 Ohio Misc. 221, 263 N.E.2d 801, 54 Ohio Ops.2d 314 (Montgomery County 1970) an Ohio Common Pleas Court held that the interest of a grantee in possession of land under an unrecorded land contract took priority over federal tax liens.
Summary of this case from Fry Bros. ex rel. Official Unsecured Creditors' Committee v. Van Waters & Rogers (In re Fry Bros.)Opinion
No. 134277
Decided October 29, 1970.
Liens — Priorities — Equitable lien — Purchaser under land contract — Federal tax lien against vendor.
F. purchased from W., by land contract, became the equitable owner, and took possession of the subject premises on June 1, 1967; the federal government filed tax liens against W. as of August, October and December of the same year, during which time legal title to the premises was in W.; the land contract was filed of record on January 31, 1968. In a foreclosure proceeding by a creditor of W., on motion for confirmation and distribution of proceeds, Held: The interest of F. takes priority over the federal tax liens.
Messrs. Estabrook, Finn McKee and Mr. Robert P. Bartlett, Jr., for plaintiff.
Messrs. Rudd Zachritz and Mr. Eric Silverberg, for Defendant Motors Insurance Corporation.
Mr. Robert A. Steinberg, Assistant U.S. Attorney, for the United States.
Messrs. Turner, Wells, Granzow Spayd and Mr. Nicholas C. Hollenkamp, for Defendant Third National Bank and Trust Company.
Messrs. Hanaghan Hanaghan and Mr. Ralph J. Hanaghan, for Defendant Thomas M. Frye.
This cause came on for hearing on the several motions for confirmation of sale of land and distribution of proceeds. Defendants Wehrly requested separate finding of fact and law.
Findings of Fact
1. On May 12, 1970, the court rendered a judgment of foreclosure and pursuant thereto the sheriff of this county sold the premises in question for $12,750.00.
2. The hearing on the motions for confirmation and distribution of proceeds was held before the court on September 18, 1970, at time the court found as a matter of fact and law that there was no question as to the priorities of certain claims, to wit, court costs herein, real estate taxes and the mortgage of the plaintiff as the first and best lien and therefore by its order of September 29, 1970, such claims were ordered paid by the sheriff and the balance of the fund in the sum of $1,115.28 was ordered paid by the sheriff to the clerk of this court for further order.
3. Thomas M. Frye purchased the premises in question by land contract from the Wehrlys on June 1, 1967, for the sum of $13,000.00 and on that date paid the Wehrlys the sum of $2,000.00 and immediately entered into possession of the premises. Thereafter Frye paid to the Wehrlys the sum of $125.00 per month on the contract until Wehrlys defaulted on their loan with the State Fidelity Federal Savings and Loan Association, the plaintiff herein.
4. The aforesaid land contract was filed of record on January 31, 1968.
5. The Federal Government filed tax liens against Richard L. Wehrly as of August 28, 1967, for $203.41, as of October 31, 1967, for $1,366.84 and on December 4, 1967, in the sum of $2,612.97.
6. Other liens and certificates of judgment against the Wehrlys were filed but are not in contention as respects the issue before this court.
Conclusion of Law
1. Thomas M. Frye became the equitable owner of the real estate in question as of June 1, 1967.
2. The United States Government, by virtue of its claims against Wehrly for taxes is nothing more than a creditor of Wehrly.
3. During the time of the events herein being considered, the Wehrlys held the legal title to the premises in question.
4. A federal tax lien which is a lien filed for record takes priority over the claim of a purchaser which is perfected subsequent to the filing thereof. Title 26, Section 6323 (a), U.S. Code. U.S. v. Phillips, 198 F.2d 634, Scully v. Connelly, 20 Ohio Misc. 276.
5. A purchaser has perfected his interest within the meaning of the federal statute when, for adequate and full consideration in money or money's worth, he requires an interest in property which is valid under local law against subsequent purchasers without actual notice. Title 26, Section 6323 (h)(6), U.S. Code.
6. It is settled law in Ohio that the interests of a grantee or purchaser in possession is valid as against all subsequent purchasers or grantees from the same vendor or grantor for they are as much charged with knowledge of his interests by virtue of his possession as they would be had he recorded the contract or instrument of conveyance. Kelly v. Stanbery, 13 Ohio 408. Ranney v. Hardy 43 Ohio St. 157. Sinclair Refining Co. v. Chaney, 114 Ohio App. 538.
7. The right of a vendee to an equitable lien for purchase money paid is not a statutory right but rather it exists as a matter of the law of equity jurisprudence. Cleveland Trust Co. v. Booze, 163 Ohio St. 392.
8. Compliance with R. C. 5301.25 cannot be made a prerequisite for the perfection of a vendee's lien except insofar as the statute clearly indicates. A statute which abrogates the common law must be strictly construed.
9. The Ohio Recording Statute, R. C. 5301.25, provides only that an unrecorded land contract is fraudulent so far as it relates to a subsequent bona fide purchaser having at the time of purchase no knowledge of the existence of such former land contract.
10. Where a person is in possession of real property under an unrecorded land contract a subsequent purchaser is charged with knowledge of such possession and such knowledge of the title and interest of the party in possession as could have been acquired by reasonable inquiry. 54 Ohio Jurisprudence 2d, Vendor and Purchaser, Section 88.
11. The failure to comply with the Ohio Recording Statute has no bearing on the perfection of the lien of a vendee in possession. R. C. 5301.25 protects a subsequent purchaser and does not protect those who do not acquire title to property such as creditors. Tousley v. Tousley, 5 Ohio St. 78; Page v. Thomas, 43 Ohio St. 38; Corwine v. Thompson National Bank, 105 F. 196.
Conclusion
By reason of the foregoing findings of fact and law, the interest of Thomas M. Frye takes priority over the federal tax liens and the balance of the proceeds in the sum of $1,115.28 now held by the clerk of this court should be distributed to Thomas M. Frye. See 37 Ohio Jurisprudence 2d, Mortgages, Sections 454 and 456.
Counsel for Thomas M. Frye shall draft the appropriate judgment in conformance with this decision, secure a subscription of each party to the judgment and thereafter submit to the court for approval and recording.