Opinion
No. 4727.
Argued June 2, 1959.
Decided August 18, 1959.
1. Surplus funds in the hands of a mortgagee after foreclosure of power of sale mortgage and satisfaction of the secured indebtedness and expenses are the property of the mortgagors subject to undischarged encumbrances and liens existing at the time of foreclosure.
2. Such liens attach to the surplus proceeds in equity in the same order of priority and with the same effect as they bound the mortgaged premises before the foreclosure, and such surplus after foreclosure stands in the place of the debtor's equity of redemption and is subject to the pre-existing liens which attach thereto.
3. By virtue of statute (28 U.S.C.A., s. 6323) a tax lien of the United States takes priority over all other liens except as "against any mortgagee, pledgee, purchaser, or judgment creditor."
4. Prior attaching creditors who have neither taken judgment nor perfected their inchoate liens are not "judgment creditors" under such statute.
5. However, where a second mortgage of real property antedating the federal tax lien was subject to the liens of prior attaching creditors, a portion of a fund remaining after satisfaction of the first mortgage indebtedness is to be set apart in an amount sufficient to satisfy indebtedness secured by the second mortgage, free from any claim secured by the federal tax lien, from which such creditors may seek satisfaction.
6. Where the property subject to such mortgage and liens was jointly owned by husband and wife, since divorced, and only the interest of the husband was subject to the attachment liens, such liens encumber only the proportionate share of the amount set apart which represents the interest of the husband as joint tenant, less the value of any attachment-exempt homestead right (RSA 480:1) he may have, and the claims of such creditors are to be satisfied in the order of priority of the attachments.
7. In such case, any balance of such amount will represent the interest of the wife and any homestead right of the husband and be subject to the lien of the second mortgage free from any claims of attaching creditors and the federal tax lien.
8. The amount remaining after satisfaction of the indebtedness of the first mortgagor and in excess of the sum set apart as sufficient to satisfy the indebtedness secured by the second mortgage is subject to the federal tax lien which has priority over all attaching creditors.
9. Creditors, in such case, who made attachments of such real estate after the second mortgage was recorded and served trustee process upon the clerk by leave of Court after federal tax lien had attached to the funds held by him have no priority over such tax lien.
10. The taxable costs as well as counsel fees in interpleader proceedings brought to determine the priority of liens, in such case, may be allowed to the plaintiff but are chargeable only against the fund set apart as subject to the lien of the second mortgagee and take precedence over the rights of the second mortgagee and creditors of the mortgagor.
BILL OF INTERPLEADER, by a mortgagee to determine the disposition and distribution of surplus proceeds arising out of foreclosure of a power of sale mortgage of premises in Rye executed by George T. and Christine O. Mahar under date of September 9, 1953. Trial by the Court upon an agreed statement of facts. All questions of law presented were reserved and transferred without ruling by the Presiding Justice, Leahy, C.J.
The mortgage held by the plaintiff was foreclosed on January 3, 1957. After satisfaction of the debt and expenses, a balance of $3,306.55 was deposited by the plaintiff with the clerk of court upon the filing of the bill of interpleader. The surplus proceeds are claimed by various creditors of George T. Mahar as well as by the United States of America, and a second mortgagee.
On August 5, 1955, New Hampshire Supply Company attached the mortgaged premises in an action against the mortgagor George T. Mahar, in which judgment was entered on May 14, 1956, and execution was thereafter returned partially satisfied. On March 26, 1957, the company made demand upon the plaintiff for payment of the balance of the judgment.
On May 22, 1956, the premises were attached in an action brought by Emery-Waterhouse Company which was never entered. On June 18, 1956, the same company again attached the premises in an action against George T. Mahar to recover $1,297.22 plus interest. This action is presently continued for judgment.
Similarly, in actions against George T. Mahar which are now continued for judgment, the premises were attached on June 18, 1956 by Manchester Supply Company in an action to recover $1,837.03 and interest; and at a later time on June 18, 1956, by Rockingham Electrical Supply Company, Inc. in an action to recover $172.86 and interest.
On June 19, 1956, the premises were attached by Weston Palmer in an action against George T. Mahar in which judgment was entered on January 15, 1957, in the sum of $447.35 plus costs. Execution issued on January 21, 1957, has not been returned.
On June 25, 1956, the premises were attached by Daniel P. Creed Co. in an action against George T. Mahar, presently continued for judgment, to recover $183.86 plus interest.
On June 26, 1956, George T. and Christine O. Mahar executed a second mortgage of the premises, subject to the foregoing attachments, to Katherine Ogg to secure the payment of $2,500. The mortgage was recorded on June 27, 1956, at 10:20 A.M.
On June 27, 1956, at 11:58 A.M. the premises were attached by Samuel Hurwitz Company in an action against George T. Mahar, presently continued for judgment, to recover the sum of $813.74 plus interest. On the same date at 11:59 A.M. the premises were attached by Atlantic Distributing Company in an action against George T. Mahar, presently continued for judgment, to recover the sum of $137.58, plus interest.
On March 3, 1958, Samuel Hurwitz Company and Atlantic Distributing Company attached the surplus in the hands of the clerk of the Superior Court, by serving trustee process upon him pursuant to leave granted by the Superior Court on February 25, 1958. On June 12, 1958, each of these plaintiffs moved for default judgment, and an order directing that execution issue against the clerk of court. The motions for default judgment were granted as of March 27, 1959.
On October 19, 1956, the mortgaged premises were attached by Gerald W. Berounsky in an action against George T. Mahar. This action is presently marked "Continued for notice," no service having been had on the defendant.
On March 5, 1957, a divorce was decreed between George T. Mahar and Christine O. Mahar by decree which contained no provision concerning the disposition of property.
George T. and Christine O. Mahar, as officers of George T. Mahar, Inc. are indebted to the United States of America for withholding taxes in the sum of $979.78 plus interest at six per cent per annum, commencing October 8, 1957. Demand was made for the taxes on October 8, 1957, giving rise to a lien under 26 U.S.C.A., s. 6321. Notice of the lien was duly filed in the registry of deeds on October 11, 1957, and with the town clerk of Rye, New Hampshire, on October 12, 1957; and notice of levy was served on the clerk of the Superior Court on January 14, 1958.
On September 10, 1958, an action was brought by the United States of America against George T. and Christine O. Mahar to recover upon a promissory note, and on September 11, 1958, trustee process in this action was served upon the clerk of the Superior Court.
Booth, Wadleigh, Langdell, Starr Peters and Charles J. Dunn (Mr. Dunn orally), for the plaintiff.
Maurice P. Bois, United States Attorney, and Alexander J. Kalinski, Assistant U.S. Attorney (Mr. Kalinski orally), for the United States of America.
Shaines Brown (Mr. Brown orally), for Samuel Hurwitz Company and Atlantic Distributing Company.
Griffin, Harrington Brigham (Mr. Griffin orally), for Katherine Ogg and Christine O. Mahar.
T. Casey Moher for Emery-Waterhouse Company and Manchester Supply Company; Henry M. Fuller for Rockingham Electrical Supply Company and Gerald W. Berounsky; Joseph E. Michael, Jr. for Weston Palmer; and Samuel A. Margolis for Daniel P. Creed Company, furnished no briefs.
Under well-established principles, surplus funds in the hands of a mortgagee, after foreclosure of a power of sale mortgage and satisfaction of the secured indebtedness and expenses, are the property of the mortgagor, subject however to encumbrances and liens existing at the time of foreclosure. Such liens attach to the surplus proceeds in equity, in the same order of priority and with the same effect as they bound the mortgaged premises before the foreclosure. Markey v. Langley, 92 U.S. 142, 145; Wiggin v. Heywood, 118 Mass. 514; Smart v. Burgess, 35 R. I. 149. Thus the surplus after foreclosure stands in the place of the debtors' equity of redemption and is subject to the pre-existing liens, which attach thereto. Spaulding v. Quincy Tr. Co., 313 Mass. 752; Antonellis v. Weinstein, 258 Mass. 323. See Roberge v. Cyr, 84 N.H. 204, 205.
The lien of the United States for taxes arose on October 8, 1957, upon assessment (26 U.S.C.A., s. 6322), and attached to "all property and rights of property, whether real or personal," belonging to the taxpayers, George T. and Christine O. Mahar. 26 U.S.C.A., s. 6321. Since the plaintiff's mortgage was foreclosed prior to assessment of the taxes, the lien is upon the interest of the taxpayers in the surplus funds now held by the clerk of court.
As previously indicated, that surplus is also charged with other liens arising out of pending actions against the taxpayer George T. Mahar, and with a second mortgage which is junior to certain of the prior attachments and expressly made subject to them.
However not all liens prior in time are entitled to priority over the lien of the United States. 26 U.S.C.A., s. 6323 provides that the lien of the United States for taxes "shall not be valid against any mortgagee, pledgee, purchaser, or judgment creditor" whose liens antedate the tax lien. With the exceptions thus stated, the lien of the United States takes priority. United States v. New Britain, 347 U.S. 81.
In these proceedings, the United States concedes that its lien is junior to that of the mortgagee Ogg, whose mortgage secures the payment of $2,500 and interest. It denies however that any attaching creditor holds a lien which is entitled to priority over the lien of the United States. As we understand the law upon the subject, the United States is correct in its position.
RSA 511:55 provides that attached property "shall be holden until the expiration of thirty days from the time of rendering a judgment . . . in favor of the plaintiff on which he can take execution . . . ." The lien is lost by failure to levy execution within the thirty days. Murphy v. Hill, 68 N.H. 544. Thus it is plain that the attachment liens once held by New Hampshire Supply Company and by Weston Palmer expired prior to October 8, 1957, by reason of the failure to levy execution within thirty days after judgments were entered in their respective actions.
Four other creditors of George T. Mahar, namely, Emery-Waterhouse Company, Manchester Supply Company, Rockingham Electrical Supply Company, and Daniel P. Creed Company, made attachments which antedated both the foreclosure sale and the lien of the United States in actions which are now pending and marked continued for judgment. These creditors are not judgment creditors under the federal statute, since they have neither taken judgment nor perfected their inchoate attachment liens. United States v. Security Trust Savings Bank, 340 U.S. 47; United States v. New Britain, 347 U.S. 81, 88.
It is apparent from what has been said that the mortgage of Katherine Ogg is prior to the lien of the United States. The latter lien has priority over the liens of the four creditors mentioned in the preceding paragraph. The liens of these creditors however have priority over the mortgage lien by virtue of the provisions of the mortgage. Accordingly a sum sufficient to satisfy the mortgage indebtedness to Katherine Ogg should be set apart as free from any claim of the United States. Cf. Southern Ohio Sav. B'k Tr' Co. v. Bolce, 165 Ohio St. 201, 215. This sum will represent underlying interests of both George T. and Christine O. Mahar as joint tenants. Only the interest of the former is subject to the four undischarged attachments, to which the mortgage is junior; and his homestead right is exempt as against the attaching creditors. RSA 480:4. This right is in "fifteen hundred dollars' worth of his homestead, or of his interest therein." RSA 480:1. While Christine O. Mahar claims a dower interest, this claim cannot be sustained. Gleason v. Emerson, 51 N.H. 405.
Hence as to the sum set apart as subject to the lien of the Ogg mortgage, after deduction of the costs of these proceedings as hereinafter indicated, the existing liens of the prior attaching creditors encumber only the proportionate share thereof which shall be determined to represent the interest of George T. Mahar as joint tenant (see Davis v. Barnard, 60 N.H. 550), less the value of his homestead right if he is found to have had such a right. See Beland v. Goss, 68 N.H. 257. The balance of such sum, representing the share or interest of Christine O. Mahar and any homestead right of George T. Mahar, is subject to the lien of the mortgagee Ogg, free from other claims. See 38 B.U.L. Rev. 181, 193-196; 45 A.B.A.J. 351, 353.
The claims of the four attaching creditors whose liens have been preserved, will in the aggregate clearly exceed the value of the interest of George T. Mahar in the sum set apart as subject to the mortgage lien. The claims of these creditors are to be satisfied in the order of priority of their attachments. Markey v. Langley, 92 U.S. 142, supra; Kittredge v. Gifford, 62 N.H. 134.
Since no attaching creditors have priority over the lien of the United States, the balance of the funds deposited with the clerk of court will be subject to the lien of the United States on account of the tax liabilities of George T. Mahar and Christine O. Mahar. This balance will apparently be insufficient to satisfy this lien in full. Hence there is no occasion to consider the effect of the suits brought by the United States and by other creditors of George T. Mahar.
The trustee process served upon the clerk by leave of Court, in the actions brought by Samuel Hurwitz Company and Atlantic Distributing Company, can operate to give these creditors no priority. Attachments of the real estate were made by these creditors after the Ogg mortgage was recorded and their liens are subject to the tax lien of the United States. Trustee process was not served upon the clerk of court until after the lien of the United States had attached to the funds in the hands of the clerk.
There remains to be considered the question of whether the costs of these proceedings and plaintiff's counsel fees should be allowed out of the proceeds in the hands of the clerk. In bills of interpleader, costs as well as counsel fees are allowable to the stakeholder out of the res. Guay v. Association, 87 N.H. 216, 222; anno. 48 A.L.R. (2d) 190, 206. In this case however, such an allowance may not be charged against the portion of the fund which is subject to the tax lien of the United States. United States v. Liverpool London Ins. Co., 348 U.S. 215; United States v. Ball Construction Co., 355 U.S. 587. See 28 U.S.C.A., s. 2412 (a). It follows that any costs or counsel fees which may be allowed to the plaintiff by the Trial Court should be deducted from the sum set apart as subject to the lien of the mortgagee Ogg, before determination of the respective rights of the mortgagee and the creditors of George T. Mahar, as hereinbefore indicated. What party or parties apart from the United States, should ultimately bear the burden of such expense is likewise discretionary with the Trial Court.
Remanded.
All concurred.