United States v. Buffalo Savings Bank

Background

In 1946 a bank made a loan secured by a mortgage on real estate. In 1953 the federal government filed a tax lien against the property. Later, in 1957 and 1958, unpaid local real estate taxes and other local assessments attached to the same property. The bank started foreclosure proceedings and named the federal government as a party. The trial court ordered the property sold and directed that local taxes and assessments be paid as "expenses of sale" before satisfying the federal tax lien. The state intermediate court reversed that ruling, and the New York Court of Appeals then reinstated the trial court’s judgment.

Reasoning

The central question was whether a federal tax lien takes priority over local real estate tax liens that arise after the federal lien. The high court explained that United States v. New Britain controls this situation and requires that federal tax liens have priority over subsequently accruing local property tax liens. The Court rejected the argument that the state could treat later local taxes as "expenses of sale" to jump ahead of the federal lien. The opinion also explained that earlier cases relied on foreclosure procedure or other contexts and do not change the priority rule here. For those reasons, the Court reversed the state court’s judgment.

Real world impact

Practically, the decision means the federal government’s tax claim will be paid before later local property taxes in the sort of foreclosure sale at issue here. The case is sent back to the lower court for further proceedings consistent with this ruling, so additional steps may follow. One Justice, Douglas, dissented, but the opinion as written requires lower courts to apply the federal-priority rule in similar cases.