The opinion of the court was delivered by: Leon Jordan United States District Judge
This civil action is before the court for consideration of "United States' Motion for Summary Judgment" [doc. 24] and the "Motion for Summary Judgment of Grant Cantwell" [doc. 30]. Defendant, Grant Cantwell ("Cantwell"), has filed a response to and a reply regarding the United States' motion [docs. 31, 33]. Defendant, United States,*fn1 has filed a response to Cantwell's motion [doc. 25].
The court has determined that oral argument is not necessary, and the motions are ripe for the court's determination. For the reasons stated herein, the United States' motion will be granted, and Cantwell's motion will be denied.
This case originated in the Circuit Court for Sevier County, Tennessee as a condemnation action for expansion of the Gatlinburg Airport. Named as defendants in a petition filed January 25, 2006, were the property owner Cantwell and several lienholders of record who held liens against a company named Magnetic Ideas, Inc. ("Magnetic"), but not against Cantwell. The United States removed the case to this court [doc. 1]. Cantwell filed a cross-claim [doc. 7] in which he explained the involvement of Magnetic, stated his contention that Magnetic had no property interest to which the liens could have attached, and asked the court to declare the liens of the cross respondents null and void as they relate to the property so he would receive the full amount of the proceeds from the condemnation. Only the issues concerning the federal tax lien remain for resolution, as all issues concerning the other lienholders have now been resolved.
The parties have submitted an excellent and beneficial "Joint Stipulation of Facts" [doc. 26] that the court adopts and incorporates herein as if set out verbatim. However, a brief recitation of the facts at this point will facilitate the court's discussion.
On July 12, 2000, Cantwell conveyed to Magnetic two tracts of real property located in Sevierville, Tennessee. The warranty deed was prepared by Cantwell's counsel of record herein and contained the description for a single tract of land. The selling price was $450,000: $50,000 to be paid at closing and $400,000 to be paid to Cantwell in installments, secured by a promissory note signed by Magnetic and payable to Cantwell and his wife. The promissory note called for 59 monthly payments of $3,218.49 and a final balloon payment of $386,739.07. The $400,000 balance was secured by a deed of trust against the real property that was also prepared by Cantwell's counsel of record. Both the warranty deed and deed of trust were recorded on July 13, 2000.
Some months later, Cantwell discovered that the warranty deed reflected only one of the two tracts of property sold to Magnetic. In an effort to correct the situation, Cantwell's representatives prepared a correction warranty deed and corrected deed of trust that were sent to Magnetic. Magnetic's representative executed the correction warranty deed and returned it to Cantwell but did not return the corrected deed of trust.
The correction warranty deed that reflected the sale to Magnetic of tract 1 and tract 2 was recorded on November 7, 2002. The corrected deed of trust that secured tract 2 was never recorded. On September 4, 2003, the Internal Revenue Service ("IRS") filed a notice of tax lien against Magnetic in the amount of $143,241.74.
On February 2, 2004, Cantwell sued Magnetic in state court to set aside the correction warranty deed until the corrected deed of trust was recorded. Although Cantwell did not name the IRS as a defendant or give the IRS notice of the lawsuit, he did reference in the complaint that a federal tax lien had been filed against Magnetic. On June 11, 2004, the Chancery Court for Sevier County, Tennessee entered a "Judgment by Default Setting Aside Conveyance" that determined the correction warranty deed was to be "set aside and declared null and void ab initio."
To satisfy a tax deficiency, the government may impose a lien on the "property" and "property rights" of the taxpayer." See 26 U.S.C. §§ 6321 and 6331. The language of §§ 6321 and 6331(a) is broad and reveals that Congress intended to reach every interest in property that a taxpayer might have. Drye v. United States, 528 U.S. 49, 56 (1999). "The federal tax lien statute itself creates no property rights but merely attaches consequences, federally defined, to rights created under state law." United States v. Craft, 535 U.S. 274, 278 (2002) (quotation marks and citations omitted). To determine whether a taxpayer has "property" or "property rights" under the federal tax lien statute, the court looks to state law "to determine what rights the taxpayer has in the property the Government seeks to reach, then to federal law to determine whether the taxpayers' state-delineated rights qualify as 'property' or 'rights to property' within the compass of the federal tax lien legislation." Drye, 528 U.S. at 58 (citations omitted).
The property at issue is tract 2 in the correction warranty deed. Because the corrected deed of trust was never recorded, Cantwell's interest in that tract was never secured. On September 4, 2003, when the IRS filed its notice of tax lien against Magnetic, it covered "all property and rights to property, whether real or personal, belonging to" Magnetic. 26 U.S.C. § 6321. The correction warranty deed covering tract 2 was filed on November 7, 2002. Thus, when the tax lien was filed September 4, 2003, Magnetic had a recorded warranty deed showing that it held fee simple title to tract 2, that it had "full power, right and authority to ...