In re Restivo Auto Body, Inc.: Fourth Circuit Affirms Priority of Executed Bank Trust Over IRS Tax Lien

In a most recent ruling by the U.S. Court of Appeals for the Fourth Circuit, the Court affirmed the priority of the bank’s security interest, ruling that the bank’s executed yet unrecorded security interest by deed of trust has a priority over a subsequent IRS tax lien. Restivo Auto Body Inc. borrowed $1 million from Susquehanna Bank and executed a deed of trust to the bank. Later on, the bank recorded its security interest more than one month after the IRS filed a federal tax lien against Restivo.

As to whether the bank had a protected equitable security interest at the time the IRS recorded its lien against Restivo, the Fourth Circuit ruled under Maryland common law and 26 U.S.C. § 6323(a) – that a bona fide purchaser’s equitable title is superior to a subsequent judgment lien. Thus Susquehanna bank was entitled to the protection available to such bona fide purchaser, holding priority over a subsequent IRS tax lien.

See “4th Circuit Rules Executed but Unrecorded Security Interest Has Priority Over IRS Tax Lien,” McGuireWoods LLP. (November 17, 2014).

Posted by Jiaqi Wang, Associate Editor, Wealth Strategies Journal.

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