Seventh Circuit Holds That Tax Lien With Misspelled Name Was Enforceable Against Alleged Bona Fide Purchaser Without Notice

The United States Court of Appeals for the Seventh Circuit recently found that the United States of America could foreclose on a tax lien despite the fact that it had misspelled the debtor’s name in the lien and, due to this misspelling, the purchaser of the property was unaware of the lien.  See United States v. Z Inv. Properties, LLC, 921 F.3d 696 (7th Cir. 2019).  Carroll Raines (“Raines”) purchased a home in 1975.  In 2007, he filed income tax returns for 2000, 2001, 2003 and 2004, and the IRS assessed over $100,000 in taxes, penalties and interest.  Raines passed away in 2009 and, in August 2010, the IRS recorded a notice of federal tax lien against him for $115,022.42.  The notice misspelled his first name (“Carrol”) and failed to include a legal description or permanent index number for the home, but it did include the correct address.  In November 2010, Raines’ heirs sold the home to the defendant.  In 2017, the Government brought a foreclosure action based on the tax lien.  The parties cross-moved for summary judgment, with the defendant arguing that the lien is invalid because it misspells Raines’ first name and lacks a legal description or permanent index number for the property. The District Court denied the defendant’s motion for summary judgment and granted the Government’s.

On appeal, the Seventh Circuit affirmed.  Although the Court acknowledged that “[i]n instances where a bona fide purchaser acquires an encumbered property without notice of the attached lien, the lien does not follow the title,” it nonetheless found that the defendant had constructive notice of the misspelled lien.  The District Court had found that the lien did not appear in a search of the county recorder’s database when Raines’ name was spelled correctly, “[b]ut the search did note Raines’ aliases, which include ‘C V Raines’ and ‘Carol Raines.’”  Additionally, the District Court “found that a search for the last name ‘Raines’ with first names beginning with ‘C’ and a ‘sounds like’ search for last names like ‘Raines’ both returned the Lien.”  Thus, the Seventh Circuit found that these “broader searches” would have revealed the tax lien and that “given the low cost and ease of conducting such a search, it is not unreasonable to expect an interested party to conduct a search on one or more of the aliases returned.”   Accordingly, the Court found that the defendant had constructive notice of the lien, and the lien was enforceable.  This decision continues a trend of recent decisions finding that misspellings in tax liens are not fatal, and mandates additional diligence in reviews of judgments and liens.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, or Dylan Goetsch at dgoetsch@riker.com.