Mort v. United States

86 F.3d 890 (9th Cir. 1996)

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Nature of the Case

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Facts

On December 12, 1990, Myers signed a promissory note in the amount of $30,000 in favor of Elwin J. and Jeanne Kern. The note was secured by a deed of trust on certain real property in Nevada, which Myers owned as separate property. The deed of trust was recorded on December 18, 1990. On August 24, 1992, the IRS filed a notice of federal tax lien in the amount of $33,083 to collect the unpaid income tax liabilities of Myers. In late October 1992, Myers conveyed title to the property to the 'Dannielle DeLee Irrevocable Trust of October 1989' ('DeLee Trust'). On November 13, 1992, James and Carol Belmont made a loan to the DeLee Trust in the amount of $38,000, which was secured by a deed of trust on the property. The DeLee Trust used $30,500 of the Belmont loan to pay off the Kern loan and another $2,086 to pay off an existing state property tax lien. Belmont purchased title insurance from Fidelity National Title Agency of Nevada. Fidelity failed to discover the federal tax lien and insured clear title. The Belmonts recorded their deed of trust on November 17, 1992. On December 21, 1992, the Belmonts, in consideration of a payment of $38,000, conveyed their interest in the promissory note and the deed of trust to Ps. The assignment was recorded on December 23, 1992, and re-recorded on January 20, 1993. The Belmonts' title insurance policy with Fidelity was transferred to Ps by endorsement. P first learned of the IRS lien in June or July 1993. On August 12, 1993, the IRS seized the land. Ps filed a complaint in the United States District Court for the District of Nevada seeking injunctive relief and a declaratory judgment that their trust deed interest was superior to the federal tax lien. P and D cross-motions for summary judgment, which were denied. The district court dismissed the Morts' complaint without prejudice. It held that Ps could not bring their claim for equitable subrogation without first pursuing their legal remedies against the title insurer.