The matter here presented concerns the extent and circumstances under which a non-judicial sale under a valid power to foreclose a mortgage lien superior to a Federal tax lien extinguishes or affects the Government lien or its rights to a Federal Court foreclosure or other protective decree.

The case was presented wholly on the pleadings and extended argument of counsel which there and here reduces the pertinent facts for our problem to this simple undisputed summary:

Boyd (Taxpayer) was the owner of the real property in Aberdeen, Mississippi. On December 1, 1952, there was filed for record a valid first mortgage deed of trust in favor of Prudential Life Insurance Company of America (Mortgagee) securing a debt of $9,000. Subsequently, on various dates between January 19, 1953 and October 22, 1953, assessment lists were received by the Collector which fixed the date of the Government's lien, Section 3671 of the 1939 Code, 26 U.S. C.A. § 3671 (see from 1954 Code, 26 U.S.C.A. § 6322), then applicable. And, on various dates between May 1, 1953 and April 7, 1954, Notices of Federal Tax Lien were filed for record for taxes, interest and penalties totaling $10,278.04. Nothing1 further was apparently done to enforce its lien by the Government until the present action was filed May 28, 1956, under Section 7403, 1954 Code, 26 U.S. C.A. § 7403, then applicable (Section 3678 of 1939 Code), seeking foreclosure.

In this Government suit for foreclosure, all persons claiming liens were made parties, and the complaint prayed2 that the Government liens be determined, enforced, and foreclosed as prior and paramount except — here very important — as to the lien of Prudential (Mortgagee).

The Mortgagee, in its answer filed June 21, 1956, set forth the fact, accepted by all parties, that the mortgage "* * * deed of trust is and was at the time of the filing of this suit in the process of being foreclosed, the date of the foreclosure sale having been set for June 22, 1956 * * *." It asserted what was acknowledged by the Government's prayer "that said deed of trust constitutes a prior lien to that lien claimed by * * *" the Government and then claimed further that the Mortgagee has "* * * every right to proceed with the foreclosure of said deed of trust * * * [and it] * * * will pay into court any surplus funds resulting from said foreclosure sale to await the further orders of this court."

Subsequently, by supplemental answer, September 21, 1956, the Mortgagee set forth the admitted fact that on June 22, 1956, the property was sold to Purchaser (Bradley Lumber) for $11,029.80, from which, after deducting principal, interest, and all charges, the balance remaining of $739.41 was paid into the registry of the Court for distribution by it.

The Court, by judgment entered October 22, 1956, decreed that the Government's liens were thereby recognized, enforced and impressed upon the property as prior and paramount to the interest of all parties other than Mortgagee and that the Government was authorized and permitted to redeem the property. While some language of the decretal findings3 would indicate that the Government now has lien superior to all, including the Purchaser at the non-judicial foreclosure sale, it is plain, from the express reservation of a right to redeem that the Court did, and meant to, hold that the mortgage foreclosure sale otherwise extinguished the Government's lien.

In the principal attack here that the Court erred in not decreeing a foreclosure and judicial sale, the Government asserts in its two-page argument, that the foreclosure of the mortgage did not affect4 the Government's liens in any manner as the United States was not a party to it and the buyer at the mortgage foreclosure sale took title subject to the lien which can be removed only as Federal laws permit. Receding somewhat from the extreme position that the Court must at all odds decree a foreclosure, the Government then asserts that if the cases urged5 are sound, there must at least have been a finding on evidence that the value of the equity over and above prior liens was not sufficient to realize anything of value for junior liens. It insists that the District Court's recognition of a right of redemption is no real substitute for the asserted statutory right of foreclosure since "the amount paid would have to be appropriated by Congress, obviously a cumbersome and troublesome business."

The Government, in brief and on argument, is vague as to just what the interest of the United States is in this property, or what would be sold or purchased at a Federal Court judicial foreclosure sale. It acknowledges, as it has to, both that the Mortgagee's lien is superior since first recorded,6 and that superiority is a naked empty thing unless those succeeding to the mortgagee by assignment, transfer, sale or foreclosure, likewise have an ownership superior to the inferior Federal Tax lien. But if, as apparently now contended, the Court was absolutely required to foreclose and order a judicial sale, there would be no "property and rights to property," Section 6321, of Taxpayer in this real estate unless it were first held that the Mortgagee's foreclosure under power of sale did not wipe out the mortgagor's (Taxpayer) interest as well as that of junior encumbrancers.

The Government meets this headon and takes the awesome position that when the Government files a Section7 7403 suit to foreclose, the Court is inexorably compelled to foreclose, has no flexible equity power of adaptation and all procedures, valid under state law for judicial or non-judicial foreclosure of mortgages, fall under the weight of the National Sovereign's insatiable, relentless pursuit of its tax collection.

But we decline to accept what is thus in substance the major premise of the Government. For, as in the case of comparable actions brought by private persons to quiet title under 28 U.S.C.A. § 2410, we believe that, whatever procedural complexities there may be in invoking one or the other of these routes,8 once the matter is before the Court, Congress intended that the Court function with the full traditional flexibility of the Chancellor, United States v. Morrison, 5 Cir., 247 F.2d 285.

Indeed, broader language could hardly be suggested since the Court, Section 7403(c), is required to "* * * proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property * * *." As though this were not enough, Congress, presumably conscious of the purpose of the change, amended the Act, 49 Stat. 1648, Sec. 802, to substitute the word "may" for "shall" in the predecessor to Section 7403, so that it now reads, note 7, supra, "* * * in all cases where a claim or interest of the United States therein is established, [the Court] may decree a sale of such property * * * and a distribution of the proceeds * * *."

Merely because the statute speaks in terms of foreclosure does not compel the court to use that remedy. If under controlling legal principles, the lien does not exist, if it has been lost, if the property is not that of the taxpayer, if the Federal tax lien is junior to undisputed prior liens which will exhaust the full value of the property, a decree of foreclosure would be neither appropriate nor effective. A court required by the express terms of the statute to adjudicate all matters, the merits of all claims to and liens upon the property and, in the event of a sale, distribute the proceeds in accordance with the findings respecting the interests of all parties and the United States (Section 7403(c), note 7, supra) has the full capacity, and corresponding duty, to assure that the liens and interests are effectually respected in accordance with the court's determination of validity, rank and priority.

Intertwined in the mistaken insistence that the procedural mechanics of Section 7403 compel a mandatory foreclosure, is the assertion that since the lien of the Government can be extinguished only by the means prescribed, a court is powerless to do anything except foreclose. This springs from Metropolitan Life Insurance Company v. United States, 6 Cir., 107 F.2d 311, certiorari denied 310 U.S. 630, 60 S. Ct. 978, 84 L. Ed. 1400. There, starting from the unsound premise that an action by a property owner to quiet title either under the predecessor of 28 U.S.C.A. § 2410 or the somewhat comparable provisions there pursued (Section 3679 of the 1939 Code now Section 7424) is one to extinguish the lien of the United States, rather than what it really is — a determination that a tax lien does not exist, has been extinguished, or is inferior in rank, the Sixth Circuit, by a divided court, affirmed the decree for want of jurisdiction to do anything except foreclose. The anomaly was that as purchasers from mortgagees of a prior recorded mortgage, the plaintiffs seeking relief by removal of the cloud on their title were held remediless while, at the same time, as a substantive matter, it was extremely doubtful that the Government had any real enforceable lien, certainly not prior to that of the assignor mortgagees. Add to that the fact that since, on such reasoning, the court is powerless to "extinquish" a Government lien — i. e., hold it inferior to another — the inevitable consequence is that with the court compelled to take a hands off attitude, the Government's tax lien automatically acquires a priority regardless of its true rank. Neither the result nor the reasoning of that case seems satisfactory.9

The Court had the power then both as a procedural and substantive matter to determine the validity and rank of the liens. Consequently, we are brought to a consideration of whether the court was correct in the conclusion that the mortgage foreclosure cut off all rights save a special right to redeem. Was it valid under Mississippi law? Does Section 7403 declare non-Federal Court foreclosure sales invalid?

Under Mississippi law, mortgages may be foreclosed by equity foreclosure decree and sale which cuts off the equity of redemption, Hubbard v. Massey, 192 Miss. 95, 4 So. 2d 230, 494, or by a non-judicial sale under a power. If the statutory requirements are observed the sale under power is a perfect foreclosure and likewise cuts off the equity of redemption. Dibrell v. Carlisle, 48 Miss. 691, Sims v. Hundly, 2 How. 896, 3 Miss. 896. But it is inaccurate to describe these as a private sale, a private foreclosure, or a private sale under power for, the statute10 requires that the sale be advertised for three consecutive weeks in a newspaper published in the county where the land lies, and that a notice be posted at the courthouse door.

The parties are in agreement that in Mississippi there is no right of redemption after the sale. All that exists is the commonly accepted traditional equity of redemption which is the right, "the mortgagor has, prior to foreclosure, to discharge the indebtedness and thus clear his property from the encumbrance of the mortgage," 37 Am.Jur., Mortgages, §§ 824, 823. This equity of redemption is established by Mississippi statute.11

Whether, as in the case of foreclosure by equity suit, Mechanics State Bank v. Kramer Service Inc., 184 Miss. 895, 186 So. 644, junior encumbrancers must be given notice of the sale under a power to afford them an opportunity to protect their interests to and enable them to exercise their equity of redemption, see Worthington v. Wilmot, 59 Miss. 608, is unnecessary to determine. For the mortgagee's answer filed in the proceedings disclosed that before the commencement of the Section 7403 suit, the mortgage was in the process of being foreclosed and the property would be sold, as it was, on June 22, 1956. Thus the time and place of the public sale was known before it occurred, but despite knowledge and the right under Mississippi law to redeem, the Government, for ought that appears, neither attended the sale nor made any effort either to exercise the equity of redemption or to determine whether a greater price12 might have been obtained.

The result is that when a mortgage has been validly foreclosed by a non-judicial sale under a power, it is the consequence of such prior lien and the right of enforcement under it which destroys the junior encumbrance whether it be a private or Federal tax lien. The extinguishment or destruction of the junior lien comes from the nature of the superior lien and not from a later subsequent equity determination (whether under 28 U.S.C.A. § 2410, or Section 7403, or a 7424 proceeding) that this has been the effect of enforcement of the senior lien. Consequently, when the superior lien has been validly foreclosed, it cuts off all junior liens including those of the Government. Trust Company of Texas v. United States, D.C.Tex., 3 F. Supp. 683; United States v. Ryan, D.C.Minn., 124 F. Supp. 1, 10, cf. Minnesota Mutual Life Insurance Company v. United States, D.C.Tex., 47 F.2d 942; Oden v. United States, D.C.La., 33 F.2d 553. See also Removal of Federal Income Tax Lien as Affected by Power of Sale in Mortgage,13 49 Yale Law Journal 1106 at 1110, 1111; 53 Harvard Law Review 888.

Since the mortgagor can grant the power of sale and acting pursuant to it, under state property law, the mortgagee can cut off the rights of junior liens by a sale once completed, does Section 7403 reflect any Congressional purpose to invalidate such sale or prevent a mortgagee continuing in the exercise of his right of sale once commenced? Three possible situations may arise: (1) where the sale under power has been completed after the recording of the Government tax lien but before the Government institutes a Section 7403 foreclosure; (2) where no steps have been taken to exercise the power until after commencement of the Government's 7403 suit; and (3) the instant case, in which sale under power is commenced before the institution of Section 7403 proceeding, but is completed during its pendency.

As to the first, we think, as the cases discussed above, other than Metropolitan Life Insurance Co. v. United States, supra, so clearly hold this is an effectual extinguishment of the Government's tax lien. To say that it thereafter continues in any form (apart from particular statutory rights, if any, of redemption after sale) is to destroy the absolute priority which Section 6323 was so plainly intended to provide. See concurring opinion United States v. Security Trust & Savings Bank, 340 U.S. 47, 51, 71 S. Ct. 111, 95 L. Ed. 53, 57. If by the mere filing of a Section 7403 proceeding, the Government, whose tax lien has been effectually cut off under state property law, can demand a foreclosure of its inferior lien and thereby compel either a resale of the property or a judicial determination of the value of the property as of the date of sale, the adequacy of the sale price obtained and the value of the equity available for junior liens, every such sale is vulnerable for the whole limitation period whether made a week, a year, or more before a 7403 proceeding is commenced. If this were to happen, no one could safely buy at such a sale under power and without ready marketability, mortgagees could not afford to sell under such powers. The result would be to force all mortgage foreclosures into the courthouse either to clog state court dockets with the United States as a party, 28 U.S.C.A. § 2410, or add further congestion to the United States District Courts if removed, 28 U.S.C.A. § 1444, or filed, 26 U.S.C.A. § 7424, there.

We cannot construe the statute to ease the burden of the judiciary, state or federal, but it is inconceivable to us that the Congress, aware of the widespread use of this mechanism in security transactions, has re-enacted the various predecessors of Section 7403 with the purpose in mind of declaring these commonly accepted state procedures for sale under power invalid against a Federal tax lien. With the use throughout the states of foreclosure by sale under power so extensive and carefully regulated, as in Mississippi, by action of the states, we should, unless a fair reading of the Act compels it, avoid a construction with the portentous consequences which the Government's contention would precipitate.

As to the second category, the matter can be, and is, left for future determination.

When it comes to the third category, the instant case, we think all that has been said concerning the first situation applies with equal vigor. If the right exists in the mortgagor to grant the power and the right exists in the mortgagee to exercise it even to the point of cutting off the right of the Government as a junior lien holder, then there is nothing in Section 7403 which appears to give the Tax Collector the right to stop the mortgagee in midstream in the exercise of the right already undertaken. If so, the Government is then able to engraft upon the mortgage a right in it to determine the manner and means of its foreclosure despite the fact that under Section 6323 the tax lien prior to recordation "* * * shall not be valid as against any mortgagee * * *." It is also subjecting to a foreclosure a "property and rights to property," Section 6321, which the taxpayer does not own since, by contract valid under state law, he has conveyed to the mortgagee the mortgage interest and the irrevocable power of sale. There is nothing in 7403 to indicate a Congressional purpose to whittle away this absolute priority, allow the Tax Collector to make these business decisions for the mortgagee as to the best way to assure maximum recovery by sale, nor subject the mortgagee to the cost, expense and likely delay of the equity foreclosure proceedings initiated under Section 7403. If the Government can compel a shift from sale under power to judicial foreclosure, the mortgagee alone runs the risk of delays from congested dockets, possible exhaustion of the value of the security by passage of time with increase in the amount in default or depreciation in the security itself, and all costs may fall altogether on the mortgagee, see Section 7424(c) and 28 U.S.C.A. §§ 2410(c), 2412(a).

Nor is there an easy middle ground by which, in the pending Section 7403 action, the Court has the right to review the sale made pursuant to the power of sale proceedings first commenced. For here again, it presents such practical problems as leads to the certain conviction that Congress meant no such disturbance to well known business procedures essential to the flow of credit and the effectual enforcement of security. For purchasers at sales under power, before making bid or payment, would first have to ascertain with respect to all possible Federal judicial districts whether proceedings had been precipitated either by the Government under Section 7403, or by other lienors under 7424, and in all possible state jurisdictional state courts, whether the Government under 28 U.S.C.A. § 2410(c) had exercised the right for affirmative relief by cross claim for foreclosure of its lien. Necessity for any such inquiry, the difficulty of determining the location and identity of all such courts, Section 2410(a), or court proceedings, cf. United States v. Feazel, D.C.La., 49 F. Supp. 679, would adversely affect the marketability of title and again make such sales unusable as a practical matter.

Likewise, as is here presented, there would be the question: what is to be done about the sale if the court were to find the sale price inadequate? Who is to reimburse the purchaser for the sale price paid by him if, on a second sale, the property brings less than on the former? Upon what basis can the mortgagee who has received the payment on the sale under the power be compelled to restore the consideration? Who is to pay the difference if the judicial sale brings a lesser amount?

And no such construction is necessary to protect the revenues of the United States. It has first, during the pendency of the procedure for sale under power the right, as it had here, to exercise the equity of redemption if, in fact, the Government is of the opinion that the property has a value in excess of the prior liens. And, second, the District Court read the statutes of the United States as a composite body to allow to the Government under 28 U.S.C.A. § 2410(c) a statutory right to redeem after sale within one year. This statute specifically provides that "Where a sale of real estate is made to satisfy a lien prior to that of the United States, the United States shall have one year from the date of sale within which to redeem."

In this day we decline to accept the suggestion in the brief here that the United States Government is bereft of cash or so impotent in its credit that somehow, in some way, it cannot raise the sum of $11,000 with which to redeem. If the property is worth more than the $11,029.80 received, the Government can protect its lien fully by redeeming the property. If there is not a sufficient belief that the property is in fact of a value in excess of this, then the Government's appeal is almost moot since it asks the court to set aside the sale to hold another one even though when then completed, the Government's recovery would be zero.

On an undisputed record, the court was right in holding that the foreclosure under power of sale was valid. The Government's rights have been fully preserved by the right of redemption which continues for the full year not counting the time it has been suspended during the pendency of this appeal, and we agree that no further action was or is now necessary.

Affirmed.