ALAN C. KAY, Senior District Judge.
For the reasons set forth below below, the Court GRANTS Plaintiff United States' Motion for Summary Judgment on the Third Claim in the Complaint, ECF No. 109, ORDERS that Plaintiff's federal tax liens be foreclosed on the real property owned by Defendants Ronald Staton and Brenda Staton, located at 233 Kalalau Street, Honolulu, Hawaii 96825 (the "Residence"), and ORDERS the sale of the Residence free and clear of all liens, including the senior mortgage of Defendant Capstead Mortgage Corp. ("Capstead"). A separate Order of Foreclosure and Judicial Sale will follow this Order.
In addition, pursuant to Fed. R. Civ. P. 41(a)(2) and Plaintiff's request, the Court DISMISSES with prejudice Count I of Plaintiff's Complaint, ECF No. 1.
On or about August 19, 1987, Defendants Ronald Staton and Brenda Staton (the "Statons") entered into an Agreement of Sale to purchase the Residence, located at 233 Kalalau Street, Honolulu, Hawaii 96825. Decl. of Charles M. Duffy ("Duffy Decl.") ¶ 8, Ex. G, ECF Nos. 109-2, 109-4. The Statons were granted the Deed to the Residence on or about July 30, 1990. Duffy Decl. ¶ 9, Ex. H, ECF Nos. 109-2, 109-5. The Agreement of Sale and Deed indicate that the Statons purchased and own the Residence as tenants by the entirety. Duffy Decl. ¶¶ 8-9, Exs. G § 1.C, H § 3, ECF Nos. 109-2, 109-4, 109-5.
The Statons accrued assessments for unpaid federal income taxes between 2000-2007. As relevant to the instant motion, tax and related assessments were made against Ronald Staton individually for his 2001 through 2007 income tax years.
The Government filed notices of its federal tax liens ("NFTL's") related to its tax and related assessments made against Mr. Staton. The same NFTL's were filed with the State of Hawaii Bureau of Conveyances on April 3, 2006, December 5, 2006, July 10, 2007, April 7, 2009, and May 12, 2009. Duffy Decl. ¶¶ 2-3, 5-7, Exs. A-B, D-F, ECF Nos. 109-2, 109-3. The Government also filed a Notice of Pendency of Action regarding the instant lawsuit with the State of Hawaii Bureau of Conveyances on June 15, 2012. Duffy Decl. ¶ 11, Ex. I, ECF Nos. 109-2, 109-5.
Additional parties that appear to have an interest in the Residence are Defendants State of Hawaii, Capstead, and Navy Federal Credit Union ("NFCU"). Discovery responses submitted by Plaintiff indicate that Capstead owns, and NFCU services, a loan that was made to the Statons to allow them to purchase the Residence. Duffy Decl. Ex. K ¶¶ 4, 6, ECF No. 109-5. The original amount of the mortgage was $393,750.00. Declaration of Charles Duffy Ex. 2 at 3, ECF No. 138-2. Capstead reports that as of July 31, 2015, the amount of principal and interest owed to Capstead under the Staton mortgage was $294,708.82, including a $26.00 recording fee. Defendant Capstead Mortgage Corp.'s First Supplemental Report Pursuant to Order of July 31, 2015 ("Capstead's Supp. Rpt.") at 2, ECF No. 151; Affidavit of D. Christopher Sieber ("Sieber Affd.") ¶ 5, ECF No. 156.
The Court notes that Capstead's interest in the Residence was clarified through a recent assignment related to the subject mortgage. On April 6, 2015, Plaintiff was directed to file a Title Report for the Residence with the Court, which it did on April 7, 2015.
In view of Texas Commerce Bank's apparent interest in the Residence, the Court directed on May 1, 2015 that it should be made a party to this lawsuit. Minute Order, ECF No. 134. However, Plaintiff informed the Court on May 22, 2015 that Texas Commerce Bank, now apparently part of JP Morgan Chase Bank, was "transferring any interest that it may have in the subject mortgage" to Capstead. Status Report at 2, ECF No. 135. On July 29, 2015, Plaintiff provided the Court with a certified copy of a July 6, 2015 Assignment of Mortgage and a July 24, 2015 revised Title Report confirming this assignment of interest to Capstead.
The Government and Defendant State of Hawaii, meanwhile, have stipulated that the United States' federal tax liens shall be completely satisfied before any liens of the State of Hawaii, in the event that the Court orders the foreclosure of the Residence. See Stipulation regarding Priority between the United States of America and the State of Hawaii ¶ 3, ECF No. 70.
On June 4, 2012, Plaintiff United States of America (the "Government") filed its Complaint against the Statons, Capstead, NFCU, and the State of Hawaii. The Complaint seeks to reduce to judgment the federal tax assessments against the Statons filing jointly (Count I) and Ronald Staton filing individually (Count II). It also seeks to foreclose the Government's federal tax liens on the Residence (Count III). Compl. ¶¶ 20-32, ECF No. 1. Plaintiff's Complaint further requests that the Residence be sold at a judicial sale and that the sales proceeds be distributed "in accordance with the Court's findings as to the validity and priority" of the parties' interests in the Residence.
On June 27, 2014, Plaintiff filed a partial motion for summary judgment ("MSJ") related to Counts I and II of the Complaint. ECF No. 89 ("Plf.'s First MSJ"). Plf.'s First MSJ indicated that Count I "should be dismissed," because the Statons' joint tax assessments, related solely to their filing for the 2000 tax year, have been paid in full. Mem. in Support of Mot. at 2, ECF No. 89-1. As to Count II, Plf.'s First MSJ sought entry of judgment against Ronald Staton for the tax and related assessments made against him for his 2001 through 2007 separate income tax years.
On September 30, 2014, pursuant to a stipulation filed by Plaintiff and Ronald Staton, the Court entered judgment against Mr. Staton with respect to his 2001, 2002, 2003, and 2005 income tax liabilities. ECF No. 104. The amount of that judgment is $273,715.67, plus interest accruing after July 1, 2014 and less any payments made or credits applied after that date.
Mr. Staton's total outstanding liability reduced to judgment is therefore $355,526.74, plus accrued interest and minus any payments and credits. Documentation filed by Plaintiff on August 18, 2015 shows that the current balance owed on the judgments against Mr. Staton, with interest calculated to September 1, 2015, is $370,437.03.
On December 29, 2014, Plaintiff filed its Motion for Summary Judgment on the Third Claim in the Complaint. ECF No. 109 ("Plf.'s Second MSJ"). Plf.'s Second MSJ requests that the Government's federal tax liens and judgments be foreclosed and that the Residence be sold pursuant to the terms set forth in Plaintiff's Proposed Order of Foreclosure and Judicial Sale, submitted concurrently with Plf.'s Second MSJ. Although Plaintiff has not submitted any formal valuation of the Residence, it reports that counsel's "Internet search" showed that the fair market value of the Residence is at least $1 million. Mem. in Support of Mot. at 6, 11, ECF No. 109-1. The latest Title Report submitted by Plaintiff also shows the Residence's assessed value for 2015 for real property tax purposes as $979,600.00. Title Report at 11, ECF No. 138-2.
Plf.'s Second MSJ further requests the proceeds of its requested foreclosure sale be used first to cover the costs of sale and any outstanding property taxes on the Residence. Plaintiff suggests that the remaining proceeds should then be distributed among the parties through a stipulation or order of the Court, after the parties are given an opportunity to brief their arguments regarding priority.
Plf.'s Second MSJ was set for hearing on April 6, 2015.
On March 25, 2015, Defendant State of Hawaii filed a Statement of No Opposition to Plf.'s Second MSJ. ECF No. 117. The statement indicates that it is filed "provided that the Director's claim to the subject property is acknowledged and the respective priorities in the proceeds of the sale of the subject property be determined at a later date and hearing."
Brenda Staton has filed no response to Plf.'s Second MSJ. On March 27, 2015, Ronald Staton initially filed with the Court correspondence indicating that he "takes no position" on Plf.'s Second MSJ. ECF No. 121. Later that day, however, Mr. Staton filed with the Court additional correspondence indicating that he "opposes" Plf.'s Second MSJ. ECF No. 122. Each of the foregoing letters contains one sentence of body text, and neither explains the legal basis for Mr. Staton's position.
A hearing was held on the instant motion on April 6, 2015. On the same day, as discussed above, the Court ordered Plaintiff to submit an updated Title Report for the Residence, which ultimately resulted in an assignment of interest in the subject mortgage to Capstead. In addition, on April 9, 2015, the Court directed Plaintiff and any other party that wished to do so to file a brief regarding Plaintiff's authority under 26 U.S.C. § 7403 to seek a foreclosure sale under a tax lien to include the foreclosure of the apparent senior lien held by Capstead under its mortgage.
Plaintiff filed a Brief Regarding the Court's April 9, 2015 Order on April 14, 2015. ECF No. 129. As the Court noted in its Minute Order of July 31, 2015, the Court "received no opposition to the property being sold free and clear of all liens, including the senior mortgage now held by Capstead," in response to its April 9, 2015 Minute Order inviting briefing on Plaintiff's authority to seek a foreclosure sale under a tax lien to include the foreclosure of the apparent senior lien held by Capstead under its mortgage.
Capstead filed documentation pursuant to the Court's July 31, 2015 Minute Order on August 10, 2015. ECF No. 147. It also filed a supplement thereto on August 12, 2015. ECF No. 151. Capstead reported the amount due under the Staton mortgage as $294,708.82 and requested a $350,000 minimum upset price for the foreclosure sale, the right to credit bid, and a deficiency judgment in the event that the sale proceeds do not cover the Statons' full indebtedness under their mortgage. See Capstead's Supp. Rpt. at 2-3, ECF No. 151.
Ronald Staton also submitted a letter request to the Court on August 10, 2015, requesting a 90-day continuance of the Court's upcoming August 14, 2015 hearing in a continuing effort to satisfy his federal tax debts.
The Court held a hearing on Ronald Staton's continuance request and the matters addressed in its July 31, 2015 Minute Order on August 14, 2015. The Court denied Mr. Staton's request for a continuance. Transcript of Proceedings, Aug. 14, 2015 ("Tr."), 9:13-14. Capstead confirmed its request for a minimum upset price of $350,000.00 for the foreclosure sale, to which Plaintiff did not object. Tr. 10:21-24, 12:3-17. Capstead and Plaintiff also requested deficiency judgments in the event that the foreclosure sale proceeds do not cover their outstanding liens. Tr. 14:15-21, 15:8-10. In addition, the Statons did not object to Capstead's report of the amount owed under their mortgage, Tr. 15:11-18, and no party objected to a sale of the Residence free and clear of all liens, Tr. 10:4-19.
On August 18, 2015, pursuant to the Court's direction, Plaintiff filed United States' Notice of the Updated Balance Due on the Judgments Previously Entered by the Court (Interest Calculated to September 1, 2015), ECF No. 154, reporting the current amount owed on Plaintiff's judgments against Mr. Staton as $370,437.03. On August 25, 2015, Capstead confirmed the current amount owed under the Staton mortgage as $294,708.82. Sieber Affd. ¶ 5, ECF No. 156.
A party is entitled to summary judgment on any claim or defense if it can be shown "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.'"
The movant has the burden of persuading the court as to the absence of a genuine issue of material fact.
The Ninth Circuit has cautioned that courts must treat pro se litigants with liberality.
However, a pro se litigant "is not excused from knowing the most basic pleading requirements."
In the instant case, the Court has already entered judgment against Ronald Staton for his income tax liabilities and associated penalties plus statutory interest. As noted above, Mr. Staton's total outstanding liability is $370,437.03, with interest calculated to September 1, 2015.
The United States obtains a lien upon "all property and rights to property, whether real or personal" belonging to a person who fails to pay any tax owed, after providing notice and demand for payment. 26 U.S.C. § 6321. Spouses that own property as tenants by the entirety under Hawaii law hold "property" or "rights to property" subject to liens under 26 U.S.C. § 6321.
The Government's tax liens are perfected upon assessment and effective against the taxpayer without notice.
In order to enforce its tax liens, the Government is empowered, under 26 U.S.C. § 7403, to join all parties with an interest in the subject property and request a judicial sale of the property.
In this case, Defendants have raised no genuine issue of material fact regarding the enforceability of the Government's tax liens through foreclosure and sale of the Residence. The evidence shows that Ronald Staton and Brenda Staton purchased and own the Residence as tenants by the entirety, as reflected in the Agreement of Sale and Deed. Duffy Decl. ¶¶ 8-9, Exs. G, H, ECF Nos. 109-2, 109-4, 109-5.
Tax and related assessments were made against Ronald Staton individually for his 2001 through 2007 income tax years; despite the Government's notice and demand for payment, Mr. Staton has not paid the full assessment amounts. Compl. ¶¶ 16-19, ECF No. 1. Mr. Staton's current outstanding tax liability is $370,437.03, with interest calculated to September 1, 2015.
The Government has complied with the requirements of 26 U.S.C. § 7403 for entry of an order of judicial sale. Defendant Ronald Staton has failed to pay his federal tax liabilities, and the Court has foreclosed the Government's federal tax liens against the Residence. Plaintiff commenced this action in the district court, and it appears that all parties "having liens upon or claiming any interest in the property involved in such action," 26 U.S.C. § 7403(b), have been named as Defendants. Compl. ¶¶ 5-9, ECF No. 1.
The Court does, however, address two special considerations presented in this case: the existence of a mortgage senior to the Government's tax liens and the interest of Brenda Staton in the property.
First, as noted above, the Court requested on April 9, 2015 that Plaintiff and any other party that wished to do so file a brief regarding Plaintiff's authority under 26 U.S.C. § 7403 to seek a foreclosure sale under a tax lien to include the foreclosure of the apparent senior lien held by Capstead under its mortgage.
As Plaintiff points out, there is "no language in Section 7403 which suggests that it does not apply when the United States' tax liens are junior to other liens."
Other federal courts have adopted the same practice. As the court explained in
Second, Brenda Staton has an interest in the Residence that must be taken into account. According to the Title Report for the Residence, she and Ronald Staton own the Residence as tenants by the entirety. Title Report at 1, ECF No. 138-2. In this jurisdiction, a court may order the sale of the entire property under 26 U.S.C. § 7403 and compensate a nondebtor spouse for her fifty percent interest from the sale proceeds.
However, the Title Report also shows that Brenda and Ronald Staton are jointly liable on the Capstead mortgage for the Residence.
Accordingly, since the Court has determined that the Statons' Residence should be foreclosed and sold free and clear of all liens, including Capstead's senior mortgage, without objection from any party, the foreclosure of Capstead's mortgage necessarily includes Brenda Staton's one-half interest in the Residence.
Depending on the circumstances of the judicial sale of the Residence, the Court will therefore need to determine an amount of appropriate compensation for Brenda Staton's one-half interest in the property that takes into account her joint and several liability on the mortgage held by Capstead, which is being foreclosed.
Accordingly, the Court ORDERS the sale of the Residence to satisfy Mr. Staton's federal tax liabilities. The property will be sold free and clear of all liens, including Capstead's mortgage.
As a final matter, it appears that Plaintiff has repeatedly mentioned that the Court should dismiss Count I of its Complaint. Plf.'s First MSJ indicated that Count I "should be dismissed," because the Statons' joint tax assessments, related solely to their filing for the 2000 tax year, have been paid in full.
Plaintiff has not submitted a formal notice of dismissal or stipulation relating to Count I of its Complaint. However, the Court may order such dismissal at Plaintiff's request, without prejudice and "on terms that the court considers proper." Fed. R. Civ. P. 41(a)(2). As it appears that the tax liabilities at issue in Count I of the Complaint have been resolved, and there being no prejudice to Defendants in dismissing that claim, the Court DISMISSES with prejudice Count I of Plaintiff's Complaint.
For the reasons set forth above, the Court GRANTS Plaintiff's Motion for Summary Judgment on the Third Claim in the Complaint, ECF No. 109. The Court further ORDERS that Ronald Staton's federal tax liens and Ronald and Brenda Staton's mortgage be foreclosed on the Residence, and ORDERS the sale of the Residence free and clear of all liens, including Capstead's senior mortgage. A separate Order of Foreclosure and Judicial Sale will follow this Order.
In addition, the Court DISMISSES with prejudice Count I of Plaintiff's Complaint, ECF No. 1, pursuant to Fed. R. Civ. P. 41(a)(2) and Plaintiff's request.
The Court understands the Statons are retired and Mr. Staton has a health problem, and the Court does not like to see people lose their homes. However, Plaintiff has been working with the Statons for almost three years to resolve these tax problems. The foreclosure process will take several weeks; if the Statons are successful in raising the necessary funds to pay Plaintiff, they should notify the Court immediately, and the sale will be stopped.
IT IS SO ORDERED.
However, Plaintiff has since indicated that the Statons have paid that liability in full and has requested dismissal of that claim. Mot. for Partial Summary Judgment at 2, ECF No. 89-1. Plaintiff also clarified that the Statons' tax debts for the year 2000 were the basis for a $93,962.41 federal tax lien that remained reflected in a Title Report that had been submitted to the Court. See United States' Br. Regarding the Court's July 31, 2015 Order at 1-2, ECF No. 144; Title Report at 4, ECF No. 138-2. Plaintiff released that tax lien on August 11, 2015.
To the extent that this issue remains disputed, it will be addressed following the sale of the Residence and prior to the disbursement of the sale proceeds.
Although the Court believes that it may have been more efficient for the parties to have resolved their dispute regarding priority at an earlier date, the Government's proposed approach is permissible.
Capstead does, moreover, seek a $350,000 minimum upset price for the foreclosure sale, the right to credit bid, and a deficiency judgment in the event that the sale proceeds do not cover the Statons' full indebtedness under their mortgage. See Capstead's Supp. Rpt. at 2-3, ECF No. 151.
In this balancing of equities, courts are to consider: (1) the extent to which the Government's financial interests would be prejudiced if it were able to sell only a partial interest in the property, rather than the whole property, (2) whether the non-liable owner would have a legally recognized expectation that her property would not be subject to forced sale, (3) dislocation costs and potential under-compensation to the non-liable owner, and (4) the comparative property interests of the liable and non-liable owners.
Courts within this Circuit have held that it is Defendants' burden to show that the Court should exercise its limited discretion to refrain from ordering a foreclosure sale.
In any event, an examination of the
The second factor, considering the non-liable owner's legally recognized expectations that her property would be shielded from forced sale, also does not favor Defendants. Brenda Staton has filed no position regarding Plf.'s Second MSJ and did not present at the Court's August 14, 2015 hearing any authority that would shield her interest in the Residence against a foreclosure sale to satisfy her husband's tax debts; as a result, the Court can only guess at her actual expectations as to her property rights. Regardless, she could have no legally cognizable expectation that the Residence could not be sold in order to satisfy Ronald Staton's tax debts. Under Hawaii law, spouses that own property as tenants by the entirety hold "property" or "rights to property" within the meaning of 26 U.S.C. § 6321.
The third factor, potential prejudice to the non-liable owner due to relocation costs and possible undercompensation, also does not favor Defendants. As noted above, Hawaii law allows the Court to order the sale of the Residence and fair compensation to Brenda Staton for her one-half interest in the property. As to relocation costs, Brenda Staton addressed at the Court's August 14, 2015 hearing the anticipated hardship of moving from her home but did not present evidence of prejudice greater than would occur in other cases involving foreclosures. Moreover, "the inherent inequity of being removed from one's home" is not sufficient to defeat foreclosure sale. If that were the rule, "the government could never foreclose on a jointly-owned residence — a result clearly untenable under § 7403."
Courts have considered, therefore, whether a particular defendant's dislocation costs would be "greater than in any other foreclosure action against a residence."
The fourth factor, regarding property owners' comparative interests, also weighs in favor of a foreclosure sale. Where owners' property interests are equivalent, as here, courts have declined to prevent foreclosure sales under 26 U.S.C. § 7403.
