Priority of Liens
Until the Supreme Court decided United States v. Kimbell
Inc., 440 U.S. 715 (1979), there was a conflict of authority as to:
A. Whether a lien of the United States should be
subordinated to a later rival lien solely because state law affords
priority to the rival lien; and
B. Whether a rival lien, prior in time to a lien of the
United States and entitled to priority under state law, should be
priority if inchoate.
Kimbell Foods applied state priority law to consensual liens
securing claims of the Farmers Home Administration and the Small
Business Administration. In determining whether state law applies
liens arising from other federal programs, particular attention
be paid to the Court's three inquiries in Section III of the
A. Whether the federal program at issue necessarily
uniform federal rules.
B. Whether adopting state substantive law would
specific objectives of the federal programs at issue.
C. The extent of disruption in normal commercial
relationships caused by a uniform federal rule. If not persuaded
special federal rule is required, the court may adopt the relevant
rule as the relevant federal law.
In the case of loans made by HUD, the court in Chicago Title
Insurance Co. v. Sherred Village Assoc., 708 F.2d 804 (1st Cir.
held that mechanic's liens recorded under state law have priority
prior recorded federal mortgage. Thus, HUD mortgages would appear
in the same situation vis-a-vis priority of liens as SBA and FmHA.
Courts have also applied the Kimbell Foods criteria in several
cases involving local tax liens that have priority under state law
existing federal mortgages. In United States v. Dansby, 509 F.
(N.D. Ohio 1981) the court held that, although the tax lien was
under Florida law, it could not operate "so as to destroy the
pre-existing federal lien." See also United States v. David
et al., 502 F. Supp. 611 (D.N.J. 1980), aff'd, 672 F.2d 905 (3d
Where the consensual lien arises pursuant to a federal statute
prescribes a particular priority, that priority will be honored.
The Kimbell Foods court also suggested limits on its decision:
Adopting state law as an appropriate federal rule does
preclude federal courts from excepting local law that prejudice
interests (citing cases). The issue here, however, involves
rules of general applicability, based on codes that are remarkably
uniform throughout the Nation.
(440 U.S. at 736, n.37)
This discussion does not undertake to cover the subject of tax
liens. Guidance as to them should be sought from the Tax Division.
Questions pertaining to non-tax, non-consensual liens (e.g., those
upon judgments, criminal fines, and statutory civil penalties)
unresolved. For a further discussion, see Commercial Litigation
Monograph, Choice of Laws Decision in Federal Courts After Kimbell
The federal departments and agencies which make loans secured
liens on real and personal property will often pay state and local
valorem taxes on the mortgaged property, if the borrower fails to
them. Such payments by the government are sometimes required by
and at other times are made as a matter of policy.
In light of Kimbell Foods, it is not clear whether or not
which are not ad valorem have this priority. Prior to Kimbell
cases such as In re Lehigh Valley Mills, Inc., 341 F.2d 398 (3d
1965); United States v. Clover Spinning Mills Co., 373 F.2d 274
Cir. 1966); Director of Revenue, State of Colo. v. United States,
F.2d 307 (10th Cir. 1968), held that taxes which are not ad valorem
not have this priority.
On occasion, owners or lienors of property on which the United
States holds a lien may ask for release of the lien or of the
government's right of post-sale redemption. No release should be
executed without the receipt of some consideration. The agency's
should be requested in each case. The dollar amount of the
delegated to the USA to compromise lien claims in actions under 28
U.S.C. § 2410 is equally applicable to the compromise of
redemption rights of the United States under 28 U.S.C. §
Cases involving tax liens, liens on a vessel or other maritime
and liens arising from a criminal fine judgment or a judgment on an
appearance bond, are expressly excluded from the Civil Division
delegation of authority to USAs. If a release of a lien or right of
redemption should be expressly limited to the precise property,
right of redemption which is the subject of the plaintiff's suit.
[cited in USAM 4-4.545]
[Added March 1998]