The Internal Revenue Service wants to foreclose on a house occupied by its former owners, Thomas and Joen Towne. They owe the government about $329,000. But the house is owned by Peter Swan and his wife, Jane Harris. Swan is the attorney for the Townes.

The government argues the Townes are the real owners of the house in which they live. If this is correct, the government can seize the house to satisfy its tax lien against them.

Purchase Bob Bruss reports online.

“But if they are merely tenants, the government can no more seize the house than it could seize Trump Tower because one of its tenants owed back taxes,” the judge commented.

Mr. Towne has lived in the house since 1976 and owned it until 1987 when the mortgage lender foreclosed and obtained a judicial deed to the house. The lender then sold the house to Jack Shull, a friend of Towne’s, who leased the house back to him.

But the Townes defaulted on their rent payments. In 1999 Shull tried to evict them. However, they resisted. In 2001, Shull sold the house for $219,000 to the Mary V. Sams Revocable Trust.

Mary Sams is Mr. Towne’s mother-in-law who controls the trust. The trust leased the house back to the Townes.

But the next year the Townes again defaulted on their rent and the trust sought to evict them. The Townes were represented in the eviction by attorney Peter Swan.

To resolve the eviction dispute, the Townes obtained a four-month option from the Sams trust to buy the house for $296,000. Shortly before the expiration of the option in August 2003, Swan and his wife agreed to buy the house for $296,000, leasing the house back to the Townes.

The IRS seeks to foreclose its tax lien on the house, arguing Swan and his wife are just nominees or “alter egos” for the Townes who owe over $329,000 for the tax years of 1988 through 1997.

If you were the judge would you allow the IRS to foreclose on the house that is owned by Peter Swan and his wife Jane Harris?

The judge said no!

The grant of an option is enforceable as a contract right, not as a property right, the judge began. However, the Townes lost their home to the mortgage lender in 1987, the year before they began underpaying their taxes, he continued.

Therefore, after the lender sold the house to Shull, who later sold it to the Sams trust, who later sold it to Swan and Harris, there was no property interest of the Townes to which the IRS tax lien could attach, the judge explained.

“The government smells a rat. But it presented little evidence that would have enabled the court to find the rat,” he emphasized. The IRS argument the Townes should be considered the real owners of the house has no standing since they have not owned the house for over 20 years, the judge noted.

Therefore, the IRS cannot foreclose its tax lien against the Townes on the house that is owned by Swan and Harris, the judge ruled.

Based on the U.S. Court of Appeals decision in U.S. v. Swan, 467 Fed.3d 655.

(For more information on Bob Bruss publications, visit his
Real Estate Center

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