Bloomfield State Bank v. United States

644 F.3d 521 (2011)

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Bloomfield State Bank v. United States

United States Court of Appeals for the Seventh Circuit
644 F.3d 521 (2011)

Facts

A borrower mortgaged property to secure a loan from Bloomfield State Bank (bank) (plaintiff). The mortgage included an assignment of the property’s rents, up to the limit of the loan. Under Indiana law, the rental assignment automatically perfected the bank’s security interest in the property’s future rents. When the borrower defaulted, the federal Internal Revenue Service (IRS) filed a tax lien against the borrower’s estate, and an Indiana state court appointed a receiver, who thereafter collected rent payments from the mortgaged property’s tenants. The IRS claimed those payments pursuant to its tax lien. The bank sued the United States (government) (defendant) for a declaratory judgment that the bank’s lien took priority over the tax lien. The government cited 28 U.S.C. § 6323(h)(1), which provided that an interest in property acquired by contract took priority over a subsequent lien only if that interest was in existence when the subsequent lien arose. The government argued that the tenants’ rent payments did not yet exist when the IRS filed its tax lien. The federal district court analogized those payments to accounts receivable and entered summary judgment for the government. The bank appealed to the Seventh Circuit.

Rule of Law

Issue

Holding and Reasoning (Posner, J.)

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