Determining Priority of Tax Sale Excess Funds in Interpleader

A common question arises regarding which ownership and lien interests will have priority to excess funds from a tax sale. A 2019 decision by the Federal District Court for the Northern District of Georgia waded through a thorny dispute involving competing claims regarding 1) the underlying property owner (and a member of the limited liability company), 2) federal tax liens by the United States, 3) Georgia Department of Revenue liens, 4) a mortgage company’s security deed, 5) and county ad valorem liens. See Jackson v. Wellington & Associates, LLC, 389 F.Supp.3d 1199 (N.D.Ga. March 26, 2019).

The Jackson decision recognized that, generally, lienholders will have priority based upon the “first in time first in right” principle, and not necessarily because of one sovereign’s priority over another. Thus, a Georgia Department of Revenue lien was allowed priority over a federal tax lien, despite the federal government’s general right of supremacy.

The decision did recognize that, under O.C.G.A. 48-2-56, the Georgia Department of Revenue liens would have priority over County ad valorem taxes, but not over the State portion of those taxes. The Court held in relevant part:

Pursuant to O.C.G.A. § 48-2-56, “[l]iens for taxes shall rank among themselves as follows: (1) Taxes due the state; (2) Taxes due counties of the state….” O.C.G.A. § 48-2-56 (b). “[B]y adopting this statute, the [Georgia] legislature intended to assign priority to tax liens based upon the status of the taxing entity, regardless of the date the lien was created.” Vesta Holdings I v. Tax Comm’r, 259 Ga. App. 717, 719, 578 S.E.2d 293 (2003). Thus, pursuant to Georgia law, state tax liens take priority over those imposed by the county, thereby elevating only the state portion of PHH’s 2012 Fulton County/Georgia Fi. Fa. above the Georgia Department of Revenue’s claims.

Jackson v. Wellington & Assocs., LLC, 389 F. Supp. 3d 1199, 1212 (N.D. Ga. 2019).

Interestingly, the Court denied the right of a mortgage company to recover excess funds based upon its security deed once the tax deed was redeemed. The Court reasoned that the Security Deed remains on the Subject Property after the redemption and “does not attach to the excess funds.”

The resolution of competing interests is a thorny and complicated one, and this particular decision does not necessarily predict how future cases will come out. Indeed, the Court pointed out that the parties had failed to brief certain issues, and therefore it left those issues for future cases. Consider experienced counsel when attempting to resolve your excess funds case.

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