## Facts

- Bloomfield State Bank made a mortgage loan secured by Indiana real estate and included an assignment-of-rents clause covering all rents derived from the property.
- The borrower defaulted in 2007.
- The IRS filed a federal tax lien against the real estate after the default.
- At the bank’s request, a state court appointed a receiver to manage the property.
- After the federal tax lien was filed, the receiver rented portions of the property and collected $82,675 in rents for the bank’s account.
- No rents had been collected before the federal tax lien was filed.
- Under Indiana law, recording the mortgage with an assignment-of-rents clause created a perfected security interest in rents when received.

## Issues

1. Whether a lender’s recorded assignment of future rents constitutes a qualifying “security interest” under 26 U.S.C. § 6323(h)(1) that has priority over a federal tax lien as to rents generated and collected after the tax lien is filed.
2. Whether the “property” securing the lender’s claim was “in existence” at the relevant time when the collateral consists of future rental income.

## Decision

- The Seventh Circuit affirmed summary judgment for the United States.
- The court held the federal tax lien had priority over the bank’s claim to the $82,675 in rents collected after the tax lien was filed.
- The court concluded the bank’s interest in future rents did not satisfy § 6323(h)(1)’s requirement that the “property” be “in existence” for the bank’s interest to defeat the federal tax lien.

## Legal Principles

- Priority against a federal tax lien is governed by federal law, including the limitations in 26 U.S.C. § 6323(h)(1), even if state law treats a creditor’s interest as perfected.
- Under § 6323(h)(1), the “property” that must be “in existence” is the collateral itself (here, rents as they come due), not the creditor’s preexisting contractual right or the later money collected through enforcement.
- A perfected assignment-of-rents clause does not take priority over a later-filed federal tax lien with respect to rents that were not yet generated when the federal lien arose.
- If rents exist (are generated/receivable) before a federal tax lien is filed, a creditor with a qualifying perfected interest may have priority as to those existing rents; absent pre-lien rents, post-lien rents are subject to the federal lien’s priority.

## Conclusion

Because the collateral at issue was future rental income that did not exist when the federal tax lien was filed, the bank’s recorded assignment-of-rents interest did not qualify for priority under 26 U.S.C. § 6323(h)(1), and the IRS lien prevailed over the post-lien rents.


Bloomfield State Bank v. United States, 644 F.3d 521 (7th Cir. 2011)