RE: US v. Craft -- Ruling that Federal Tax Liens of one spouse attaches to his/her interest in tenants by the entirety property.
SALTI’s and Lawyers Title's position on liens against one but not both spouses effecting entirety property is as follows:
1- Federal Tax Lien is considered a lien and must be paid off or otherwise released.
2- Federal judgment where the judgment creditor is the US Government or agency (usually a criminal judgment), same as #1.
3- Federal judgment of non-US Government agency (civil), not lien on entirety property (valid for 20 years).
4- State judgments, not lien on entirety property (valid for 10 years).
On April 17, 2002 the U. S. Supreme Court made its ruling in United States. v. Craft, 535 U.S. 274 (2002), 233 F.3d 358 (reversed and remanded) or U.S. LEXIS 2790.
This case arose out of Michigan. The Crafts owned property as tenants by the entirety. Tenancy by the entirety in Michigan appears to be interpreted similarly to North Carolina as it creates ownership in a marital unit, without individual ownership by either spouse. Mr. Craft was assessed $482,446 in unpaid federal income taxes and thereafter a federal tax lien was filed which attached to all his property and property rights, real or personal. The house was sold, and half of the proceeds were put into escrow. The District Court found Mr. Craft’s use of nonexempt funds to pay the mortgage on the entireties property constituted a fraudulent act and awarded the IRS a share. Both parties appealed and the U. S. Supreme Court granted certiorari to consider whether the husband had a separate interest in the entireties property. The Supreme Court used the “bundle of sticks” idiom to hold that state law rights did vest Mr. Craft “property” or “rights to property,” therefore under federal law the federal tax lien does attach. The Court remanded the case to the Sixth Circuit on the issue as to the proper valuation of Mr. Craft’s interest in the entireties property, so we do not know what percentage of the value of the property is subject to the lien.
Therefore, we require payment of all federal liens and federal criminal judgments, regardless of how the property is titled. We can no longer insure over a Federal Tax Lien or a Federal Criminal Judgment of any amount based upon the premise that the land is held in a tenancy by the entireties and the Lien/Judgment is against only one spouse. If your Preliminary Title Opinion shows a federal lien/judgment, we will require proof on your Final Title Opinion of a satisfaction or release thereof. This change applies only to Federal Tax Liens and Federal Criminal Judgments. We are not changing our practices with respect to other non-consensual liens.
A service to you from SALTI!
Richmond “ Dick” H. Page
President & Underwriting Counsel
notice_ftl_entirety_prop - rhp