In the case of Neighborhood Improvement Projects, LLC v. United States, case No. 2:15-cv-00523, 2015 TNT 230-21, the US District Court for the District of Arizona found that the IRS’s lien was superior to that held by a homeowner’s association on the property.
As the Court noted:
On July 4, 2011, the Internal Revenue Service ("IRS") made assessments against Rutter for taxes, penalties, and interest associated with her 2008 federal income taxes. (Doc. 24, ¶ 3.) At the time those assessments were entered, a federal tax lien attached to all property owned by Rutter. See 26 U.S.C. §§ 6321-22. At some point prior to December 23, 2011, Rutter also failed to pay annual and special assessments to the Casa Norte Homeowner's Association ("the HOA") in connection with the Property, (Doc. 20, ¶ 3; Doc. 24, ¶ 5), giving rise to an HOA lien.
The plaintiff in this case had purchased the property at a sheriff’s sale and sought to have the IRS lien removed, arguing it was inferior to the HOA’s lien.
The Court explained the underlying law to determine which lien was superior as follows:
The parties agree that resolution of NIP's quiet title action depends solely on the priority of the HOA and federal tax liens. The priority of a federal tax lien vis-à-vis a competing state law lien is a matter of federal law. Aquilino v. United States, 363 U.S. 509, 513-14 (1960). "Federal tax liens do not automatically have priority over all other liens. Absent provision to the contrary, priority for purposes of federal law is governed by the common-law principle that 'the first in time is the first in right.'" United States v. McDermott, 507 U.S. 447, 449 (1993) (quoting United States v. New Britain, 347 U.S. 81, 85 (1954)). "Unless the competing lien falls into one of the limited categories of liens enumerated in [26 U.S.C.] § 6323(a), the federal tax lien need not be filed to gain priority over other interests; it is perfected at the time the lien is assessed." In re Terwilliger's Catering Plus, Inc., 911 F.2d 1168, 1176 (6th Cir. 1990); see 26 U.S.C. §§ 6321-22. "The priority of a state lien depends on when it 'attached to the property in question and became choate.'" Monica Fuel, Inc. v. I.R.S., 56 F.3d 508, 511 (3d Cir. 1995) (quoting New Britain, 347 U.S. at 86). Although a state's classification of a lien is instructive, the effect of a state law lien relative to a federal tax lien "is always a federal question." United States v. Sec. Trust & Sav. Bank of San Diego, 340 U.S. 47, 49-50 (1950).
The Court continues:
A competing state lien is choate for purposes of federal law "only when it has been 'perfected' in the sense that 'the identity of the lienor, the property subject to the lien, and the amount of the lien are established.'" McDermott, 507 U.S. at 449 (quoting New Britain, 347 U.S. at 84) (emphasis omitted). Additionally, a state law lien is considered sufficiently choate only when it is summarily enforceable. … A lien is summarily enforceable if a creditor can enforce it without resort to judicial processes. See Monica Fuel, 56 F.3d at 512-13. If a creditor lacks the ability to enforce its lien automatically or through purely ministerial acts, the lien is not summarily enforceable because "[n]umerous contingencies might arise that would prevent the attachment lien from ever becoming perfected by a judgment awarded and recorded." Sec. Trust & Sav. Bank of San Diego, 340 U.S. at 50.
Since the IRS lien arose and was perfected on July 4, 2011, the state lien must be shown to be choate at that point—and the Court found that the plaintiff failed to show that. As the Court noted:
NIP does not identify precisely when the CC&R's were recorded or when the HOA assessments became past due. It contends only that the HOA lien was perfected prior to December 23, 2011 -- the date the foreclosure lawsuit was filed. Even assuming, that the CC&Rs were recorded prior to July 4, 2011, the HOA lien was not sufficiently choate under federal law because it was not summarily enforceable. The HOA lien was not "'given the force of a judgment' upon assessment." Monica Fuel, 56 F.3d at 513 (quoting United States v. Vermont, 377 U.S. 351, 359 (1964)). Instead, the HOA was required by law to resort to judicial processes to enforce its lien. See A.R.S. § 33-1807(F) ("A lien for an unpaid assessment is extinguished unless proceedings to enforce the lien are instituted within three years after the full amount of the assessment becomes due."). NIP cites no mechanism by which the HOA could enforce its lien without having "to engage in a judicial contest to attain a judgment in its favor." Monica Fuel, 56 F.3d at 513. Here, the HOA engaged in a seventeen-month foreclosure action during which numerous contingencies could have arisen to prevent it from enforcing its lien. NIP's reliance on § 33-1807(E)'s relation-back language is unavailing. "[T]he doctrine of relation back," cannot "operate to destroy the realities of the situation." Sec. Trust & Sav. Bank of San Diego, 340 U.S. at 50. Because the HOA lien was not sufficiently choate prior to July 4, 2011, it was junior to the federal tax lien.