facts are uncontested that Gamble took title to his own name
because the mortgagee Golf Mill Bank had refused to finance a
purchase by the Church. The trust deed and all other legal
documents relating to the realty were signed by the Gambles
without any suggestion that they might have been acting as agents
for the Church.
In essence, Gamble's argument amounts to the contention that
the 1977 quit-claim deed was a nullity intended merely to
formalize his own understanding of what the relative property
interests between himself and the Church had been all along.
Gamble's understanding, however, is irrelevant. It has long been
held in Illinois that a mortgagor who warrants title "will not be
heard to say that at the time of the execution of the mortgage he
had no title but that there was an outstanding title in a third
person." Kronan Building & Loan Ass'n v. Medeck, 368 Ill. 118,
122, 13 N.E.2d 66, 68 (1938). Moreover, in his brief Gamble
contends that the 1977 quit-claim deed was used to transfer the
Beechnut property into the Church's name for the purpose of
obtaining a tax exemption. Thus, Gamble himself has admitted that
the property was "legally" his at the time of the transfer, his
relations with the Church notwithstanding.
Gamble finally argues that the transfer was supported by a
valuable consideration — namely the Church's promise of continued
support — and therefore cannot be avoided absent a showing of
actual intent to defraud. The government has argued that such
intent can be inferred from the circumstances of this case. The
court does not reach the issue of intent, however, since a
transfer of property for future services or support creates a
trust for the transferor's benefit and is void against creditors.
People's Bank v. Wood, 207 Ill.App. 602 (1917). Moreover, insofar
as the Church had promised in 1974 to pay Gamble's mortgage
payments and other living expenses, Gamble received absolutely no
benefit from the contract that he did not have before. Thus,
Gamble's argument that he received a valuable consideration must
be rejected. The three elements of constructive fraud having been
proven and not rebutted, the court finds that the conveyance may
be set aside.
Federal Tax Lien
The conveyance having been ordered set aside, the court now
addresses the question of relief. The United States has requested
that its tax liens on the property be reduced to judgment and
foreclosed and that the property be sold, with the proceeds to be
distributed pursuant to the court's determination. The court
finds that Gamble's previous default judgment in the Tax Court in
Gamble v. Commissioner, No. 5289-78, (Tax Court Jan. 15, 1981),
is res judicata in this action and that the government's
assessment may therefore be reduced to judgment. See United
States v. Bottenfield, 442 F.2d 1007, 1008 (3d Cir. 1971).
The court also concludes that the property should be sold. In
United States v. Rodgers, 461 U.S. 677, 103 S.Ct. 2132, 76
L.Ed.2d 236 (1983), the Supreme Court held that Section 7403 of
the Internal Revenue Code, 26 U.S.C. § 7403, empowers a federal
district court to order the forced sale of a family home in which
a delinquent taxpayer had an interest at the time he incurred his
indebtedness, even though the taxpayer's spouse has an
unencumbered separate "homestead" interest under state law in the
same property. The Court noted that to the extent third-party
property interests are "taken" in the process, § 7403 provides
compensation by requiring the court to distribute the proceeds of
the sale according to the interests of the respective parties.
Id., 103 S.Ct. at 2145. However, the Court also concluded that §
7403 does not require a "forced sale under all circumstances,"
but leaves "some limited room . . . for the exercise of reasoned
discretion." Id. at 2149.
In carving out an exception to the government's power of forced
sale, the court emphasized that the discretionary power of the
district courts to refuse authorization for a judicial sale
"exercised rigorously and sparingly, keeping in mind the
Government's paramount interest in prompt and certain collection
of delinquent taxes." Id. at 2152. The Court noted that it could
think of "virtually no circumstances" in which a court should
refuse to authorize a sale to protect the interests of the
taxpayer himself instead of the interests of innocent third
parties. Id. at 2151. And the Court noted that even where
innocent third party interests are at stake, a "fairly limited
set of considerations will almost always be paramount." Id. at
2151. The Court identified these considerations as follows: the
extent to which the Government's interest would be prejudiced by
a forced sale of the debtor's partial interest only; whether the
third party with a non-liable separate interest in the property
has a legally recognized expectation that the separate property
would not be subject to forced sale by the delinquent taxpayer;
the likely prejudice to the third party; and the relative
character and value of the non-liable and liable interests held
in the property. Id. at 2151-52.
Keeping in mind the Supreme Court's admonition in Rodgers that
the above factors not be used as a mechanical checklist to the
exclusion of common sense, the court applies these factors to the
present case. The property is a residence jointly owned by Dr.
and Mrs. Gamble. To sell only Dr. Gamble's interest would
significantly prejudice the United States' financial interests in
the property since few, if any, purchasers would pay half of the
residence's fair market value simply to be a co-owner with Mrs.
Gamble. Second, the court finds that Mrs. Gamble, having
attempted to convey her interest in the property to the Church,
cannot be said to have a solid expectation that her interest in
the home was beyond foreclosure for another's debts. Although a
forced sale would, of course, cause personal dislocation to Mrs.
Gamble, the only way to avoid that dislocation would be to allow
Dr. Gamble to continue in possession of his home without paying
off his creditors first. Such a result would go against the
equities in this case, and would wholly undermine the
"Government's paramount interest in prompt and certain collection
of delinquent taxes." Rodgers, 103 S.Ct. at 2152.
Accordingly, the court holds that the federal tax lien on the
Beechnut property be foreclosed and the property sold, with the
proceeds to be distributed according to the respective interests
of the parties. The parties have not yet briefed the issue, but
the court assumes that distribution would follow the priorities
of 26 U.S.C. § 6323. That statute would give the United States'
lien priority over that of the unperfected judgment creditor
Indiana National Bank, but would subordinate the government's
lien to Golf Mill State Bank, which held a perfected security
interest prior to the time the government recorded its tax lien.
It also appears that Mrs. Gamble may be entitled to a homestead
estate in the Beechnut property under Ill.Rev.Stat., ch. 110, ¶
12-901 (1981). If so, Rodgers clearly mandates that the taking of
that estate through forced sale be compensated. The court will
not enter a final order as to distribution, however, until such
time as the parties have had an opportunity to be heard on the
Therefore, the motion for summary judgment is granted. The
conveyance is set aside, the government's tax lien is reduced to
judgment, and the property is ordered sold to satisfy the claims
of Gamble's creditors. The case is set for status on October 26,
1984, to discuss the priority of distribution.
It is so ordered.
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