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Stone v. United States

United States District Court, N.D. Illinois, Eastern Division

March 31, 2014

LINDA K. STONE, Plaintiff/Counter-Defendant,
UNITED STATES OF AMERICA, Defendant/Counter-Plaintiff/Third-Party Plaintiff,


GARY FEINERMAN, District Judge.

In June 2011, the United States filed two Notices of Federal Tax Lien for the unpaid federal income tax liabilities of Jack L. Stone against a residential property ("Property") located in Highland Park, Illinois. The Notices listed "Linda Stone, as Nominee of Jack Stone, " as the taxpayer. Linda K. Stone, Jack's spouse, then brought this suit against the United States, alleging that she is the Property's sole owner and seeking to quiet title thereto. Doc. 1. In response, the United States: (1) answered Linda's complaint; (2) asserted a third-party claim against Jack seeking to reduce to judgment the income tax assessments against him; (3) sought enforcement of the tax liens against the Property to satisfy Jack's tax liabilities; and (4) sought the right to sell the Property free and clear of all liens, with the net proceeds being allocated among the United States and Third Party-Defendants Federal Home Loan Mortgage Corporation ("Freddie Mac"), Dale & Gensburg, PC, Bank of America, N.A. ("BANA"), Ralph Bogot, and Mortgage Electronic Registration Systems Inc. ("MERS"), in accordance with their respective priorities. Doc. 43.

The court granted summary judgment to the United States against Jack, finding him liable in the amount of $246, 748.54, plus interest and statutory additions accruing from and after January 22, 2013. Doc. 52. Dale & Gensburg and Bogot have defaulted. The United States, BANA, MERS, and Freddie Mac have stipulated to their respective priorities. Doc. 69.

Remaining for disposition is the dispute between Linda and the United States concerning who lawfully owns the Property-Linda says that she is the sole owner, while the United States says that Linda is Jack's nominee and therefore that Jack and Linda co-own the Property-and thus whether the United States may assert its lien against the Property to satisfy Jack's tax liability. The court conducted a bench trial on that question. Doc. 75-76. Pursuant to Federal Rule of Civil Procedure 52, the court enters the following findings of fact, which are found by a preponderance of the evidence, and conclusions of law. To the extent that any findings of fact may be considered conclusions of law, they shall be deemed conclusions of law, and to the extent that any conclusions of law may be considered findings of fact, they shall be deemed findings of fact. After considering the admissible evidence and the parties' stipulations, and upon assessing the witnesses' credibility, the court finds that Linda is not the Property's sole owner, that Linda and Jack co-own the Property, and therefore that the United States's lien is valid. This finding disposes of Linda's quiet title claim in favor of the United States. The court requests from the parties briefing on how the United States's lien should be enforced in light of Linda's interest in the Property and the interests of BANA, MERS, and Freddie Mac.

Findings of Fact

A. The Parties

1. Linda, born in 1949, and Jack, born in 1935, married in 1975 and remain married to this day. Tr. 76:14 (07/01/13);[*] Doc. 57 at 6; Stipulations 1, 4-5.

2. At the time of trial, Jack was 77 years old and suffered from Addison's Disease, high cholesterol, and a seizure disorder. Tr. 4:1, 5:24-6:1 (07/02/13). One medication Jack was taking at the time of trial affects his memory. Tr. 6:22-7:3 (07/02/13).

3. The Stones had two children together, Jennifer and Liza, who now are in their mid-thirties. Tr. 77:1-3 (07/01/13); Tr. 5:12-15 (07/02/13); Stipulation 7.

4. Jack has two children from a prior marriage, both now in their fifties. Tr. 5:1-11 (07/02/13); Tr. 77:4-8 (07/01/13); Stipulation 6.

5. Linda had been a school teacher, but she did not work outside the home between the time she married Jack until about 1992 or 1993. Tr. 76:3-7 (07/01/13).

6. Linda had her own source of personal wealth as a beneficiary of her uncle's trust. Tr. 84:3-5 (07/01/13); Stipulation 9. She received the first distribution from this trust in 1981, and received two more distributions five and ten years later, the proceeds of which she invested. Tr. 84:3-85:2 (07/01/13); Stipulation 11; Pl. Exhs. 9, 14.

7. Linda kept her own personal checking account, and she and Jack had a joint account that they used to pay bills. Tr. 77:22-78:19 (07/01/13).

8. Jack has been an insurance salesman since 1971. Tr. 3:16-24 (07/02/13).

9. Until 1992, Jack had his own insurance sales company, Omni Insurance Consultants. Tr. 14:24-15:1 (07/02/13).

B. The Property

10. On August 5, 1977, Linda and Jack were granted a deed to the Property in joint tenancy. Def. Exh. 2.

11. Linda and Jack bought the Property for $179, 000, using $79, 900 that Jack had inherited from his father and $100, 000 from a mortgage loan. Tr. 121:10-13 (07/01/13); Stipulation 3.

12. Linda and Jack moved into the Property in January 1978. Tr. 86:24-25 (07/01/13); Stipulation 3. They both have lived at the Property ever since. Tr. 75:16-19 (07/01/13); Tr. 2:11-14 (07/02/13); Stipulation 2.

13. On November 11, 1992, Jack executed a quitclaim deed purporting to convey his interest in the Property to Linda for the "consideration of [$10] and other good and valuable consideration." Def. Exh. 3; Pl. Exh. 11.

14. At the time of the conveyance, Jennifer and Liza were teenagers. Tr. 5:16-20 (07/02/13).

15. The quitclaim deed was recorded by the Lake County Recorder of Deeds on April 20, 1993. Def. Exh. 3.

C. Facts Pertaining to the Alleged Consideration for Jack's Execution of the Quitclaim Deed

16. Jack testified that part of the reason for his making the quitclaim deed was to forgive debts that he had incurred to Linda before 1992. Tr. 12:14-13:8 (07/02/13).

17. Up through 1992, Jack made almost all of the mortgage payments for the Property, which were about $775 per month initially, and he also paid the utility bills, all insurance premiums and property taxes, and more than half of the landscaping costs. Tr. 123:5-124:18 (07/01/13). Based on the figures presented at trial, the court conservatively estimates that in addition to the $79, 000 paid towards the original purchase of the Property, Jack expended over $350, 000.00 in mortgage, utility, insurance, and property tax payments from 1977 through November 1992.

18. From the time the house was purchased until 1992, Linda made a handful of mortgage payments, totaling around $7, 000. Tr. 124:19-25 (07/01/13).

19. Before 1992, Linda paid for several improvements to the Property, including rehabbing the family room, installing a stone fireplace and a bar, remodeling the kitchen, buying furniture, painting, carpeting, marble work, and a remodeling the powder room. Tr. 89:1-11 (07/01/13); Tr. 19:13-16 (07/02/13). Linda estimated that the kitchen remodeling cost approximately $40, 000, but she could not recall how much she spent on the other improvements. Tr. 87:24-88:2 (07/01/13).

20. Linda provided a summary chart detailing the household expenses and improvements for which she paid from her own funds. Pl. Exh. 2. The chart begins in 1992. Ibid. The only entries that preceded the quitclaim deed are for drapery, plumbing, legal services, auto work, and carpet cleaning, and total $3, 344.30. Ibid.

21. At trial, Linda testified that she considered Jack's conveyance to her of his interest in the Property as partial repayment for improvements to the Property for which she had paid. Tr. 117:14-18 (07/01/13). However, at her deposition, Linda testified that she did not consider the pre-1992 improvements for which she paid to be loans to Jack. Tr. 127:8-16 (07/01/13). Given this discrepancy between her deposition and trial testimony, the court does not credit Linda's trial testimony on this subject. Linda's trial testimony that her pre-quitclaim deed contributions to the Property required repayment from Jack is also not worthy of credit because, prior to the quitclaim deed and as compared to Linda, Jack had paid the lion's share of the total costs incurred for the purchase price, mortgage payments, utility bills, insurance premiums, property taxes, and landscaping for the Property.

22. Another summary chart prepared by Linda details payments made by Linda on Jack's behalf; the entries list payments from 1988-2008, and total $89, 596.67. Pl. Exh. 1. Check registers accompany the chart.

23. Linda testified that when she made the payments to Jack reflected on that chart, she considered them to be loans. Tr. 97:16-24 (07/01/13). Only two items on that chart predate the quitclaim deed: $4, 590 in 1988, and $5, 404 on April 10, 1989. Pl. Exh. 1.

24. For the $4, 590 amount in 1988, the check register says, "Jack-(for 1987 tax)." Pl. Exh. 1 (LS_3380); Tr. 142:7-22 (07/01/13). At trial, Linda initially testified that this was a loan for Jack's taxes; when reminded that they had filed joint returns at that time, Linda conceded, "It ...

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