Request By:
Mr. Robert Neel
Daviess County Court Clerk
P.O. Box 389
Owensboro, Kentucky 42301
Opinion
Opinion By: Steven L. Beshear, Attorney General; Carl T. Miller, Jr., Assistant Attorney General
You present the question of whether a Certificate of Sale of Seized Property executed by the Internal Revenue Service may be accepted by you as County Clerk as authority to transfer the registration of a motor vehicle to the purchaser in lieu of a Bill of Sale. You sent with your letter a photocopy of the Certificate of Sale of Seized Property and the Kentucky Certificate of Registration.
The answer to your question is found in Federal statutes, 26 USC Section 6321 et seq. Section 6321 provides that if a person fails to pay any tax after demand, the amount due shall be a lien in favor of the United States upon all his real and personal property; Section 6331 provides for distraint and seizure of such property; and Section 6335 for sale thereof after seizure. Section 6338 provides for the issuance of a certificate of sale; Section 6339 provides for the effect of the certificate of sale of property other than real property and includes, inter alia, the following:
"(1) As evidence. -- Shall be prima facie evidence of the right of the officer to make such sale, and conclusive evidence of the regularity of his proceedings in making the sale; and
"(2) As conveyances. -- Shall transfer to the purchaser all right, title, and interest of the party delinquent in and to the property sold; and
* * *
"(5) As authority for transfer of title to motor vehicle. -- If such property consists of a motor vehicle, shall be notice, when received, to any public official charged with the registration of title to motor vehicles, of such transfer and shall be authority to such official to record the transfer on his books and records in the same manner as if the certificate of title to such motor vehicle were transferred or assigned by the party holding the same, in lieu of any original or prior certificate, which shall be void, whether canceled or not."
On the strength of the above quoted statutes, you should treat the Certificate of Sale of Seized Property the same as you would treat a bona fide Bill of Sale.
You also ask if the vehicle may be transferred without the two liens, which presently show on the Certificate of Registration, being released.
It is our opinion that you should issue a Certificate of Registration to the new owner, but that you should record on the registration any liens superior to the Federal tax lien. We dealt with this same question in OAG 64-22 and said:
"The priority of Federal tax liens created by the Internal Revenue Code is governed by the principle that 'the first in time is the first in right.'
United States v. City of New Britain, 347 U.S. 81, 74 S. Ct. 367, 98 L. Ed. 520, 525 (1954). A sale under distraint to satisfy a tax lien cuts off subordinate security interests.
Commercial Credit Corp. v. Schwartz, 130 F.Supp. 524 (E.D. Ark., 1955).
"Since the sale under Section 6335 extinguishes all security interests subordinate to that of the United States under its tax lien, the ultimate question is whether there is any valid reason why the county clerks may refuse to issue a new certificate of title clear of such subordinate interests."
We concluded in OAG 64-22 that county clerks are under a duty to transfer registration of vehicles sold under Federal tax liens free and clear of any subordinate liens. When the clerk does not know whether a lien is superior or inferior to the tax lien, we believe he should show it on the new registration certificate. In this case, the certificate shows a lien filed 8-30-74 and a lien filed 2-13-79. Neither lien has been released according to the Certificate of Registration. The Certificate of Sale of Seized Property does not show the effective date of the Federal tax lien. KRS 382.480 provides for the filing of Federal tax liens in the county clerk's office and such a filing would be evidence of the effective date of the tax lien.
KRS 186.045(5) provides, in part, as follows:
"Once a security interest has been noted on the owner's copy of the registration or transfer receipt, no subsequent registration or transfer receipt may be issued by any county clerk free of such notation unless the owner's copy of the current receipt is presented to the clerk and it has been noted thereon by the proper county clerk that the termination statement therefor has been filed. If this requirement is met, information relating to any security interest shown on the receipt as having been terminated may be omitted from the receipt to be issued by the clerk. "
In summary, the Certificate of Sale of Seized Property should be treated as having the same effect as a Bill of Sale and the county clerk should issue a Certificate of Registration to the purchaser if other statutory conditions are met. Any unreleased liens should be noted on the new Certificate of Registration unless the clerk has proof presented to him that the liens are subordinate to the Federal tax lien. No subordinate liens should be noted on the registration certificate.