Lauren Bartels,


Donald Blattner, et al.,

Filed June 22, 1999
Toussaint, Chief Judge

Wabasha County District Court
File No. C4-98-112

Samuel V. Calvert, 1011 2nd Street North, Box 1044, St. Cloud, MN 56302 (for appellant)

Roger E. Petersen, Petersen & Mulcahey, 119 Sixth Street SW, Suite B, Rochester, MN 55902 (for respondents)

Considered and decided by Klaphake, Presiding Judge, Toussaint, Chief Judge, and Willis, Judge.


A vendor's failure to notify the Internal Revenue Service of the cancellation of a contract for deed on property subject to an Internal Revenue Service (IRS) lien does not void the cancellation or extinguish the vendor's interest in the property.


TOUSSAINT, Chief Judge

The Internal Revenue Service, unaware that the cancellation of a contract for deed on the property had extinguished the interest of the defaulting taxpayer, the vendee, held an auction of the taxpayer's interest. Appellant purchased the interest and attempted to obtain a warranty deed from respondents, successors in interest to the vendor, by paying them the amount due on the contract for deed. When respondents refused, she brought this action. Respondents were granted summary judgment on the ground that appellant had no interest in the property. Because there are no material facts in dispute and we see no error of law, we affirm.


In 1986, Bertha Blattner, mother and predecessor in interest of respondents Donald Blattner, Geraldine Kruger, and Lloyd Blattner, sold a piece of property on contract for deed to Louis Johnson. [1] The contract for deed was filed in Wabasha County. Louis Johnson was named as the defaulting taxpayer in 1993 when the IRS filed a notice of federal tax lien in the amount of $16,240.69 on the property.

In June 1997, Bertha Blattner served on Louis Johnson a notice of cancellation of contract for deed that listed amounts due in excess of $16,560.86. Bertha Blattner died later that month, and the property was conveyed to respondents, her heirs, by a deed of distribution. The notice of cancellation, affidavit of failure to comply and affidavit of service on Louis Johnson were filed in October 1997; the deed of distribution was filed in November 1997. The IRS was not notified of the cancellation of the contract for deed.

In 1998, the IRS held an auction pursuant to 26 U.S.C. § 6335 (1996), governing sales of property subject to IRS liens. Appellant Lauren Bartels purchased Louis Johnson's interest in the property for $15,000. She filed a certificate of sale of seized property and tendered to respondents a cashier's check for $18,779.28, the amount due on the contract for deed. Respondents refused her demand for a warranty deed.

Appellant then brought this action to compel respondents to accept the check and give her a warranty deed. Respondents moved for summary judgment that they are the owners of the property free from any lien of appellant conditional upon their return of her check. They were awarded summary judgment and returned appellant's check. [2]


Does a vendor's failure to notify the IRS of a cancellation of a contract for deed on property subject to an IRS lien void the cancellation of the contract for deed?


The facts in this matter are not disputed. Where the material facts are not in dispute, a reviewing court need not defer to the trial court's application of the law. Hubred v. Control Date Corp., 442 N.W.2d 308, 310 (Minn. 1989).

State law governs the definition of property interests to which a federal tax lien may attach. See United States v. Rodgers, 461 U.S. 677, 683, 103 S. Ct. 2132, 2137 (1983), cited in Tompkins v. United States, 946 F. 2d 817, 819 (11th Cir. 1991). Minnesota law is clear: Minn. Stat. § 559.21(1998) governs cancellation of contract for deed.

A statutory cancellation of a contract for deed results in the vendee's forfeiture of all payments made and restoration of full legal and equitable title in the property to the vendor.
* * * *
Proceedings under section 559.21 for the cancellation of a contract for deed, which is in default, are in the nature of a statutory foreclosure, akin to a foreclosure under a power of sale in a mortgage. Furthermore, once statutory notice has been served and cancellation effected all rights between the parties under a contract for deed are terminated.

In re Butler, 552 N.W.2d 226, 230 (Minn. 1996) (quotation and citations omitted). Cancellation here had been effected some months before the IRS sale; at the time of the sale, therefore, respondents had full legal and equitable rights to the property under Minnesota law. Their failure to notify the IRS of the cancellation did not extinguish those rights. Louis Johnson's interest in the property, however, had been extinguished by the cancellation before appellant made her purchase from the IRS. It is appellant's purchase, not the cancellation, that is void. Appellant accordingly had no right to compel respondents to accept payment of the amount due under the cancelled contract for deed.

Appellant argues that respondents did not discharge the tax lien because they failed to file notice of the cancellation of the contract for deed pursuant to 26 U.S.C. § 7425 (b) and (c)(4)(1996), providing that forfeiture of a land sales contract of property on which the United States has a lien is made subject to the lien if the United States is not given notice of the forfeiture. But respondents never claimed that they had discharged the tax lien; they argued only that, as owners of the property pursuant to Minnesota law, they had the right to discharge it. The fact that the cancellation of the contract for deed was made subject to the IRS lien does not equate to appellant's view that the cancellation was not made at all.


Because state law governs interests in property to which IRS liens attach, and because Minnesota law provides that cancellation of a contract for deed restores all rights in the property to the vendor, we conclude that summary judgment was properly granted.



[1] The property was actually sold to Johnson and his wife, who quitclaimed her share in the property to him when their marriage was dissolved in 1996.

[2]Respondents have since redeemed the property by paying the IRS $16,454.79,(the $15,000 appellant paid plus interest), pursuant to 26 U.S.C. § 6337(b)(1)(1996), permitting owners of property sold pursuant to 26 U.S.C. § 6335 or their heirs to redeem the property within 180 days.