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  • WisBar News
    June 16, 2015

    Appeals Court Says DOR has Priority on Portion of Land Sale Proceeds

    Joe Forward

    June 16, 2015 – The Wisconsin Department of Revenue’s tax liens against property trumped a money judgment against a landowner, a state appeals court has ruled, allowing the DOR to garnish a portion of proceeds from a land sale.

    James Vandenberg owned a one-fourth interest in land with three other individuals as tenants-in-common. They entered a land contract to sell the land to Van De Hey Real Estate LLC for about $342,000, free and clear of any liens and encumbrances.

    But DOR had tax liens on the property, based on taxes Vandenberg owed. In addition, Vandenberg owed $165,000 to Prince Corporation (Prince), which had previously obtained a money judgment against him. Prince wanted part of the land sale proceeds.

    Prince filed a garnishment action. The other tenants intervened and also filed a third-party complaint against DOR to stop garnishment. They argued that neither Prince nor the DOR could garnish proceeds of a land sale owed jointly to Vandenberg and others.

    Ultimately, the circuit court in Brown County ruled that the DOR could garnish about $85,000 from the sale by taking a portion of a third and final payment from the buyer.

    Prince and the other tenants appealed. They said DOR never filed a garnishment action and thus was not entitled to garnish those funds. Additionally, Prince argued that it had a first priority lien on the property, and the DOR’s tax liens were secondary.

    But in Prince Corp. v. Vandenberg, 2014AP2097 (June 16, 2015), a three-judge panel for the District III Wisconsin Court of Appeals affirmed, noting that the DOR docketed two-of-three-tax liens before Prince docketed its money judgment against Vandenberg.

    “[P]ursuant to [Wis. Stat.] § 71.91(4), the DOR has a perfected lien on all of Vandenberg’s property, including the final land contract payment, which takes priority over Prince’s subsequently created lien,” Judge Stark explained.

    The panel rejected Prince’s claim that DOR’s lien could not take priority since DOR did not file a garnishment action. “Prince’s arguments ignore longstanding principle that a plaintiff in a garnishment action has no right to receive any property from the garnishee until superior liens are satisfied,” Judge Stark wrote.

    The panel also ruled that the proceeds are subject to garnishment because the buyer, Van De Hey, does not owe money “jointly” to the sellers, who are tenants-in-common.

    “Vandenberg owns a one-fourth interest in the property, so he is entitled to one-fourth of the contract price,” wrote Judge Lisa Stark. “Accordingly, one-fourth of the contract price is garnishable in order to satisfy debts owed by Vandenberg alone.”

    Finally, the other tenants argued that garnishment should be limited to the last of three payments by the buyer, Van De Hey, since a quarter of previous payments satisfied a mortgage lien filed against Vandenberg’s interest in the property.

    “[W]hat Vandenberg and the Intervenors may have done with the previous payments is irrelevant and has no impact on the rights of Prince and the DOR to garnish Vandenberg’s interest in the amount due under the land contract,” Judge Stark wrote.

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