This is an action in the nature of an interpleader seeking a determination regarding priorities in the distribution of monies realized on the sale of real estate from the decedent's estate. Both the United States and the state of Connecticut have substantial claims for unpaid taxes. The action, as initially brought by the administrator, d.b.n., named both the state and the internal revenue service of the United States as party claimants. On November 25, 1985, the court, D. Dorsey, J., dismissed the internal revenue service as a party defendant and granted the government's motion to file a complaint in intervention. Appropriate pleadings in response to that complaint have been filed by the following: David C. Carmody, administrator, d.b.n.; the tax commissioner, state of Connecticut; Arnold Peck, successor in interest to a mortgage deed, dated April 2, 1973, originally held by Connecticut National Bank; and the law firm of Slavitt, Connery and Vardamis (Slavitt), claiming legal fees earned in conjunction with the administration of the estate. All other parties have been defaulted.
This dispute has been submitted to the court upon stipulation, brief testimony and a number of joint exhibits. The information before the court establishes the *Page 486 following facts: The decedent, Anna F. Roessler, died intestate February 28, 1969, and the decedent's son, Fred C. Roessler, her sole heir, was named the original administrator. The decedent's final federal income and estate tax returns were filed July, 1972. At that time, the internal revenue service had assessed the estate for nearly $400,000 in tax obligations. Thereafter, various payments were made in partial satisfaction of the tax indebtedness. On November 13, 1972, delinquency penalties and interest were further assessed in excess of $192,000.
At the time of her death, the decedent had ownership interests in several parcels of real estate. Among those parcels were two properties, 50 Edgehill Road and 324-326 Shelton Avenue, both in the city of New Haven. In 1975, these properties were sold with the authorization of the Probate Court, and the net proceeds from the sales were placed in escrow. On March 12, 1976, Herbert D. Fischer, Acting Judge of Probate for the district of New Haven, brought an interpleader action in the United States District Court seeking a determination regarding entitlement to the escrow fund (approximately $116,000 plus interest) resulting from the sale of these two parcels. Numerous parties were joined in that action including the United States by virtue of its claim for unpaid estate and fiduciary income taxes, the state of Connecticut because of its claim for unpaid succession taxes, and Slavitt with its claim of fees for professional services rendered on behalf of the estate.1 Both Slavitt and the government filed motions for summary judgment asserting priority of their respective claims. The Slavitt motion was granted *Page 487 on the basis that its claim was entitled to priority as an administration expense. The government's motion was accompanied by its supporting memorandum of law wherein the priority of its claim was asserted on the basis that the estate was insolvent and, therefore, under §§ 191 (now 31 U.S.C. § 3713 [a]) and 192 (now 31 U.S.C. § 3713 [b]) of title 31 of the United States Code, the federal tax claim was entitled to first payment.2 The government's motion was granted by the United States magistrate on December 1, 1980, "absent objection," and summary judgment was entered by the United States District Court ordering distribution to the United States, from the escrow fund, of the sum of $92,216.3
Also included in the estate of Anna F. Roessler were three parcels of real property located in Milford: 32 Bristol Terrace, 86 Maple Street, and West River Street. On April 2, 1973, Fred C. Roessler, individually and apparently as sole heir of the intestate estate, *Page 488 had mortgaged the Milford real property to Connecticut National Bank to secure a note payable to the bank in the sum of $309,650 executed by him individually and as president of Roessler Packing Co., Inc.4 On December 9, 1983, Connecticut National Bank assigned its interest in the mortgage to Maple Street Associates, a Connecticut partnership with its principal office in Milford, for $97,500.5 The mortgage had been recorded on the Milford land records on April 3, 1973. The assignment was recorded January 4, 1984.
On June 20, 1985, the three Milford properties were sold by the administrator, d.b.n., with authorization of the Probate Court, to Maple Street Associates for $460,000. After the deduction of property taxes and closing costs, the net proceeds to the estate from the sale of the three properties were $302,282.47. As of the date of trial, the then current amount with accrued interest was $325,560.97. By written stipulation executed by all parties, the proceeds of the sale were placed in escrow by E. Michael Heffernan, Judge of Probate Court, pending final judgment in the present action. Pursuant to the stipulation, liens against the realty attached to the escrow fund with their respective priorities.
The following parties were asserting priority claims to the escrow fund: (1) the United States, on the basis of assessments of November 13, 1972, and October 6, 1976, and the outstanding federal tax lien filed June 4, 1979, in the total amount, as of May 20, 1986, of $1,956,797.70; (2) the tax commissioner of the state of Connecticut, on the basis of succession and transfer tax liens recorded December 23, 1974, for an undetermined amount; (3) Arnold Peck, by virtue of the Connecticut *Page 489 National Bank mortgage, recorded April 3, 1973, in the amount, as of the date of trial, of $352,146.47; and (4) Slavitt, for legal fees.
The parties have stipulated on the record to the following pertinent facts: (1) The estate was solvent as of February 28, 1969, the date of the death of Anna F. Roessler; (2) the estate was insolvent as of April 23, 1980, the date of the appointment of the administrator, d.b.n.; and (3) Fred C. Roessler, the son of Anna F. Roessler, was the sole heir to the estate. It is further found, on the basis of the credible testimony presented, that the state of Connecticut never took possession of the Milford real estate during the administration of the estate by the administrator, d.b.n., and that its lien is inchoate.6
I CLAIMS OF THE ADMINISTRATOR, D.B.N., AND SLAVITT LAW FIRM Under Connecticut law, the expenses of administration are deductible items and are entitled to first priority. General Statutes §§ 12-350, 45-273, 45-204c.7 Here, the *Page 490 administrator, d.b.n., is claiming first priority for the expenses of administration, taxes to be paid by him to the United States and the state of Connecticut on the escrow fund's earned interest and capital gains, and attorney's fees. Slavitt is claiming reasonable fees for legal services rendered to the estate.
It is hereby found that the claims of the administrator, d.b.n., and Slavitt are proper expenses of administration, are entitled to first priority, and are to be paid initially from the escrow fund.8
II COMPETING CLAIMS OF THE UNITED STATES AND THE STATE OF CONNECTICUT The federal tax assessments were made on November 13, 1972 and October 10, 1976. The notice of federal tax liens was recorded with the town clerk of Milford, on June 4, 1979. The state succession and transfer tax liens were recorded December 23, 1974. Thus, the state filings were prior in time to those of the federal government.
Generally, the fundamental principle governing priority is that "the first in time is the first in right."United States v. New Britain, 347 U.S. 81, 85,74 S. Ct. 367, 98 L. Ed. 520 (1954); United States v. Estateof Young, 592 F. Sup. 1478, 1482 (E.D. Pa. 1984). With respect to the priority of debts due the federal government, however, the general precept enunciated in *Page 491 United States v. New Britain is subject to significant qualification, by statute and otherwise. The government's tax liens are statutorily premised on §§ 6321 and 6322 of title 26 of the United States Code.9 Under these sections, the government's "general" tax liens arise when assessed and continue until the tax liability is satisfied or becomes unenforceable. The state tax liens, on the other hand, although filed prior in time, remain inferior until they become specific, perfected or choate. United States v. Equitable Life, 384 U.S. 323,327, 86 S. Ct. 1561, 16 L. Ed. 2d 593 (1966); State v. Bucchieri, 176 Conn. 339, 346-47, 407 A.2d 990 (1978). Here, the liens relied on by the United States are general tax liens arising under § 6321. These liens arose at the time of assessment; 31 U.S.C. § 6322; remain unsatisfied, and have not become "unenforceable by reason of lapse of time" since any period of limitation was extended by agreement to December 31, 1986. The state's claim that its liens are entitled to priority because the government's liens were special estate tax liens; 26 U.S.C. § 6324 (a)(1); which expired upon the passage of ten years is without merit.10 *Page 492
In this case, the government maintains that its general tax liens are entitled to priority over the state liens on the basis of the federal insolvency statute, 31 U.S.C. § 3713 (a)(1)(B), which provides in pertinent part: "A claim of the United States Government shall be paid first when . . . the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all debts of the debtor."11 As stated, the parties have stipulated that the Roessler estate was insolvent as of the date of appointment of the administrator, d.b.n. Clearly, the estate is insufficient "to pay all debts of the debtor (deceased)." The federal tax liability alone is $1,956,797.70, while the total value of the assets is less than $500,000. Tax obligations owing to the United States have long been recognized as "debts" for purposes of § 3713. Price v. United States, 269 U.S. 492,499, 46 S. Ct. 180, 70 L. Ed. 373 (1926). ("The word `debts' as used in R.S. § 3466 includes taxes.") The fact that the estate was solvent at the date of the decedent's death, as here stipulated, does not foreclose either the applicability, or priority effect, of § 3713. United States v. Estate of Young, supra, 1484-85. *Page 493
The state contends that its antecedent succession tax liens are entitled to priority because they were choate, i.e., specific and perfected, prior to the government's recordation of its notice of federal tax liens. The state argues that by recording its liens, it had done all that is required by state law, and nothing more remained to be done to effect a choate lien. United States v. NewBritain, supra, 85-87, mandates that as between competing choate liens, priority is governed by the basic rule that "the first in time is the first in right." The determination of when a state interest has become sufficiently choate to defeat later federal tax liens is a matter of federal not state law. State v. Bucchieri, supra, 347. Application of the choateness tests requires that the competing lien of the state be definite in three respects: (1) the identity of the lienor; (2) the property subject to the lien; and (3) the amount of the lien.
Here, as the government points out, the state liens were not specific as to value or amount until after the filing of this action and subsequent to the filing of the federal tax liens.12 More importantly, however, the question here directly involves the choateness standards required to defeat the priority afforded the government by § 3713 of the federal insolvency statute.13 Where the debtor is insolvent, or an estate is unable to defray all the debts of the deceased, the choateness requirements exceed those expounded in United States v. New Britain and require that the state's liens be perfected by reducing the property to possession. United *Page 494 States v. Gilbert Associates, 345 U.S. 361, 366,73 S. Ct. 701, 97 L. Ed. 1071 (1953); Durham v. UnitedStates, 545 F. Sup. 1093, 1097 (D.N.J. 1982), aff'd,720 F.2d 661 (3d Cir. 1983); Nesbitt v. United States,445 F. Sup. 824, 831 (N.D. Cal. 1978), aff'd, 622 F.2d 433 (9th Cir. 1980), cert. denied, 451 U.S. 984,101 S. Ct. 2315, 68 L. Ed. 2d 840 (1981). In United States v.Gilbert Associates, supra, 366, the United States Supreme Court stated: "`[S]pecificity' requires that the lien be attached to certain property by reducing it to possession, on the theory that the United States has no claim against property no longer in the possession of the debtor." Roughly thirty years later, a United States District Court observed, as have many other courts: "Although the United States Supreme Court has never dismissed the possibility that such an exception [perfected competing lien] might exist . . . the Court has nonetheless found every interest short of actual possession insufficient to overcome the effect of Section 191 [now § 3713]. A lien might meet the choateness standards set out in United States v. NewBritain [supra], necessary to overcome a federal tax lien, but Section 191's [now § 3713] priority is measured by different standards." Durham v. United States, supra, 1096-97. Even more recently, the District Court of the Eastern District of Pennsylvania, quoting F. Kennedy, "From Spokane County to Vermont: The Campaign of the Federal Government Against the Inchoate Lien," 50 Iowa L. Rev. 724 (1965), stated: "`Indeed, the Supreme Court has repeatedly reserved the question whether a perfected and specific lien in existence at the time of insolvency can survive attack under the priority statute. . . . After consideration of the Supreme Court's treatment of antecedent state-created liens against claims of federal priority, one commentator has concluded: "Until the Supreme Court actually recognizes a choate lien in a Section 3466 case, *Page 495 the most reasonable assumption is that any lien confronting the United States under this section [now 3713] is inchoate and inferior."'" United States v.Estate of Young, supra, 1484 n. 17.
Here, although the state succession tax liens were recorded, the real property to which they attached was not reduced to possession. Therefore, the federal claims are entitled to priority over the state liens under § 3713 of title 31 of the United States Code.14 *Page 496
III ARNOLD PECK/MAPLE STREET ASSOCIATES The Connecticut National bank mortgage from Fred C. Roessler was recorded April 3, 1973, prior in time to the state's succession tax liens and the government's notice of its estate tax liens. Through the December 9, 1983 assignment by the bank of its interest in the prior recorded mortgage, Peck now claims priority over the federal and state tax liens.
The mortgage was executed by Fred C. Roessler, sole heir to the estate. Upon the death of an intestate owner, title to real property vests immediately in the heir(s), subject, however, to the right of administration. Satti v. Rago, 186 Conn. 360, 365, 441 A.2d 615 (1982). Although title to the real property passes at once through intestacy to the heir(s), such title is subject to being defeated if it becomes necessary for the administration of the estate that the land be sold to satisfy valid claims. Parlato v. McCarthy, 136 Conn. 126,133-34, 69 A.2d 648 (1949); O'Connor v. Chiascione,130 Conn. 304, 306, 33 A.2d 336 (1943). Accordingly, while Fred C. Roessler, as the sole heir, had a vested interest in the decedent's real estate, it was subject to being defeated or destroyed by claims of creditors of the estate. Both the United States and the state of Connecticut had, and continue to have, substantial valid claims against the estate which, to the extent estate assets are available, must be paid incident to the administration of the estate. See Neuffer v. Hagelin, 369 Ill. 344,16 N.E.2d 715 (1938); Moran v. Manning,306 Mass. 404, 28 N.E.2d 478 (1940); Trenton Motor Co. v. Watkins, 291 S.W.2d 659 (Mo.App. 1956). *Page 497
The estate of Anna F. Roessler is being administered at the present time by the administrator, d.b.n. Substantial claims by the United States and the state of Connecticut remain unpaid. Whatever title the sole heir had at the time he executed the mortgage was subject to the administrator's right to utilize the property to satisfy estate obligations. The mortgagee's interest, and that of its assignee, was no greater than the title of the mortgagor; that is, it is now subject to the administrator's right to use the property, or the proceeds from its sale, to satisfy the claims against the estate. Therefore, Peck's interest, or that of Maple Street Associates, is not entitled to priority over the claims of the United States and the state of Connecticut.15
IV PRIORITY For the reasons stated, it is hereby concluded that the priorities of the respective claimants to the subject escrow fund are as follows: (1) First priority includes administrative expenses and attorney's fees, including the fees of Slavitt, as approved by the Probate Court having jurisdiction over the estate; and (2) second priority includes the federal tax claims of the United States. All other claims must be left unsatisfied due to the insufficiency of the fund.
Since the administrator, d.b.n., estimates that federal and state income taxes on capital gains and interest, realized by the fund from June, 1985, amount to roughly $100,000, and that attorney's fees and other costs of administration will approximate $50,000, it is hereby ordered: (1) The administrator, d.b.n., set aside from the fund the sum of $150,000, to remain under the control and administration of the Probate Court