UNITED STATES of America, Plaintiff-Appellee, v. Carolyn C. BARR, Defendant-Appellant, Charles J. Barr; Comerica Incorporated; City of Detroit and County of Wayne, Defendants, 617 F.3d 370

ROGERS, J., delivered the opinion of the court, in which GREER, D.J., joined. BATCHELDER, C.J. (pp. 377-80), delivered a separate opinion concurring in part and dissenting in part. OPINION ROGERS, Circuit Judge. The Government seeks to foreclose the federal income tax debt owed by Charles Barr against the home that he and his wife Carolyn own as tenants by the entirety. Mrs.

Ban- argues on appeal, as she did before the district court, that she is entitled to the vast majority of the sale proceeds of any foreclosure sale and that foreclosure is not appropriate based on her dominant interest in the home and other equitable factors. Because spouses owning property as tenants by the entirety are entitled to equal distribution of proceeds under all circumstances contemplated by Michigan law, such an equal division is also proper in this case. In light of this equal division, the district court correctly determined that foreclosure was appropriate.

Charles Barr owed the Government more than three hundred thousand dollars in unpaid income taxes, interest, and other statutory accruals. The Government filed suit seeking to foreclose the federal tax lien created by these debts against the home in Detroit, Michigan, that Mr. Barr and his wife Carolyn Barr own as tenants by the entirety. Mr. Barr did not file a response in the case, and the district court granted default judgment against Mr. Barr in the amount of his tax debt. The Government then filed a motion for

summary judgment on its foreclosure claim. Mrs. Barr opposed the motion and asked the district court to exercise its limited equitable discretion to decline to order the sale of the home. She argued in particular that, because she was likely to outlive her husband, her interest in the home was more than fifty percent of the value of the home. She contended that foreclosure was therefore inappropriate because of her larger interest and because only her husband had unpaid federal tax liabilities. The Government argued that an equal division was appropriate under Michigan law and that Mrs.

Barr had assisted in shifting properties other than the home out of Mr. Barr’s name and into her name. The Government thus urged the conclusion that Mrs. Barr bore some of the responsibility for the fact that the Government could only collect taxes from Mr. Barr by foreclosure. The district court held that an equal division of any proceeds was appropriate, and the court refused to exercise its equitable discretion to prevent the foreclosure sale. Mrs. Barr now appeals, arguing primarily that the district court erred in determining that she was only entitled to half of the proceeds of any foreclosure sale. Mrs.

Barr is entitled to fifty percent of the proceeds of the foreclosure sale of the home. Title 26 U.S.C. § 7403 authorizes federal courts to decree a sale of property to enforce a federal tax lien. When such a foreclosure sale takes place, the proceeds are to be distributed “according to the findings of the court in respect to the interests of the parties and of the United States,” thus providing fair compensation both to the Government and to any third parties. Id. § 7403(c).

In determining property interests for federal tax law purposes, “the definition of underlying property interests is left to state law, [and] the consequences that attach to those interests is a matter left to federal law.” United States v. Rodgers, 461 U.S. 677, 683, 103 S.Ct. 2132, 76 L.Ed.2d 236 (1983). Under Michigan law, Mr. and Mrs. Barr have identical rights to their marital home. Indeed, spouses are entitled to equal interests in entireties property in every situation contemplated by Michigan law.

Spouses are “equally entitled to the rents, products, income, or profits ... of real ... property held by them as tenants by the entirety.” Mich. Comp. Laws § 557.71. If property held by the entirety is sold, each spouse is entitled to half of the proceeds, and upon divorce, state law provides for a default equal division of such property. Id. § 552.102; United States v. Craft, 535 U.S. 274, 282, 122 S.Ct. 1414, 152 L.Ed.2d 437 (2002).

Under 26 U.S.C. § 7403(c), the “distribution of the proceeds” of a tax foreclosure sale is made “according to the findings of the court in respect to the interests of the parties and of the United States.” Because Mr. and Mrs. Barr have equal interests in their home, division according to their interests results in an equal distribution of the proceeds of the sale of that home. The Third Circuit has reached the same conclusion in the context of distributing the proceeds of the market sale of a federal tax-encumbered home that had been owned by a married couple as tenants by the entirety. Popky v.

United States, 419 F.3d 242, 245 (3d Cir.2005).

The Third Circuit noted that Pennsylvania entireties law was materially similar to that of Michigan, id. at 244, and reasoned as follows: As the District Court correctly observed, “the equal division of assets between spouses ... parallels the distribution of entireties property when an entireties estate is severed because of a sale with consent of both tenants, divorce or other reasons.” Sound policy reinforces the District Court’s approach to valuation, as an equal valuation is far simpler and less speculative than the valuation contemplated by the [married couple].

Id. at 245 (citations omitted) (first alteration in original). Detailed consideration of the component interests of a tenancy by the entirety reinforces this intuitive conclusion.

A tenancy by the entirety under Michigan law consists of at least the following rights: the right to use the property, the right to exclude third parties from it, the right to a share of income produced from it, the right of survivorship, the right to become a tenant in common with equal shares upon divorce, the right to sell the property with the [the other spouse]’s consent and to receive half the proceeds from such a sale, the right to place an encumbrance on the property with the [the other spouse]’s consent, and the right to block [the other spouse] from selling or encumbering the property unilaterally.

Craft, 535 U.S. at 282, 122 S.Ct. 1414. Mrs. Barr asserts that her right of survivorship and her right to prevent sale or encumbrance of the property are worth more than her husband’s survivorship and sale-prevention rights, but both of these rights generate equal spousal interests. Michigan law dictates the result that survivorship rights are equal between spouses. If the spouse with the greater life expectancy had a larger interest under Michigan law, then this greater interest would be reflected in the Michigan rules for dividing property upon divorce or consensual sale.

However, because Michigan law provides for equal division of property upon divorce or consensual sale, differences in life expectancy do not result in different survivorship interests. This conclusion is consistent with Rodgers. In Rodgers, Lucille Rodgers was the widow of Philip Bosco, a tax debtor. 461 U.S. at 687, 103 S.Ct. 2132. Rodgers and her husband had owned and occupied their home as a homestead under Texas law. Id.

Texas law provides that, at the death of one spouse, the other spouse “has a vested estate in the [homestead property] of which she cannot be divested during her life except by abandonment or a voluntary conveyance.” Id. at 686, 103 S.Ct. 2132 (quoting Paddock v. Siemoneit, 147 Tex. 571, 218 S.W.2d 428, 436 (1949)). Rodgers thus effectively had a life estate in her marital home. See id. at 686, 103 S.Ct. 2132. The Rodgers Court held that the Government could force a sale of the home under § 7403 to satisfy Bosco’s tax debt. Id. at 703-04, 103 S.Ct. 2132.

Recognizing that Rodgers was entitled to a share of the proceeds of that sale corresponding with her interest in the homestead property, the Court offered, “only for the sake of illustration,” an example of how such property might be valued. Id. at 698-99, 103 S.Ct. 2132 (emphasis in original). The Court suggested that a proper way to value Rodgers’s life estate would be to assume an eight percent discount rate, assume that Rodgers would live to her life expectancy, and thus calculate her share of the property’s value. Id. This kind of actuarial calculation is not appropriate in the present case.

Rodgers used actuarial valuation only out of necessity: one cannot determine the value of a life estate—which is effectively what Rodgers possessed— without estimating the length of the measuring life. The Supreme Court thus based its choice of valuation method on the fact that “any calculation of the cash value of a homestead interest must of necessity be based on actuarial statistics.” Id. at 704, 103 S.Ct. 2132. No such necessity exists here, and Mrs. Barr presents no compelling reason why this court should not apply the presumption of equal spousal life expectancy implicit in Michigan law. Mrs.

Barr’s right to prevent sale also does not support her contention that her interest in the marital home is greater than that of her husband. Mrs. Barr asserts first that her right to prevent sale must have some value, and that this value must increase her interest in the property. This argument overlooks the fact that the ban on unilateral alienation is both a benefit and a detriment to owners of entireties property. Mrs. Barr’s sale-prevention right enhances her interest because she can prevent a sale desired only by Mr. Barr.

But the same rule detracts from her interest, as she cannot sell or encumber her interest in the property without Mr. Barr’s permission. Because these rights are precisely reciprocal between spouses, they have no net effect on the relative interests of spouses who own property as tenants by the entirety. Relying by analogy on Takings Clause precedents, Mrs. Barr secondly asserts that the fact that she is being deprived of her right to prevent sale distinguishes the present situation from a consensual sale, and thus undermines the conclusion that Michigan law implicitly supports an equal assignment of interests.

In upholding § 7403 as consistent with the Fifth Amendment, the Supreme Court in Rodgers noted that, “[t]o the extent that third-party property interests are ‘taken’ in the process [of a tax foreclosure], § 7403 provides compensation for that ‘taking’ by requiring that the court distribute the proceeds of the sale ‘according to the findings of the court in respect to the interests of the parties and of the United States.’ ” 461 U.S. at 697-98, 103 S.Ct. 2132. Mrs.

Barr is correct that the exercise of the Government’s power to force the sale of her home deprives her of her right to refuse a sale, and she is not specifically being compensated for that loss. But this is consistent with the general rule under the Takings Clause that property owners are paid only the fair market value of their property when they are forced to part with it against their will. See Kirby Forest Indus., Inc. v.

United States, 467 U.S. 1, 9-10, 104 S.Ct. 2187, 81 L.Ed.2d 1 (1984). “ ‘Under this standard, the owner is entitled to receive what a willing buyer would pay in cash to a willing seller at the time of the taking.’ ” Id. at 10, 104 S.Ct. 2187 (quoting United States v. 564.54 Acres of Land, 441 U.S. 506, 511, 99 S.Ct. 1854, 60 L.Ed.2d 435 (1979)) (internal quotation marks omitted).

The Supreme Court has acknowledged that, “[particularly when property has some special value to its owner because of its adaptability to his particular use, the fair-market-value measure does not make the owner whole.” Id. at 10 n. 15, 104 S.Ct. 2187. But “[w]e are willing to tolerate such occasional inequity because of the difficulty of assessing the value an individual places upon a particular piece of property and because of the need for a clear, easily administrable rule governing the measure of ‘just compensation.’ ” Id. The present situation is distinguishable from a consensual sale only in that Mrs.

Barr is being forced to sell the home against her will. Because the Takings Clause does not require compensation for such a loss, Takings Clause jurisprudence supports the conclusion that Mrs. Barr should receive no more here than she would 'receive after a consensual sale: fifty percent. Mrs. Barr also asserts that she has an interest in the home greater than half of its value based on a variety of theories that would result in the total of her and her husband’s interests in the property’s being greater than one hundred percent.

Such a result is not possible under § 7403, which requires courts to distribute “the proceeds of such sale according to the findings of the court in respect to the interests of the parties and of the United States.” One cannot distribute more than the total value of the sale price, and thus the total of all of the interests in the property—including that of the United States—must be one hundred percent. The district court therefore correctly determined that Mrs. Barr is entitled to fifty percent of the proceeds of the foreclosure sale. This conclusion renders moot Mrs.

Barr’s argument that, if this court were to overturn the district court’s finding with respect to valuation, remand would be appropriate to determine whether the equities continued to support a sale of the home. Mrs. Barr also argues that the district court erred in granting

summary judgment because it failed to conduct in a proper manner the balancing test described in Rodgers. This argument fails because the Rodgers Court did not mandate application of the four-factor balancing test before a district court could order a sale under § 7403.

To the contrary, the Rodgers Court established the balancing test as a requirement only after the district court first determines that a § 7403 sale would cause undue hardship to an innocent third-party; before exercising its limited discretion not to order the sale, a district court must justify that decision by means of the Rodgers balancing test. This conclusion is supported by the Rodgers Court’s declaration that the Government has a “paramount interest” in collecting taxes, 461 U.S. at 711, 103 S.Ct. 2132, and follows established precedent in the Seventh Circuit, United States v.

Davenport, 106 F.3d 1333, 1338 (7th Cir.1997) (holding that application of the Rodgers factors “is not a prerequisite to a district court’s power to decree a sale under § 7403”). Even if the Rodgers Court had intended to mandate application of its four-part balancing test prior to any court-ordered foreclosure sale under § 7403, we would still affirm the decision of the district court, as there is no evidence that the district court abused its discretion.

In determining that foreclosure was appropriate, the district court applied the four Rodgers factors: (1) “the extent to which the Government’s financial interest would be prejudiced if it were relegated to a forced sale of the partial interest actually liable for the delinquent taxes;” (2) “whether the third party with a non-liable separate interest in the property would, in the normal course of events (leaving aside § 7403 and eminent domain proceedings, of course), have a legally recognized expectation that separate property would not be subject to forced sale by the delinquent taxpayer or his or her creditors;” (3) “the likely prejudice to the third party, both in personal dislocation costs and in ... practical undercompensation;” and (4) “the relative character and value of the non-liable and liable interests held in the property.” United States v.

Barr, No. 07-11717, 2008 WL 4104507, at *2 (E.D.Mich. Sept. 2, 2008) (quoting Rodgers, 461 U.S. at 710-11, 103 S.Ct. 2132). The district court determined that the first factor weighed in favor of foreclosure because “the United States cannot look to any other assets of [Mr. Barr] to collect.” Id. at *3. The district court noted that, under normal circumstances, the second factor would weigh against foreclosure. Id. The court, however, found that Mrs.

Barr had “participated in the conveyance of four properties ... specifically contemplated to frustrate the United States’ tax collection efforts,” and thus the court determined that this factor was not entitled to much weight. Id. (citing United States v. Bierbrauer, 936 F.2d 373, 376 (8th Cir.1991)). With respect to the third factor, the district court determined that “[t]he inconvenience of [Mrs. Barr’s] relocating is no different from the inconvenience associated with any foreclosure sale and is insufficient to support a denial of such a sale in this case.” Id.

The court explained that “if ‘the inherent indignity and inequity of being removed from one’s home’ automatically precluded foreclosure, ‘the government could never foreclose against a jointly owned residence—a result clearly untenable under § 7403.’ ” Id. (quoting Bierbrauer, 936 F.2d at 375-76). Finally, the district court determined that the fourth factor did not support application of the court’s limited equitable discretion not to order foreclosure because Mrs. Barr had only a half interest in the property. Id. at *4. The district court thus found that foreclosure was appropriate and granted

summary judgment to the Government. Id. We agree with the district court’s resolution of these issues and therefore adopt the district court’s thoughtful reasoning with regard to the Rodgers factors. We therefore AFFIRM the judgment of the district court.