First American Title Insurance v. United States

This is a tax collection case about a third party challenge to a tax assessment and lien on an earlier owner’s property.

FACTS

In 1991, Penny Jensen’s mother, Roberta Smith, died, and Jensen was named the personal representative of her mother’s estate. The estate consisted of three houses and the stock of a corporation that owned a hamburger drive-in (Frisko Freeze, Inc.).

The estate filed its federal estate tax return in 1992. The return valued the estate at $1,302,129, calculated taxes at $144,323, and elected to pay the $144,323 with about $45,000 down and the rest on an installment plan. Jensen then conveyed the three houses to herself and her husband.

Over the next two years, Jensen sold the houses to three different purchasers. All were bona fide purchasers for value, and all obtained title insurance from the three plaintiffs in this case. Despite their title searches, all three title insurance companies did not discover that the houses were encumbered by tax liens because the taxes on the estate were largely unpaid.

Subsequently the IRS audited the estate and concluded that the hamburger drive-in was worth more than the $762,275 valuation the estate had put on…