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Federal Property Interests (Ownership, Liens & the Supremacy Clause)

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Federal Property Interests (Ownership, Liens & the Supremacy Clause)

Reusable edge-case explainer. Legal information, not legal advice. Last verified: 2026-06-02.

What this edge case is

A parcel headed to a tax-deed, tax-lien-certificate foreclosure, or mortgage-foreclosure sale carries a federal interest — either the United States (or a federal instrumentality) owns the property, or a federal agency holds a lien or insured mortgage against it. The two situations are governed by different bodies of law and produce opposite results for a state-court bidder, so the threshold question is always: Is the federal interest ownership or a lien?

  • Federal ownership (e.g., property held by HUD after an FHA foreclosure, by the VA after acquiring a loan, by the SBA, FDIC, or any federal agency). Under the Supremacy Clause, such property is immune from state and local taxation and from tax foreclosure unless Congress consents. A state tax sale of federally-owned property is generally void and conveys no title. See rust-v-johnson-1979.

  • Federal lien (e.g., a recorded IRS federal-tax-lien-redemption, an SBA disaster/business loan deed of trust, an FHA-insured or VA-guaranteed mortgage held by a private servicer, or any other lien “in which the United States has or claims a … lien”). Here the property is privately owned and is taxable; the federal interest is a junior or senior encumbrance whose treatment is set by federal statute — 28 U.S.C. § 2410 (judicial sales / quiet title) and 26 U.S.C. § 7425 (non-judicial sales / IRS tax liens). A sale that ignores the joinder, notice, and redemption rules in those statutes leaves the federal lien undisturbed on the title.

The trap for operators: federally-owned property looks like an ordinary delinquent parcel on the tax roll, and a federal lien that was not properly noticed survives a sale that otherwise looked clean.

When it arises

Tax-foreclosure context

  • A county lists a parcel for a tax-deed or sells a tax-lien-certificate without realizing the record owner is HUD, the VA, the SBA, the FDIC, or another federal agency — for example a foreclosed FHA home that HUD acquired and is holding for resale, on which the locality kept accruing taxes. A sale of that parcel is constitutionally infirm under rust-v-johnson-1979.
  • A privately-owned parcel carries a recorded IRS federal-tax-lien-redemption. If the county forecloses judicially, the United States must be joined under § 2410; if non-judicially (power-of-sale tax deed), the IRS must receive 25 days’ written notice under § 7425(b)–(c). Either way the United States retains a 120-day right of redemption.
  • A locality assesses and tries to foreclose a special assessment / improvement bond against a parcel in which a federal instrumentality holds an interest — the exact fact pattern of rust-v-johnson-1979.

Mortgage-foreclosure context

  • A senior lienholder forecloses on a home carrying a junior IRS tax lien or a junior SBA loan. Joinder (§ 2410) or 25-day notice (§ 7425) governs whether the federal lien is wiped or survives, and the United States gets a statutory redemption window after the sale.
  • A servicer forecloses an FHA-insured or VA-guaranteed loan and the property is conveyed to HUD/VA; once title vests in the agency, the parcel becomes federally owned and the immunity analysis above attaches to any subsequent local tax enforcement.

Federal ownership: constitutional immunity from state taxation and forced sale

The foundational rule traces to McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819) — “the power to tax involves the power to destroy,” and a state may not tax the instruments of the federal government. Property owned by the United States or a federal instrumentality is therefore immune from state and local ad valorem taxes absent congressional consent, and obligations of the United States are statutorily exempt under 31 U.S.C. § 3124(a) (“Stocks and obligations of the United States Government are exempt from taxation by a State or political subdivision of a State”). Source: 31 U.S.C. § 3124 (LII, retrieved 2026-06-02).

The application to tax/assessment foreclosure is Rust v. Johnson, 597 F.2d 174 (9th Cir. 1979). FNMA, foreclosing an FHA-insured mortgage, conveyed the property to the Secretary of HUD; the City of Los Angeles then foreclosed an unpaid street improvement bond and sold the parcel. The Ninth Circuit held FNMA is a federal instrumentality, that under the Supremacy Clause a locality “cannot take any action to collect unpaid taxes assessed against property which would have the effect of reducing or destroying the value of a federally held … mortgage lien,” and that the City’s sale was invalid — title was quieted against the tax-sale purchaser. Source: Rust v. Johnson, 597 F.2d 174 (9th Cir. 1979) (OpenJurist, retrieved 2026-06-02). See case page rust-v-johnson-1979.

Operator takeaway: A tax sale of property owned by a federal agency (HUD/VA/SBA/FDIC) or a federal instrumentality is generally void and conveys no marketable title — the buyer’s remedy is at most a refund, not the parcel.

Federal lien on privately-owned property: § 2410 (judicial / quiet title)

When the United States merely holds (or claims) a lien on otherwise-taxable private property, Congress has waived sovereign immunity to allow the federal interest to be litigated in state or federal court. 28 U.S.C. § 2410(a) lets the United States “be named a party in any civil action or suit in any district court, or in any State court having jurisdiction of the subject matter” to “(1) quiet title to” or “(2) foreclose a mortgage or other lien upon” property “in which the United States has or claims a mortgage or other lien.” Key mechanics:

  • (a)–(b): The complaint must “set forth with particularity the nature of the interest or lien of the United States,” and the United States must be served via the U.S. Attorney and the Attorney General. Defective joinder/service leaves the federal lien intact.
  • (c): “An action to foreclose a mortgage or other lien, naming the United States … must seek a judicial sale.” After such a sale, the United States has one year from the date of sale to redeem — except that for “a lien arising under the internal revenue laws the period shall be 120 days or the period allowable for redemption under State law, whichever is longer.”
  • (d): On redemption the United States pays the purchaser’s price plus statutory interest and certain expenses.

Source: 28 U.S.C. § 2410 (LII, retrieved 2026-06-02).

Distinction that surprises bidders: the § 2410(c) redemption window is one year for non-tax federal liens (e.g., SBA, FHA/HUD-held mortgages reduced to a lien), and only 120 days for IRS liens. The longer window applies to the agency interests operators most often overlook.

Federal tax lien at a non-judicial sale: § 7425

For a non-judicial foreclosure or power-of-sale tax deed where a recorded IRS federal-tax-lien-redemption exists, 26 U.S.C. § 7425 controls:

  • § 7425(b): If the notice of federal tax lien was filed more than 30 days before the sale and the United States did not receive notice of the sale, the sale is made “subject to and without disturbing such lien.” Otherwise the sale’s effect on the lien follows local law.
  • § 7425(c)(1): Notice of the sale must be given to the IRS in writing, by registered/certified mail or personal service, not less than 25 days prior to the sale.
  • § 7425(d): Even on a properly-noticed sale, the United States may redeem real property within 120 days of the sale or the local-law redemption period, whichever is longer.

Source: 26 U.S.C. § 7425 (LII, retrieved 2026-06-02). Confirmed by IRS guidance: IRM 5.12.4, Judicial/Non-Judicial Foreclosures (retrieved 2026-06-02) — “if either [timeliness or adequacy of the 25-day notice] is absent, the federal tax lien remains undisturbed,” and the United States has 120 days “to investigate and determine whether it would be to the advantage of the United States to redeem.”

Local property-tax superpriority over a recorded IRS lien

Where the competition is between a local ad valorem property-tax lien and a filed federal tax lien, the Internal Revenue Code itself subordinates the federal lien: 26 U.S.C. § 6323(b)(6) makes a filed federal tax lien invalid against a local lien that, under local law, is entitled to priority and secures “a tax of general application levied by any taxing authority based upon the value of such property” (plus qualifying special assessments). Thus a genuine property-tax lien generally outranks even a first-filed IRS lien — but the § 7425/§ 2410 notice, joinder, and redemption machinery still governs how the sale must be conducted. Source: 26 U.S.C. § 6323 (LII, retrieved 2026-06-02).

State-by-state variation

The federal rules above are uniform nationally; what varies is the state procedure the federal statutes graft onto, and whether the state’s tax enforcement is judicial (triggering § 2410 joinder) or non-judicial (triggering § 7425 notice). Each linked jurisdiction page carries its own primary citation for the underlying procedure.

VariableEffect on the federal-interest analysisAnchor
Judicial tax/lien foreclosure states (e.g., illinois, new-york, connecticut, new-jersey)United States must be joined under § 2410(a) and a judicial sale sought; failure leaves the federal lien on title28 U.S.C. § 2410
Non-judicial tax-deed / power-of-sale states (e.g., texas, california, georgia, tennessee)IRS must get 25 days’ notice under § 7425(c); inadequate notice → tax lien survives the deed26 U.S.C. § 7425
Statutory-redemption statesThe state redemption clock runs in parallel with the federal 120-day (IRS) / 1-year (non-tax) window; the longer of state vs. federal period controls the US right28 U.S.C. § 2410(c)
All states (property-tax superpriority)A genuine local ad valorem tax lien outranks even a first-filed IRS lien under § 6323(b)(6); HOA/assessment liens do not automatically share that status26 U.S.C. § 6323(b)(6)
All states (federal ownership)If title is held by a federal agency/instrumentality, the state tax sale is generally void regardless of state procedurerust-v-johnson-1979

Agency-specific divestment and “release of jurisdiction” mechanics (e.g., HUD/VA procedures for paying or contesting local taxes on agency-owned inventory, and SBA’s authorization for its counsel to consent to a sale) are not detailed here. needs_verification.

▸ For Investors / Operators Run the ownership-vs-lien split before you bid. A parcel owned by HUD, the VA, the SBA, or the FDIC is generally immune — a winning bid buys a refund fight, not a deed (rust-v-johnson-1979). A parcel merely carrying an IRS lien, SBA deed of trust, or FHA/VA mortgage is buyable, but only if joinder (§ 2410) or 25-day notice (§ 7425) was perfected — and you take subject to the United States’ 120-day (IRS) or one-year (non-tax) redemption right. Price that redemption risk in.

Operator due diligence

Before bidding on any parcel with a possible federal interest:

  1. Pull current vesting. Order a title search / O&E and read the grantee on the last deed. If it is “Secretary of HUD,” “Secretary of Veterans Affairs,” “United States of America,” “Small Business Administration,” or “FDIC as Receiver,” treat the parcel as federally owned and presumptively not subject to a valid tax sale (rust-v-johnson-1979).
  2. Search for a recorded Notice of Federal Tax Lien (NFTL) in the county recorder and any state UCC/lien index. Note the filing date — the 30-days-before-sale test in § 7425(b) turns on it.
  3. Confirm the foreclosure path — judicial or non-judicial — for this jurisdiction (see the state page). Judicial → confirm the United States was named and served per § 2410(b). Non-judicial → confirm 25-day IRS notice was given per § 7425(c).
  4. Identify agency liens (SBA deeds of trust, USDA Rural Development, FHA partial- claim subordinate mortgages). These are § 2410 “other liens” carrying the one-year federal redemption window, not 120 days.
  5. Verify the lien is a true property-tax lien if you are relying on superpriority under § 6323(b)(6); an HOA or non-ad-valorem assessment may not qualify.
  6. Model the redemption exposure. Even a perfect sale leaves the United States with 120 days (IRS) or one year (non-tax) to redeem at your price plus statutory interest (§ 2410(d)). Do not commit capital you cannot have tied up for that window.
  7. Document everything — defective federal notice/joinder is the most common reason a “clean” tax deed later fails to clear title.

If it happens

You bought federally-owned property at a tax sale. The sale is generally void (rust-v-johnson-1979); the parcel does not convey. Pursue a refund of the bid from the taxing authority under state law and, if the agency or a private party files to quiet title, expect the sale to be set aside.

You bought subject to a surviving federal tax lien (defective § 7425 notice). The IRS lien rides through the sale “subject to and without disturbing such lien” (§ 7425(b)); options are to pay the lien, apply for a certificate of discharge, or, if the lien is junior and the locality’s lien qualified as superpriority under § 6323(b)(6), litigate the lien’s effect. The federal 120-day redemption still runs (§ 7425(d)).

The United States redeems. Under § 2410(d) you are paid the amount you bid plus statutory interest and certain expenses, and title reverts to the redeeming sovereign — you recover capital but not the property.

Quieting title. To extinguish a claimed federal lien (rather than foreclose it) you may name the United States in a quiet-title action under § 2410(a)(1) in state or federal court; this is the route to a marketable-title judgment that binds the government. See quiet-title-after-tax-sale.

Surplus. When a valid sale of privately-owned property over-recovers, the surplus-funds analysis is unchanged — but a federal lienholder paid or redeeming out of proceeds, and any IRS claim to surplus, reorders who is entitled. Where the former owner is owed equity after the federal lien is satisfied, the third-party-recovery-rules and post-tyler-v-hennepin-county surplus framework apply.

▸ For Former Owners If your home went to a tax or mortgage sale and an FHA, VA, SBA, or IRS interest was involved, the federal rules can void the sale, extend a redemption window, or change who is entitled to any surplus-funds left after the federal lien is paid. Those deadlines are short (as little as 120 days) and the claim procedure is jurisdiction-specific.

rust-v-johnson-1979, federal-tax-lien-redemption, tax-deed, tax-lien-certificate, mortgage-foreclosure, quiet-title-after-tax-sale, surplus-funds, third-party-recovery-rules, right-of-redemption, bankruptcy-automatic-stay, tyler-v-hennepin-county, due-process-notice

Sources

Legal information, not legal advice. This page summarizes federal statutes, agency guidance, and case law as of the last_verified date; it does not account for every circuit, agency-specific procedure, or subsequent development, and the ownership-vs-lien and judicial-vs-non-judicial distinctions are fact-specific. Federal-interest outcomes turn on exact vesting, lien-filing dates, and local procedure. Consult a licensed attorney before acting.

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