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COURT OF APPEALS OF WISCONSIN
PUBLISHED OPINION
Case No.:                                                       99-0252
Complete Title
of Case:
CVW, LIMITED,
PLAINTIFF-APPELLANT,
V.
LAWRENCE M. STRESS, BY HIS GUARDIAN, KEVIN L.
STRESS, DUNN COUNTY TREASURER, NELLIE THOMPSON,
DEPARTMENT OF REVENUE, PHILLIPS BROADCASTING
CO. INC. AND DEPARTMENT OF INDUSTRY, LABOR &
JOB,
DEFENDANTS,
ADVENT ENVIRONMENTAL SERVICES, INC.,
DEFENDANT-RESPONDENT.
Opinion Filed:                                                  September 8, 1999
Submitted on Briefs:                                            September 1, 1999
JUDGES:                                                         Cane, C.J., Hoover, P.J., and Gordon Myse, Reserve Judge.
Appellant
ATTORNEYS:                                                      On behalf of the plaintiff-appellant, the cause was submitted on the briefs
                                                                of  Steven L. Miller of Miller & Miller of River Falls.
Respondent
ATTORNEYS:                                                      On behalf of the defendant-respondent, the cause was submitted on
the brief of William R. Steinmetz and Catherine E. Jorgens of
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, S.C. of
Milwaukee.




COURT OF APPEALS
DECISION
NOTICE
DATED AND FILED
This opinion is subject to further editing. If
published, the official version will appear in the
bound volume of the Official Reports.
September 8, 1999
A party may file with the Supreme Court a
                                                                   Marilyn L. Graves         petition  to  review  an  adverse  decision  by  the
                                                                   Clerk, Court of Appeals   Court of Appeals.  See § 808.10 and RULE 809.62,
                                                                   of Wisconsin              STATS.
No.                                                                99-0252
                                                                   STATE OF WISCONSIN        IN COURT OF APPEALS
                                                                   CVW, LIMITED,
                                                                   PLAINTIFF-APPELLANT,
                                                                   V.
LAWRENCE M. STRESS, BY HIS GUARDIAN, KEVIN L.
STRESS, DUNN COUNTY TREASURER,
NELLIE THOMPSON,  DEPARTMENT OF REVENUE,
PHILLIPS BROADCASTING CO. INC. AND
DEPARTMENT OF INDUSTRY, LABOR & JOB,
DEFENDANTS,
ADVENT ENVIRONMENTAL SERVICES, INC.,
DEFENDANT-RESPONDENT.
APPEAL from a judgment of the circuit court for Dunn County:
WILLIAM C. STEWART, Judge.   Reversed and cause remanded.
Before Cane, C.J., Hoover, P.J., and Gordon Myse, Reserve Judge.




No. 99-0252
CANE, C.J.       CVW, Limited, appeals from a summary judgment
granted  in  favor  of  Advent  Environmental  Services,  Inc.    CVW  argues  that
Advent’s judgment lien, though first filed, became junior to a subsequently filed
Internal Revenue Service tax lien by virtue of the application of Wisconsin’s
homestead  exemption  statute,  § 815.20,  STATS.    We  agree.    Accordingly,  we
reverse  the  summary  judgment  and  remand  to  the  circuit  court  for  further
proceedings consistent with this opinion.
BACKGROUND
Lawrence and Linda Stress purchased the real property at issue in
October 1989.1   Advent Environmental Services, Inc., docketed a judgment lien
against the Stress property on June 9, 1995.   The IRS thereafter attached a federal
tax lien, recorded on August 28, 1995.       Pursuant to 26 U.S.C. §§   6331—6344,
the  IRS  seized  the  Stress  property  for  nonpayment  of  federal  taxes  and
subsequently sold it at a public sale on July 24, 1997, to the highest bidder, CVW
Limited, for  $15,342.61. It is undisputed that there is insufficient equity in the
property to satisfy subordinate lienholders.
The redemption period, mandated by  26 U.S.C.  § 6337,2 expired
without redemption by Stress, his executors, administrators, any person on his
1 Linda Stress died on November 17, 1993.   Her interest in the property was terminated
pursuant to § 867.046, STATS., and was memorialized by a termination of her property interest.
2 The Internal Revenue Code, 26 U.S.C. § 6337, states in pertinent part:
(b) Redemption of real estate after sale.—
(1) Period.—The owners of any real property sold as provided
in section 6335, their heirs, executors, or administrators, or any
person having any interest therein, or a lien thereon, or any
person in their behalf, shall be permitted to redeem the property
(continued)
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No. 99-0252
behalf, or by any person having an interest or lien on the property.   Consequently,
the IRS issued a quit claim deed to CVW for the property and CVW filed this
action to quiet title.   Contending that the tax sale extinguished Advent’s judgment
lien, CVW moved for summary judgment.   Advent, asserting that its judgment lien
remained  attached  to  CVW’s  property,  also  moved  for  summary  judgment.
Finding that Advent’s judgment lien survived CVW’s purchase of the property,
the circuit court granted summary judgment in favor of Advent.    This appeal
followed.
ANALYSIS
Statutory interpretation is a question of law that this court reviews de
novo.   See State v. Kirch, 222 Wis.2d 598, 602, 587 N.W.2d 919, 920 (Ct. App.
1998).   Further, whether summary judgment was appropriately granted presents a
question of law that we review independently of the circuit court.   See Fortier v.
Flambeau Plastics Co., 164 Wis.2d 639, 651-52, 476 N.W.2d 593, 597 (Ct. App.
1991).   When reviewing summary judgments, we utilize the same analysis as the
circuit court and must apply the standards set forth in § 802.08(2), STATS.   See
Schultz v. Industrial Coils, Inc., 125 Wis.2d 520, 521, 373 N.W.2d 74, 74-75 (Ct.
App. 1985).   In general, "summary judgment is proper where there are no genuine
issues of material fact and the moving party is entitled to judgment as a matter of
law."   Kenefick v. Hitchcock, 187 Wis.2d 218, 224, 522 N.W.2d 261, 263 (Ct.
App. 1994).
sold, or any particular tract of such property, at any time within
180 days after the sale thereof.
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No. 99-0252
CVW  contends  that  Advent’s  judgment  lien,  though  first  filed,
became junior to the subsequently filed IRS tax lien by virtue of Wisconsin’s
homestead exemption statute, § 815.20, STATS.   In applying the Internal Revenue
Code, as we must here, “state law determines the nature of the legal interest which
the taxpayer had in the homestead property,” and “[o]nce state law has been used
to determine the nature and existence of a property interest, further state law is
inoperative, and the tax consequences thenceforth are dictated by federal law.”
Elfelt v. Cooper, 168 Wis.2d 1008, 1019-20, 485 N.W.2d 56, 61 (1992).
In Wisconsin, the general rule of priorities is that  “the lien of a
judgment is superior to all conveyances … and liens on the debtor’s land which
are made or accrue after the judgment lien has been attached.”   Carefree Homes,
Inc. v. Production Credit Ass’n,  81 Wis.2d  541,  545,  260 N.W.2d  759,  761
(1978).   In other words, “the first in time is the first in right.”   United States v.
City of New Britain, 347 U.S. 81, 85 (1954).   The United States Supreme Court
noted that this general principle “is widely accepted and applied, in the absence of
legislation to the contrary.”   Id. (emphasis added).
This  “first in time” principle notwithstanding, under Wisconsin’s
homestead exemption statute,  “an exempt homestead  … shall be exempt from
execution, from the lien of every judgment  … of the owner to the amount of
$40,000, except mortgages, laborers’, mechanics’ and purchase money liens and
taxes and except as otherwise provided.”3   Section                                             815.20, STATS.   (emphasis
3 Homestead is defined as “the dwelling and so much of the land surrounding it as is
reasonably necessary for use of the dwelling as a home, but not less than one-fourth acre (if
available) and not exceeding 40 acres.”  Section 990.01(13)(a), STATS.
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No. 99-0252
added).   Moreover, under § 806.15(1), STATS., “[e]very judgment properly entered
in the judgment and lien docket … shall, for 10 years from the date of entry, be a
lien on all real property of every person against whom the judgment is entered …
except homestead property that is exempt from execution under s. 815.20 ….”   Id.
(emphasis  added.)     Our  initial  inquiry  therefore  is  whether  the  homestead
exemption statute applies here.
Advent does not dispute that the property in question is homestead
property that Stress occupied.   Rather, Advent argues that its lien was not affected
by the homestead exemption because Stress never asserted his homestead rights
before the property at issue was sold to CVW.   We disagree.
This court has long recognized “that the public policy of this state
strongly favors the liberal construction of the homestead statutes in favor of the
debtor,  and  that  homestead  rights  are  preferred  over  the  rights  of  creditors.”
Mogilka v. Jeka, 131 Wis.2d 459, 468, 389 N.W.2d 359, 362 (Ct. App. 1986).
Thus,  “the right to the homestead exemption does not depend upon its formal
exercise.”   Lueptow v. Guptill, 56 Wis.2d 396, 404, 202 N.W.2d 255, 260 (1972).
Rather, the “fact of occupancy” may be sufficient to indicate one’s declaration of
the homestead exemption.   Id. at 404-05, 202 N.W.2d at 260; see also Martin v.
C. Aultman & Co., 80 Wis. 150, 49 N.W. 749 (1891).   In Larson v. State Bank of
Ogema, 201 Wis. 313, 230 N.W. 132 (1930), the debtor never “expressly made or
requested any selection of any of his acreage as a homestead, or objected to the
sale  under  execution  of  any  of  his  land.”    Id.  at                                 316,   230  N.W.  at  134.
Nevertheless, the court held:
[S]uch  use  and  occupancy  themselves  evidence  the
selection by the owner of all of such contiguous land as his
homestead, and constitute notice to all of its character as
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No. 99-0252
his homestead, and of his selection thereof as such, without
his giving any other notice.
Id. at  318,  230 N.W. at  134.    Similarly, in Lueptow, the judgment lienholder
argued  that  the  debtors  failed  to  exercise  their  homestead  exemption.    See
Lueptow, 56 Wis.2d at 404, 202 N.W.2d at 259.   Our supreme court, applying the
“mere occupancy rule,” held that the homestead exemption had been properly
exercised                                                                               “by  the  [debtors’]  residence  on  the  real  estate  at  the  time  of  the
docketing of Lueptow’s cognovit judgment.”   Id. at 405, 202 N.W.2d at 260.   We
therefore hold that Stress’s occupancy on the homestead constituted an exercise of
the homestead exemption.
Having  established  that  the  homestead  exemption  was  exercised
here, we must address how the exemption affects the priority of liens, as any liens
junior to the tax lien will be discharged upon IRS issuance of a deed to the real
property,  pursuant  to  tax  sale.    See                                              26  U.S.C.  §                                                                    6339(c).    We  must  stress,
however, that we are addressing only the application of the homestead exemption
statute,                                                                                § 815.20,  STATS.,  and  only where,  as  here,  equity  in  the  property  is
insufficient to satisfy subordinate lienholders.
Under  federal  law,  where  real  property  is  sold  by tax  sale,  “as
provided in [26 U.S.C. § 6335] and not redeemed in the manner and within the
time  provided  in                                                                      [26  U.S.C.                                                                      § 6337],  the  Secretary  shall  execute   …  to  the
                                                                                        purchaser of such real property  … a deed of the real property[.]”                                                          26 U.S.C.
§ 6338(b).   Consequently, and with respect to junior encumbrances, “a deed to real
property executed pursuant to section 6338 shall discharge such property from all
liens, encumbrances,  and titles over which the lien of  the United States with
respect to which the levy was made had priority.”                                       26 U.S.C. § 6339(c).   In other
words, the deed to real property executed pursuant to a tax sale under 26 U.S.C.
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No. 99-0252
§§   6331—6344  discharges all encumbrances junior  to  the  tax  lien.    We  will
therefore  determine  whether  Advent’s  lien  was  subordinated  by virtue  of  the
homestead exemption statute where, as here, equity in the property is insufficient
to satisfy subordinate lienholders.
The general principle of “first in time” effectively creates a “prior
lien”—a term commonly used to denote a “first or superior lien.”   See BLACK’S
LAW  DICTIONARY  1074  (5th ed.  1979).    The term  “superior,”  means  “higher;
belonging to a higher grade,” id. at 1288, and in the realm of lienholder priorities,
a superior or prior lien has the first right to satisfaction of its lien.   See City of New
Britain,                                                                                      347  U.S.  at  85.    Distinctions  made  under  the  homestead  exemption,
however, interfere with this prioritization scheme.
A homestead is exempt from all judgment liens except mortgages,
laborers’,  mechanics’  and  purchase  money  liens  and  taxes.    Section 815.20,
STATS.   It has been recognized that:
The  effect  of  this  distinction  between  exemptible  and
nonexemptible  creditors  is  the  subordination  of  senior
judgment creditors to junior but nonexemptible lienholders
upon the sale of the property.   This subordination interferes
with the usual prioritization scheme in Wisconsin, which
generally gives priority to encumbrances on property in the
order of their recording.
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No. 99-0252
In  re  Hazard  v.  Overhead  Door  Co.,  113  B.R.  494,  497  (W.D.  Wis.  1990)
(emphasis added).4    Although the subordination of  otherwise senior judgment
creditors interferes with the usual prioritization scheme in Wisconsin, i.e., first in
time  is  first  in  right,  the  Bankruptcy  Court  has                                                “recognized  the  [Wisconsin]
exemption statute’s mandate to subordinate the security interests of exemptible
creditors to those of nonexemptible lienholders .… ”   Id. (citing Lueptow).
Here, even though Advent’s lien was first filed, it is subject to the
homestead exemption and therefore subordinated to the subsequently filed, but
nonexemptible tax lien.   In other words, because Advent’s lien is subject to the
homestead exemption while the tax lien is not, the operation of the homestead
exemption effectively subordinates Advent’s otherwise superior judgment lien to
the status of junior lienholder.   Consequently, Advent’s junior lien was discharged
by operation of federal law—specifically by the execution of the IRS’s quit claim
deed to CVW under 26 U.S.C. § 6338.   We therefore reverse the circuit court’s
granting  of  summary  judgment  in  favor  of  Advent  and  remand  for  further
proceedings consistent with this opinion.
4   In addition to establishing the subordination of otherwise senior lienholders under the
homestead exemption, the Hazard court, interpreting 11 U.S.C. § 522(f)(1), held that judicial
liens may be avoided “if the total value of the liens held against the property reduces the equity
below the exemption level.”  In re Hazard v. Overhead Door Co., 113 B.R. 494, 498 (W.D. Wis.
1990).  Hazard arose out of a ch. 7 debtor’s motion to avoid a judicial lien on homestead property
that had been valued at $90,000.   See id. at 496.   In essence, although the debtors could not avoid
the approximately $70,000 owed in mortgage and taxes, they argued that they should be allowed
to avoid the judgment lien on the ground that the lien impaired their homestead exemption,
contrary to 11 U.S.C. § 522 (f)(1).   Under 11 U.S.C. § 522(f)(1), a debtor may avoid a judicial
lien if the lien impairs an exemption to which the debtor would have been entitled but for the lien.
See id. at 495-96.   The Hazard court held that, as the equity remaining in the property (i.e.
$20,000) fell below Wisconsin’s $40,000 homestead exemption, the judgment lien impaired the
debtor’s exemption and would therefore be avoided.  See id. at 499.
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No. 99-0252
By the Court.—Judgment reversed and cause remanded.
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