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News & Press: Court Cases

Supreme Court Denies Hearing on Subordination of Recorded Deed of Trust to Later Money Judgment

Monday, September 18, 2017  
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The California Supreme Court declined to hear an appeal in the case of Nautilus, Inc. v. Urban Financial Group, Inc., where a money judgment was given priority over a prior recorded deed of trust by the trial court. The CLTA had requested the Supreme Court to take the case to address the issue of court ordered lien priorities.

The trial court in Nautilus found that a fraudulent conveyance was made by one of two record owners who had an abstract of judgment recorded against him. The property ended up being transferred by both record owners, who were brothers, to their father. The father then obtained a reverse mortgage without paying off the judgment lien against one of his sons. The trial court decided that the conveyance was void as against the brother with the lien, and therefore the abstract of judgement continued to attach to his interest. Because the reverse mortgage was used to pay off liens that were prior to the abstract of judgment, the court used equitable subordination to subordinate the abstract of judgment to the lien of the reverse mortgage, to the extent the mortgage loan proceeds were used to pay off all the pre-existing liens on the property.

In addition to addressing the priorities between the abstract of judgment and the reverse mortgage, the trial court also entered a judgment against the father. However, the trial court made the judgment against the father senior to the lien of the prior recorded reverse mortgage deed of trust. This reordering of priorities was the issue the California Supreme Court was asked to consider. The question was whether the trial court could grant a new equitable lien and give it priority over an earlier recorded deed of trust. The court of appeal reasoned that the trial court did not create an ad hoc super-lien through the judgment, but rather used its equitable powers to establish lien priorities if and when an abstract of judgment is recorded. This decision could be applied in the future to give a later money judgment priority over a recorded deed of trust if certain equitable conditions are met. This appeared to the CLTA to clearly be contrary to well established lien priorities and recording statutes and was the reason that the CLTA asked the Court to hear the case.

California Land Title Association

1215 K Street #1816 Sacramento, CA 95814-3905
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