Volume 2 Number 4

 

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Title Tips by Tute


Volume 2, Number 4


Dear Tute:

This is probably a silly question, but it has been bothering me. I was going to mention it at work, but I'm new there, and worried that they will think I'm dumb. I recently searched a title for a foreclosure sale. The deed of trust was recorded by a prior owner in 1991. In 1994, the property was sold to the current owner, who assumed the loan. The problem arose when I ran the judgment indices and found a judgment against the current owner that was docketed in 1988. I reported the judgment, and the underwriter gave me a really strange look. Was I wrong? Doesn't the judgment have priority, after all, it was recorded three years before the deed of trust. 

- - New in Town 

 

Dear New in Town: 

There are no dumb questions, only dumb columnists. In some situations, you might have a very real problem; but most of the time, your situation is not going to be a problem. 

As a general rule, the judgment lien against the current owner would not have priority against a deed of trust lien imposed by the prior owner. This is because the judgment did not attach to the real property when it was docketed. It did not attach to the real estate until the defaulting deadbeat bought the property. There are two factors required for a judgment lien to attach to real estate: 1) the judgment must be docketed; and 2) the defendant must own land. 

While it is true the judgment was docketed first, the lien did not attach then, since the defendant did not own the land. To use one of those science fiction space time continuum analogies, the defendant and the real estate are on two different time lines. On Time Line One, the defendant owns no land, and never will own land. The judgment never attaches. On Time Line Two, the defendant buys the real estate, and the two time lines merge. Whichever time line is used, the deed of trust lien imposed by the prior owner attached to the real estate in 1991. 

If the defendant had never purchased the real estate, the judgment lien would never attach. Since the defendant did purchase the land, the lien attached, but only in the year of the purchase, since it is only in that year that both requirements are satisfied. 

In your case, the deed of trust attached to the real estate in 1991, and the judgment attached in 1994. That is not the end of the analysis, however. The federal government, which is always complaining about a cash flow shortage, has passed laws which change the rules slightly. If the Internal Revenue Service dockets a Notice of Federal Tax Lien, the tax code says that it cannot be foreclosed over without receiving notice of the proposed sale before the foreclosure. The IRS doesn't admit the lender's lien has priority unless the IRS is given the opportunity to bid in the property during or just after the foreclosure process. This is called a right of redemption, and the IRS has 120 days from the foreclosure sale to act. 

Normally, a purchase money deed of trust will have priority over all other liens or interests in the property. This is due to a legal rule premised on the practical consideration that the purchase would never occur without the consideration being paid to the seller. If the consideration was not secured by the deed of trust, there would have been no sale. The theory holds that the buyer held title for such a minuscule period of time that even a "speeding bullet" could not have gotten between the conveyance to the buyer and the buyer's conveyance to the trustee to secure the purchase price. Under Virginia law, the purchase money deed of trust has priority over other liens and spousal interests. 

If a federal agency or department (other than the IRS) obtains a judgment, and dockets that judgment in the land records, the Federal Debt Collection Act sets out rules of priority which preempt state laws of priority. This interest is, by federal law, faster than the fastest speeding bullet. The federal judgment would have priority even if, under state law, it attaches to the land later in time. 

To avoid the unpleasant consequences of this federal statute, the title examiner should search the judgment lien indices not just in the name of the seller, but also in the name of the buyer, for a period of twenty years before the purchase of the land and the recording of the purchase money deed of trust. The same rule applies to an assumption transaction, and the examiner should examine the records for a federal judgment against the assumption purchaser as well. If the federal lien is not dealt with before the purchase, it will attach to the real estate and will have to be dealt with during your foreclosure transaction. The United States does not have to act within 120 days, as is the case with the IRS right of redemption. The federal statute says that it has priority, regardless of state law, and it will have the full 20 year period in which to enforce its lien.  

Tute 

 

Dear Tute:

I recently encountered a transaction which seems to break the rules. The owner of the property died in 1990. According to the list of heirs that was filed, there was no will, and one of the children was appointed as administrator of the estate. Later that same year, the property was sold by the administrator . I thought only an executor could sell real estate, and only if the will authorized such a sale by giving the executor a power of sale. What is going on here? 

M.A. 

 

Dear M.A.: 

Without a little more information, I cannot answer your question with any assurance that this is correct. (Of course, that is the case with every question Tute is asked, and it never stopped me before!) There are several plausible reasons for title to be conveyed by the administrator, and I'll try to hit a couple of them. 

In the first place, you are correct in seeing the discordant aspect in an administrator's sale. Under the basic rules of estate administration, the administrator is charged with collecting the personal property and making distribution to the heirs at law as determined by the statute of descent and distribution. There is no authority to deal with real estate, and no need, since the real estate descends to the heirs by operation of law, and without the necessity for any action by the personal representative. 

Have you examined the chancery indices? It may well be that the administrator is unable to administer the estate due to the lack of personal property assets, and is forced to invade the real estate in order to complete those duties. The personal representative can file a suit, in essence on behalf of the creditors of the estate, in order to subject real estate to claims against the estate. See 64.1-185. Upon petition and order, a court can authorize the personal representative to make a sale by granting it the powers contained in Va. Code. 64.1-57. That power is set out in Va. Code 64.1-57.1. 

Is there any recital in the deed that the deceased owner entered into a contract for the sale of the real estate while alive, but did not live to see closing? If this is the case, the deed could have been drafted better by reciting those facts, and giving the title examiner the benefit of a citation to the statutory authorization for such an action, which is Va. Code 64.1-148. 

Given the facts you provided, I know your case does not involve an administrator c.t.a.d.b.n.  Again, the Code clearly provides authority for the successor personal administrator to succeed to all the powers granted the executor when the executor fails to qualify, is forced to resign, or dies before completing the administration of the estate. See Va. Code 64.1-142, -146, and -147. 

Tute

 

 

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