The Risk Manager, Spring 2017
Do purchase money mortgages have priority over judgment lien creditors irrespective of timing and notice?
The answer to this question was yes until the recent Kentucky Court of Appeals decision in Hays v. Nationstar Mortgage LLC, No. 2015-CA-000121-MR, 1/6/2017. The case concerned whether the lien of Nationstar was superior to a prior judgment lien filed by Hays for child support arrearages.
In reaching its decision the court considered the inconsistent holdings of Kentucky Legal Sys. Corp. v. Dunn, 205 S.W.3d 235 (Ky. App. 2006) and the Kentucky Supreme Court case Mortg. Elec. Registration Sys., Inc. v. Roberts, 366 S.W.3d 405
Dunn: [A] purchase money lender does not need to search for judgment liens, as purchase money liens automatically have priority whether the purchase money lender had notice of any other interest. Dunn, 205 S.W.3d at 237.
Roberts: “Kentucky is a race-notice jurisdiction” and that “a prior interest in real property takes priority over a subsequent interest that was taken with notice, actual or constructive, of the prior interest.” Roberts, 366 S.W.3d at 407-08.
The Court of Appeals ruled: “When examining these issues de novo, we conclude that Roberts effectively overrules Dunn by implication. Accordingly, the race-notice provisions reaffirmed by Roberts must be applied to the facts before us.”
Risk Management Alert:
Prior to Hays title examiners relying on Dunn often did not check the borrower’s name for pre-existing liens. It is now critical that they do so. Update your title examination checklist to include this requirement. Be sure that everyone in your practice knows of this significant change in real estate law.