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24. Who has the prior lien?
A creditor received a valid judgment against a debtor and promptly filed the judgment in the county. Two years later, the debtor purchased land in the county and promptly recorded the warranty deed to the land. Subsequently, the debtor borrowed $30,000 from his aunt, signed a promissory note for that amount, and secured the note with a mortgage on the land. The mortgage was promptly recorded. The aunt failed to make a title search before making the loan. The debtor made no payment to the creditor and defaulted on the mortgage loan from his aunt. A valid judicial foreclosure proceeding was held, in which the creditor, the aunt, and the debtor were named parties. A dispute arose as to which lien had priority. A statute of the jurisdiction provides: «Any judgment properly filed shall, for 10 years from filing, be a lien on the real property then owned or subsequently acquired by any person against whom the judgment is rendered.» A second statute of the jurisdiction provides: «No unrecorded conveyance or mortgage of real property shall be good against subsequent purchasers for value without notice, who shall first record.»
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The majority rule states that a plaintiff who obtains a judgment lien under this kind of statute is not protected by any recording acts from a prior unrecorded conveyance made by the defendant. This is because a plaintiff is not a bona fide purchaser because he did not pay value for the judgment, or the judgment attaches only to property owned by the defendant, and not the property the defendant has previously conveyed away, even if that conveyance was not recorded.
C is correct. This is a race-notice jurisdiction, which protects a bona fide purchaser (BFP) for value without notice who records first. The creditor filed first, giving the aunt constructive notice of the judgment lien. Accordingly, the judgment lien has priority.
A is incorrect. A mortgage lien does not automatically have priority over a judgment lien. This is a race-notice jurisdiction, which protects a BFP for value without notice who records first. The aunt had constructive notice of the judgment lien, which was filed before the aunt loaned money to the debtor and obtained the mortgage.
B is incorrect. The aunt is not a mortgagee under a purchase-money mortgage because the debtor already owned the property when he borrowed money from the aunt, signed the note, and signed the mortgage. Furthermore, a mortgage lien does not have automatic priority over a judgment lien. This is a race-notice jurisdiction, which protects a BFP for value without notice of who records first. The aunt had constructive notice of the judgment lien, filed before the aunt loaned money to the debtor and obtained the mortgage.
D is incorrect. Although this option correctly concludes that the creditor has priority, it misstates the reason why this is so. No one has a duty to make a title search. The creditor has priority because the judgment lien was filed first in a race notice jurisdiction.