MTC Financial v. Nationstar Mortgage, DCA1/3, 1/22/18
Countrywide made two loans to borrower—a purchase money loan of about $200k, and a HELOC of $15k. Each was secured by a deed of trust against the borrower’s home, which were created the same day and filed for recordation with the County Recorder on the same date and same time (8 a.m.). The Recorder indexed the HELOC DOT ahead of the purchase money DOT. The indexing made the purchase money DOT appear to be junior to the HELOC DOT. The loans were subsequently purchased on the secondary market by different lenders, and no one took action to fix the inadvertent priority problem. On default, the HELOC lender proceeded with a nonjudicial foreclosure sale, which created a surplus. The owner of the purchase money DOT (Nationstar), the foreclosed borrower and the HOA (who had held a junior lien for unpaid HOA dues) proceeded to fight over the surplus. Even though a junior lienholder is entitled to the surplus before the foreclosed borrower, the trial court held that Nationstar was actually the senior lienholder and not entitled to anything. Held: Affirmed.
California is a first in time, first in right state. These are the key rules: Other things being equal, different liens on the same property have priority according to the time of their creation. Second, liens generally take priority over subsequently recorded liens. When liens are recorded at the very same time, priority is not necessarily determined by how the Recorder indexes the documents, especially when an examination of the record would provide notice of the true priorities. In one case, a court held that two simultaneously recorded liens by two different banks had equal priority. In this case, the trial relied on the apparent intent of the parties (i.e., that the higher dollar value purchase money DOT would be in first position) to determined that the DOT now held by Nationstar was in fact in first position. Therefore, because senior lienholders are not entitled to any of the surplus because the property remains subject to his/her lien, Nationstar was entitled $0.
While Nationstar felt like it had lost, it has actually won—It still has its senior lien against the property. The party who purchased the property at the foreclosure sale—who doesn’t appear to be a party to this case—has been placed in a very bad spot: This court all but held that the purchaser had notice of the priority problem and should have taken steps to determine which of the two liens was senior.