Scannell v. JP Morgan Chase Bank, N.A. (In re Scannell)
Scannell v. JP Morgan Chase Bank, N.A. (In re Scannell)
Opinion of the Court
ORDER SETTING PRIORITY OF LIENS
The parties present an issue of first impression, namely, which has priority in Arizona: a restitution lien or a purchase money deed of trust? The Court concludes that a purchase money deed of trust against real property has priority over an earlier recorded restitution lien.
I. Facts
The essential facts are undisputed. They occurred prepetition.
On December 15, 2004, the Pima County Attorney’s Office
In December 2005, the Debtor purchased the property at 4727 East Lafayette, Unit 216, Phoenix, Arizona (“Lafayette Property”). To finance the purchase, the Debtor obtained a purchase money loan from Vista Mortgage Services (“Vis
In January 2007, the Debtor purchased the property at 6711 E. Camelback Rd. # 8, Scottsdale, Arizona (“Camelback Property”) for $1,210,000. To finance the purchase, the Debtor obtained a purchase money loan for $960,000 from Bear Stearns Residential Mortgage Corporation (“Bear Stearns”). The money loaned by Bear Stearns was not used to pay off any existing liens against the Camelback Property.
The matter comes before the Court on motions for summary judgment filed by Chase and RCS. The State did not respond, but instead filed a statement of position. The Court gave all parties an opportunity to weigh in on the issue through responsive and supplemental briefing.
II. Question Presented.
Does a purchase money lien against Arizona residential real property have priority over an earlier recorded restitution lien?
III. Analysis.
A Summary Judgment Standard
Summary judgment shall be granted where no genuine dispute of material fact exists and the moving party is entitled to a judgment as a matter of law. Fed. R.Civ.P. 56(a); Fed. R. Bankr.P. 7056(a). “[T]he mere existence of some alleged factual dispute ... will not defeat [a] ... motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (emphasis omitted). A genuine issue of material fact exists when “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. at 248, 106 S.Ct. 2505. The moving party bears the initial burden of demonstrating to the court that no genuine issue of material fact exists and to further show that the moving party is entitled to judgment in their favor as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The burden then shifts to the nonmoving party to show that there are specific facts creating a genuine issue for trial. Id. at 324, 106 S.Ct. 2548. When the nonmoving party bears the burden of proof, however, “the burden on the moving party may be discharged by ‘showing’ — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party’s case.” Id. at 325, 106 S.Ct. 2548. When the facts are uncontested, summary judgment can
B. The Statutes
Two Arizona Statutes must be interpreted to answer the question presented. A.R.S. § 13-806(F) (enacted 1986) reads:
The filing of a restitution lien under this section is notice to all persons dealing with the person or property identified in the lien of the state’s or victim’s claim. The lien created in favor of the state or the victim in accordance with this section is superior and prior to the claims or interests of any other person, except a person possessing any of the following:
1. A valid lien perfected before the filing of the restitution lien.
2. In the case of real property, an interest acquired and recorded before the filing of the restitution lien.
3. In the case of personal property, an interest acquired before the filing of the restitution lien.
A.R.S. § 33-705 (enacted 1996) reads:
A mortgage or deed of trust that is given as security for a loan made to purchase the real property that is encumbered by the mortgage or deed of trust has priority over all other liens and encumbrances that are incurred against the purchaser before acquiring title to the real property.
C. Rules of Statutory Interpretation— Plain Meaning
“The touchstone to the interpretation of a statute is to determine the intent of the Legislature in enacting the statute.” Members of Bd. of Educ. Of Pearce Union High School Dist. v. Leslie, 112 Ariz. 463, 543 P.2d 775, 777 (1975).
There is no dispute that the Deeds of Trust are the type of liens governed by A.R.S. § 33-705. Under A.R.S. § 33-705, purchase money security interests have “priority over all other liens and encumbrances that are incurred against the purchaser before acquiring title to the real property.” The State filed the Restitution Lien against the Debtor before he acquired title to the Lafayette or Camelback Properties. According to the plain terms of A.R.S. § 33-705, the Deeds of Trust should have priority.
There is also no dispute that the Restitution Lien is the type of lien governed by A.R.S. § 13-806. Under A.R.S. § 13-806, a restitution lien is superior and prior to all other liens against the property interests of the person subject to the lien with three exceptions: a valid lien perfected prior to the restitution lien, an interest in real property acquired and recorded before the restitution lien, and an interest in personal property acquired prior to the restitution lien. The Deeds of Trust do not meet any of the three exceptions in
How then to read the two statutes together? When dealing with separate statutes, the Court must give meaning to both statutes if possible. Finch v. State Dep’t of Pub. Welfare, 80 Ariz. 226, 295 P.2d 846, 848 (1956); State v. Cassius, 110 Ariz. 485, 520 P.2d 1109, 1111 (1974). Presumably, the Legislature intended both statutes to be operative. Kelly v. Bastedo, 70 Ariz. 371, 220 P.2d 1069, 1072 (1947); Cassius, 520 P.2d at 1111.
Chase alleges the Restitution Lien has no greater priority than any other civil claim against the Debtor based on State v. Woodall which holds “our statutes indicate that restitution claims are equal, not superior, to other civil claims.” 162 Ariz. 591, 785 P.2d 111, 113 (Ariz.Ct.App. 1989). Chase’s reliance on Woodall is misplaced. The language cited by Chase refers to the priority of restitution orders recorded under A.R.S. § 13-805(E).
The State attaches special meaning to the word “superior” in A.R.S. § 13-806. In the State’s view, the word “superior” in A.R.S. § 13-806 means a “super-priority” which goes beyond use of the term “priority” in A.R.S. § 33-705. The State’s only legal authority for this theory is citation to the term “superior” in Black’s Law Dictionary.
The term “superior” in connection with the term “lien” in Arizona statutes is common place with over twenty statutes incor
Steinfeld, v. State, 37 Ariz. 389, 294 P. 834 (1930) gives guidance in the interpretation of the phrase “prior and superior to.” In Steinfeld, the Arizona Supreme Court was asked to determine whether a privately held tax hen had priority over a state-held mortgage. Before turning to the statute, the court observed that “[t]he Legislature of Arizona, however, has full power to determine whether or not a tax lien shall be superior to other liens, so long as its determination does not impair previously existing contracts or vested rights.” Id. at 835. The Court then turned to the statute in question
Since Steinfeld, courts have consistently held that tax liens have priority over all other liens. See In re Ecology Paper Products Co., 17 B.R. 281, 282 (Bankr.D.Ariz. 1982) (concluding that a plain reading of A.R.S. § 42-609
Chase acknowledges the superiority of tax hens, but explains that they do not have priority based on the term superior. Instead, Chase points to A.R.S. § 42-17158(A) which provides “a tax that is levied on real or personal property is a lien on the assessed property.” (emphasis added). This lien runs not against the person, but instead runs against the land. By comparison, A.R.S. § 13-806
Chase has the better of the argument. After a review of Arizona statutes and case law, this Court concludes that the term “superior and prior to” has no special meaning but, rather, is interchangeable with the term “priority”.
D. Rules of Statutory Interpretation— The More Recent Statute
As the Court cannot resolve the competing language in the two statutes by simply reading the plain language of the statutes, the Court turns to other grounds to analyze this dispute. “[W]hen there is conflict between two statutes, the more recent, specific statute governs over the older, more general statute.” In re Estate of Winn, 214 Ariz. 149, 150 P.3d 236, 239 (2007) (citations omitted). The Legislature enacted A.R.S. § 13-806 in 1986
The timing of the enactment of the statutes cannot be questioned. The Legislature enacted A.R.S. § 13-806 in 1986 and A.R.S. § 33-705 in 1996. “Where statutes [on the same matter] are in apparent conflict, they should be construed in harmony so as to give force and effect to each.... The presumption is that the legislature did not intend to do a futile thing by including in a statute a provision which is nonoperative or invalid.” State v. Cassius, 110 Ariz. 485, 520 P.2d 1109, 1111 (1974). In this matter, the Court presumes that the Legislature knew of A.R.S. § 13-806 when it enacted A.R.S. § 33-705. In the way it drafted A.R.S. § 13-806, the Legislature showed an ability and willingness to create exceptions to priorities when warranted. Yet, when it drafted A.R.S. § 33-705 the Legislature offered no exceptions — purchase money mortgages have priority over all other hens.
The Legislature recently amended A.R.S. § 13-806 to create a carve out for vehicle liens.
E. Legislative History
There is little legislative history on A.R.S. §§ 13-806 or 33-705. However, the history that does exist offers clues to the Legislature’s intent on both statutes.
In 2007, the Legislature passed Senate Bill 1286 making changes to multiple criminal statutes, including A.R.S. §§ 13-810, 13-812, and 13-4430 — each of which involve restitution. S. 1286, 48th Leg., 1st Reg. Sess. (Ariz. 2007), available at http:// www.azleg.gov//FormatDocument.asp?in Doc=/legtext/481eg/lR/laws/0290.htm& Session_ID=85. One of the stated purposes of Senate Bill 1286 recognized constitutional guarantees to victims under the Arizona Victim’s Bill of Rights. Id. at § 13(A). Though not directly related to A.R.S. 13-806, one of the rights guaranteed to victims is the right “[t]o receive prompt restitution from the person or persons convicted of the criminal conduct that caused the victim’s loss or injury.” Id. at § 13(C)(2).
Though scant, there is some legislative history for A.R.S. § 33-705. “[A] mortgage or deed of trust that is given as security for a loan made to purchase real property has priority over all other liens and encumbrances.” Final Revised Fact Sheet for S.B. 1300, 42nd Leg., 2nd Reg. Sess., at 2 (Ariz. May 7,1996). Additionally, at the time of enactment, Maricopa County title examiners believed a recorded judgment lien to attach “at the instant title to the property passed to the judgment debtor.” Kathi Mann Sandweiss and Roger L. Cohen, Preserving the Family Farm in An Urban Age; Recent Changes to the Arizona Judgment Lien and Homestead Statutes, 34 Ariz. Att’y 18, 49 (Aug./Sept. 1997). With the enactment of 33-705, the opportunity to convert a judgment lien to a payment was lost. Id.
While neither statute’s legislative history provides conclusive guidance, the statement contained in the Fact Sheet for A.R.S. § 33-705 is clear that a purchase money deed of trust has priority over all other liens and encumbrances. This legislative history is consistent with the Court’s presumption that the Legislature knew of
F. The Texas Experience
The primacy of statutes involving restitution liens and purchase money liens was addressed by the State of Texas. As originally enacted in 1995, the Texas restitution Hen statute read:
The perfection of a restitution lien under this article is notice of the claim to all persons dealing with the defendant or the property identified in the affidavit perfecting the lien. A perfected lien in favor of a victim is superior and prior to the claim or interest of any other person, other than:
1) a person who possesses a valid lien, or security interest, perfected before the perfection of the restitution lien;
2) a bona fide purchaser who acquires an interest in the property, if personal property, before the fiHng of the restitution Hen, to the extent that the purchaser gives value; or
3) a bona fide purchaser who acquires and records an interest in the property, if real property, before the perfection of the restitution Hen, to the extent that the purchaser gives value.
Tex.Code Crim. Proc. art. 42.21 § 9 (West 2006).
The perfection of a restitution Hen under this article is notice of the claim to all persons dealing with the defendant or the property identified in the affidavit perfecting the Hen. Without regard to whether perfected before or after the perfection of a restitution Hen filed and perfected under this article, a perfected real estate mortgage Hen, a vendor’s Hen, a purchase money security interest ... is superior and prior to a restitution Hen filed and perfected under this article.
Tex.Code Crim. Proc. art. 42.22 § 9 (West 2009). Thus, under current Texas law, it is clear that a purchase money deed of trust takes priority over a restitution Hen. Why the change?
According to legislative history, the Texas Legislature modified its restitution Hen statute to reduce confusion. As set forth in the House Committee Report to bill HB 2830, the Texas restitution statute had the unintended consequence of creating confusion as to the priority of Hens. Criminal Jurisprudenoe Comm., Bill Analysis, Tex. H.B. 2830 75th Reg. Sess. (Tex. 1997) (available at http://www.legis.state.tx.us/ tlodocs/75R/analysis/html/HB02830H.htm). The effect of the reworded statute was to provide “expressly that the restitution Hen is inferior to a perfected real estate mortgage Hen, a vendor’s Hen, a purchase money security interest....” Id. It is instructive to note that Texas decided to amend its statutes to make it clear that a purchase money Hen will take priority over restitution Hens. While the Texas Legislature recognized the confusion caused by its statutes, the Arizona Legislature has not yet seen fit to clarify the confusion in Arizona’s Hen priority statutes.
G. Public Policy
In reaching the conclusion that purchase money deeds of trust hold priority over restitution Hens, the Court is well aware of the strong public policies supporting the priority of each Hen. The Legislature, perhaps recognizing these strong public
In Arizona, the recovery of restitution is a constitutional right. State v. Zaputil, 220 Ariz. 425, 207 P.3d 678, 681 (Ariz.Ct.App. 2008). According to the Arizona Constitution, a victim of a crime has the right “[t]o receive prompt restitution from the person or persons convicted of the criminal conduct that caused the victim’s loss or injury.” Ariz. Const. art. 2 § 2.1(8). The plain language of the Victims’ Bill of Rights is to be applied. State ex rel. Romley v. Super. Ct. In and For Cnty. of Maricopa, 184 Ariz. 409, 909 P.2d 476, 478 (Ariz.Ct.App. 1995). A court cannot make ad hoc exceptions to the Victims’ Bill of Rights. Id.
However, under historically accepted and understood legal principles, a purchase money deed of trust gives lenders a “super-priority” taking “precedence over any prior or subsequent claim or lien attaching to the property through the mortgagor.”
The purchase money super-priority policy is sound on several fronts. First, giving priority to purchase money loans over prior creditors reflects the purchase money lender’s contribution of property to the borrower’s estate. Slodov, 436 U.S. at n. 23, 98 S.Ct. 1778. Next, giving priority to purchase money liens greases the wheels of commerce by giving homogeneity and liquidity in the marketplace resulting in cheaper credit. Restatement (Third) of
Importantly, the purchase money super-priority policy comports with the legal fiction of instantaneous seisin. Under instantaneous seisin “when a deed and a purchase money deed of trust are executed, delivered, and recorded as part of the same transaction, the title conveyed by the deed of trust attaches at the instant the vendee acquires title and constitutes a lien superior to all others.” West Durham Lumber Co. v. Meadows, 179 N.C.App. 347, 635 S.E.2d 301, 304 (2006) (internal quotation omitted). Accordingly, title to the land never rests in the purchaser, “but merely passes through his hands, and, without stopping, vests in the mortgagee, and during such instantaneous passage no lien of any character can attach to the title.” Transamerica Fin. Serv., Inc. v. Lafferty, 175 Ariz. 310, 856 P.2d 1188, 1194 (Ariz.Ct.App. 1993) (quoting Faulkner Cnty. Bank & Trust v. Vail, 173 Ark. 406, 293 S.W. 40, 41 (1927)). Under this theory, the Debtor never had an interest in the Lafayette or Camelback Properties to which the Restitution Lien could attach prior to the attachment of the Deeds of Trust.
In the end, there is historic public policy supporting the superiority of purchase money deeds of trust. When faced with the quandary before this Court, the Texas Legislature concluded purchase money liens should triumph over restitution liens. Without clear Arizona legislation to the contrary this Court likewise finds the priority of purchase money deeds of trust over restitution liens. Under normal market conditions, giving priority to purchase money security loans would satisfy the public policy purposes behind both restitution and purchase money liens as real estate generally rises in value. In such circumstances, the holder of a restitution lien, having a priority just behind a purchase money lien, would become the beneficiary of the increase in property values. Thus, an Arizonan’s constitutional right to prompt payment of restitution would be protected. “But for the willingness of the vendor to part with the real estate, it would have been completely unavailable to those persons for the satisfaction of their claims. To give such claimants priority over the vendor would confer on them a pure windfall.” Restatement (Third) of Property (Mortgages) § 7.2 Cmt. b (1997).
IV. Conclusion
When read together, the purchase money and restitution lien statutes cannot be enforced by their plain terms. However, when the Court considers that A.R.S. § 33-705 was enacted after A.R.S. § 13-806, that the legislative history of A.R.S. § 33-705 is clearer than the legislative history behind A.R.S. § 13-806, and that the public policy behind A.R.S. § 33-705 is supported by a long history of the superiority of purchase money liens, the Court
So ordered.
. The Clerk of the Superior Court, State of Arizona, Pima County appears via the Arizona Attorney General's Office (''State”).
. In a supplemental brief Chase claims the State improperly recorded the Restitution Lien because it was not recorded in accordance with A.R.S. § 33-967(A). Chase is wrong. A.R.S. § 33-967 deals with judgment liens created under A.R.S. § 33-961 not restitution liens created under A.R.S. § 13-806. Further, A.R.S. § 33-967 only applies to a "judgment or decree or any renewal that requires the payment of money.” A.R.S. § 33-967(A). But, "[a] filing fee or any other charge is not required for filing a restitution lien." A.R.S. § 13-806(A). As the argument is both untimely and wrong, it is rejected.
. As neither loan was used to pay off an existing debt, there is no basis for the Court to consider the principles of equitable subrogation as addressed in Sourcecorp, Inc. v. Norcutt, 229 Ariz. 270, 274 P.3d 1204 (2012).
. The Court will follow the lead of the Arizona Supreme Court in Pearce Union High School and refer to the Arizona State Legislature as "Legislature”.
. A.R.S. 13-805(E):
A criminal restitution order may be recorded and is enforceable as any civil judgment, except that a criminal restitution order does not require renewal pursuant to § 12-1611 or 12-1612. Enforcement of a criminal restitution order by any person who is entitled to restitution or by the state includes the collection of interest that accrues at a rate of ten per cent per annum. A criminal restitution order does not expire until paid in full.
. The State relies on the Revised Fourth Edition definition, "Higher; belonging to a higher grade.... Possessing larger power. Entitled to command, influence, or control over another.” Black’s Law Dictionary 1606 (rev. 4th ed. 1968). The Court also refers to the Ninth Edition definition, "higher; elevated; possessing greater power or authority; entitled to exert authority or command over another.” Black’s Law Dictionary 1575 (9th ed. 2009).
.The State also turns to the definition of "superior” in Merriam-Webster.com as "situated higher up: UPPER, 2: of higher rank, quality, or importance.” Definition of Superior, Merriam-Webster.com, http://www. merriam-webster.com/dictionary/superior (last visited Dec. 16, 2013). Relying on a general use dictionaiy definitions is unpersuasive in light of Merriam-Webster.com's definition of "priority”: "a (1): the quality or state of being prior (2): precedence in date or position of publication — used of taxa b (1): superiority in rank, position, or privilege (2): legal precedence in exercise of rights over the same subject matter.” Definition of Priority, Merriam-Webster.Com, http://www. merriamwebster.com/dictionaiy/priority? show=0&t= 1389287624 (last visited January 9, 2014) (emphasis added).
. See A.R.S. §§ 8-345, 13-806, 13-2314.02, 9-499, 11-268, 12-997, 36-602, 20-553, 23-746, 28-5940, 33-723, 33-801, 33-812, 33-966, 40-350, 45-1212, 42-17153, 42-19106, 48-542, 48-984, 48-3164, 48-3165, 48-3168, 44-1006, and 47-9109.
. R.S.A. 1913, Civil Code (as cited in Stein-feld, 294 P. at 836):
Every tax levied under the provisions or authority of this act upon any real or personal property is hereby made a lien upon the property assessed, which lien shall attach on the first Monday in January in each year and shall not be satisfied or removed until such taxes, penalty, charges, and interest are all paid, or the property has absolutely vested in a purchaser under a sale for taxes. Said lien shall be prior and superior to all other liens and encumbrances upon the said property.
.A.R.S. 42-609 (as cited by Ecology Paper, 17 B.R. at 281):
The tax levied against personal property shall be a lien against the property, prior and superior to any and all other liens of every kind and description regardless of when another lien attached. The lien shall not be discharged until the taxes are paid or the title to the property vests in a purchaser of the property for the taxes.
. "The filing of a restitution lien ... is superior and prior to the claims or interests of any other person ...” (emphasis added).
. The Legislature has amended A.R.S. § 13-806 three times since enactment. The first amendment, in 1995, was to change subsection “B”. The second amendment, in 2010, added subsection "J" to give priority to a self-service storage facility. The final amendment, in 2013, added language to subsection "H” to bar perfection against motor vehicles. Historical and Statutory Notes to A.R.S. § 13-806.
.The Legislature has not amended A.R.S. § 33-705 since its enactment.
. See A.R.S. § 13-806(H) (2013); A.R.S. § 28-2137.
. In 1997, the Texas Legislature renumbered the restitution lien article to art. 42.22. George E. Drx & John M. Scholesky, 43A Texas Practice: Criminal Practice And Procedure § 46:144, n.l (3d ed. 2013).
. See A.R.S. §§ 12-991; 12-996; 12-997; 33-1903; and 33-1904.
. A.R.S. § 12-991(F) is representative of the language in each of the nuisance statutes:
If the owner, the owner’s managing agent or the party responsible for the property knows or has reason to know of the criminal activity and fails to take reasonable, legally available actions to abate the nuisance, a governmental authority may abate the nuisance. The court may assess the owner for the cost of abating the nuisance. On recording with the county recorder in the county in which the property is located, the assessment is prior to all other liens, obligations or encumbrances except for pri- or recorded mortgages, restitution liens, child support liens and general tax liens. A city, town or county may bring an action to enforce the assessment in the superior court in the county in which the property is located.
.However, there are tax and other statutory liens which sometimes take priority over purchase money mortgages. Baxter Dunway, Law of Distressed Real Estate Such as Miscellaneous State and Local Taxes. 4 L. Distressed Real Est. § 40:53. Other examples include liens for unpaid water and rent. Id.
Reference
- Full Case Name
- In re James Patrick SCANNELL, Debtor. James Patrick Scannell v. JP Morgan Chase Bank, N.A.
- Status
- Published