Nebraska Supreme Court
Case Citation: 283 Neb. 960, 814 N.W.2d 378 (2012)
Background: Westin Hills West Three Townhome Owners Association (Westin Hills) was formed pursuant to a declaration of covenants, conditions, and restrictions (the Declaration) for a townhome community in the Westin Hills West subdivision in Douglas County, Nebraska. The Declaration was recorded with the Douglas County register of deeds on March 29, 2002.
Mary K. Pichler purchased a property in the townhome community subject to the Declaration. In order to secure certain indebtedness, Pichler executed and delivered a Deed of Trust encumbering the property. The Deed of Trust was recorded with the register of deeds on May 6, 2003. The original creditor later assigned the Deed of Trust to U.S. Bank.
Pichler failed to pay Westin Hills’s assessment of September 1, 2008. On January 28, 2009, Westin Hills recorded with the register of deeds a notice of assessment lien naming Pichler as the person against whom the interest was claimed.
Pichler also became delinquent on her indebtedness to U.S. Bank, and U.S. Bank elected to proceed with a non-judicial foreclosure of the Deed of Trust pursuant to the Nebraska Trust Deeds Act. The trustee held a trustee’s sale on May 6, 2010. U.S. Bank submitted the winning bid and later assigned its bid to Federal National Mortgage Association (FNMA).
In its controlling complaint, Westin Hills sought an order establishing and confirming its assessment lien “as a paramount lien upon the real estate . . . senior and superior to the rights, title, interests, liens or claims of” FNMA. The district court denied Westin Hills’s motion for summary judgment and granted FNMA’s motion for summary judgment. The court concluded that Westin Hills’s lien recorded on January 28, 2009, was subsequent and inferior to the Deed of Trust that was recorded on May 6, 2003. The court rejected Westin Hills’s argument that its recording of the Declaration on March 29, 2002, gave Westin Hills’s lien attributable to Pichler’s delinquency priority over the Deed of Trust. The court reasoned that the Declaration only gave notice of potential future assessments and that no lien arose until the owner became delinquent on payments, which did not occur until after September 1, 2008.
Issue: Whether Westin Hills’s recording of its declaration of covenants, before the Deed of Trust, gave the assessment lien, recorded after the Deed of Trust, first lien priority?
Analysis: Westin Hills contends that its lien has priority because the Declaration of Westin Hills was recorded prior to the Deed of Trust. The Declaration was recorded March 29, 2002. The Deed of Trust was recorded May 6, 2003. The Court stated that if the lien mentioned in the Declaration was enforceable against third parties when the Declaration was recorded, it would be superior to the Deed of Trust. But, if the lien in the Declaration was not enforceable as against third parties until the assessment became delinquent and a notice of the delinquency was recorded, the Deed of Trust is superior.
In its order, the district court stated that there must be a clearly established debt to which the lien can attach and there was no debt owed by the property owner until Westin Hills imposed an assessment, the property owner failed to pay it, and the assessment became delinquent. The Court cited case law from other jurisdictions who have observed that a lien does not exist until a debt is owed.
One such case is Dean Realty Co. v. City of Kansas City, 85 S.W.3d 83 (Mo. App. 2002)(A lien on real estate for payment of a debt is a right to have the debt satisfied out of the land, if not otherwise paid. Thus, a lien cannot exist in the absence of the debt, the payment of which it secures).
The Court in this case found the undisputed facts showing that at the time the Declaration was recorded on March 29, 2002, there existed no actual lien upon the property because no assessment had been charged, much less stood unpaid or delinquent. The Deed of Trust was recorded on May 6, 2003. The assessment lien contemplated by the Declaration could not have come into existence and become enforceable against third parties until a debt was owed and became delinquent in September 2008. The terms of the Declaration do not contain an express priority provision subordinating a deed of trust, nor is there a relation-back clause. Thus, the Deed of Trust recorded May 6, 2003, was superior to the assessment lien mentioned in the Declaration filed March 29, 2002.
Judgment: AFFIRMED, holding the Deed of Trust was superior to any assessment lien mentioned in the Declaration of Westin Hills.
To see the Court’s complete opinion, click here.