May 21, 2019

Colorado Court of Appeals: Relation-Back Doctrine Not Applicable When No Actual Notice of Second Judgment Lien Given to Lienholder in Priority Dispute

The Colorado Court of Appeals issued its opinion in Goodman Associates, LLC v. Winter Quarters, LLC on June 7, 2012.

Priority Between Lienholders—Amended Judgment Lien Versus Deed of Trust.

In this priority dispute between competing lienholders, plaintiff Goodman Associates, LLC (Goodman) appealed the trial court’s order that Goodman’s amended judgment lien does not have priority over a deed of trust given by defendant Winter Quarters, LLC (Winter Quarters) to defendant Capital West National Bank (Capital West) for the purchase price of certain property in Grand County. Goodman also appealed the trial court’s order denying its motion for reconsideration. The judgment was affirmed.

On October 22, 2008, Goodman filed a complaint in Eagle County District Court alleging claims against WP Mountain Properties, LLC (WPMP) for declaratory judgment and breach of contract arising out of a failed purchase and sale agreement between the parties (Eagle County case). WPMP filed no responsive pleadings and Goodman moved for entry of a default judgment. On December 4, 2008, the Eagle County District Court entered a default judgment. Goodman filed a transcript of the default judgment with the Grand County Clerk and Recorder, which identified a judgment amount of $152,289.98, plus 8% interest “per annum compounded annually from the date of judgment until paid in full,” and a judgment date of December 4, 2008 (December 2008 judgment lien). The transcript of judgment encumbered all real property owned by WPMP in Grand County, including the subject property, Lot 13 within the Lakota Park subdivision.

On January 9, 2009, Winter Quarters purchased Lot 13 from WPMP, financed by a promissory note secured by a deed of trust in favor of Capital West. The deed of trust was recorded on January 23, 2009.

On April 3, 2009, WPMP filed a motion to set aside the default judgment, and Goodman objected. The Eagle County District Court granted WPMP’s motion to set aside the default judgment.

On June 10, 2009, Goodman filed a petition for relief pursuant to CAR 21 with the Colorado Supreme Court, seeking to overturn the order setting aside the default judgment. On January 11, 2010, the Supreme Court issued a rule made absolute granting Goodman’s requested relief and directing the Eagle County District Court to reinstate the default judgment. On February 11, 2010, pursuant to the Supreme Court’s mandate, the Eagle County District Court vacated the order, setting aside the default judgment and directing that the order filed on December 7, 2008 should be reinstated nunc pro tunc.

Goodman filed a motion for an award of attorney fees and costs against WPMP and a supplement thereto in the amount of $134,138.90, plus interest. On June 17, 2012, the Eagle County District Court entered the amended judgment. Goodman recorded the transcript of judgment with the Grand County Clerk and Recorder on July 1, 2010. The transcript identified the judgment amount as $307,081.27 and the judgment date as December 4, 2008, plus 8% post-judgment interest per annum “compounded annually from the date of judgment until paid in full” (July 2010 amended judgment lien).

While the Eagle County case was pending, a foreclosure action involving Lot 13 had been commenced in Grand County. Goodman filed a cross-claim for priority and foreclosure of the July 2010 amended judgment lien. The parties filed cross-motions for determination of a question of law regarding whether Capital West’s interest in Lot 13 was subject to the July 2010 amended judgment lien.

The trial court determined that Capital West had notice of the December 2008 judgment and accrual of interest but not the subsequent litigation that resulted in the July 2010 amended judgment lien. It ruled that Capital West purchased Lot 13 subject only to the December 2008 judgment lien.

On appeal, Goodman argued it was error to conclude that the July 2010 amended judgment lien did not relate back to the December 2008 judgment lien. The Court of Appeals disagreed.

Colorado’s Recording Act is a “race-notice” system. Colorado courts recognize actual notice, constructive notice, and inquiry notice. There was no dispute that Capital West had actual notice of the December 2008 judgment lien, which has priority over Capital West’s deed of trust. The Court found that Capital West did not know nor should have known about the possibility of future litigation between Goodman and WPMP that resulted in the increased July 2010 amended judgment lien.

Summary and full case available here.

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