ALH Holding Company v. Bank of Telluride
18 P.3d 742 (2000)
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Rule of Law:
A vendor's purchase money deed of trust has priority over a third-party lender's purchase money deed of trust when both are created in the same transaction, even if the third-party's deed is recorded first, because the third-party has notice of the vendor's interest, rendering the recording statute inapplicable.
Facts:
- ALH Holding Company sold real property to Linda Crocker and Robert Hackley.
- As part of the sale, ALH loaned the buyers $110,000, which was secured by a vendor's purchase money deed of trust in favor of ALH.
- The buyers also borrowed $55,000 from the Bank of Telluride, secured by a purchase money deed of trust in favor of the Bank.
- Both ALH and the Bank knew before the closing that the other was loaning money to the buyers and that both loans would be secured by deeds of trust on the same property.
- A title company closed the transaction for both parties on June 29, 1993.
- The following day, the title company recorded both deeds of trust, with the Bank of Telluride's deed being recorded before ALH's deed.
- The buyers subsequently defaulted on both promissory notes.
Procedural Posture:
- After the buyers' default, the Bank of Telluride initiated a public trustee's foreclosure sale, claiming its lien was superior to ALH's.
- ALH Holding Company filed an action against the Bank in district court, seeking a declaratory judgment on the priority of the two deeds of trust.
- The district court entered judgment in favor of ALH, concluding that a vendor's purchase money deed of trust takes priority over a third-party's.
- The Bank of Telluride, as appellant, appealed to the Colorado Court of Appeals.
- A divided panel of the court of appeals reversed, holding that the Bank's deed was entitled to priority because it was recorded first.
- ALH Holding Company, as petitioner, was granted a writ of certiorari by the Colorado Supreme Court.
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Issue:
Does Colorado's race-notice recording statute give priority to a third-party lender's purchase money deed of trust over a vendor's purchase money deed of trust created in the same transaction, solely because the third-party lender's deed was recorded first?
Opinions:
Majority - Justice Coats
No. The race-notice recording statute does not give priority to the Bank's deed of trust. The court reasoned that the statute only protects a party who records first if that party lacked notice of a prior unrecorded instrument. Here, the Bank had notice of ALH's deed of trust because both instruments were executed as part of the same transaction. The court treats the execution of the sale deed and the vendor's purchase money deed of trust as simultaneous acts, meaning the buyer never acquires an unencumbered title that can be granted to a third party. Because the Bank had notice, the recording statute does not resolve the priority dispute. Therefore, the court must turn to common law, which establishes that a vendor's purchase money mortgage has priority over a third-party's purchase money mortgage due to superior equitable considerations.
Analysis:
This decision clarifies that Colorado's race-notice recording statute does not abrogate the common law principle giving priority to a vendor's purchase money mortgage in a simultaneous transaction. By finding that a third-party lender has constructive notice of the vendor's interest in such a scenario, the court prevents the 'race to the courthouse' from defeating the vendor's equitable claim. This ruling solidifies the 'simultaneous acts' doctrine and aligns Colorado law with the Restatement (Third) of Property, which favors the vendor who parts with specific real estate over a third party who merely lends money.
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