Marks v. City of Tucumcari

New Mexico Supreme Court
595 P.2d 1199, 93 N.M. 4 (1979)

ELI5:

Rule of Law:

Under the doctrine of equitable conversion, a vendor's interest in real property under an executory contract for sale is considered personalty. Therefore, a judgment lien against the vendor, which by statute only attaches to real estate, does not attach to the vendor's interest in the property being sold.

Facts:

On April 11, 1974, Marks entered into a real estate contract to purchase property from Robert and Rose Mary Goldenstein.
The contract of sale was recorded with the Quay County Clerk on May 1, 1976.
On September 14, 1976, the City of Tucumcari obtained a money judgment against the Goldensteins.
On that same day, the City filed a transcript of the judgment in the office of the Quay County Clerk, purporting to create a lien.
A deed to the property from the Goldensteins to Marks, previously held in escrow, was delivered to Marks on August 16, 1977.
On the same day the deed was delivered, Marks executed a mortgage on the property to McFarland Brothers Bank.
Both Marks and the Bank had actual knowledge of the City's recorded judgment against the Goldensteins at the time they received the deed and mortgage.

Procedural Posture:

Marks and McFarland Brothers Bank filed an action in the district court (trial court) against the City of Tucumcari, seeking a declaration of their rights to the real estate.
The trial court entered a judgment in favor of Marks and the Bank.
The City of Tucumcari (appellant) appealed the trial court's judgment to the state's highest court.

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Issue:

Does a creditor's judgment lien against a vendor attach to real estate that the vendor is in the process of selling under an executory contract of sale?

Opinions:

Majority - Federici, Justice

No. A creditor's judgment lien does not attach to real estate that the vendor is selling under an executory contract because the vendor's interest is considered personalty. The court applied the doctrine of equitable conversion, which treats the vendee (buyer) as the equitable owner of the land once an executory contract is signed. Consequently, the vendor (seller) retains only a bare legal title held in trust as security for the payment of the purchase price. This interest is considered personalty, not real estate. Since the New Mexico judgment lien statute, § 39-1-6, allows a lien to attach only to the 'real estate' of the judgment debtor, the City's lien could not attach to the Goldensteins' interest, which had been converted to personalty. The court expressly overruled any language in 'Mutual Building & Loan Ass'n v. Collins' that suggested a vendor's interest under such a contract was real estate for the purposes of a judgment lien.

Analysis:

This decision solidifies the application of the equitable conversion doctrine in New Mexico concerning the attachment of judgment liens. It creates a clear demarcation: a creditor's judgment lien can attach to a vendee's (buyer's) equitable interest, which is considered real estate, but not to a vendor's (seller's) retained interest, which is considered personalty. This ruling protects buyers in executory land contracts from having the property encumbered by the seller's subsequent creditors. It clarifies the scope of the state's judgment lien statute, limiting its application strictly to interests legally defined as 'real estate' and excluding interests converted to personalty.

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