Court Opinion

ID: 9787213
Source: CourtListenerOpinion
Date Created: 2023-08-31 00:12:40.297742+00
Date Added: 2024-06-11T07:36:53.493914
License: Public Domain

Justice KOURLIS
dissenting.
This is a case in which application of Colorado's race-notice statute would dictate re*1091versal of the court of appeals' judgment. The majority has concluded, instead, that because the Respondent, Whalen, uncovered a fraudulent transaction and caused the trial court to impose a constructive trust upon that property, such trust should inure to his benefit without reference to the seniority of judgment liens filed against all property owned by the debtor. It is my view that Whalen is not entitled to any super-priority in his lien merely because he was the one who exposed the fraud. Rather, I agree with the trial court that the priority of recorded liens would apply. I would therefore reverse the court of appeals, and respectfully dissent from the majority opinion.
I. Introduction
The parties to this case all have judgments against Sanford Altberger and his company, Orovi, Inc. Colorado allows judgment eredi-tors to file judgment liens against all property owned by the debtor, and then to collect the judgments against that property. When there are multiple creditors who file multiple liens, the Hens are satisfied in order of filing.
The Petitioners, Lexie-Leigh Shepler and Seott Thornock, obtained their judgments and filed their judgment liens well in advance of Whalen's filing of his lien. Colorado's statute, section 18-52-105, CRS. (2004) would dictate that the Shepler/Thornock liens would be satisfied first-before the Whalen lien.
After the filing of all liens, Whalen discovered that Altberger had caused his company to pay off the mortgage on a townhouse titled to Altberger's wife in the amount of $353,000. Whalen filed a court action seeking a declaration of equitable lien or constructive trust, and seeking to collect against that townhouse, on the basis that the transaction was fraudulent and undertaken in order to hinder, delay or defraud creditors. Whalen also filed a lis pendens against the townhouse. The trial court ultimately granted Whalen's prayer for relief and entered an order imposing a constructive trust and an equitable lien on the townhouse on December 18, 2002. However, the trial court enforced the order of priority established by the filing of liens against Altberger and Orovi, and declared Whalen's lien junior to Shepler's and Thor-nock's.
The court of appeals reversed.
The question before this court is whether Whalen is entitled to some super-priority because he was the one who uncovered the fraudulent transaction, and I would conclude that he is not.
II. The Effect of the Lis Pendens and Equitable Lien
At the time the various liens were recorded, Altberger did not have a legal interest in the townhouse. A recorded transcript of judgment does not automatically create a lien upon fraudulently conveyed property. Sec. Servs., Ltd. v. Equity Mgmt., Inc., 851 P.2d 921, 924 (Colo.App.1993). Rather, the judgment creditor must "successfully prosecute a fraudulent conveyance lawsuit" before the lien may attach. Id.
Usually, the remedy for such an action is to return the property to its prior status of ownership, thereby exposing it to the collection efforts of the creditor. Emarine v. Haley, 892 P2d 343, 346 (Colo.App.1994). Here, there is no prayer for that relief, presumably because the mortgagee received the funds without any notice of the fraud. Hence, the only remedy is to seek imposition of an equitable lien on the home and execute against that lien.
Whether or not Altberger held an equitable interest in the townhouse as of the date he paid the mortgage, in my view, is not the dispositive issue. Rather, the constructive trust imposed by the trial court must inure to the benefit of all creditors in their order of priority-even if it arose after the filing of all liens.
In the case of In re Leonard, 125 F.3d 543 (7th Cir.1997), the Seventh Cireuit Court of Appeals concluded that neither the filing of a fraudulent conveyance lawsuit, nor the filing of a lis pendens, cause a creditor to achieve priority over other judgment ereditors who had priority liens. In that case, the court was dealing with Illinois state law within the context of a bankruptcy proceeding. Certain creditors who located and exposed a fraudulent conveyance and filed an associated lis pendens were claiming that they were entitled to execute against that property free of *1092the interests of other creditors. < The court concluded otherwise, reasoning that the Illinois lis pendens statute does not give the filer a lien against the property because the filing requires neither the title holder's consent nor judicial intervention. Rather, the lis pendens merely notifies other parties of an adverse claim to the party. Similarly, the court determined that the mere uncovering of a fraudulent transaction did not create any priority interest in that asset. 125 F.3d at 545.
So too, Colorado's lis pendens statute creates no lien in the property. Rather, the filing of a lis pendens "shall be notice to any person thereafter acquiring, by, through, or under any party named in such notice, an interest in the real property described in the notice in the county or counties where recorded that the interest so acquired may be affected by the action described in the notice." § 88-85-110(1), C.R.S. (2004).
Hence, the lis pendens itself created no priority. The only basis upon which priority could attach is that Whalen "successfully exposed a fraudulent transaction by filing suit." Maj. op. at page 1086. This argument does not withstand serutiny.
Judgment liens apply not only to property owned by the debtor at the time of the lien, but also to property thereafter acquired. See § 18-52-102(1), C.R.S. (2004). If Altber-ger or Orovi had acquired a townhouse on December 18, 2002, that townhouse would be subject to the judgment liens then of record in the order in which filed. The judicial recognition of a constructive trust should be treated no differently.
Indeed, in circumstances where the equities are much more compelling, courts have enforced the priority of judgment liens. For example, in Sky Harbor, Inc. v. Jenner, 164 Colo. 470, 435 P.2d 894 (1968), this court concluded that a judgment lien took priority over a grantee to the property who had acquired the deed prior to the recording of the liens, but who had not recorded it. Citing earlier authorities, the court noted that, "[nlo resulting trust nor unrecorded deed can operate to defeat the right of a judgment creditor who has caused his judgment to become a lien by proper record, unless the creditor had notice of the trust or unrecorded deed at the time his lien attached." Id. at 475-76, 435 P.2d at 897.
In Shearton Serv. Corp. v. Johnson, 5 P.3d 395 (Colo.App.2000), the court of appeals held that a judgment lien creditor's interest had priority over an unrecorded, equitable interest inuring to the benefit of the debtor's wife. The court held that "if a judgment lien creditor perfects a lien on real property, before a debtor's spouse asserts and perfects his or her claim to the property in a dissolution proceeding, then the weight of authority holds that the rights of the debtor's spouse to the property are subordinate to those of the judgment lien creditor." 5 P.3d at 397.
In short, Whalen can neither assert that the equitable lien inures solely to his benefit in contravention of the judgment creditor's lien rights, nor can he assert that the constructive trust creates new property not subject to the previous liens.
III. Conclusion
The only policy argument that Whalen makes is that enforcement of the priority system creates a disincentive for junior creditors to uncover fraudulent conveyances, because they may not benefit from the proceeds since the senior rights must first be satisfied. The incentive that Whalen would prefer is one that rewards secrecy and encourages creditors to act unilaterally.
I would enforce the priority system of our judgment lien statute. There is no factual argument or legal precedent supporting the creation of a super-lien for the benefit of Whalen merely because he was the one to file the action that exposed the townhouse transfer.
Accordingly, I would reverse the court of appeals and reinstate the judgment of the trial court and I, therefore, dissent.