By: Ben Reeves
Last year, we posted It just got a little bit harder to enforce judgment liens, which analyzed a Court of Appeals decision that invalidated a judgment lien against third-party purchasers due to the judgment creditors’ failure to record an information statement along with the judgment. Lewis v. Debord, 236 Ariz. 57, 335 P.3d 1136 (Ct. App. 2014). In that case, even though the Court of Appeals found that the judgment lien remained valid, the opinion concluded that the failure to record the information statement affected the “priority” of the judgment lien and rendered the third-party purchasers’ ownership interest superior to the judgment creditors’ lien interest. We critiqued the opinion for confusing the concepts of priority and perfection, and specifically noted that the Court of Appeals’ own reasoning should have led it to reach the opposite result. The Supreme Court, by reversing the Court of Appeals and vacating its opinion, apparently agrees with our critique.
In Lewis v. Debord, the Supreme Court held that “failing to attach an information statement to a certified copy of the judgment does not invalidate an otherwise valid lien; rather the judgment lien simply lacks priority against competing creditors who record liens against the property before the information statement is filed.” Thus, the Supreme Court remanded the case back to the trial court to allow the judgment creditors to foreclose their judgment lien against the third-party purchasers despite their failure to attach an information statement to the recorded judgment.
The Supreme Court, echoing our critique, found that “[t]he court of appeals erred when it defined ‘priority,’ and thus concluded that the Lewises’ lien lost priority against the Debords’ fee interest.” Instead, the Supreme Court utilized the following definition of priority: “a creditor’s right to have a claim paid before other creditors of the same debtor receive payment.” Quoting Black’s Law Dictionary 1386 (10th ed. 2014). Under this definition, the failure to attach the information statement merely affected the judgment creditors’ priority as against other creditors, but did not affect the validity or enforceability of the lien as against the owners. Because Arizona law provides that subsequent purchasers take title subject to existing liens and the Debords had at least constructive notice of the Lewises’ recorded judgment lien as a matter of law, the Supreme Court concluded that “the Debords took the property subject to the lien, and the Lewises’ failure to file an information statement does not preclude them from executing against the property.”
We think the Supreme Court got this one right. As we noted in our earlier blog, the information statement only provides very basic information about the judgment debtor, and is exclusively designed to alleviate the misidentification of judgment debtors. The Court of Appeals’ opinion, which basically invalidated judgment liens in the absence of the information statement, seemingly imposed an unduly harsh penalty on judgment creditors for an otherwise nominal error. The Supreme Court struck the right balance by noting that the threat of losing priority vis-à-vis other creditors provides a sufficient incentive for judgment creditors to provide the information statement going forward. So in sum, the Supreme Court just made it a little bit easier to enforce judgment liens.