10.4 Priority of Liens

• Library: Debt Collection for Virginia Lawyers: A Systematic Approach (Virginia CLE) (2022 Ed.)

10.4 PRIORITY OF LIENS

10.401 Scope of Title Examination.

A. In General.

The title examination may be either full or limited, depending upon the interest to be foreclosed. The appropriate period is determined by local custom (a "full" search is generally 60 years minimum but may be less), the title insurance policy or report, and the priority of the lien to be foreclosed. ¹³⁸⁰

B. Purchase Money Security Interest.

A deed of trust containing the words "'deferred purchase money,' 'purchase money,' or words of like purport," is a purchase money security interest. ¹³⁸¹ A purchase money deed of trust is defined as a deed of trust given concurrently with a conveyance of land to secure the balance of the unpaid purchase price. ¹³⁸² It is not necessary that the deed and purchase money deed of trust be executed at the same time, as long as they were executed as part of one continuous transaction. The dates of the two documents do not have to be the same, but the intent of the parties must be that they represent one continuous transaction. ¹³⁸³ A purchase money deed of trust is superior to existing docketed judgments, "because the judgment creditor can acquire no better right to the estate than the debtor." ¹³⁸⁴ In the foreclosure of a purchase money security deed of trust, the trustee may determine that a limited title examination from the date of recordation of the deed of trust to be foreclosed is sufficient. Similarly, where the trustee is able to rely on a title insurance policy in favor of the noteholder, the trustee may determine that a limited examination from the effective date of the policy is all that is necessary.

C. Refinanced Deed of Trust.

Deeds of trust that are refinanced in compliance with the provisions of the Virginia Code maintain their priority over subordinate deeds of trust. ¹³⁸⁵

D. Credit Line Deed of Trust.

A credit line deed of trust ¹³⁸⁶ has priority over (i) all other instruments not of record of which the beneficiary has no notice or knowledge and (ii) subsequently docketed judgment liens, except advances or extensions made from the day following the receipt by the creditor of written notice of the judgment lien from the judgment lien creditor. ¹³⁸⁷

E. Other Non-Purchase Money Security Interests.

A deed of trust not securing deferred purchase money does not enjoy priority over other security interests in real property. A full title examination (or its equivalent, such as where there is title insurance in favor of the noteholder) is recommended. The trustee's fiduciary responsibilities include the proper application of the proceeds of sale to inferior debts and obligations. ¹³⁸⁸

F. Junior Liens.

If the property is to be sold subject to a junior lien, the trustee should announce that in the advertisement of sale and also at the sale. The trustee should attempt to ascertain the payoff of the prior lien to avoid any claim that the bidding was chilled because the information was not available, but failure to do so does not prevent the sale from proceeding. ¹³⁸⁹

10.402 Real Estate Tax Lien.

A. Lien on Real Property.

Section 58.1-3340 of the Virginia Code provides for an in rem "lien on real estate for the payment of taxes and levies assessed thereon prior to any other lien or encumbrance." Taxes assessed may also be enforced in personam against the owner of the property. ¹³⁹⁰

B. Duties of Trustee.

Section 55.1-324(A)(3) of the Virginia Code requires the trustee to "discharge all taxes, levies and assessments, with costs and interest if they have priority over the lien of the deed of trust, including the due pro rata thereof for the current year."...