ALH Holding Co. v. Bank of Telluride - 18 P.3d 742 (Colo. 2000)

Rule:

When the priority of rights in real property is not dictated by the operation of the recording statute, the rule in Colorado has long been that security interests, or mortgages, given in exchange for money applied to the purchase of the property have priority over all other liens.

Facts:

The Petitioner, ALH Holding Company, sold real property to Linda Crocker and Robert Hackley (the "buyers") for $ 165,000. In connection with the sale, the buyers borrowed $ 110,000 from ALH in exchange for a promissory note secured with a vendor's purchase money deed of trust in favor of ALH. The buyers also borrowed $ 55,000 from the Respondent, the Bank of Telluride, and similarly signed a promissory note secured with a purchase money deed of trust in favor of the Bank. Both ALH and the Bank knew, before the closing, that the other would loan money to the purchaser and that both loans would be secured by deeds of trust conveying interests in the same property. Telluride Mountain Title Company closed the transaction for both parties on June 29, 1993, and on the following day recorded the deeds of trust. The deed of trust in favor of the Bank was recorded before that of ALH. After the buyers defaulted on both notes, the Bank initiated a public trustee's foreclosure sale of its interest in the property, characterizing its own deed of trust as a superior lien to that of ALH. ALH brought an action against the Bank, seeking a preliminary injunction and a declaratory judgment resolving the respective priorities of the two deeds of trust. The district court concluded that as a matter of Colorado law, a vendor's purchase money deed of trust took priority over a third-party’s purchase money deed of trust, and it entered judgment in favor of ALH. The court of appeals reversed, holding that because the Bank's deed of trust was recorded first, it was entitled to priority, absent an agreement to the contrary. ALH filed a petition for a writ of certiorari to review the decision of the court of appeals. 

Issue:

Under the circumstances, did the Bank possess a lien superior to that of petitioner ALH’s? 

Answer:

No.

Conclusion:

The court reversed the judgment, holding that although the Bank’s deed of trust was recorded before that of ALH, the Bank was not entitled to the benefits of the recording statute because it had notice of ALH’s unrecorded instrument prior to acquiring rights of its own in the property. Thus, pursuant to common law, the deed of trust of petitioner ALH, the vendor, had priority over the deed of trust of respondent bank.