Bulletin: NL000013

Dear Associates:

Subordinate Judgment Liens Held by RTC or FDIC - Consent and Redemption

The RTC Interim Statement of Policy does not grant consent to foreclosure of superior mortgages when the RTC holds an inferior (subordinate) judgment lien in its corporate or receiver capacity. The RTC says it will not assert a right of redemption under federal law. The FDIC says it must consent if it holds an inferior lien in its receiver or corporate capacity. It claims a right of redemption under federal law in its corporate capacity (i.e., when FDIC owns for itself, not as receiver or conservator). See our Bulletin No. ALL 3 - 5/92 dated May 18, 1992, that discusses subordinate mortgages held by RTC or FDIC.

Company Policy:

• Consent
  
  If the RTC or FDIC has a subordinate judgment lien in its corporate or receiver capacity, require specific consent by RTC or FDIC to foreclosure of a prior mortgage. Otherwise, except to the judgment lien.
  
  
• Redemption
  
  Do not except to right of redemption of the RTC under federal law.
  Except to the one-year right of redemption of the FDIC if it has an inferior judgment lien in its corporate capacity.
  Except to any redemption rights under state law.

United States Judgment Liens vs. Purchase Money Mortgages

The Federal Debt Collection Procedures Act of 1990 was effective May 29, 1991. It applies to judgments in favor of the United States. The "United States" includes federal corporations; any agency, department, commission, board or other entity of the United States; and instrumentalities of the United States. A United States judgment lien is effective for 20 years. The United States may renew the lien for one additional period of 20 years. The Act applies to judgments by the United States entered on or after May 29, 1981. The United States asserts that its judgment lien has priority over any subsequently perfected mortgage, including a purchase money mortgage by the debtor.

Company Policy:

Require releases of all United States judgment liens (a) recorded on or after May 29, 1981, (pursuant to a judgment entered on or after May 29, 1981) or (b) effective under state law. Check names of all purchasers for judgment liens by the United States. If you insure a purchase money mortgage, require a release of any United States judgment lien against the purchaser.

Priority of Purchase Money Mortgages Under State Law

• Insure Priority of Purchase Money Mortgage.
  
  The purchase money mortgage must secure funds advanced solely for the purchase of the land. The mortgage must be executed simultaneously with the deed to the purchaser and must be promptly recorded. You may then show judgment liens (except United States judgments, which must be released) and federal tax liens against the purchaser as subordinate to the lien of an insured purchase money mortgage in the following states:
  
  Alabama, Arkansas, California, Colorado, Connecticut, District of Columbia, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Maryland (the mortgage must contain purchase money recitation), Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania (generally a judgment lien does not attach to after acquired property; a mortgage to third party must state "for purchase money" and must be recorded in 10 days), South Carolina, South Dakota, Tennessee, Utah, Virginia, West Virginia, Wisconsin, and Wyoming.
  
  
• Insure Priority Where Vendor's Lien
  
  In the States shown below, the purchase money mortgage must be executed in favor of the vendor (seller) simultaneously with the deed to the purchaser. The mortgage and deed must be promptly recorded. You may then show judgment liens (except United States judgments, which must be released) and federal tax liens against the purchaser as subordinate to the lien of the insured purchase money mortgage (or omit exception in Texas if you have a general exception to subordinate matters) in the following states:
  
  Delaware (if recorded in five (5) days); Iowa; and Texas (in Texas, if mortgage to vendor or if loan secured by express vendor's lien to third party).
  
  
• Do Not Insure Priority of Purchase Money Mortgage
  
  In the States shown below, a judgment lien or federal tax lien (except as noted below) against the purchaser must be released or excepted to as a superior lien on the Loan Policy insuring a purchase money mortgage:
  
  Alaska (judgment lien must be excepted or released, but federal tax lien against purchaser can be insured as subordinate); Arizona, Hawaii, Kentucky (judgment lien must be excepted or released, but federal tax lien against purchaser can be insured as subordinate); Louisiana, Maine, Massachusetts, Nevada, New Hampshire, New Mexico, Rhode Island, Vermont, and Washington.

Please call our underwriting personnel if you are asked to insure priority of purchase money mortgages in cases not authorized in this Bulletin.