Wells Fargo Bank, Minnesota, N.A. v. Commonwealth
345 S.W.3d 800
| Ky. | 2011Background
- This is a consolidated Kentucky Supreme Court case addressing priority between KRS 134.420(2) general tax liens and later filed mortgage liens.
- Wells Fargo Bank, Minnesota, N.A. and Central Bank of Jefferson County, Inc. appeal separately after foreclosure actions involving purchase money and refinanced loans.
- In Foster refinancing, Central Bank asserted Mortgage I priority because proceeds satisfied existing liens, including tax liens, prompting subrogation arguments.
- In the Clark purchase, Wells Fargo asserted priority over the Commonwealth’s KRS 134.420(2) tax liens based on a purchase money mortgage.
- The circuit court and court of appeals had ordered priority to the mortgage liens, prompting review by the Kentucky Supreme Court.
- The Court analyzed statutory priorities under KRS 134.420 and the doctrine of equitable subrogation in the context of professional lenders and title examinations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does KRS 134.420(2) tax lien have priority over later filed mortgages? | Wells Fargo/Central Bank argue tax liens do not defeat purchase money liens. | Commonwealth argues tax liens have priority under statute and race-notice principles. | Tax liens have priority over later liens. |
| Should equitable subrogation reorder lien priorities to favor a later purchaser against a prior tax lien? | Subrogation could allow lenders to leap-frog intervening liens. | Subrogation prevents inequity where a prior tax lien is involved and relies on title due diligence. | Court declines to apply equitable subrogation to defeat prior tax liens. |
Key Cases Cited
- Liberty Nat'l Bank & Trust Co. of Lou. v. Vanderkraats, 899 S.W.2d 511 (Ky.App. 1995) (priority of general tax liens under subsection (4))
- Commonwealth v. Hall, 941 S.W.2d 481 (Ky. App. 1997) (priority statute interpretation under KRS 134.420(4))
- Kentucky Legal Systems Corp. v. Dunn, 205 S.W.3d 235 (Ky.App. 2006) (distinguishes Dunn from tax lien priority; not controlling for 134.420(2))
- Whayne Supply Co., Inc. v. Commonwealth of Kentucky Revenue Cabinet, 925 S.W.2d 185 (Ky. 1996) (purchase money security interests; statutory super-priority context)
- First Federal Savings Bank of Wabash v. United States, 118 F.3d 532 (7th Cir. 1997) (equitable subrogation against government liens; title insurer responsibility)