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State Department of Taxation v. Kawahara

Supreme Court of Nevada

June 25, 2015

THE STATE OF NEVADA DEPARTMENT OF TAXATION, Appellant,
v.
JOHN T. KAWAHARA AND BARBARA J. KAWAHARA, TRUSTEES OF THE JOHN T. KAWAHARA AND BARBARA J. KAWAHARA REVOCABLE TRUST, U/T/D 12/17/1992, Respondents

Certified questions under NRAP 5 concerning lien priority between a tax lien and a later-recorded deed of trust. United States Bankruptcy Court for the District of Nevada; Gregg W. Zive, Bankruptcy Judge.

Questions answered.

Adam Paul Laxalt, Attorney General, and Melissa L. Flatley, Deputy Attorney General, Carson City, for Appellant.

Richard G. Hill, Ltd., and Richard G. Hill and Sophie A. Karadanis, Reno; Shea & McIntyre, P.C., and Marc L. Shea, San Jose, California, for Respondents.

Cherry, J.; We concur: Hardesty, C.J., Douglas, J., Saitta, J., Gibbons, J., Pickering, J.

OPINION

BEFORE THE COURT EN BANC.[1]

CHERRY, J.:

The United States Bankruptcy Court for the District of Nevada certified two questions to this court concerning the priority of two competing liens on the proceeds of a property sale. The first question asks whether " Certificates of Tax Lien . . . have the effect and priority of a non-consensual judgment lien or the effect and priority of a consensual mortgage lien[.]" The second asks which lien has priority over the proceeds of a 2012 property sale: " a 2009 deed of trust, first recorded in 2011, [or] a tax lien, created and recorded in 2010[.]"

We conclude that a recorded tax lien cannot be recognized as a mortgage lien. Formality is part and parcel of recording statutes. The State Department of Taxation cannot now claim to have recorded a mortgage lien when it filed a tax lien certificate. We further conclude that a deed of trust, which attached in 2009 but was recorded in 2011, has priority over a tax lien levied under NRS 360.473, which was created and recorded in 2010. The Department's tax lien is

Page 747

considered a judgment lien under NRS 360.473(2), and Nevada recording statutes do not protect judgment creditors against prior unrecorded conveyances. Thus, the common law rule of " first in time, first in right" applies.

FACTS AND PROCEDURAL HISTORY

Our review is limited to the facts provided by the certification order from the United States Bankruptcy Court for the District of Nevada " and we answer the questions of law posed to us based on those facts." In re Fontainebleau Las Vegas Holdings, LLC, 128 Nev., Adv. Op. 53, 289 P.3d 1199, 1207 (2012).

The Kawaharas loaned Wayne and Gail Allison $400,000. The Allisons executed a note to the Kawaharas in that amount secured by a deed of trust on a Reno property. In July 2009, the note was delivered to the Kawaharas. Although all parties believed the deed of trust ...


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