The Alaska Supreme Court has sided with the Department of Revenue’s Child Support Services Division (CSSD) in a case concerning the distribution of surplus funds from a nonjudicial foreclosure sale. The court determined that CSSD’s child support lien took priority over a previously recorded judgment lien held by Alaska USA Federal Credit Union. This decision clarifies the interplay between child support enforcement and the established order of priority in foreclosure proceedings.
The Heart of the Dispute
The case arose after the sale of a property in Eagle River owned by Troy and Shanda Lewis. The Sayer Law Group, acting as trustee, conducted a nonjudicial foreclosure on the property, with Wells Fargo Bank as the beneficiary of the deed of trust. After paying off Wells Fargo, a surplus of approximately $34,590.31 remained. The question before the court was: who gets the surplus?
Alaska USA had a judgment lien against Troy Lewis recorded in January 2017. CSSD had a child support lien recorded in September 2017, and also issued a child support withholding order. According to standard foreclosure rules, the proceeds are distributed in order of recorded interest. Alaska USA claimed that since its lien was recorded first, it should receive the surplus funds. CSSD argued that its child support lien and withholding order took precedence.
The Lower Courts’ Decisions
The district court sided with CSSD, concluding that the specific statutes related to child support liens and withholding orders (AS 25.27.230(d) and AS 25.27.250(i)) trumped the general rules of priority. The superior court affirmed the district court’s decision, focusing on the narrower and more specific nature of AS 25.27.250(i) and its intent to give CSSD’s interests priority.
The Supreme Court’s Analysis: Withholding Order Ineffective, Lien Still Matters
The Supreme Court, in its decision, addressed two key issues: the validity of the child support withholding order and the priority of the CSSD lien.
Withholding Order: No Funds “Due, Owing, or Belonging”
The court first examined the withholding order issued by CSSD under AS 25.27.250. This statute allows CSSD to issue orders to third parties when it believes they possess property “due, owing, or belonging” to a child support obligor. The court found that this provision was not applicable in this case.
The court reasoned that the surplus funds were not “due, owing, or belonging” to Troy Lewis at the time the withholding order was issued. The funds were subject to the existing liens of both Alaska USA and CSSD, and the surplus was insufficient to satisfy both. Lewis had a contingent interest in the funds, but he was not entitled to any of the money until the liens were satisfied. Because the withholding order was not applied to funds “due, owing, or belonging” to Lewis, the court held it was ineffective.
Child Support Lien: Priority Over Judgment Lien
The Supreme Court then turned to the critical issue: the priority of the CSSD lien under AS 25.27.230(d). This statute states that when a lien has been recorded and a party has possession of property subject to the lien and has actual notice of the lien, that property “may not be paid over, released, sold, transferred, encumbered, or conveyed” unless CSSD provides a waiver or a court order releases the lien.
The court concluded that AS 25.27.230(d) applied to the nonjudicial foreclosure proceeding and effectively gave CSSD’s lien priority over Alaska USA’s judgment lien, even though Alaska USA’s lien was recorded earlier.
The court rejected Alaska USA’s argument that a literal reading of AS 25.27.230(d) would lead to an “absurd result” by giving CSSD’s lien super-priority over all prior recorded interests, including the deed of trust. The court reasoned that AS 25.27.230(d) was not intended to give CSSD’s lien priority over the deed of trust (which had already been satisfied), but over the judgment lien.
The court stated that applying AS 25.27.230(d) in this context furthered the legislature’s goal of ensuring that parents meet their child support obligations. This justified upsetting the traditional order of priority for judgment liens. The court noted that CSSD liens have certain advantages over other judgment liens, such as the ability to be asserted against personal property and the authority to serve liens on banks.
The court also dismissed the argument that CSSD had waived its right to the funds by not attending or objecting to the foreclosure sale.
The Outcome: CSSD Gets Paid First
Based on its interpretation of the law, the Supreme Court affirmed the lower court’s decision. Sayer Law, the trustee, was required to distribute the foreclosure sale proceeds according to AS 34.20.080(f)(2), but AS 25.27.230(d) prohibited the transfer of surplus funds to Alaska USA until the CSSD lien had been satisfied. Since CSSD’s lien was not waived, the trustee properly satisfied the CSSD lien before distributing the remaining funds to Alaska USA.
Implications of the Ruling
This ruling clarifies the strength of child support liens in Alaska, especially in foreclosure scenarios. It confirms that CSSD liens can take priority over other judgment liens, even if those liens were recorded earlier. This decision underscores the state’s commitment to ensuring that child support obligations are met.
The decision may influence how judgment creditors approach bidding on properties in nonjudicial foreclosures. The court suggested that if its interpretation differed from the legislature’s intent, the legislature could clarify the interaction of child support liens, other liens, and mortgages by amending the relevant child support statutes.