The Alaska Supreme Court has ruled that the state’s child support system has first priority when a foreclosed property is sold to pay multiple debts.
The court issued its opinion on Nov. 28, resolving a long-running lawsuit brought by Global Federal Credit Union (formerly Alaska USA) against the state and several other defendants.
“This is a pretty important case from my client’s perspective,” said Jonathan Clement, a senior assistant attorney general who represented Alaska’s child support system.
“This is the first time that a court has actually decided that child support gets priority over all other judgment lien holders, even liens recorded earlier, when there’s surplus funds at issue,” he said.
The case decided by the court involved property in Eagle River that was mortgaged by Wells Fargo. In 2017, Global levied a lien against the property for unpaid debt. Shortly afterward, the state’s child support division recorded another lien against the property for unpaid debt.
Typically, liens are repaid in chronological order: First filed, first paid.
In 2018, a law firm sold the property through foreclosure and paid off the remaining Wells Fargo mortgage. There was money left over, but not enough to pay both Global and the state.
The state protested the law firm’s plans to pay Global first, and the firm complied with a state order that required it to pay the state first.
Global sued in state court, but a district court judge and a superior court judge each ruled against the credit union before it appealed to the supreme court.
Writing on behalf of the court, Justice Jude Pate concluded, “Our interpretation of (state law) provides an effective priority for CSSD liens over competing judgment liens.”
Alaska’s Child Support Services Division (CSSD) is now known as the Child Support Enforcement Division (CSCD).
That priority doesn’t put the state above a bank holding a mortgage or “deed of trust” but it does give the state priority over other liens on the property.
“The important thing for this case is that it gives CSCD another tool where they can try to collect money that’s owed by the obligors,” Clement said.
“I would say of all the cases I’ve worked on, this is the one that will have the most impact in my career going forward,” he said.
An attorney representing Global declined comment on behalf of the credit union.
In a footnote attached to the case, Pate wrote that the court’s ruling could cause people to behave differently during foreclosure auctions.
He suggested that if the Legislature disagrees with the court’s interpretation, it might want to pass a law clarifying two conflicting statutes interpreted by the court.
“If our interpretation is contrary to the legislature’s intent,” he wrote, “amendments to the relevant child support statutes could clarify the interaction between child support liens, other liens, and mortgages.”