## Facts

- Valley Acceptance (Valley) obtained a simple judgment lien against James M. Dailey and recorded it on April 26, 1985.
- On September 19, 1986, Dailey borrowed money from the United States to purchase real property from the Veterans Administration (VA).
- The loan was evidenced by a note that provided for immediate repayment in the event of default.
- As security for the note, Dailey executed and delivered a deed of trust in favor of the United States/VA, giving the United States the option to foreclose upon Dailey’s default.
- The United States recorded the deed of trust after Valley had recorded its judgment lien.
- Dailey defaulted by failing to repay the United States.
- The United States sued Dailey and sought to enforce its security interest.
- The United States moved for summary judgment on lien priority.
- Valley opposed, arguing its earlier recorded judgment lien had priority under Arizona law.
- The United States argued its deed of trust was a purchase-money mortgage (purchase-money deed of trust) and therefore took priority over Valley’s judgment lien.

## Issues

1. Under Arizona law, does a purchase-money deed of trust securing funds used to acquire the property have priority over a previously recorded judgment lien against the purchaser, even if the deed of trust is recorded later?

## Decision

- The court granted the United States’ motion for summary judgment.
- The court held that the United States’ deed of trust was a purchase-money security instrument.
- The court ruled that, under Arizona law, a purchase-money mortgage/deed of trust has priority over a prior recorded judgment lien against the buyer as to the purchased property.
- Accordingly, the United States’ lien had priority over Valley’s judgment lien.

## Legal Principles

- Under Arizona law, a purchase-money mortgage (including a purchase-money deed of trust) generally has priority over earlier judgment liens against the mortgagor with respect to the property purchased with the loan proceeds.
- A judgment lien attaches only to the debtor’s interest in real property; when the debtor acquires title subject to a purchase-money security instrument arising from the same acquisition, the judgment lien is junior to that purchase-money interest.
- In a lien-priority dispute in federal court where no controlling federal priority rule applies, state real-property priority principles govern the relative ranking of competing liens.
- Summary judgment is proper when there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law.

## Conclusion

United States v. Dailey resolved a priority contest between Valley’s earlier recorded judgment lien and the United States’ later recorded deed of trust that financed Dailey’s acquisition of the same property from the VA; the court treated the federal deed of trust as purchase-money security and, applying Arizona law, held it superior to the prior judgment lien and entered summary judgment for the United States.


United States v. Dailey, 749 F. Supp. 218 (1990)