Washington Supreme Court upholds “Equitable Lien” on One-Half Future Real Estate Sale Proceeds

Divorce attorneys do this all the time.  They document a property settlement between divorcing spouses by agreeing to award the real property to one spouse, and specifying in the decree that the other spouse shall receive a portion of the proceeds when the real property sells.  Here’s the problem – does this create a lien for an amount that is “to be determined later?” And is it fair to other judgment creditors to have to contend with this nebulous moving target?

The Washington Supreme answered yes in Bank of America v. Owens, 173 Wn.2d 40, __ P.3d __ (2011).  In this case Bank of America won a prejudgment attachment lien against Owens (arising from a defaulted promissory note).  This attachment lien was against all of Owens’s King County real property.  But this occurred after Owens’s former spouse, Treiger, had recorded his and Owens’s  divorce decree which awarded Treiger an interest in one-half the sale proceeds of one particular parcel.  Relying on Swanson v. Graham, 27 Wn.2d 590, 597, 179 P.2d 288 (1947) (“In order to create a statutory lien, there must be a judgment for a specific amount.”), Bank of America argued that Treiger’s lien interest was invalid because it was not for a sum certain – i.e. it was not a “statutory lien.”  The Washington Supreme Court agreed the decree was not a statutory lien, but still awarded Treiger priority over the Bank, by allowing Treiger an “equitable lien.”  In other words, Treiger was first in time, thus fairness dictated that Treiger’s interest trumped the Bank’s.

Here’s the takeaway:  The Owens case expressly provides that in order to have an equitable lien, the particular real property must be adequately described in the decree.  Recite the legal description and tax parcel number in the decree, and refer to the real property’s vesting deed in the recording cover sheet.