Foreclosure; future advances: Creditor with judgment lien takes priority over future advances by mortgagee with actual notice of the lien, whether or not in writing, and whether or not notice is given by the creditor.

Daniels v. Elks Club of Hartford, 2012 VT 55 (Dooley, J.) (Cohen, S.J. concurring) (Reiber C.J.  joined by Burgess,  J. dissenting)

Plaintiff seeks to foreclose a mortgage on real property owned by defendant Elks Club of Hartford, Vermont (the Club).  Defendant creditors  all have junior liens  arising from a discrimination lawsuit aginst the Club. Creditor sappeal from a trial court decision on summary judgment, concluding that plaintiff  is entitled to a judgment of foreclosure against all parties, and dismissing creditors’ counterclaims.   On appeal, creditors argue the Bank was on actual notice of creditors’ interest, and, therefore money advanced thereafter is not part of the mortgage amount that has priority over creditors’ interests. We  reverse and remand the trial court’s decision to include certain advances in the mortgage amount and remand for reconsideration under the correct legal standard. 

The trial court ruled the Bank’s future advance did not lose its priority because, regardless of what the Bank may have known or inferred, it had not received written notice and objection from the creditors.  We disagree and hold that demonstrated actual notice from any source cuts of the priority of future advances , and that the notice need not be a writing and need not be an objection to future advances.

27 V.S.A. § 410(b)(3)(B) does not require that the intervening interest holder actually object to future advances.  It is enough that the mortgagee “receives written notice of the intervening interest.”  Also, § 410(b)(3)(B) does not require that it be the intervening creditor that provides the notice; the statute is written in the passive voice, requiring that “the mortgagee receives written notice” without specifying by whom.  In short § 410(b)(3)(B) is satisfied by any written notice and requires neither that the notice come from the junior creditor nor that the junior creditor specifically object to future advances.  

Further, although a mortgagee need not seek out information about attachments to ensure that its priority is preserved, we hold it  loses its priority where it has received such information, even though the information is not in writing, as the statute requires. see In re Blackmore , No. 05-12045, 2006 WL 1666194, at *2 (Bankr. D. Vt. Jan. 25, 2006) (“[F]uture advances made by a mortgagee will be subordinate if made after the mortgagee has actual notice of the intervening lien.”)