                                                   131 Nev., Advance Opinion 1-12
                          IN THE SUPREME COURT OF THE STATE OF NEVADA


                 THE STATE OF NEVADA                                 No. 64064
                 DEPARTMENT OF TAXATION,
                 Appellant,
                 vs.                                                     FILED
                 JOHN T. KAWAHARA AND BARBARA
                 J. KAWAHARA, TRUSTEES OF THE                             JUN 2 5 2015
                 JOHN T. KAWAHARA AND BARBARA
                 J. KAWAHARA REVOCABLE TRUST,
                                                                                      IV,
                                                                           kCjE K. LINDEMAN •
                                                                           OF


                                                                                     Ct.; K
                 U/T/D 12/17/1992,
                 Respondents.



                             Certified questions under NRAP 5 concerning lien priority
                 between a tax lien and a later-recorded deed of trust. United States
                 Bankruptcy Court for the District of Nevada; Gregg W. Zive, Bankruptcy
                 Judge.
                             Questions answered.

                 Adam Paul Laxalt, Attorney General, and Melissa L. Flatley, Deputy
                 Attorney General, Carson City,
                 for Appellant.

                 Richard G. Hill, Ltd., and Richard G. Hill and Sophie A. Karadanis, Reno;
                 Shea & McIntyre, P.C., and Marc L. Shea, San Jose, California,
                 for Respondents.




                 BEFORE THE COURT EN BANC. 1


                      IThe Honorable Ron D. Parraguirre, Justice, voluntarily recused
                 himself from the consideration of this matter.

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                                                  OPINION
                By the Court, CHERRY, J.:
                            The United States Bankruptcy Court for the District of
                Nevada certified two questions to this court concerning the priority of two
                competing liens on the proceeds of a property sale. The first question asks
                whether "Certificates of Tax Lien . . . have the effect and priority of a non-
                consensual judgment lien• or the effect and priority of a consensual
                mortgage Hear The second asks which lien has priority over the
                proceeds of a 2012 property sale: "a 2009 deed of trust, first recorded in
                2011, [or] a tax lien, created and recorded in 2010[.]"
                            We conclude that a recorded tax lien cannot be recognized as a
                mortgage lien. Formality is part and parcel of recording statutes. The
                State Department of Taxation cannot now claim to have recorded a
                mortgage lien when it filed a tax lien certificate. We further conclude that
                a deed of trust, which attached in 2009 but was recorded in 2011, has
                priority over a tax lien levied under NRS 360.473, which was created and
                recorded in 2010. The Department's tax lien is considered a judgment lien
                under NRS 360.473(2), and Nevada recording statutes do not protect
                judgment creditors against prior unrecorded conveyances. Thus, the
                common law rule of "first in time, first in right" applies.
                                  FACTS AND PROCEDURAL HISTORY
                            Our review is limited to the facts provided by the certification
                order from the United States Bankruptcy Court for the District of Nevada
                "and we answer the questions of law posed to us based on those facts." In
                re Fontainebleau Las Vegas Holdings, LLC, 128 Nev., Adv. Op. 53, 289
                P.3d 1199, 1207 (2012).
                            The Kawaharas loaned Wayne and Gail Allison $400,000. The
                Allisons executed a note to the Kawaharas in that amount secured by a
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                deed of trust on a Reno property. In July 2009, the note was delivered to
                the Kawaharas. Although all parties believed the deed of trust had been
                recorded at that time, it was not recorded until February 2011.
                            The Allisons owned Allison Automotive Group, Inc., a car •
                dealership in Reno. The dealership became delinquent in taxes owed to
                the Nevada Department of Taxation. It submitted a signed payment
                agreement to the Department, which obligated the dealership to pay
                $438,044.68 pursuant to a payment schedule. In connection with that
                submission, the Allisons personally guaranteed payment to the
                Department. In December 2010, the Department recorded certificates of
                tax lien against the Allisons.
                            The Allisons filed for bankruptcy in November 2011. As part
                of the administration of the bankruptcy estate, the bankruptcy court
                approved the sale of the Reno property with liens attaching to the sale
                proceeds in the order of their priority. The bankruptcy court's certified
                questions concern the dispute between the Kawaharas and the
                Department over the priority of their respective liens on the Reno property
                and, more directly, which party is entitled to be repaid first from the
                $482,000 in remaining proceeds from the property's sale.
                                                 DISCUSSION
                The nature of the Department's liens
                            This court may reframe the certified questions presented to it.
                See Chapman v. Deutsche Bank Nat'l Trust Co., 129 Nev., Adv. Op. 34, 302
                P.3d 1103, 1105-06 (2013) (citing Terracon Consultants W., Inc. v.
                Mandalay Resort Grp., 125 Nev. 66, 72, 206 P.3d 81, 85 (2009)). We think
                the first certified question is better framed as, "Do the Allisons'
                guarantees and the Department's filings create a mortgage?" We conclude
                that they do not.
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                             Generally, the purpose of recording statutes is to provide
                 subsequent purchasers with knowledge concerning the state of title for
                 real property. 66 Am Jur. 2d Records and Recording Laws § 40 (2011).
                 To record a mortgage or real property lien in Nevada, the filed document
                 must contain certain formalities, including the grantee's address and the
                 conveyed parcel's county-assigned number. NRS 111.312(1). In contrast,
                 to record a tax lien, the Department may simply file a certificate of
                 delinquency setting forth (1) the amount due, (2) the name and address of
                 the debtor, and (3) the Department's statement that it has complied with
                 all procedures required by law. NRS 360.473(1).
                             Here, the Department filed a tax lien, not a mortgage. The
                 bankruptcy court stated that the Department filed a tax lien certificate.
                 We accept the facts provided by the certification order.                  In re
                 Fontainebleau, 128 Nev., Adv. Op. 53, 289 P.3d at 1207. The bankruptcy
                 court's finding is supported by the record, which shows that the
                 Department's filings refer to tax statutes and do not include parcel
                 numbers.
                             The Department requests that this court give the certificates
                 of tax lien the effect and priority of a mortgage. But it would defeat the
                 purpose of a centralized recording system if the law protected people who
                 filed the wrong liens. Mortg. Elec. Registration Sys., Inc. v. Church, 423 F.
                 App'x 564, 567 (6th Cir. 2011). "[There must be substantial compliance
                 with statutes providing for the recording or registration of mortgages; the
                 usual purpose of recording or registration is to give persons subsequently
                 dealing with the property notice of the existence of the lien . . . ." 59 C.J.S.
                 Mortgages § 248 (2009). Here, the Department filed certificates of tax lien,
                 not a mortgage or any instrument that fulfilled the formalities of a

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                     mortgage lien. Third parties reviewing the public records would not see a
                     mortgage on the property, but only a tax lien with the Allisons' address.
                     The Department further argues that their interest arose from a guarantee,
                     not by operation of law, and therefore could not legally be a tax lien. That
                     may be true, but then the Department should not have recorded tax lien
                     certificates. We conclude that the Department's filings have the effect and
                     priority of exactly what they recorded: tax liens.
                     Priority of the liens
                                  At common law, lien priority depends upon the time that liens
                     attach or become perfected: "first in time, first in right." 51 Am. Jur. 2d
                     Liens § 70 (2011). Statutes may modify or abolish the "first in time, first
                     in right" rule. Id. Under NRS 360.473(2), a tax "lien has the effect and
                     priority of a judgment lien." 2 This court has acknowledged that "a
                     judgment creditor is not within the class designated by the recording
                     statute for protection against an unrecorded conveyance."        Sturgill v.
                     Indus. Painting Corp. of Nev., 82 Nev. 61, 64, 410 P.2d 759, 761 (1966).
                     Here, because the Department's tax lien is given the effect of a judgment
                     lien, NRS 360.473(2), the Department is not protected by Nevada's
                     recording statutes, Sturgill, 82 Nev. at 64, 410 P.2d at 761.




                           2Although NRS 360.480(1) gives tax liens some special priority, the
                     Department did not argue priority based on this statute and, indeed, did
                     not mention the statute until the reply brief. We therefore decline to
                     consider any argument regarding the statute. Bongiovi v. Sullivan, 122
                     Nev. 556, 570 n.5, 138 P.3d 433, 444 n.5 (2006) ("[B]ecause reply briefs are
                     limited to answering any matter set forth in the opposing brief, NRAP
                     28(c), we decline to consider this argument.").



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                              Because Nevada's recording statutes do not protect the
                 Department against unrecorded conveyances, the rule applicable to this
                 case is the common law rule of "first in time, first in right." The
                 Kawaharas' deed of trust was valid and attached in 2009, when their
                 interest was created. 3 The Department's tax lien certificates were filed,
                 and thereby attached, in 2010.       See NRS 360.473(2). Therefore, the
                 Kawaharas' deed of trust has priority over the Department's tax lien.




                 We concur:


                                     1       , C.J.
                 Hardesty tie,tt.


                                                J.



                                                J.




                 Gibbons


                                                J.
                 Pickering



                       3Attachment   includes "Nile creation of a security interest in
                 property." Black's Law Dictionary 152 (10th ed. 2014).
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