Title Commitment With a Judgment Lien and a Fence
Buyer Elena is under contract on a 1.2-acre parcel in Gallatin County for $615,000. The title commitment shows: (1) a 2016 deed of trust securing the seller's original loan, now $298,000; (2) a 2022 judgment lien of $42,000 recorded against the seller from a credit-card lawsuit; (3) a 1979 recorded utility easement across the north 20 feet; (4) a survey note that the neighbor's fence has sat 9 feet inside Elena's west boundary for at least 12 years; and (5) a standard exception for "rights of tenants in possession." Elena wants the judgment lien and the easement removed, and she plans to build a shop inside the fenced area. Closing is in 18 days, and her lender will record its new deed of trust at closing.
1. Which items must be cleared to close, which survive, and how is the judgment lien actually removed?
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Must be cleared (money or release):
- The 2016 deed of trust - paid off from seller proceeds and reconveyed/released.
- The 2022 judgment lien - a recorded judgment against the seller attaches to the seller's real property in that county. It is not "Elena's debt," but it rides with the title until released. Title will collect a payoff from the judgment creditor and record a satisfaction/release at or before closing, funded from seller proceeds. Elena can also insist the seller indemnify her in the deed, but a personal covenant is weaker than a recorded release and will not satisfy the lender.
Survives:
- The 1979 utility easement. Elena takes subject to it unless the utility holder releases - which it usually will not, and cannot be forced to. It restricts building within the north 20 feet; it does not defeat the title.
- Rights of tenants in possession. Standard exception; if the property is occupied, Elena needs a tenant estoppel or evidence the tenancy ends before possession.
Rule of thumb: liens are cured with money; easements are cured only by the holder's signature; possession is cured with paper.
2. Explain the recording sequence and priority at closing. Why does the order matter to Elena's lender?
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Sequence: (a) seller's existing deed of trust is paid and released; (b) judgment lien is paid and released; (c) the deed to Elena is recorded; (d) Elena's new deed of trust is recorded. In practice these are recorded in a single closing package, but the release instruments and the new lien must be positioned so nothing junior survives ahead of the new loan.
Why it matters: the lender's title policy promises that the new deed of trust is a first lien. If the old deed of trust or the judgment lien is still of record when the new loan records, the lender's lien is junior to it, and the policy has to except it - which typically means the loan cannot fund.
Recording statute logic: Montana's recording system protects a subsequent purchaser or lender who takes without notice and records first. That is precisely why Elena's deed must be recorded promptly after closing, not "when the title company gets to it": an unrecorded deed leaves room for a later taker who records ahead of her.
3. The fence has been in place 12 years. Does the neighbor own the 9-foot strip, and what should Elena do before building?
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Not automatically. A long-standing fence is evidence, not title. Adverse possession requires a statutory period plus the required elements - typically hostile use, actual and open possession, exclusivity, and in Montana's shorter-period statute, color of title and payment of taxes on the parcel. Twelve years of a fence, standing alone, does not prove those elements, and a boundary by acquiescence or agreement theory may or may not apply depending on the facts.
Practical steps before pouring a slab:
- Order an ALTA survey and have the surveyor stake the true line.
- Treat the encroachment as a title matter - tell the title company and the lender; do not paper over it.
- Cheapest fix: a boundary line agreement or quitclaim from the neighbor (recorded). Alternative: relocate Elena's improvements inside the true line.
Why this is the exam's real question: the licensee is not asked to decide ownership. The licensee is asked to recognize a boundary/encroachment red flag, avoid giving legal advice, and route the client to a surveyor and a title/real estate attorney before money is committed.