Quality Loan Service Corp. v. 24702 Pallas Way, Mission Viejo, CA 92691

We must determine the priorities of federal tax liens and a state-law lien in this dispute over surplus proceeds from a nonjudicial foreclosure sale.

I

A

In 1999, Ted and Karen Chapin executed a deed of trust secured by real property located at 24702 Pallas Way, Mission Viejo, California (“subject property”). Quality Loan Service Corporation (“Quality”) was named the trustee.

Between January 2001 and April 2005, the Internal Revenue Service (“IRS”) recorded in the Orange County Clerk-Recorder Department eight tax liens totaling $182,554.50 on the subject property due to Ted Chapin’s failure to pay federal taxes. In June 2005, Mark and Debra Franzen recorded in the Orange County Clerk-Recorder Department an abstract of judgment against Ted Chapin for $100,000, creating a judgment lien on the subject property.

After the Chapins defaulted on the deed of trust, Quality sold the subject property in a nonjudicial foreclosure sale in October 2006. The sales price was $570,000, resulting in surplus proceeds of $233,942.15. In an effort to distribute this sum, Quality identified twenty-seven junior liens on the subject property, including the IRS liens and the Franzens’…