CYGNUS NEWPORT-PHASE 1B, LLC, ET AL.
CITY OF PORTSMOUTH, ET AL.
THE CIRCUIT COURT OF THE CITY OF PORTSMOUTH William S. Moore,
All the Justices
STEPHEN R. McCULLOUGH JUSTICE.
consider two issues in this appeal. First, we examine whether
a special assessment lien has priority over a deed of trust
that was recorded before the special assessments were
imposed, or whether the special assessment lien is instead
extinguished by the foreclosure of the deed of trust. Second,
we must determine whether the new owners of property subject
to a special assessment lien may have such a lien declared
void years after the lien has been agreed to by the prior
owner and after bonds have been issued in reliance on those
assessments. We conclude that a special assessment lien has
priority over a deed of trust that was recorded before the
special assessments, and that the belated challenge to the
assessments cannot succeed.
prior owner of the property, Portsmouth Venture One, LLC,
acquired title on July 22, 2004, to a 176 acre parcel located
in Portsmouth, Virginia known as tax parcel number 5240010.
On that same date, the prior owner granted a deed of trust on
the property to Bank of America to secure two notes. The deed
and the deed of trust were recorded on August 11, 2004.
prior owner petitioned the City of Portsmouth for the
formation of a community development authority, or CDA. In
2005, the City acquiesced and enacted an ordinance creating
the New Port Community Development Authority. The boundaries
of the CDA's district included tax parcel number 5240010.
permitted by the special assessment ordinance, the CDA
entered into a Special Assessment Agreement with the prior
owner. The Agreement was signed by the City, the prior owner,
and the CDA. Under the Agreement, the special assessments
were to be apportioned and paid each year, and the payments
were pledged to repay the bonds. The prior owner agreed that
the special assessment "does not exceed the peculiar
benefit to the Assessed Property [including tax parcel number
5240010] . . . resulting from the Improvements" and that
successors would be bound by the Agreement.
January 2006, the CDA adopted a resolution authorizing the
issuance of special assessment bonds. A certified copy of the
resolution was filed with the Circuit Court for the City of
Portsmouth on May 8, 2006. The CDA also signed an agreement
with the City on February 15, 2006, and the prior owner
authorizing an issuance of bonds up to $16, 951, 000 to fund
improvements, including road improvements, utilities, and
City enacted an ordinance in February 2006 that established
special assessments on properties in the CDA district. The
ordinance designated how the assessments would be
apportioned, and imposed the special assessments as a lien on
the properties. The ordinance approved the Special Assessment
Agreement. The CDA docketed an abstract of this ordinance in
the circuit court on March 23, 2006.
April 27, 2006, the prior owner and the CDA signed a
Declaration of Notice of Special Assessment, which was
recorded in the circuit court on May 4, 2006. The declaration
states that its provisions "shall run with the land
(including all improvements thereon) and bind any and all who
may now or hereafter own or acquire any right, title, estate
or interest in or to any of such property." In this
Declaration, the prior owner also stated that the special
assessment lien "does not exceed the peculiar benefit to
the Assessed Property."
were issued in May 2006 in the amount of $16, 240, 000. These
bonds are payable from "revenues derived from special
assessments levied on taxable property" within the CDA
boundaries. Unless retired earlier, some bonds will be
outstanding until repaid in 2036.
placed approximately 75 percent of the proceeds at the
disposal of the prior owner, who used the funds to construct
infrastructure improvements within the district. From May
2005 to December 2011, the prior owner subdivided tax parcel
number 5240010 and sold individual lots.
December 22, 2011, Bank of America sold the notes it held to
Cygnus VA, LLC, and assigned it the deed of trust. Following
the prior owner's default, Cygnus VA, LLC instructed the
trustee to foreclose on the property. Following a foreclosure
sale, Cygnus VA, LLC was the successful bidder. Cygnus VA,
LLC conveyed the property to Cygnus Newport, LLC, which in
turn allocated the foreclosed property to the current
filed the present suit, claiming that the special assessment
lien was extinguished by the foreclosure sale. Cygnus also
alleged that the special assessments were void because
although the parcels acquired through the foreclosure sale
are largely unimproved and undeveloped, no CDA bond funds
remain to construct additional improvements. Cygnus argued
that the special assessments grossly exceeded the peculiar
benefits of the improvements to the remaining portion of tax
parcel number 5240010, and should be declared "void
except to the extent that the peculiar benefit of the
abutting [i]mprovements increased the value" of the
property. The CDA and the City filed a motion to dismiss, a
demurrer, and four pleas in bar. After briefing and argument,
the circuit court issued a letter opinion dated July 29,
2015, granting the City and the CDA's third and fourth
pleas in bar and dismissing Cygnus' complaint with
prejudice. On August 10, 2015, the circuit court entered a
final order incorporating its letter opinion, and this appeal
case presents issues of law and, accordingly, we review de
novo the judgment below. City of Richmond v. Suntrust
Bank, 283 Va. 439, 442, 722 S.E.2d 268, 270 (2012).
special assessments have priority over a deed of trust
recorded before the imposition of special assessments.
assessments are nothing new. See Norfolk City v.
Ellis, 67 Va. (26 Gratt.) 224 (1875). The Constitution
of Virginia authorizes localities to impose special
assessments to fund public improvements. Va. Const. art. X,
§ 3. Code § 15.2-2404 permits a locality to impose
"taxes or assessments" upon owners of abutting
property for the purpose of building or improving
infrastructure such as sidewalks and street lights. The
General Assembly has also authorized localities to create
community development authorities. Code § 15.2-5155. A
CDA is an entity that provides a locality with an additional
means to finance infrastructure associated with development
in an authority district. 2006 Op. Atty. Gen. 89, 90; see
also Code § 15.2-5158.
would expect, disputes over the priority of special
assessments are likewise nothing new. Courts have developed
extensive precedent adjudicating the extent to which a
special assessment lien has priority over other liens. As a
general proposition, under the "race notice"
statute, Code § 55-96(A)(1), the first to record an
interest in real estate has priority over those who
subsequently record. With respect to the priority of special
assessment liens, one writer notes that
Practically every case in which the reviewing court has
discussed the question supports the doctrine that to give a
special or local assessment lien superiority over an earlier
private lien or mortgage it is not essential that the statute
imposing the special lien declare its superiority in express
terms. Even those few cases which on their face appear to
take a contrary view have either been explained away or
repudiated by later decisions.
V. Woerner, Annotation, Superpriority of Special or Local
Assessment Lien Over Earlier Private Lien or Mortgage, Where
Statute Creating Such Special Lien is Silent as to
Superiority, 75 A.L.R.2d 1121, § 2 (1961 & 2016
rev.). Our review of Virginia law leads us to conclude that a
special assessment lien has priority over a previously
recorded deed of trust.
of Richmond v. Williams & Bowe, 102 Va. 733, 47 S.E.
844 (1904) sets forth some background principles. In that
case, the City of Richmond had imposed a special assessment
on property after a deed of trust was recorded. Id.
at 734-35, 47 S.E. at 844. This Court examined whether the
deed of trust, recorded before the special assessment was
imposed, had priority over the special assessment.
Id. at 735, 47 S.E. at 844. In reversing the circuit
court's judgment that the previously recorded deed of
trust had priority over the special assessment, we noted that
no statute "expressly declare[d] that the lien of the
assessment is paramount to all other liens."
Id. at 742, 47 S.E. at 847 (quoting Morey v.
City of Duluth, 77 N.W. 829, 830 (Minn. 1899)).
Nevertheless, relying on persuasive authority from other
courts, we concluded that the special assessment lien had
priority over other liens "by necessary
implication." Id. at 743, 47 S.E. at 847
(quoting Morey, 77 N.W. at 830). We observed that
special assessment liens do not "stand upon the footing
of an ordinary incumbrance." Id. at 741, 47
S.E. at 846 (quoting Osterberg v. Union Trust
Co., 93 U.S. 424, 428 (1877)). Such liens secure funding
for improvements that operate to "the benefit of all
interests in the land, for that of the lienholder as well as
that of the fee owner, and necessarily the lien of the
assessment for the improvement must be co-extensive with the
estate benefited and assessed." Id. at 743, 47
S.E. at 847 (quoting Morey, 77 N.W. at 830). We
concluded that unless otherwise directed by statute, a
special assessment lien is "paramount to all other
interests therein, including prior mortgages or other liens
thereon, " and "is not displaced by a sale of the
property under a preexisting judgment or decree."
Id. at 742-43, 47 S.E. at 846-47 (internal quotation
marks and citation omitted).
Court also pointed out that
The principle that a tax lien is superior in dignity to all
other liens upon the land on which it is assessed . . . must,
upon reason as well as authority, be extended to assessments
by municipalities for local improvements, which are in the
nature of a tax, otherwise the whole scheme for local
improvements . . . would be . . . "practically defeated,
" since such improvements might be completely prevented
by a mortgage or deed of trust on property equal to the value
of the property.
Id. 744-45, 47 S.E. at 847-48 (quoting
Morey, 77 N.W. at 830).
of Richmond v. Williams & Bowe has never been
overruled or even questioned. The General Assembly is
presumed to be familiar with this Court's cases.
Waterman v. Halverson, 261 Va. 203, 207, 540 S.E.2d
867, 869 (2001). In addition, as we have previously observed,
inaction by the General Assembly despite awareness of the
Court's interpretation of a statute "is not only
acquiescence but approval" of that interpretation.
Manchester Oaks Homeowners Ass'n v.
Batt, 284 Va. 409, 428, 732 S.E.2d 690, 702 (2012)
(citing Barson v. Commonwealth, 284 Va. 67, 74, 726
S.E.2d 292, 296 (2012)).
argues that the current statutory scheme displaces City
of Richmond v. Williams & Bowe. Virginia is a
"race-notice" jurisdiction, Cygnus contends, and,
therefore, the first party to record its deed, deed of trust,
or other interest has priority over parties who do not
record, or who record later. See Code §
55-96(A)(1). Cygnus points to the parallels between the
recording statute, Code § 55-96(A)(1), and the final
clauses of Code § 15.2-2411, which address community
development special assessment liens. Cygnus contends that
because the Bank of America deed of trust was recorded before
the special assessment lien, and was therefore senior in lien
priority, the foreclosure of the Bank of America deed of
trust extinguished the special assessment lien.
§ 55-96(A)(1), the general recording statute, provides
in relevant part that
[e]very (i) such contract in writing, (ii) deed conveying any
such estate or term, (iii) deed of gift, or deed of trust, or
mortgage conveying real estate . . . shall be void as to all
purchasers for valuable consideration without notice not
parties thereto and lien creditors, ...