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Possible Fallout for Contractors Following Arizona Supreme Court Decision
September 23, 2014
The Arizona Supreme Court's reversal in a case involving use of equitable subrogation in a mechanic's lien situation may embolden more primary lenders to use the tactic, at the potential peril of contractors and subcontractors.
As covered previously in NACM Secured Transaction Services’ Lien Navigator, the Arizona Supreme Court ruled in The Weitz Company, LCC v. Nicholas Heth, et al that a lien filed by a contractor does not automatically take priority over other liens recorded before construction began on a project. Chris Ring from NACM STS, believes this rejection of a lower court ruling that upheld mechanic's lien rights will only open the door for more attempts to sidestep protections long considered to be strong and safe. Ring warned that "as a subcontractor or material supplier, be mindful that the primary lender of the developer may attempt to use subrogation as a way for the mortgage lien to trump your previously-recorded mechanic’s lien."Read more...
Arizona Court Weighs in on Equitable Subrogation in Lien Case
September 5, 2014
The Arizona Supreme Court has weighed in on the use of equitable subrogation in a mechanic’s lien case. In The Weitz Company, LCC v. Nicholas Heth, et al, the state's high court ruled that a lien filed by a contractor does not automatically take priority over other liens recorded after work has already begun.
The court held that state statute does not preclude assignment by equitable subrogation of a lien that attached before construction began on the project at issue. It continued, “additionally, although a third party generally must discharge the entire lien obligation to qualify for equitable subrogation, when a single mortgage burdens multiple parcels, a third party may be entitled to equitable subrogation when that party has paid a pro rata amount of the obligation and obtained a full release of the parcel at issue from the mortgage.”
In the case, the general contractor in a mixed-use project in Phoenix stopped paying a general contractor after many of the condominium units within the structure had been sold to consumers. A trial court previously sided with the contractor’s argument that it had lien priority and the motion to seek foreclosure.Read more...
Nevada Rules on ‘Work of Improvement,’ Delivery Location in Pair of Cases
September 5, 2014
A pair of Nevada Supreme Court decisions that intend to clarify lien law could be of help to suppliers, subcontractors and materialmen. In Byrd Underground, LLC v. Angaur LLC, the Nevada Supreme Court clarified that some pre-construction work on a structure, such as clearing and grading, could be considered a "work of improvement" under existing state mechanic’s lien statutes. The court deemed it a fact question for another court, a bankruptcy court, to consider what constitutes “work of improvement” in this specific case. Much of that comes down to whether the work is visible, said Nathan Kanute, an associate at Snell & Wilmer LLP.
Some previous rulings on lien claims on work like erecting an architect’s sign took an opposing stance regarding clearing and grading. However, “nothing in these provisions excludes preconstruction activities from the definition of ‘work of improvement,’” the Byrd ruling read. The court also found that construction contract and permit issue dates “are irrelevant” when evaluating delivery of materials, performance of work and/or visible commencement of construction, though judges noted the dates may be helpful in assisting the determination of the scope of the work performed.Read more...