In re Manhattan W. Mechanic’s Lien Litig. (Nev. Supreme Ct. – Sep. 24, 2015)

The issue is whether a subordination agreement that subordinates a lien for original land financing to a new construction deed of trust affects the priority of a mechanic’s lien for work performed after the date of the original loan but before the date of the construction deed of trust.

Gemstone Apache, LLC (Apache), intended to develop a mixed-use property (Manhattan West) in Las Vegas. Real party in interest Scott Financial Corporation (SFC) made multiple loans to Apache for this purpose. The first three loans, which were recorded in July 2006, totaled $38 million (the Mezzanine Deeds of Trust) and financed the purchase of the property. In April 2007, petitioner APCO Construction (APC0),1the contractor hired by Apache, began construction on Manhattan West, setting the priority date for mechanic’s lien services. In May and October of 2007, the Mezzanine Deeds of Trust were amended to secure additional funds for the project.

In early 2008, Gemstone Development West, LLC (GDW), purchased Manhattan West from Apache, assuming Apache’s loan obligations. To obtain financing for construction, GDW borrowed an additional $110,000,000 from SFC (the Construction Deed of Trust), recording the deed of trust on February 7, 2008. As part of the overall transaction, SFC and GDW entered into a subordination agreement subordinating the Mezzanine Deeds of Trust to the Construction Deed of Trust. SFC indicated that its intent for the subordination agreement was for SFC to determine in what order SFC’s debts would be satisfied. The subordination agreement did not state whether the subordination was complete or partial, nor did it address the priority of any potential mechanics’ liens.

Continue reading “When does a subordination agreement affect the priority of a mechanic’s lien?” →