Add Another Log to the Fire: New Decision Burns General Contractor
By Dustin Lozano, Esq.
General contractors beware! The recent appellate case of Moorefield Construction, Inc. v. Intervest-Mortgage Investment Company holds that a general contractor can contractually waive or impair its mechanic’s lien rights.
In 2006, DBN Parkside, LLC (DBN) and Moorefield Construction, Inc. (Moorefield) entered into a construction contract. The Construction Lender (Lender) required DBN to assign its rights and remedies under the construction contract to Lender. Lender required Moorefield to consent to the assignment and to sign a subordination agreement, which gave the Lender’s construction loan deed of trust priority over Moorefield’s mechanic’s lien rights.
Towards the end of the project, DBN defaulted on its loan with Lender and failed to pay Moorefield in full. Moorefield recorded a mechanic’s lien for the unpaid amounts. Lender countered that its deed of trust had priority over Moorefield’s mechanic’s lien. The trial court ruled Moorefield’s mechanic’s lien had priority over Lender’s deed of trust because under California law, mechanic’s liens “relate back” to the commencement date of a construction project, which in this case pre-dated the construction loan. The trial court also held that the subordination agreement was an invalid impairment of Moorefield’s lien rights. But the California Court of Appeal reversed that decision, finding that Moorefield’s subordination agreement was valid and enforceable.
The Moorefield opinion puts all general contractors on notice that they may contractually waive or impair their mechanic’s lien rights under California law. However, Moorefield has filed a petition for review with the California Supreme Court. We will keep you updated on the Supreme Court’s response.
Dustin Lozano is an Associate with Hunt Ortmann, a leader in California construction law. If you have any questions about this bulletin or mechanic’s lien rights, please contact him at lozano@huntortmann.com.
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