The Colorado Court of Appeals issued its opinion in Ferguson Enterprises, Inc. v. Keybuild Solutions, Inc. on December 22, 2011.
Mechanics Lien—Foreclosure—Priority—Deed of Trust—Construction.
In this mechanics’ lien foreclosure action involving the priority of liens relative to a deed of trust, defendant Colorado Community Bank (CCB) appealed the summary judgment in favor of the following lien claimants: plaintiff Ferguson Enterprises, Inc. and defendants Keybuild Solutions, Inc., Carpenters Service Inc., Autumn Landscaping, Inc., Premier Glass Solutions, Inc., SC Design, Inc., Systems Plumbing, LLC, and Colorado Counter-Tops, Inc. (collectively, lien claimants). The judgment was reversed and the case was remanded.
Zion Development, LLC (Zion) borrowed money from FlatIron Bank (FlatIron) to become the owner of the real property involved in this action. Zion hired architects to prepare a master plan, and later defaulted on the FlatIron loan and lost the property through a foreclosure action. Thereafter, FlatIron conveyed the property to Water Tower Builders, LLC (Water Tower), which financed the purchase of the property and construction activities through two loans obtained from CCB. Water Tower hired subcontractors to perform work on the property and later defaulted on the loan to CCB and lost the property to a foreclosure sale. The court granted the lien claimants’ motion, which claimed that its mechanics’ lien had priority over CCB’s deed of trust because it was entitled to relate its lien back to the date when work performed by the architects for Zion was filed as a master plan.
CCB contended that the trial court erred in determining that the mechanics’ liens involved here had a priority senior to its deed of trust. Mechanics’ liens are not entitled to priority under CRS § 38-22-103(2) over a pre-existing deed of trust expressly intended to secure a loan for construction if (1) the deed is recorded before attachment of the mechanics’ liens; and (2) the loan proceeds are used for construction purposes. Here, CCB’s recorded deed of trust was expressly intended to secure a loan for construction, and the lien claimants had notice of such deed of trust. Further, CCB presented evidence that it disbursed loan proceeds of $1.6 million for construction purposes. Thus, CCB’s pre-existing deed of trust was entitled to priority over that of the lien claimants.
Lien claimants contended that their liens “attached” as of October 23, 2007, because their work relates back to work performed by the architects for Zion. If the architects did not actually file a lien or if any architects’ lien were junior to FlatIron’s lien on any structure or improvements, the foreclosure would have extinguished it, and the lien claimants could not relate their work back to the master plan filing. Because the record does not provide the facts necessary to determine this issue for summary judgment purposes, the case was remanded to determine whether the relation-back doctrine applies in this case.