VCS Inc. v. Countrywide Home Loans, Inc.

At issue in this case was the effect of a subordination agreement between fewer than all of the creditors who hold an interest in the same collateral. Appellant VCS, Inc. provided labor and materials to improve real property located in a planned unit development. The developer, Acord Meadows, secured funding for the project from America West Bank and Utah Funding Commercial. The loans were secured with trust deeds to the development properties, and the lenders entered into subordination agreements among themselves that altered the priority arrangement of their trust deeds. Because VCS was never paid for its work, it filed a mechanic’s lien covering several lots of the development, four of which were sold through a foreclosure sale after Acord defaulted on its loans from Utah Funding. VCS claimed it was entitled to payment of its mechanic’s lien because its lien had priority over Utah Funding’s liens. The district court ruled that VCS’s mechanic’s lien was extinguished by the foreclosure of Utah Funding’s liens. The Supreme Court affirmed after adopting the partial subordination approach to the issue in this case, holding that under the partial subordination approach, VCS’s mechanic’s lien was extinguished once Utah Funding’s lien was foreclosed upon. View "VCS Inc. v. Countrywide Home Loans, Inc." on Justia Law