Sep 18 2014
The facts in Weitz were that sometime in 2005, Summit at Copper Square, LLC, a Phoenix real estate developer, obtained a $44 million construction loan to build a 165-unit mixed use commercial and residential condominium project located in downtown Phoenix, Arizona. Weitz Construction Co. served as the general contractor on the project. Construction started in January 2006 and Weitz timely served its 20-day preliminary notice. As construction progressed, Summit sold off some of the completed units. Most of the units that were sold were financed by the individual buyer’s mortgage lender. Summit used the proceeds from the unit sales to pay off the $44 million construction loan.
As the project neared completion, Weitz was still owed $4 million, which Summit was unable to pay. Weitz then recorded a mechanic’s lien against the individual condominium units. Weitz eventually filed suit against the individual condo owners and their lenders seeking to foreclose on its mechanic’s lien. The homeowners and lenders objected claiming that their lien had priority over Weitz’s lien based on the theory of equitable subrogation. Equitable subrogation allows a later filed lienholder to take priority, or “leap-frog” over a superior lienholder. Weitz countered that its mechanic’s lien had priority over the lender’s lien based on the mechanic’s lien statutes and A.R.S. § 33-992(A) which specifies the priority mechanic’s liens have over other liens. The trial court agreed with Weitz and permitted Weitz to continue with foreclosure of the condo units.
The homeowners and lenders appealed to the Arizona Court of Appeals. The Court of Appeals agreed with the trial court which resulted in the case being appealed to the Arizona Supreme Court. At this point, the Arizona Supreme Court has not ruled yet. If you’re in the business of building commercial or residential condo projects, the final decision in this case may affect your lien rights. The Arizona Supreme Court’s ruling is expected later this year.
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Mesa, AZ 85203
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