When things go wrong on a work project and you need to file a mechanics lien, chances are you are not the only party filing a lien. In scenarios like this, lien priority becomes a very important issue. The point is to get paid. That means if you’re not high in priority, or even first for that matter, you may not being paid at all. Nevada just clarified what happens when “equal priority” liens arise.
The property in dispute was a part of two homeowners’ associations: Southern Highlands Community Association and The Foothills at Southern Highlands Homeowners Association. The former owner failed to pay association dues, forcing Foothills file a mechanics lien on the property. San Florentine Avenue Trust purchased the property and paid off Foothills’ lien. Then, Southern Highlands recorded a lien against the property for unpaid dues pre-dating the sale. The lien was never paid off, and eventually Southern Highlands set a foreclosure sale date.
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San Florentine argued that NRS 116.3116(4) (2013) gives equal priority to multiple HOA liens, and thus the Foothills’ foreclosure extinguishes Southern Highlands lien. They sought to preliminarily enjoin the sale. The district court granted the preliminary injunction, and Southern Highlands appealed.
In Southern Highlands Community Association v. San Florentine Avenue Trust, 132 Nev. Adv. Op. 3, the Courtdetermined the lien priority of the two liens. The Court held that, regardless of when the liens arose, they were equal priority liens due to the language of NRS 116.3116(4) (2013). That was a simple issue to rule on. The difficult problem to resolve was whether Southern’s lien was extinguished. The Court reasoned that the lien was extinguished, but Southern Highland was still entitled to a portion of the proceeds coming from Foothills foreclosure sale.
Since Nevada law did not possess even a suggestion of what to do in this situation, so the Court turned to California’s law. The Court stated
Although we have found no settled “principles of law” clarifying how equal priority liens interact during a foreclosure, we find California’s approach for equal priority mechanics’ liens persuasive. There, when one equal priority mechanic’s lienholder forecloses, the other equal priority mechanic’s lienholders are entitled to proceeds in the same priority position as the foreclosing lienholder, and their liens are extinguished.
Therefore, the Court decided that Southern Highlands is entitled to money from the original sale in the amount of its lien. If the sale is insufficient to satisfy that lien, Foothills and Southern Highlands must share that loss pro-rata.
The Power of Priority
Priority is very important when dealing with mechanics liens and any other liens for that matter. Lien priority rules can vary from state to state. There may be certain ways you may be able to improve your priority in your jurisdiction. Like the case stated above, that can be the difference between how much you get and possibly if you get paid at all. Make sure you stay up-to-date with the priority rules of your jurisdiction and all other mechanics lien laws.