Oregon Court of Appeals hands down important ruling regarding construction lien priority.

November 27, 2012

The Oregon Court of Appeals has recently ruled that an architect’s, registered engineer’s or land surveyor’s statutory lien, which attached when the architect, engineer or surveyor begins its professional work relates back to the date site preparation begins on the real property and the lien has priority over a bank’s trust deed recorded after site preparation began but before the lien was filed and perfected.

The underlying facts are that a developer purchased property with a loan from a private source in January 2006.  The loan was secured by a trust deed and recorded in January 2006.  In March 2006, the developer hired an architect to provided design and development services and the architect began work at that time.  In March 2006, the developer and architect held a workshop about the development and the bank which ultimately provided funding which paid of the private loan attended.  In July 2006 a contractor began clearing the land.  In November 2006 the bank extended a line of credit secured by a trust deed, which was recorded at that time.  In June 2007 architect recorded its lien and in October 2007 sued to foreclose the lien.
The issues for the court were whether the architect’s statutory lien had priority over bank’s secured loan, which paid off the earlier private loan and which was recorded before architect’s lien was filed and whether the bank could avail itself of the equitable doctrine of equitable subrogation, which would allow the bank to “step into the shoes” of the private lender and result in it having priority over the architect’s lien.  The Court of Appeals held that since the architect’s lien relates back to when site preparation on the property its lien had priority over bank’s trust deed and since bank was aware of architect’s work before it loaned the developer money it was not eligible for equitable subrogation.