October 14th, 2014

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Early Sullivan Wright Gizer & McRae’s Appeal Prevails in Moorefield Construction, Inc. v. Intervest Mortgage Investment Company

In the recently published appellate decision Moorefield Construction, Inc. v. Intervest Mortgage Investment Company, et al., D065464, the California Court of Appeals reversed a trial court’s decision awarding a general contractor $2.2 million on its mechanic’s lien. The Court of Appeals upheld a subordination agreement that the general contractor (Moorefield Construction, Inc.) had signed with Early Sullivan client Intervest Mortgage (formerly known as Sterling Savings Bank), “subordinating” Moorfield’s mechanic’s lien claim to Intervest’s Deed of Trust, which was security for the construction loan. This Court of Appeals’ reversal establishes case law ensuring that via the subordination agreement (standard in deals between lenders and general contractors) a lender’s deed of trust is in first position, trumping the general contractor’s mechanic’s lien. Subordination agreements are the lifeline of construction lending because they provide construction lenders with confidence that they will always be in first position in the event of a default. If the Court of Appeals would have upheld the trial court ruling, then the uncertainty of a lender’s position in the event of a default would have dramatically impacted construction lending. Click on “Download PDF” to read the published decision.