Continental Lighting & Contracting, Inc. v. Premier Grading & Utilities, LLC
227 Ariz. 382
| Ariz. Ct. App. | 2011Background
- REEL lent $825,000 to Karl Conover for vacant Apache Junction property secured by an August 2005 deed of trust.
- The property was subdivided into 38 lots; Casa Villa Subdivision, LLC acquired the land and Premier and Continental began construction.
- Premier and Continental recorded mechanics' liens in Feb and May 2008, and REEL later filed a mechanics' lien foreclosure action; actions were consolidated in Oct 2008.
- In Sept 2007, Casa Villa refinanced the original loan with REEL for $1,000,000, secured by a new 2007 deed of trust, with proceeds directed to discharge the old debt and costs.
- A January 2008 refinancing added 2008 deeds of trust on seven lots, with REEL again instructing first-recording in first position; default followed, leading to foreclosure actions.
- The trial court granted summary judgment to Premier and Continental, concluding equitable subrogation did not apply and liens had priority over REEL’s refinancing mortgages; REEL appeals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether equitable subrogation applies to refinanced senior liens. | REEL argues subrogation priority should apply over Premier/Continental liens. | Premier/Continental contend subrogation does not apply to single-lender refinancing. | De novo: equitable subrogation does not apply to this refinancing. |
| Whether replacement of senior mortgage preserves priority in a single-lender refinancing. | REEL asserts replacement retains priority for the portion discharged. | Premier/Continental argue replacement should not apply due to same-lender refinancing. | Replacement applies; 2007 deed of trust retains priority to the extent of the discharged balance. |
| Whether the debtor identity change defeats replacement priority. | REEL relies on replacement despite debtor change. | Premier/Continental rely on debtor change to defeat replacement. | Decision adopts replacement regardless of debtor identity change. |
| What is the net priority consequence for Premier/Continental after replacement? | REEL’s position yields priority over Premier/Continental to the replacement extent. | Replacement keeps Premier/Continental in same position, only the increased balance yields junior priority to REEL. | Premier/Continental retain priority only to the extent of the increased debt secured by replacement. |
Key Cases Cited
- Lamb Excavation, Inc. v. Chase Manhattan Mortg. Corp., 208 Ariz. 478 (App. 2004) (equitable subrogation and priority when intervening lienholder not prejudiced)
- Sun Valley Fin. Servs. of Phoenix, L.L.C. v. Guzman, 212 Ariz. 495 (App. 2006) (de novo review of subrogation/replacement doctrines)
- Interbay Funding, LLC v. Interbay Funding, 305 S.W.3d 102 (Tex. App. 2009) (replacement/priority in mortgage refinancings)
- E. Boston Sav. Bank v. Ogan, 428 Mass. 327 (Mass. 1998) (equitable subrogation in refinancing contexts)