VCS, Inc. v. Countrywide Home Loans, Inc.
349 P.3d 704
Utah2015Background
- VCS performed labor and furnished materials on lots 1–6 and 14 in the Acord Meadows PUD; VCS was never paid.
- Acord Meadows, LLC obtained funding from America West Bank and Utah Funding; both made secured loans with trust deeds on the development.
- America West and Utah Funding executed multiple subordination agreements altering priority between them.
- America West’s trust deeds were later reconveyed and released; the status of those releases is undisputed for purposes of this appeal.
- Utah Funding Trust Deed 1 held priority over VCS’s mechanic’s lien, and foreclosures on Utah Funding Trust Deed 1 extinguished VCS’s lien under the majority (partial) subordination approach.
- This case presents an issue of first impression in Utah: when three or more creditors share collateral and fewer than all sign a subordination, what happens to a nonparty’s lien.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether subordination agreements nullified by reconveyance destroyed VCS’s lien priority | VCS argues complete subordination should apply, giving nonparties no windfall | Utah Funding and America West contended reconveyances voided subordination | Partial subordination controls; liens retained priority despite reconveyances |
| Whether Utah Funding Trust Deed 1 retained priority over VCS’s lien under partial subordination | VCS asserts VCS should jump ahead after subordination | Utah Funding’s priority remained intact against VCS under partial subordination | Utah Funding Trust Deed 1 had priority over VCS’s lien; foreclosure extinguished the lien |
| Whether VCS preserved its argument about distributions from foreclosure | VCS claimed Utah Funding received excess proceeds | Issue not preserved below | Argument unpreserved; not decided |
| Whether the district court correctly decided the subordination agreements affected only America West/Utah Funding and not VCS | Subordination altered the chain involving all creditors including VCS | Subordination was limited between Utah Funding and America West; VCS not a party | Agreed with district court on the scope; partial subordination applied to priority among the signatories |
Key Cases Cited
- Caterpillar Fin. Servs. Corp. v. Peoples Nat’l Bank, N.A., 710 F.3d 691 (7th Cir. 2013) (discussion of partial vs complete subordination in circular lien priorities)
- ITT Diversified Credit Corp. v. First City Capital Corp., 737 S.W.2d 803 (Tex. 1987) (illustrates complete subordination approach)
- Duraflex Sales & Serv. Corp. v. W.H.E. Mech. Contractors, 110 F.3d 936 (2d Cir. 1997) (advocates partial subordination; discusses policy reasons)
- AmSouth Bank, N.A. v. J & D Fin. Corp., 679 So.2d 695 (Ala. 1996) (support for partial subordination still protective of nonparties)
- Co-Alliance, LLP v. Monticello Farm Serv., Inc., 7 N.E.3d 359 (Ind. Ct. App. 2014) (illustrates partial subordination in nonbank creditor context)