VCS, Inc. v. Countrywide Home Loans, Inc.

This opinion is subject to revision before final
publication in the Pacific Reporter
2015 UT 46IN THE
SUPREME COURT OF THE STATE OF UTAH
VCS, INC., a Utah corporation; and TOM PHELPS,
Appellants,
v.
COUNTRYWIDE HOME LOANS, INC.; AXIOM FINANCIAL, LLC, a Utah
limited liability company; NATHAN K. SPENCER; NATHAN WILLIAM
VAN RIJ; SARAH SHIRLEY VAN RIJ; CRAIG BELLISTON; and NATASHA
BELLISTON,
Appellees.
No. 20111092
Filed April 14, 2015
Third District, Salt Lake
The Honorable Sandra N. Peuler
No. 070917958
Attorneys:
David B. Stevenson, Elizabeth A. Knudson, Ogden, for appellants
Bryce D. Panzer, Bruce M. Franson, Salt Lake City, for appellee
Countrywide Home Loans, Inc.
Daniel L. Steele, Grant M. Sumsion, Benjamin K. Lusty,
Salt Lake City, for appellee Axiom Financial, LLC
Larry G. Moore, Salt Lake City, for appellees Nathan K. Spencer,
Nathan William Van Rij, Sarah Shirley Van Rij,
Craig Belliston, and Natasha Belliston
CHIEF JUSTICE DURRANT authored the opinion of the Court, in which
ASSOCIATE CHIEF JUSTICE LEE, JUSTICE PARRISH, JUDGE PEARCE,
and JUDGE HANSEN joined.
JUSTICE DURHAM and JUSTICE NEHRING did not participate herein;
COURT OF APPEALS JUDGE JOHN A. PEARCE and DISTRICT JUDGE ROYAL
I. HANSEN sat.
VCS v. COUNTRYWIDE
Opinion of the Court
JUSTICE DENO G. HIMONAS became a member of the Court on
February 13, 2015, after oral argument in this matter, and
accordingly did not participate.
CHIEF JUSTICE DURRANT, opinion of the Court:
Introduction
¶1 Appellant VCS, Inc. provided labor and materials to
improve real property located in the Acord Meadows planned unit
development in Salt Lake City. The developer, Acord Meadows, LLC
(Acord), secured funding for the project from two lenders—America
West Bank (America West) and Utah Funding Commercial, Inc.
(Utah Funding). America West and Utah Funding each made several
loans to Acord and secured those loans with trust deeds to the
development properties. The lenders also entered into several
subordination agreements among themselves that altered the
priority arrangement of their trust deeds.
¶2 VCS was never paid for its work, so it filed a mechanic‘s lien
covering several lots of the development. Four of those lots were
later sold through a foreclosure sale after Acord defaulted on its
loans from Utah Funding. After the sale, VCS claimed that it was
entitled to payment of its mechanic‘s lien, despite the foreclosure,
because its lien had priority over Utah Funding‘s liens. The district
court disagreed and ruled that VCS‘s mechanic‘s lien was
extinguished by the foreclosure of Utah Funding‘s liens.
¶3 VCS‘s appeal presents us with an issue of first impression in
Utah—namely, where there are three or more creditors who hold an
interest in the same collateral, what is the effect of a subordination
agreement between fewer than all of the creditors? Courts have
taken two approaches to this issue. Under the majority approach,
called partial subordination, the parties to the subordination
agreement simply swap places in the priority chain, leaving the
nonparty creditor unaffected. In contrast, under the minority
approach, called complete subordination, the subordinating creditor
drops to the bottom of the priority chain and the nonparty creditor
steps into first priority position.
¶4 We adopt the partial subordination approach because it
better reflects the intentions of parties to subordination agreements.
And in applying that approach to this case, we conclude that VCS‘s
mechanic‘s lien remained junior to one of Utah Funding‘s liens, so
the mechanic‘s lien was extinguished once Utah Funding‘s lien was
foreclosed upon. On this basis we affirm the district court‘s ruling.
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Background
I. Events Leading Up to the Present Dispute
¶5 The facts of this case center on fourteen parcels of real
property located in Salt Lake City in the Acord Meadows planned
unit development (Acord Meadows PUD). In May 2005, several
buyers obtained title to lots one through fourteen of the Acord
Meadows PUD.1 Near the end of 2005, the buyers conveyed the
properties to Acord Meadows, LLC (Acord). To fund the purchase,
Acord granted America West a $540,000 trust deed (America West
Trust Deed 1) and granted Utah Funding a $152,000 trust deed (Utah
Funding Trust Deed 1).2 Both trust deeds were entered into on
December 28, 2005, and recorded on December 30, 2005.
¶6 Shortly after America West and Utah Funding recorded
their trust deeds, VCS, Inc. (VCS) performed work on lots one
through six and lot fourteen.3 It did so under a previously negotiated
contract between it, Acord, Lind Enterprises, Inc., and L. Kyle Lind.
VCS was never paid for its work.
¶7 In May 2006, Acord granted America West another trust
deed, this time for $425,000 (America West Trust Deed 2). America
West recorded the deed on May 25, 2006. In connection with the new
trust deed, America West required that Utah Funding agree to
subordinate Utah Funding Trust Deed 1 to America West Trust Deed
2. The parties executed a subordination agreement, which was
recorded on July 12, 2006 (Subordination Agreement 1).
¶8 Acord sought further funding from America West in
October 2006. To secure an additional $751,233, Acord and America
West agreed to modify the amount of America West Trust Deed 1
from $540,000 to $1,291,233 (Modified America Trust Deed 1). On the
same day the parties modified the deed, America West executed a
subordination agreement that made America West Trust Deed 2
1The May 2005 buyers were Robert Mills, Rick Newton, Bart
Roser, Victoria Serre, and Lind Enterprises, Inc.
2 Utah Funding assigned its interest in Utah Funding Trust Deed
1 to Lind Enterprises, Inc., Ms. Serre, and Huish Group on January 3,
2006. And soon after that, on January 17, 2006, Huish Group
assigned its interest to North Star Funding Group, Inc.
3The parties agree, only for purposes of this appeal, that VCS
began performing work on January 6, 2006.
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VCS v. COUNTRYWIDE
Opinion of the Court
subordinate to Modified America West Trust Deed 1 (Subordination
Agreement 2).
¶9 Soon after receiving funds from America West, Acord
sought further funding from Utah Funding. Acord granted Utah
Funding a $100,000 trust deed (Utah Funding Trust Deed 2).4 Utah
Funding recorded the deed on November 13, 2006.
¶10 As a final source of funding, Acord granted America West
another trust deed, this time for $200,000, on August 7, 2007
(America West Trust Deed 3).5 This deed differed from the others in
that it covered only lots one and two. America West required Utah
Funding to subordinate both Utah Funding Trust Deed 1 and Utah
Funding Trust Deed 2 to America West Trust Deed 3 (Subordination
Agreements 3 and 4).
¶11 In September 2007, VCS filed notice of a mechanic‘s lien for
work it performed on lots three through six for $127,335.91. And two
months later, in November 2007, it filed notice of a mechanic‘s lien
for work it performed on lots one and two for $98,000. VCS later
amended each of those notices, in January 2008, by changing the date
of the first labor and material to January 6, 2006.6 It also amended the
4 Utah Funding assigned its interest in Utah Funding Trust
Deed 2 to Lind Enterprises, Inc., Huish Group, Keith and Verla
Hamp, and American Pension Services, Inc. admin. for Vicki Serre
IRA #5957 on November 3, 2006. Later, on June 27, 2007, Huish
Group assigned part of its interest (including only lots one through
six) to CCT Investments.
5 We note that the parties failed to include Utah Funding Trust
Deed 3 in the record. But its existence was undisputed below and the
parties agree on its material terms. Moreover, the deed is referenced
in one of the subordination agreements that is in the record.
Accordingly, for purposes of this opinion, we assume that the deed
exists and that its terms are as the parties have represented.
6 At the time VCS filed its notice of a mechanic‘s lien, and at the
time this lawsuit commenced, Utah law provided that a construction
service lien related back to ―the time of the commencement of
construction service on the ground for the improvement.‖ UTAH
CODE § 38-1-5(1) (Supp. 2011). Because this was the law in place at
the time of all relevant events in this case, we assume its application
in this appeal. See Gressman v. State, 2013 UT 63, ¶ 13, 323 P.3d 998(―Under our case law, the parties‘ substantive rights and liabilities
are determined by the law in place at the time when a cause of action
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amount owed on lots one and two to $29,876.98 and the amount
owed on lots three through six to $175,907.20.
¶12 At some point during these events, America West‘s trust
deeds were reconveyed and released. The parties have provided few
specifics regarding when the deeds were released.7 But regardless,
VCS has never challenged the assertion that America West‘s trust
deeds were reconveyed and released, and even conceded the point
below. So for purposes of this appeal, we acknowledge the parties‘
stipulation and assume that all of America West‘s trust deeds were
reconveyed and released.
¶13 Acord later defaulted on both Utah Funding trust deeds.
The trustee of each of the trust deeds issued a notice of default and
election to sell for each. Only lots one through four were listed on the
notices. The trustee held a sale under Utah Funding Trust Deed 2 on
March 4, 2008. Huish Group, Keith Hamp, and Verla Hamp
purchased that interest. VCS alleges that co-appellant Tom Phelps
and several others made a bid for the property, but that the trustee
refused to accept their bid.
¶14 In August 2008, about five months after the sale under Utah
Funding Trust Deed 2, the trustee held a sale under Utah Funding
Trust Deed 1. North Star Funding Group, Lind Enterprises, Inc., and
Ms. Serre purchased that interest. They later conveyed the interest to
L. Kyle Lind. Mr. Lind then conveyed lots one, three, and four to
separate buyers. He conveyed lot one to Nathan Spencer. In
connection with that conveyance, Mr. Spencer executed a trust deed
in favor of Axiom Financial, LLC. Mr. Lind conveyed lot three to
Nathan Van Rij and Sarah Van Rij. The Van Rijs executed a note in
favor of Countrywide Home Loans, Inc. to pay for lot three. And
finally, Mr. Lind conveyed lot four to Craig Belliston and Natasha
arises . . . .‖ (internal quotation marks omitted)). Moreover, neither
party has contested its application.
7 One of the third-party defendants, Axiom Financial, LLC,
asserts that America West Trust Deed 2 was released on May 22,
2007, approximately two months before America West loaned Acord
funds under America West Trust Deed 3. But other than that
assertion, there is no further evidence regarding the reconveyances
of America West‘s trust deeds.
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VCS v. COUNTRYWIDE
Opinion of the Court
Belliston. Each person who purchased from Mr. Lind was named as
a third-party defendant by VCS and is an appellee in this appeal.8
II. Procedural History
¶15 Near the end of 2007, Acord commenced suit against VCS,
alleging breach of contract, negligent misrepresentation, fraud, and
estoppel. VCS answered the complaint and also made claims against
third-party defendants Lind Enterprises, L. Kyle Lind, and
Countrywide. VCS later amended its complaint to add Axiom
Financial, LLC, Nathan Spencer, the Van Rijs, and the Bellistons as
third-party defendants. VCS claimed, among other things, that its
mechanic‘s lien had priority over the third-party defendants‘
interests in the Acord Meadows PUD.
¶16 Countrywide filed for summary judgment, which the
district court granted. In its order the court explained,
[T]he Court finds that the subordination agreements,
which were contracts between the lenders identified
therein and not intended to benefit any other party
(such as VCS or the other Third-Party Plaintiffs),
became null and void due to the payment of the
indebtedness of the lender given priority therein and
the release and reconveyances of the instruments
granted priority thereby, and did not affect the priority
of [Utah Funding Trust Deed 1,] pursuant to which
Countrywide and its borrowers claim title.
The court later granted summary judgment in favor of the other
third-party defendants on the same basis. VCS appealed the district
court‘s rulings in favor of the third-party defendants. We have
jurisdiction under Utah Code section 78A-3-102(j).
Standard of Review
¶17 In reviewing a district court‘s grant of summary judgment,
―we view the facts and all reasonable inferences drawn therefrom in
the light most favorable to the nonmoving party.‖9 But we review a
―district court‘s legal conclusions and ultimate grant or denial of
summary judgment‖ for correctness.10
8 VCS‘s claims against Countrywide have been settled.
Accordingly, Countrywide is no longer a party to this appeal.
9 Fericks v. Lucy Ann Soffe Trust, 2004 UT 85, ¶ 2, 100 P.3d 1200(internal quotation marks omitted).
10 Massey v. Griffiths, 2007 UT 10, ¶ 8, 152 P.3d 312.
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Analysis
¶18 VCS asks us to reverse the district court‘s ruling for two
reasons. First, it argues that the court erred as a matter of contract
law by concluding that the subordination agreements were ―null and
void‖ once America West‘s liens were reconveyed and released. And
second, it argues that, assuming that the subordination agreements
were not ―null and void,‖ its mechanic‘s lien had priority over Utah
Funding Trust Deed 1 because that deed lost its original priority
position as a result of being subject to several subordination
agreements. The district court did not reach VCS‘s second argument
because it determined that there was no need to do so once it ruled
against VCS on the first issue.
¶19 We affirm the district court‘s ruling, but do so on an
alternative basis. Even were we to agree with VCS on the first issue
(and so disagree with the district court), we would nonetheless
affirm the district court‘s ruling because VCS‘s mechanic‘s lien was
junior to Utah Funding Trust Deed 1, and so was extinguished when
Utah Funding Trust Deed 1 was foreclosed upon.
¶20 In reaching that conclusion, we adopt the majority
approach—termed ―partial subordination‖—to the issue of circular
lien priorities, which arises where there are at least three creditors
who hold an interest in the same property and fewer than all of those
creditors enter into a subordination agreement. We do so because the
partial subordination approach most accurately reflects the
intentions of parties who enter into subordination agreements and it
also prevents nonparty creditors, such as VCS, from obtaining a
windfall. Applying that approach to this case, we conclude that Utah
Funding Trust Deed 1 had priority over VCS‘s mechanic‘s lien.
Because we resolve the case in this manner, we have no need to
decide whether the district court correctly decided that the
subordination agreements were ―null and void‖ once America
West‘s liens were reconveyed and released.
¶21 VCS‘s final argument is that Utah Funding (and its
assignees) received more money from the foreclosure sale than they
were entitled to. We decline to address the merits of this argument,
however, because it is unpreserved.
I. Under the Partial Subordination Approach, Utah Funding Trust
Deed 1 had Priority Over VCS‘s Mechanic‘s Lien
¶22 VCS argues that the subordination agreements entered into
by Utah Funding rearranged the priority chain and resulted in VCS‘s
mechanic‘s lien having priority over Utah Funding Trust Deed 1. In
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VCS v. COUNTRYWIDE
Opinion of the Court
making this argument, VCS asks us to adopt a minority approach to
the issue of circular lien priorities called ―complete subordination.‖
But we decline to do so and instead adopt the majority approach,
which is called ―partial subordination.‖ Under that approach, Utah
Funding Trust Deed 1 retained priority over VCS‘s mechanic‘s lien
even though it was subject to several subordination agreements.
¶23 The issue of circular lien priorities is an issue of first
impression in Utah. Described simply, this issue arises where three
or more creditors hold an interest in the same collateral and fewer
than all of the creditors enter into a subordination agreement. The
resulting question is what effect the subordination agreement has on
the nonparty creditors.11
¶24 Here, the issue arises because America West, Utah Funding,
and VCS each held an interest in the Acord Meadows PUD. America
West and Utah Funding entered into four different subordination
agreements that purported to alter the priority among their
respective interests. VCS is not a party to any of these agreements.
The following chart describes the effect of each subordination
agreement:
11 We note that this issue appears to arise most often in cases
involving personal property, not real property. See, e.g., Caterpillar
Fin. Servs. Corp. v. Peoples Nat’l Bank, N.A., 710 F.3d 691, 693–94 (7th
Cir. 2013). But neither party has argued that this distinction matters
in this case. Moreover, at least one court has concluded that, as to
this issue, there is no distinction ―to draw between real property and
personalty.‖ Duraflex Sales & Serv. Corp. v. W.H.E. Mech. Contractors,
110 F.3d 927, 936 (2d Cir. 1997). We, too, see no reason why the
analysis should differ depending on whether real property or
personal property is at issue.
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Agreement Effect
Subordination Subordinated Utah Funding Trust Deed 1
Agreement 1 to America West Trust Deed 2
Subordination Subordinated America West Trust Deed 2
Agreement 2 to Modified America West Trust Deed 1
Subordination Subordinated Utah Funding Trust Deed 1
Agreement 3 to America West Trust Deed 3
Subordination Subordinated Utah Funding Trust Deed 2
Agreement 4 to America West Trust Deed 3
We are primarily concerned with whether Utah Funding Trust Deed
1 had priority over VCS‘s mechanic‘s lien because each of the third-
party defendants obtained title through the foreclosure on Utah
Funding Trust Deed 1. VCS argues that although its mechanic‘s lien
was originally junior to Utah Funding Trust Deed 1 because it was
recorded later, it gained priority over Utah Funding Trust Deed 1 as
a result of the various subordination agreements outlined above.
¶25 The partial subordination approach for addressing circular
lien priorities holds that the nonparty creditor is unaffected by the
subordination agreement and ―simply swaps the priorities of the
parties to the subordination agreement.‖12 The following
hypothetical illustrates how this approach operates:
[T]he third lienholder should be able to succeed to that
part of the interest that was subordinated by the first
lienholder, so long as the second lienholder is neither
burdened nor benefitted by the subordination
agreement. For example, A, B and C have claims
against the debtor which are entitled to priority in
alphabetical order. ―A‖ subordinates his claim to ―C.‖
After foreclosure of the secured interest, the resulting
fund is insufficient to satisfy all three claims. The
proper distribution of the fund is as follows.
1. Set aside from the fund the amount of ―A‖ ‗s
claim.
2. Out of the money set aside, pay ―C‖ the
amount of its claim, pay ―A‖ to the extent of
any balance remaining after ―C‖ ‗s claim is
satisfied.
12 Caterpillar Fin. Servs. Corp., 710 F.3d at 693–94.
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VCS v. COUNTRYWIDE
Opinion of the Court
3. Pay ―B‖ the amount of the fund remaining
after ―A‖ ‗s claim has been set aside.
4. If any balance remains in the fund after ―A‖
‗s claim has been set aside and ―B‖ ‗s claim
has been satisfied, distribute the balance to
―C‖ and ―A‖.
Thus, ―C‖, by virtue of the subordination agreement, is
paid first, but only to the amount of ―A‖ ‗s claim, to
which ―B‖ was in any event junior. ―B‖ receives what it
had expected to receive, the fund less ―A‖ ‗s prior
claim. If ―A‖ ‗s claim is smaller than ―C‖ ‗s, ―C‖ will
collect the balance of its claim, in its own right, only
after ―B‖ has been paid in full. ―A‖, the subordinator,
receives nothing until ―B‖ and ―C‖ have been paid
except to the extent that its claim, entitled to first
priority, exceeds the amount of ―C‖ ‗s claim, which,
under its agreement, is to be first paid.13
Partial subordination is the approach subscribed to by a majority of
jurisdictions.14
¶26 The complete subordination approach reaches a different
result under the same hypothetical. Under that approach, C remains
junior to B even though A agrees to subordinate its interest to C‘s. So
under the complete subordination approach, B moves into first
13ITT Diversified Credit Corp. v. First City Capital Corp., 737 S.W.2d
803, 804 (Tex. 1987) (citing GRANT GILMORE, SECURITY INTERESTS IN
PERSONAL PROPERTY § 39.1 at 1021 (1965)).
14 See Caterpillar Fin. Servs. Corp., 710 F.3d at 693–94; Duraflex Sales
& Serv. Corp., 110 F.3d at 936; Mid-Ohio Chem. Co. v. Petry, 140 F.
Supp. 2d 828, 830–31 (S.D. Ohio 2000); In re Cliff’s Ridge Skiing Corp.,
123 B.R. 753, 766–67 (Bankr. W.D. Mich. 1991); In re Price Waterhouse
Ltd., 46 P.3d 408, 410–11 (Ariz. 2002); Bratcher v. Buckner, 109 Cal.
Rptr. 2d 534, 542 (Ct. App. 2001); Co-Alliance, LLP v. Monticello Farm
Serv., Inc., 7 N.E.3d 355, 359–60 (Ind. Ct. App. 2014); Grise v. White,
247 N.E.2d 385, 389–91 (Mass. 1969); ITT Diversified Credit Corp., 737
S.W.2d at 804. We also note that one of the principal architects of the
Uniform Commercial Code also advanced the partial subordination
approach. See GRANT GILMORE, SECURITY INTERESTS IN PERSONAL
PROPERTY § 39.1 at 1021 (1965).
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priority position, then C, then A. A minority of jurisdictions have
adopted this approach.15
¶27 But the cases applying the complete subordination approach
offer little justification for doing so. One rationale is that the
complete subordination approach more closely adheres to the
dictionary definition of ―subordination.‖ As the Alabama Supreme
Court explained, ―[b]y definition, ‗subordination‘ contemplates a
reduction in priority. Nothing in the definition contemplates raising a
lower priority lienholder up to the position of the subordinating
party.‖16 But this rationale is unpersuasive because the central
question in cases of circular lien priorities is what the parties
intended, not what the dictionary definition of ―subordination‖ is in
a vacuum.17
¶28 Another rationale for the complete subordination approach
is that it prevents the nonparty creditor from being harmed. But this
rationale is equally unpersuasive because it fails to recognize that the
partial subordination approach offers nonparty creditors the same
protection. As the hypothetical above illustrates, under partial
subordination, C (the creditor gaining priority) only gains priority to
the extent that A (the creditor who originally had priority) would
have had priority.18 Explained differently, ―[t]he ‗partial‘ in ‗partial
15 See, e.g., AmSouth Bank, N.A. v. J & D Fin. Corp., 679 So. 2d 695,
698 (Ala. 1996) (per curiam); Old Stone Mortg. & Realty Trust v. New
Ga. Plumbing, Inc., 236 S.E.2d 592, 593 (Ga. 1977); Blickenstaff v. Clegg,
97 P.3d 439, 447–48 (Idaho 2004); Ladner v. Hogue Lumber & Supply
Co., 91 So. 2d 545, 547 (Miss. 1956).
16 AmSouth Bank, N.A., 679 So. 2d at 698; see also BLACK‘S LAW
DICTIONARY 1563 (9th ed. 2009) (defining ―subordination‖ as ―[t]he
act or an instance of moving something (such as a right or claim) to a
lower rank, class, or position‖).
17See, e.g., Strohm v. ClearOne Commc’ns, Inc., 2013 UT 21, ¶ 34, 308
P.3d 424 (―When interpreting a contract, a court first looks to the
contract‘s four corners to determine the parties‘ intentions, which are
controlling.‖ (internal quotation marks omitted)).
18 ITT Diversified Credit Corp., 737 S.W.2d at 804 (explaining that
the proper distribution of funds is: ―1. Set aside from the fund the
amount of ―A‖ ‗s claim. 2. Out of the money set aside, pay ―C‖ the
amount of its claim, pay ―A‖ to the extent of any balance remaining
after ―C‖ ‗s claim is satisfied.‖ (citing GRANT GILMORE, SECURITY
INTERESTS IN PERSONAL PROPERTY § 39.1 at 1021 (1965))).
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Opinion of the Court
subordination‘ denotes the fact that the parties to a subordination
agreement swap places in the priority ladder only to the extent of the
smaller of the swapping parties‘ loans.‖19
¶29 We decline to adopt the complete subordination approach
because it conflicts with the well-established rule that the parties‘
intentions control a contract. As the Seventh Circuit explained,
complete subordination ―would benefit a nonparty to the
subordination agreement . . . and why would the parties to the
subordination agreement, who did not include [the nonparty], want
to do that?‖20 We have made this same point in several contract-law
cases involving third-party beneficiaries by observing that the
―benefits conferred by contracts are presumed to flow exclusively to
the parties who sign the contracts. A third party may claim a
contract benefit only if the parties to the contract clearly express an
intention to confer a separate and distinct benefit on the third
party.‖21
¶30 The subordination agreements that affected Utah Funding‘s
trust deeds evidence the intent to alter the priority arrangement of
interests held by Utah Funding and America West, not VCS. Each of
the agreements provides as follows: ―[The applicable Utah Funding
lien] is hereby made second and subordinate to the [applicable
America West lien].‖ Nothing in that language suggests that the
parties intended to benefit VCS. Applying complete subordination
would ―allow an intervening lienholder to obtain a windfall by
becoming a senior lienholder through no action of [its] own.‖22
¶31 In this case, Utah Funding recorded Utah Funding Trust
Deed 1 before the date VCS began performing work on the Acord
Meadows PUD, which gave Utah Funding Trust Deed 1 priority.23
Under the partial subordination approach, that priority arrangement
was unaffected by the subordination agreements between Utah
19 Caterpillar Fin. Servs. Corp., 710 F.3d at 694.
20 Id. at 693.
21Bybee v. Abdulla, 2008 UT 35, ¶ 36, 189 P.3d 40 (internal
quotation marks omitted).
22 Co-Alliance, LLP, 7 N.E.3d at 359.
23See Ault v. Holden, 2002 UT 33, ¶ 31, 44 P.3d 781 (―In Utah,
between two purchasers of real property, the first to validly record a
conveyance and take the property without notice of a prior interest
in the property takes the property over a purchaser who
subsequently records a deed.‖).
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Funding and America West. The subordination agreements affected
the priority arrangement between America West and Utah Funding
vis-à-vis each other. Neither party intended to allow VCS‘s
mechanic‘s lien to jump ahead in the priority chain. For these
reasons, we conclude that Utah Funding Trust Deed 1 had priority
over VCS‘s mechanic‘s lien, and foreclosure on that trust deed
extinguished VCS‘s mechanic‘s lien. On this basis we affirm the
district court‘s ruling.
II. VCS Did Not Preserve Its Argument That Utah Funding
Received More Money From the Foreclosure Sale Than
It Was Entitled To
¶32 VCS next argues that Utah Funding Trust Deed 1‘s priority
is limited to the original amount of its lien—$152,000. But we decline
to address the merits of this argument because VCS failed to
preserve it.24
¶33 As a general rule, we ―will not consider an issue unless it
has been preserved in the court below.‖25 And the question of
whether a party has preserved an issue below ―turns on whether the
district court ha[d] an opportunity to rule on [the] issue.‖26
¶34 VCS did not argue below that Utah Funding Trust Deed 1‘s
priority was limited to $152,000.27 Moreover, VCS has not established
24 Within its argument that Utah Funding (and its assignees)
received more money than they were entitled to from the foreclosure
sale, VCS appears to also argue that the modification of America
West Trust Deed 1 prejudiced VCS‘s rights under its mechanic‘s lien.
But VCS did not make this argument below and so it, too, is
unpreserved. Moreover, given the fact that VCS has conceded that
America West‘s liens were reconveyed and released, it is unclear
why those liens would even be relevant for purposes of the
foreclosure sale.
Baird v. Baird, 2014 UT 8, ¶ 20, 322 P.3d 728 (internal quotation
25
marks omitted).
26 Id. (internal quotation marks omitted).
27 At oral argument, counsel for VCS was pressed for record
citations that would establish VCS preserved this argument below.
Counsel cited several pages in the transcript of the hearing held on
Countrywide‘s motion for summary judgment. But those pages do
not support VCS‘s position. In that portion of the hearing, counsel
for VCS referred to several Utah Court of Appeals cases for the
proposition that Utah courts had expressed ―sympathy‖ for the
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Opinion of the Court
as a factual matter that the foreclosure sale on Utah Funding Trust
Deed 1 netted proceeds in excess of $152,000, and, in fact, at oral
argument counsel for VCS stated that the foreclosure sale did not
―generate enough to satisfy the $152,000 trust deed.‖ So, on the one
hand, VCS argues that Utah Funding (and its assignees) received too
much, but, on the other hand, it acknowledges that the foreclosure
sale did not generate enough proceeds to satisfy Utah Funding Trust
Deed 1. VCS‘s inconsistent argument is likely a product of the fact
that there was no record developed below on the issue.
¶35 In short, because VCS never gave the district court an
opportunity to rule on the issue of whether Utah Funding (and its
assignees) received more than the value of Utah Funding Trust Deed
1 ($152,000), the argument is unpreserved.
Conclusion
¶36 We adopt the partial subordination approach to the issue of
circular lien priorities. Under that approach, Utah Funding Trust
Deed 1 retained priority over VCS‘s mechanic‘s lien. On that basis,
we affirm the district court‘s ruling that foreclosure on Utah Funding
Trust Deed 1 extinguished VCS‘s mechanic‘s lien.
complete subordination approach. Counsel did not use those cases in
support of the argument now made on appeal—that Utah Funding
(and its assignees) received more than they were entitled to from the
foreclosure sale.
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