Opinion ID: 2793612
Heading Depth: 1
Heading Rank: 1

Heading: introduction

Text: ¶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. 2 Cite as: 2015 UT 46 Opinion of the Court