Evergreen Pacific, Inc. v. Cedar Brook Way, LLC

A contractor forfeits his right to a construction lien when a contractor secures the debt through a mortgage or trust deed.

Cedar Brook, (Defendant) appealed the trial court's decision foreclosing a construction lien against Evergreen Pacific (Plaintiff). Cedar Brook hired Evergreen Pacific for work on property, but did not pay due to unsatisfactory work. After Evergreen Pacific placed a lien on the property, the parties agreed to a settlement that Evergreen Pacific would lift the lien and grant a trust deed for the property to Cedar Brook. Cedar Brook subsequently defaulted on its debt to Evergreen Pacific and Evergreen Pacific initiated an action to foreclose the trust deed. The trial court concluded that Evergreen Pacific did not forfeit the right to a lien by accepting a trust deed due to Cedar Brook having notice of the same contractor potentially claiming a construction lien in addition to the trust deed. On appeal, Cedar Brook contended that Evergreen Pacific’s lien was invalid and the right to a construction lien was forfeited by accepting a trust deed to secure earlier debts. The Court reviewed previous rulings which established a bright line rule and held that when a mortgage secures a construction debt, the contractor subsequently forfeited his right to a construction lien. Reversed.