SERA Architects, Inc. v. Klahowya Condominium, LLC

Pursuant to the Construction Lien Law under ORS 87.005-87.060, a construction lien, if perfected by filing a claim of lien, relates to and encumbers a property as of the beginning of construction or the delivery of materials. Separately, in order to triumph on the affirmative defense of equitable subrogation, a lender must prove that it was ignorant to the existence of an intervening lien, and that its ignorance was not the result of inexcusable ignorance.

SERA Architects, Inc. ("SERA") and Shorebank Pacific Corporation ("Shorebank") are two creditors of Klahowya Condominium, LLC, a failed property development. SERA appealed two aspects of the trial court's determination of priority: 1. Shorebank's trust deed had priority over SERA's architect's lien, pursuant to the Construction Lien Law under ORS 87.005-87.060, and 2. Pursuant to the doctrine of equitable subrogation, Shorebank's trust deed was substituted to the first position of the prior mortgagee, and that it, accordingly, held priority over SERA's subsequent lien. The Court of Appeals first looked at the law of priorities at the time legislation enacted ORS 87.005-87.060. In doing so, the Court determined the law at that time was that a construction lien related to and encumbered the property upon the beginning of construction. In this case, SERA began delivering materials to the jobsite in July 2006 and, thus, the Court held that SERA's lien related back to July 2006. The Court then addressed Shorebank's defense of equitable subrogation. Relying upon the rule asserted in Dimeo v. Gesik, this Court held that, in order to assert equitable subrogation, Shorebank must prove that it was ignorant to the existance of an intervening lien, and this ignorance must be exusable. Under the facts of the current case, the Court determined that Shorebank had constructive notice of SERA's lien prior to it providing Klahowya with a line of credit in November 2006 and, due to this, declined to extend to Shorebank the doctrine of equitable subrogation. Reversed and remanded.