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Arizona Supreme Court Tackles “Equitable Subrogation”

What is equitable subrogation, you ask?  Something that lenders fret about, and contractors have to deal with sometimes when they don’t get paid.  It’s nerdy lawyer stuff, really.  And the Arizona Supreme Court issued an opinion that really didn’t make it any easier to understand.  The case was brought by Weitz Company against the unit owners at The Summit at Copper Square (across from Chase Field).  Weitz built the high rise, but did not get paid about $4 million.  It recorded a mechanic’s lien.  After 6 years, the supreme court concluded that Arizona’s lien statute, § 33-992(A), does not preclude “assignment by equitable subrogation of a lien that attached before construction began on the project at issue.”  This means that a mechanic’s lien does not rise in priority over the construction loan even where a lender (and the unit owners) paid a portion of the construction loan down — such as upon the purchase of each of the units.  These sorts of issues usually occur in a down economy where things go wrong.  Of course, that’s just when they become very important.  So, as a contractor, never assume you can leap over the lender, even under the best of circumstances.