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ARTICLE · 02 FEBRUARY 2014

Construction Lien Vs. Mortgage — The Claim Priority War

Pepper Hamilton LLP
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After the owner of a newly constructed hotel filed bankruptcy, the assignee of the construction mortgage sought a declaration that the mortgage had priority over the general contractor’s mechanic’s lien.

United StatesInsolvency/Bankruptcy/Re-Structuring
Vicki Harding
Vicki Harding

After the owner of a newly constructed hotel filed bankruptcy, the assignee of the construction mortgage sought a declaration that the mortgage had priority over the general contractor's mechanic's lien. The general contractor contended that its mechanic's lien had priority, and filed a dozen counterclaims for good measure. After losing before the bankruptcy court and district court, the general contractor appealed to the First Circuit.

The history of the project is as follows:

  • December 2006: Debtor signed a contract with the general contractor (ROK) to build the hotel.
  • April 2007: ROK terminated the contract based on the debtor's failure to pay approximately $1.6 million.

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