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Missouri Supreme Court Clarifies How to Determine Priority Between Mechanic’s Lien and Purchase Money Deed of Trust

The ever complex world of Missouri mechanic’s lien priority was given a shot of clarity on September 11, 2012, when the Supreme Court of Missouri in Bob DeGeorge Associates, Inc., KD Christian Construction, Co., v. Hawthorn Bank outlined whether or not a purchase money deed of trust will always have priority over a mechanic’s lien. In this case, Blue Springs Xtreme Powersports purchased a building and three tracts of land. Hawthorn Bank acted as the lender and secured its loan with purchase-money deed of trust. Neither the warranty deed to Xtreme nor Hawthorn Bank’s purchase-money deed of trust was recorded at the time of purchase.

Prior to purchasing the property, Xtreme entered into a contract with DeGeorge to remodel a building. Two days after the purchase, DeGeorge began work on the property with its subcontractor, KD Christian. DeGeorge and KD Christian completed the project, but Xtreme never paid the $147,883.70 it owed to DeGeorge and, as a result, DeGeorge never paid the $17,532.83 it owed to KD Christian. DeGeorge subsequently filed a mechanic’s lien and one day later the warranty deed to Xtreme and Hawthorn Bank’s purchase-money deed of trust were recorded. KD Christian filed its lien after the warranty and deed of trust were recorded.

At trial, Hawthorn Bank argued that its purchase-money deed of trust had priority over DeGeorge’s and KD Christian’s mechanic’s liens (even though it was recorded after DeGeorge’s mechanic’s lien). The trial court disagreed and Hawthorn Bank appealed the ruling. The appellate court sided with Hawthorn Bank and the case was subsequently appealed to the Missouri Supreme Court.

The Missouri Supreme Court found that “the purchase-money deed of trust was not valid against third parties [DeGeorge and KD Christian] who had no actual notice at the time work commenced, it is a subsequent encumbrance, and both mechanics’ liens are entitled to priority by operation of the recording statutes and the first spade rule.” The Court went on to state that “giving purchase-money deeds of trust priority over mechanics’ liens in all circumstances would discourage prompt recording of liens on real estate after closing and would frustrate the purpose of the recording statutes to provide a system of statutory priorities for encumbrances on real estate based on constructive notice of prior encumbrances.”

Finally, the Missouri Supreme Court stated that “to the extent that Glenstone Block Co., Butler, Allied Pools, or other cases have cited Westinghouse as authority for holding that unrecorded purchase-money deeds of trust are entitled to priority over mechanics’ liens that arise after transfer of legal title, they are overruled.”