Pioneer Sav. & Trust, F.A. v. Rue

• Decision Date: 18 December 1989
• Docket Number: No. 17904,HOMES-CARRIZO,17904
• Citation: 784 P.2d 415,109 N.M. 228,1989 NMSC 79
• Parties: PIONEER SAVINGS & TRUST, F.A., Plaintiff-Appellee, v. Barney RUE, Defendant-Appellant, v. STERLINGLODGE, JOINT VENTURE, et al., Defendants.
• Court: New Mexico Supreme Court

Page 415

784 P.2d 415

109 N.M. 228

PIONEER SAVINGS & TRUST, F.A., Plaintiff-Appellee, v. Barney RUE, Defendant-Appellant, v. STERLING HOMES-CARRIZO LODGE, JOINT VENTURE, et al.,

Defendants.

No. 17904.

Supreme Court of New Mexico.

Dec. 18, 1989.

[109 NM 228] O'Reilly & Wardlaw, P.C., Mel P. O'Reilly, Ruidoso, for appellant.

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Joseph E. Roehl, Albuquerque, Sanders, Bruin, Coll & Worley, P.A., James L. Bruin, Roswell, Ronald G. Harris, Albuquerque, for appellee.

OPINION

RANSOM, Justice.

Barney Rue appeals from the judgment of the district court awarding to Pioneer Savings & Trust, F.A., the proceeds of a mortgage foreclosure sale, and assessing costs against Rue. Rue and other contractors claiming preferential mechanic's liens on a Ruidoso condominium development were defendants in the foreclosure proceedings. Only Rue appeals. We affirm.

Rue is a dirt and paving contractor who obtained a paving contract for roads and parking lots in the Carrizo Lodge Condominiums project, which consisted of Phases I, II, and III. Pioneer loaned $3.891 million to the project developers with promissory notes being secured by two mortgages on the Carrizo Lodge Condominiums property. The first loan for $1.5 million was secured by a mortgage on Phases I, II, and III, which was executed on December 7, 1982, and recorded on December 9, 1982. The second loan for $2.191 million was made on May 31, 1983, and also was secured by the mortgage recorded on December 9, 1982 pursuant to an advancements clause in that mortgage. A third loan for $200,000 was made on June 26, 1984, and was secured by a mortgage on the furniture, appliances, and other personal property in the Phase II condominiums. This second mortgage was recorded on June 28, 1984. The developers fell behind in their payments, and Pioneer brought an action to foreclose both mortgages against Phase II only.

In November of 1982, prior to the recording of either of Pioneer's mortgages, a sewer line was built along a utility easement that passed through part of Phase II as well as other areas of the Carrizo Lodge Condominiums property. Also present at that time on Phase II was a mobile home that extended partly into Phase I. The mobile home had been remodeled (for purposes unclear from the record) prior to the recording of either of Pioneer's mortgages. These improvements have significance in relation to the law that a mechanic's lien is preferred to a mortgage of which the lienholder had no notice, and which was unrecorded at the time work commenced. See NMSA 1978, Sec. 48-2-5 (Repl.Pamp.1987). A subcontractor's lien relates back to the date when any construction actually commenced, even though that subcontractor's work commenced after the mortgage was recorded. Id.; Valley Fed. Sav. & Loan Ass'n v. T-Bird Home Centers, Inc., 106 N.M. 223, 226, 741 P.2d 826, 829 (1987).

Rue asserted that he had a mechanic's lien on Phase II that enjoyed priority over Pioneer's mortgage because his mechanic's lien related back to the date of the sewer construction, or to the date of the mobile home remodeling. The district court found that no work was done on any of the Carrizo Lodge Condominiums prior to the recording of the mortgage on December 9, 1982, and, therefore, neither the sewer construction nor the mobile home remodeling was a starting point for the relation back of subsequent work. The district court also found Rue's mechanic's lien and those of other subcontractors invalid and not timely filed, and assessed Pioneer's costs against Rue and those other subcontractors.

We first address Rue's argument that the district court improperly allowed Pioneer to foreclose on the $2.191 million loan of May 31, 1983, a date clearly after the subcontractors' work began. That loan was secured by an advancements clause contained in the mortgage recorded on December 9, 1982. Rue asserts that, under NMSA 1978, Section 48-7-9 (Repl.Pamp.1987), the mortgage cannot be allowed to secure an advance greater than the face amount of the mortgage. The statute reads:

Every mortgage or other instrument securing a loan upon real estate and constituting a lien, or the full equivalent thereof, upon the real estate securing such loan, may secure future advances and the lien of such mortgage shall attach upon its execution and have priority from the time of recording as to all advances, whether obligatory or discretionary, made thereunder until such mortgage is released of record; provided, that the lien of such mortgage shall not exceed at any one time the maximum amount stated in the mortgage.

We read this statute to mean that the amount secured by the mortgage shall not exceed the maximum amount stated in the mortgage. Any excess would be unsecured. This is the interpretation given to the statute in In re Bass, 44 B.R. 113 (D.N.M.1984), and we agree. In that case, the amount of the advance in excess of the face amount of the mortgage was unsecured by that mortgage. Our interpretation of the statute also comports with New Mexico Bank & Trust Co. v. Lucas Bros., 92 N.M. 2, 582 P.2d 379 (1978). In Lucas, Section 48-7-9 had been enacted but did not apply to the parties. This Court, however, found the rationale behind the statute persuasive and allowed the first secured lender to have priority over a subsequent secured lender only to the extent of the face amount of the first lender's mortgage (plus costs, interest and attorney fees). The first lender's prior interest did not include advances made under the advancements clause of the first lender's mortgage, since the clause in question did not state a dollar amount of advances to be secured by the mortgage. Id. at 4-5, 582 P.2d at 381-82.

In this case, Pioneer's mortgage recorded on December 9, 1982, has a stated amount of $1.5 million. Under Section 48-7-9, therefore, that mortgage cannot secure more than $1.5 million, plus costs, interest, and attorney fees for collecting on the note. The district court found that Pioneer "purchased the property at the foreclosure sale at a price within the maximum amount stated in the mortgage of December 7, 1982, as filed of record on December 9, 1982, plus property [sic] allowable interest and costs." The appellate court will not substitute its judgment for that of the trial court as to the facts established by the evidence, so long as...