Ragsdale Bros. Roofing, Inc. v. United Bank of Denver, N.A., 84CA0544

CourtCourt of Appeals of Colorado
Citation744 P.2d 750
Docket NumberNo. 84CA0544,84CA0544
PartiesRAGSDALE BROS. ROOFING, INC., Corneau-Finley Masonry, Plaintiffs-Appellees, v. UNITED BANK OF DENVER, N.A., Defendant-Appellant. . I
Decision Date26 March 1987

Donald C. Hanneman, Denver, for plaintiff-appellee Ragsdale Bros. Roofing, Inc.

Myers, Woodford & Hoppin, P.C., Charles T. Hoppin, Denver, for plaintiff-appellee Corneau-Finley.

Holme Roberts & Owen, Clifford P. Jones, Lawrence L. Levin, Englewood, for defendant-appellant.

TURSI, Judge.

The defendant, United Bank of Denver (United Bank), appeals the judgment in which the trial court found the plaintiffs, Ragsdale Bros. Roofing, Inc., (Ragsdale) and Corneau-Finley Masonry (Corneau-Finley), had mechanics' liens that were superior to the public trustee's deed it had obtained by foreclosure of its deed of trust. United Bank asserts the trial court erred (1) by ignoring the express provisions of § 38-39-110, C.R.S. (1986 Cum.Supp.); (2) by granting Corneau-Finley full value of its lien claim even though that claimant had executed a partial waiver of lien; (3) by ruling its decree did not affect the superior interests of First National Bank & Trust Company of Oklahoma City (First National Bank); and (4) by including in Corneau-Finley's lien the value of the fireplace doors that were custom-made for the property but never delivered. We modify the judgment and affirm as modified.

First Colorado Construction Company (Owner) owned the subject property, a residential lot which was burdened by a deed of trust for the benefit of First National Bank. Owner executed and delivered a promissory note secured by a second deed of trust on the property to United Bank. That deed of trust specified it was for vacant land and was recorded in April 1979. It was acquired to secure an overdraft by Owner at United Bank and not acquired to obtain funds to build on the lot.

A few months later Ragsdale performed roofing work for Owner on a totally new structure being built on the lot. It received no payment and recorded a mechanic's lien on April 23, 1980. Corneau-Finley performed masonry work on the structure for Owner. It received partial payments and signed two waivers of lien and submitted additional lien waivers from its suppliers. Its mechanic's lien against the property was recorded on April 16, 1980.

Owner defaulted on the promissory note and United Bank began foreclosure proceedings on its second deed of trust on April 10, 1980, by filing a notice of election and demand with the Public Trustee. Neither Ragsdale nor Corneau-Finley received written notice prior to the foreclosure sale. See § 38-37-113(3), C.R.S. (1982 Repl.Vol. 16A). United Bank purchased the property at the public trustee's sale held May 28, 1980. United Bank was issued a public trustee's deed on October 10, 1980.

Ragsdale filed an action to foreclose its mechanics' lien and recorded a lis pendens on June 30, 1980. United Bank and others thought to have interests in the property were made defendants in the action. Thereafter, Corneau-Finley timely filed an action to foreclose its lien. The trial court consolidated the actions and trial was to the court. First National Bank answered the complaint but was neither notified nor present at the trial.

Ragsdale and Corneau-Finley asserted, pursuant to § 38-22-103(2), C.R.S. (1982 Repl.Vol. 16A), that their mechanics' liens had preference to any right, title, or lien the defendants held on the lot. United Bank contended, pursuant to § 38-39-110, it took title under the public trustee's deed free and clear of all liens which were recorded after the recording of their second deed of trust.

The trial court ruled § 38-39-110 did not cut off the liens of Ragsdale and Corneau-Finley on the building. Therefore, it held their liens on the structure, but not the land, were superior to United Bank's title and they were entitled to judgment in the amounts of their respective liens plus interest.

I

United Bank asserts the trial court's decision violates the express provisions of § 38-39-110. We disagree.

Section 38-39-110 provides that upon issuance and delivery of the public trustee's deed, "title shall vest in the grantee and such title shall be free and clear of all liens and encumbrances recorded or filed subsequent to the recording or filing of the lien on which the sale was based." United Bank contends that "liens or encumbrances recorded or filed subsequent" should be read literally to mean any interest recorded later in time. Therefore, it contends it took title under the public trustee's deed free and clear of plaintiffs' mechanics' liens since plaintiff's did not enjoin the foreclosure sale or redeem the property being foreclosed.

However, § 38-22-103(2) provides that when a mechanic's lien is for work done or material furnished for any entire structure, such lien shall attach to such structure in preference to any prior lien or mortgage on the land upon which the building is erected. United Bank does not dispute that the liens of Ragsdale and Corneau-Finley had preference over its second deed of trust.

Thus, the issue presented to this court is how to resolve the apparent conflict between §§ 38-39-110 and 38-22-103(2). When apparent conflict exists between two statutory sections, a court must attempt to harmonize the statutes in order to give effect to their purposes. Ortega v. Industrial Commission, 682 P.2d 511 (Colo.App.1984).

Mechanics' lien laws are designed for the benefit and protection of the mechanics and materialmen and should be construed in favor of lien claimants. 3190 Corp. v. Gould, 163 Colo. 356, 431 P.2d 466 (1967); Darien v. Hudson, 134 Colo. 213, 302 P.2d 519 (1956). Generally, a properly perfected mechanic's lien becomes a prior lien upon a new structure, while an existing deed of trust remains a prior lien upon the land. Darien v. Hudson, supra; Atkinson v. Colorado Title & Trust Co., 59 Colo. 528, 151 P. 457 (1915). United Bank does not claim its deed of trust was given for a loan to be used for construction of the building. Hence, the exception to the general rule for construction loan deeds of trust does not apply here. See Darien v. Hudson, supra; Joralmon v. McPhee, 31 Colo. 26, 71 P. 419 (1903).

The purpose of § 38-39-110, as well as all laws concerning title to real property and related interests, is to render such titles absolute and free of technical defects so that subsequent purchasers, such as the purchaser of a public trustee's deed, may rely on the record title. Section 38-34-101, C.R.S. (1982 Repl.Vol. 16A). However, a purchaser is bound by the record. If it indicates the existence of some outside interest by which the title may be affected, a purchaser is bound to investigate and is charged with knowledge of the facts to which the investigation would have led. Delta County Land & Cattle Co. v. Talcott, 17 Colo.App. 316, 68 P. 985 (1902). Here, United Bank, the purchaser, not only knew of the liens prior to the purchase of the public trustee's certificate of sale, but also had notice of the lis pendens prior to receipt of the public trustee's deed.

Generally, priorities under the recording statute are established based on the order in which they are recorded. Section 38-35-109, C.R.S. (1986 Cum.Supp.); Bray v. Trower, 87 Colo. 240, 286 P. 275 (1930). The instrument recorded first has preference or is the senior lien. Bray v. Trower, supra; Houlahan v. Finance Consolidated Mining Co., 34 Colo. 365, 82 P. 484 (1905). However, mechanics' liens are the exception to this rule since they are granted priority over the previously recorded interests in specific circumstances. Section 38-22-103(2).

In light of the purposes underlying both §§ 38-22-103(2) and 38-39-110, we interpret the language "liens or encumbrances recorded or filed subsequent" in § 38-39-110 to mean liens or encumbrances junior in fact to the lien on which the sale is based. This interpretation upholds the underlying purpose of the mechanics' lien statutes by protecting the priority granted by the General Assembly. It is consistent with the purpose of the public trustee's deed statute and all other statutes concerning title to real property since it still maintains the integrity of the recording system. A search of the chain of title here would have disclosed the existence of the senior mechanics' liens. A purchaser is placed on inquiry notice and is bound by the record. See Page v. Fees-Krey, Inc., 617 P.2d 1188 (Colo.1980).

Section 38-39-110 does not specifically refer to or purport to govern priorities established by mechanics' lien statutes. When a lien is filed later in time than a deed of trust, yet is superior to the deed of trust, the title acquired pursuant to the public trustee's sale and deed is subject to the superior lien. See Peoples Bank & Trust Co. v. Rocky Mountain District Council, 620 P.2d 58 (Colo.App.1980) (dealing with priority of liens established by subordination agreements). Furthermore, United Bank's notice of election and demand, the notice of public trustee sale, and the public trustee's deed all refer to the property as "vacant land."

The trial court did not err in ruling that United Bank's title pursuant to the public trustee's deed was subject to Corneau-Finley's and Ragsdale's superior mechanics' liens on the building.

United Bank, citing Boulder Lumber Co. v. Alpine of Nederland, Inc., 626 P.2d 724 (Colo.App.1981), contends that when there is a question regarding the right of priority of a mechanic's lien because of an impending public trustee sale, the lienor must obtain a preliminary injunction, otherwise issuance of a public trustee's deed terminates any previously admitted priority of the mechanic's lien. We disagree.

C.R.C.P. 120 provides the procedure to obtain a court order authorizing a public trustee's sale. The scope of inquiry is limited to the existence of a...

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