In the past, title insurance was prepared to ensure a broken priority if it had a sufficient level of comfort and if a person or unit with substance would compensate the title insurance of liability. That`s changed. While Fontainebleau`s decision answered two previously unresolved questions of Nevada law, the impact on lenders and title companies is not necessarily changing. A simple reading of the statutes in question revealed this result when it came into force in 2003. Administrators can now count on the fact that the wages of their mechanics take precedence over any act of confidence found after the start of the work. However, the decision does not change the priority of loans secured by confidence-building rules that were registered prior to the start of the work. The Nevada Supreme Court has issued an important ruling on the relative priority of the mechanics` acts of trust and pledge rights in “broken priority” cases. Re: Fontainebleau Las Vegas Holdings, LLC, 128 Nev. Adv. Op. Given the impact of the Great Recession, resolving these issues could have a significant impact on lenders, developers, contractors and title insurers. In our experience, until recently, a simple drive-by from the title company (and perhaps a lender representative) bypass the problem: no construction, no priority break. However, we noted that some of the large title companies that do business in Arizona have been instructed by their national insurance companies to treat each construction loan as a potential priority scenario that would require the approaches discussed above, even if there is no actual interruption of priority.
The decision provides a comfort to the right-takers in the execution and execution of work contracts, but it does not ultimately alter the analysis of the priority of the deposit. The titrière company that enters into the financing contract and guarantees the lender`s right to guarantee will notice the work when it inspects the day before or on the morning of the loan. At this point, the Title Corporation informs the participants of the agreement, who are then looking for solutions to the problem of broken priority. Possible approaches to this problem may be personal guarantees, loan contracts, compensation agreements, letters of accreditation, etc., a combination of which may allow the titrière company to secure the first position of the construction lender. However, to the extent that these approaches are available, they generally take time and may delay financing the construction loan. The Court finds that subordination agreements purporting to impose subordinate pawn fees are not applicable. In Fontainebleau in 2005, a lender provided a $150 million land loan to finance the acquisition of land on the Las Vegas Strip and secured the bill by placing an act of trust against the country as a top priority. After the developer began construction of the Fontainebleau Hotel in 2007, the lender granted a $1.85 billion construction loan, restored the existing state of confidence and put a new sign of confidence on the ground to secure the construction loan. In addition, the lender has asked various construction companies to enter into contractual subordination agreements between their mechanics and the new fiduciary company. The lender paid the proceeds of the construction loan for the construction payment and various operating costs of the developer.
In 2008, with the economic downturn, the lender declared a loan default and began the seizure of the partially completed hotel. The contractors who worked on the project registered the mechanics` wages to carry out their unpaid work. The developer declared a Chapter 11 bankruptcy. As part of the bankruptcy proceedings, the property was sold to a third party, the mechanics` pledges and the act of trust being linked to the proceeds of the sale. The lender and the mechanics` pawn seekers each claimed the funds as a priority. The bankruptcy court has asked the Nevada Supreme Court to rule on priority issues related to Nevada state law.