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Oregon Court of Appeals Decision Sends a Warning to Contractors About Collection Practices

July 20, 2012

Overview

Construction liens provide heightened payment protection to contractors by allowing superpriority over most other secured creditors. But last Wednesday, the Oregon Court of Appeals published a case that sent a clear warning to contractors who get too clever in their collection practices. In Evergreen Pacific, Inc. v. Cedar Brook Way, LLC, the court concluded that a contractor who obtained a deed of trust to secure the owner's construction debt forfeited the contractor's right to a construction lien by using a deed of trust, in addition to a construction lien, to secure payment for its work on a project.

Reaching back to law from the 19th century, the court explained that contractors can certainly choose to use a deed of trust to ensure that the owner pays for the contractor's work. But in doing so, the contractor sacrifices the superpriority status that a construction lien provides– in other words, the contractor negotiated for a security interest that did not allow it to get paid before other secured creditors were paid. This is a cautionary tale that illustrates pitfalls contractors face in DIY debt collection.

For further information or questions regarding the Oregon Court of Appeals ruling, please contact the Schwabe attorney with whom you work or Dave Anderson at 503-796-2456 or danderson@schwabe.com.

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