Whose on FIrst?

August 10th, 2009
WHOSE ON FIRST?

Premier Bank, in September 2005, issues a $3.2 million development loan to
Becker Development LLC for site work on a 40 acre residential development.
In October 2005 Kuechle Underground started excavation on the site for
street and sewer work. WHOSE ON FIRST? Premier Bank for the entire 40 acres.

In February 2006 Premier Bank issued construction loans to Boone Builders to
build 3 model homes on the site, each secured by a separate mortgage. In
October 2006 Premier Bank released these three lots from the mortgage for
the $3.2 million development loan with Becker.

In February 2007 Kuechle Underground files a mechanics lien for the unpaid
balance of $266,633 on the 3 lots with the model homes. WHO'S ON FIRST?
Premier Bank is still on first for all but the 3 model lots. However,
Kuechle Underground is now on first for these lots.

Between January and September 2007 both Becker Development and Boone
Builders defaulted on their loans to Premier Bank. Premier initiates
foreclosure on both Becker's $3.2 million development as well as Boone
Builder's construction loan for the 3 models.

The District Court denied Kuechle Underground's claim on the 40 acres less
the 3 model homes because Premier Bank's mortgage was recorded prior to the
start of the site work, thus Premier was on first. However, the District
Court allowed Kuechle to foreclose its entire lien claim of $266,633 against
the 3 three models because Kuechle Underground was on first for these lots.

Premier Bank appealed, claiming that the District Court erred in permitting
Kuechle to foreclose its entire blanket lien against the 40 acres without
apportioning their costs for labor and material for the 3 models. Minnesota
Statute 514.09 is silent on a lienholders ability to grab all their money
for the whole project on just part of it. There is no precendential case law
for this situation.

On June 30th, 2009 the Minnesota Court of Appeals (A09-1252, A08-1700) ruled
in FAVOR of Kuechle Underground.

Do you agree with the Court of Appeals decision to get the entire $266,633
lien from the three model lots?