Miller Starr Regalia

The consequences of lax construction lending practices materialize in a down market. As property values collapse, insolvent developers walk away from partially completed construction projects and unpaid subcontractors are forced to record mechanics’ liens against the projects. At that point, a construction lender may belatedly discover that the deeds of trust securing its construction loans are subordinate to mechanics’ liens. As a result, both the construction lender and subcontractors are compelled to satisfy their debts from the real property security. The precipitous decline in property values, however, means that there is often not enough equity in the property to satisfy both debts.

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