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SunTrust Case Legal Alert

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Update: California Court of Appeal expressly authorizes Super-Priority Liens to pay for Health and Safety Receiverships rehabilitation costs in City of Sierra Madre v. SunTrust Mortgage, Inc.

The California Court of Appeal just published a case conclusively establishing the right of courts to approve super-priority liens against nuisance properties to cover the costs associated with rehabilitating health and safety receivership properties. This is extremely important precedent ensuring that municipalities have not just adequate remedies at law to address dangerous properties, but the financial resources necessary to effectuate these cases.
The Court’s decision gives public agencies and taxpayers an effective tool in abating health and safety issues where notices of violation are ignored. Court receivers can effectively acquire funding to remediate costly nuisance properties and may issue super-priority liens to do so. This is vital in a day and age where so many occupants suffer living in substandard and often uninhabitable housing, and neighbors suffer the effects of living nearby.
In the Sierra Madre case, the owners of a residential property (“Owners”) refused to cooperate with the City for years after being issued numerous notices and stop work orders related to unpermitted construction taking place on their property. The unpermitted and improper construction was a nuisance and endangered neighboring properties.
After several a notices to the Owners and their mortgage lender, SunTrust Bank, the City filed a nuisance action against the Owners and the Bank, requesting that the court appoint a receiver to remediate the property. In August of 2012, the court appointed a receiver, who submitted a remediation plan that proposed a super-priority lien against the property so that he could acquire the necessary funding to remediate the property. As a super priority lien, it would take priority over the prior-existing Bank lien. The Bank opposed this super-priority lien, arguing that the court lacked authority to subordinate their lien.

The court receiver pointed out that, absent the security of a super-priority lien, there would be no way to secure funding to remediate the property. The court issued its decision granting the court receiver’s request for a super-priority lien and the Bank appealed.

The Court of Appeal affirmed the super-priority lien, reasoning that the Bank should not have the senior interest in the property and thereby benefit from the remediation efforts undertaken by the city and the court receiver when they refused to help abate the nuisances.

Serviam by Wright LLP is a municipal law firm specializing in health and safety receiverships. Serviam is available to assist local authorities with seeking and obtaining the appointment of a court receiver to rehabilitate dangerous, blighted, and substandard properties. Please visit our website or contact Curtis Wright at Wright@Serviam.Law.

Disclaimer: Serviam legal alerts are not intended as legal advice. Additional facts or future developments may affect the subject of this alert. Seek the advice of an attorney before acting or relying upon any information in this alert.

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