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Court’s ruling on lien priority a win for code enforcement

Bring up the topic of code enforcement in a social situation and you likely will see the crowd scatter. The subject admittedly is not sexy, but those with experience in the field know code enforcement is critical to improving quality of life by enhancing health and safety in California communities.

In this blog, our goal is to provide readers perspectives on municipal law, including issues related to code enforcement, to keep them up to date on developments. We can’t guarantee every entry will be a blockbuster, but we hope to make each informative and interesting to read.

For our inaugural post, we shine a light on a recent decision from the California Court of Appeal that Dapeer Rosenblit Litvak, LLP won on behalf of the city of Sierra Madre. It’s important because it is the first ruling in more than 100 years to offer clarity on the question of priority of rights when certain competing liens exist against a property.

Cleaning up properties in decline often means putting them in receivership. In such cases, receivers must find the money for remediation where they can. In the case we discuss here, a mortgage lender with a preexisting lien against the property objected to a lower court’s order granting priority of lien to the receiver to secure a $250,000 loan for restoration.

The receiver was appointed by the court under provisions of both the Health and Safety Code and the Code of Civil Procedure. That action came after years of repeated refusals by the property owners to comply with city codes, a lengthy court trial, and orders to fix past violations.

The mortgage bank objected to none of the enforcement actions taken. But it did take exception with the request to give the receiver priority of lien. The bank argued that there is no language in the Health and Safety Code allowing priority to go to the receiver over its preexisting lien. The city argued that without the super-priority lien, no lender would have funded the project.

In a ruling late last month, the appeals court rejected the mortgage bank’s argument. The judges noted that receivers are officers appointed by courts and courts granting super-priority liens are a matter of precedent going back to at least 1915.

In our view, the decision represents the court strongly affirming its authority to assign super-priority liens. It should also provide municipalities a chance to leverage super-priority liens when circumstances permit to lower litigation costs.



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