Reference no: EM133936525
Question
In early 2018, the man decided to expand his store by 1,100 square feet to add a small dining area. To finance this expansion, he obtained a $200,000 loan commitment from a local bank, with the funds to be disbursed at such times and in such amounts as the bank determined to be appropriate if, in the bank's good-faith judgment, there was "satisfactory progress" being made on the project. Documents reflecting this commitment were signed by the man and the bank, and a mortgage to secure the repayment of the loan was promptly and properly filed in the local land records office. Two weeks after obtaining the loan commitment, the man signed a contract with a general contractor for construction of the store expansion. In compliance with its loan commitment, the bank disbursed $50,000 to the man, who, in turn, paid that sum to the general contractor. Construction began immediately thereafter. These materials are copyrighted by the NCBE and are reprinted with the permission of NCBE. These materials are for personal use only and may not be reproduced or distributed in any way. 4 Four weeks into the project, a plumbing subcontractor installed all the plumbing fixtures. After the general contractor failed to pay the $20,000 agreed price to the subcontractor, the subcontractor immediately filed a mechanic's lien against the man's property in the local land records office to secure its claim for $20,000. Eight weeks into the project, the bank disbursed an additional $40,000 to the man, who, in turn, paid $40,000 to the general contractor. The general contractor used these funds to pay various creditors, but not the plumbing subcontractor. Two weeks ago, a bank loan officer learned for the first time about the mechanic's lien. The next day, when the man approached the bank about making another disbursement, the loan officer refused. The man asserts that, under the loan agreement, the bank is obligated to disburse further funds.
- Does the mechanic's lien have priority, in whole or in part, over the bank's mortgage? Explain.
- What bankruptcy code can be used.