Equitable Subordination in Nevada

Nevada is a first-in-time recording state, which means that the lien recorded on real property first has priority over subsequently recorded liens.  Huntington v. Mila, Inc. 119 Nev 355, 357, 75 P.3d 354, 356 (2003).  However, there are exceptions to this rule.  In cases of equitable subordination, a lien recorded first in time can be subordinated to a later-recorded lien.  The issue usually arises when there are several liens on a property and the purchaser fails to identify a junior lien holder.  In certain circumstances, the court will allow the purchaser or subrogee to step into the shoes of the superior lien holder.  The rationale behind equitable subordination is that, to do otherwise gives the junior lien holder an undeserved windfall. Houston v. Bank of Ma. Fed. Sav. Bank, 119 Nev, 485, 490 (2003).

The court will allow equitable subordination if:

  • The subrogee made the payment to protect his or her own interest;
  • The subrogee did not act as a volunteer;
  • The subrogee was not primarily liable for the debt; or
  • The subrogee paid off the entire encumbrance and subrogation would not be unjust to the junior lien holder. 

Mort v. United States, 86 F3d 890, 894 (9th Cir. 1996)(citation omitted). 

Byron E. Thomas, Esq.

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