(As Published in the Idaho Construction Review, November, 2009)

Idaho Code§ 45-801 is a seldom used and little known statute which provides that a seller of real property has a vendor's lien for a certain amount of the purchase price that remains unpaid. The Idaho Supreme Court described a vendor's lien as a "latent and secret" lien in Finlayson v Waller, 64 Idaho 618 (1943).  The Court also described it as not a specific and absolute charge on the property, but an equitable right to resort to the property for failure to pay the purchase price.  Estates of Somers v Clearwater Power Co. 107 Idaho, 29 (1984). 

  A vendor's lien is valid against the purchaser who has failed to pay the purchase price and anyone claiming under him except a good faith purchaser or encumbrancer.  To be a good faith purchaser or encumbrancer, the lender or subsequent purchaser must have no knowledge of the vendor's lien.  The majority of Idaho cases relating to vendor's liens are fairly old.  But in these times of economic problems and creative financing, old theories for remedies in the event of nonpayment tend to be revived.

  Recently a district court held that recording a notice of a vendor's lien does not give notice of its existence.  Unlike a mechanic's or materialman's lien, the vendor's lien statutes do not provide any authority for recording a notice or claim of the lien and the general recording statutes do not permit such a recording   The question then becomes, how does a subsequent purchaser or lender have knowledge of the vendor's lien?

  Even though the statutes do not provide for the recording of a notice or claim of a vendor's lien, a construction lender or contractor may have actual knowledge of the lien without realizing it.  That issue may be decided on the testimony of the parties and be based on their credibility to the court. 

  Consider a developer who purchases property under an agreement to pay a portion of the purchase price as a down payment and the balance from a construction or development loan when it is obtained.  The lender will require that the buyer be the record owner in order to obtain the loan and, therefore, the seller executes a deed to the purchaser at closing.  The vendor's lien arises at the time of delivery of the deed. 

   If, during the course of obtaining the loan, the purchaser/borrower tells the lender he still owes a portion of the purchase price to the seller, the lender has actual knowledge of the vendor's lien.  The lender may not remember the conversation and may not understand its significance.  If the court determines from the testimony of the witnesses that the lender had knowledge of the unpaid purchase price, the vendor's lien may have priority over the construction loan. 

  The same is also true if the owner of real property informs his general contractor that he has not paid the entire purchase price.  As a result, if the purchase price is not paid and the seller sues to foreclose its vendor's lien, that foreclosure could extinguish the construction loan deed of trust or the contractor's mechanic's lien.  

  The vendor's lien may also be an issue in connection with future advances under a construction loan.  Generally speaking, future advances have the same priority date as the recording of the deed of trust, even if the lender has knowledge of the vendor's lien, provided the lender is legally obligated to make the advance. 

  Therefore, if the lender became aware of the vendor's lien after recording the deed of trust but prior to making future advances, the lender should be protected if the lender is legally obligated to so.  However, construction loan documents may contain provisions that make the existence of the vendor's lien an event of default and many loan agreements expressly state that the lender is not obligated to make advances upon the occurrence of a default.  In that circumstance, the future advances made after the lender has knowledge of the vendor's lien may be junior.   

             When purchasing, making a loan secured by, or constructing improvements on real property with a party who is in the process of acquiring or has recently acquired the property, lenders, contractors and purchasers would be well served to insure that the purchase price of that property has been paid.  Having no knowledge that the purchase price has not been paid is a defense, however, it may be a question of fact decided by the court. 

 Richard Mollerup is a partner with the law firm Meuleman Mollerup LLP, practicing in the areas of real property law, title insurance and escrow law, and in business matters including formation and operation of corporations, partnerships and joint ventures.     Mr. Mollerup can be contacted by phone at 208.342.6066 or by email at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .  More information is available online at www.lawidaho.com .