MORTGAGES; PRIORITY; VENDEE'S LIENS: Buyer's equitable vendee's lien claimants have priority over bank's construction and purchase money mortgage against seller where bank had actual knowledge of potential vendee's lien interest at time of mortgage. Bancflorida v. Hayward, 659 So.2d 1329 (Fla.App. 3 Dist. 1995).

Developer had an "option contract" [the court's term] with the owner of a large tract. Developer would acquire an individual lot in the tract from the landowner after developer had arranged with a third party buyer that developer would build a home for the buyer on the individual lot in question. The home buyers would pay a deposit with their purchase contracts, and developer would use the deposit to pay part of the price of the lot to landowner and would deliver the purchase contract to Bank, which then would pay off the balance of the purchase price of the land as the first installment on a construction loan. Thereafter, Bank would lend the balance of the construction monies under the same loan agreement and mortgage. During the construction period, home buyers would make four additional payments to developer as required by their purchase agreements, and ultimately these payments would discharge Bank's mortgage. [The developer had already acquired certain of the lots, but the court's opinion appears to address lots as to which the developer acquired title only in connection with the acquisition, construction and resale arrangement described above.]

Developer failed, and a priority dispute arose between the home buyers and the Bank. Bank argued that it was a purchase money mortgagee with respect to the lots and, as such, had priority over the claims of the home buyers. Home buyers argued that they were not ordinary judgment lien claimants, but holders of equitable vendee's liens. Since they had property interests in the lots that predated Bank's interest, and since the bank had actual knowledge of them, home buyers argued that they primed Bank.

Held: Homebuyers have priority. The court's analysis is somewhat superficial on the critical question of the home buyers' interests. It states simply that their interests are equitable vendee's liens. The court does take the step of holding that Bank should be treated as a purchase money lender to the extent that construction loan proceeds were used for acquisition. The court concludes that this might give Bank priority over judgment liens of third parties, but not over parties with actual interests in the parcels in question.

The Court of Appeals has certified the issue to the Florida Supreme Court, so stay tuned.

Comment 1: The court's opinion seems indisputable on the question of priority of equitable vendees whose liens attached to the land prior in time to the Bank's mortgage - such as where the developer already had title to the lot at the time it entered into the construction and resale agreement. But where the Bank was financing the simultaneous purchase of the title through its mortgage, it is difficult to see how the lien of a buyer under a transfer that is subsequent to the aquisition financed by the bank would have priority over the Bank's purchase money lien.

To the extent that the home buyers' deposits were used by the developer to pay off the cost of acquiring the parcel, one could make the argument that the vendee's liens in the home buyers were also "purchase money" liens, and therefore could compete with Bank's claims. But if monies advanced by Bank actually were used to pay the acquisition cost of the lots, and the home buyers' deposits were used for construction costs or for other purposes, it is difficult to see why they should "prime" Bank.

The court seems to be looking at the entire equitable gestalt, emphasizing that Bank required executed purchase agreements with homebuyers, and deposits, before it would provide the purchase money financing. Under the circumstances, the Bank might be regarded as inequitably acting the part of the "dog in the manger," claiming priority that would arise prior to the claims of the home buyers whom it was helping to lure into the developer's snare.

Comment 2: How did the developer become the "equitable owner" of the lots to which it had only an option right? The editor would like to know, as he has had difficulty conceptualizing real property interests in property that only is optioned; certainly the developer would have had some difficulty making an argument for a property interest if the tract owner had gone bankrupt.

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