In the case of BancFlorida v. Hayward, a developer sold lots to individuals under purchase and sale agreements. On a specific lot sale, the developer would obtain a mortgage commitment for the house that it would build. The developer would then take the agreement, mortgage commitment and the purchaser's deposit to the same bank, and the bank would enter into a separate construction loan agreement for each lot sold. When the bank made the construction loan to the developer, it deducted the cost of purchasing the land from the loan proceeds and gave the developer the balance of the proceeds.
When the developer failed to complete the homes, the trial court ruled that the bank was not a purchase money mortgagee and held that the contract purchasers had equitable liens that were superior in time and right to the bank's mortgages, which secured loans to the developer where the bank had actual notice of the purchasers' contracts prior to making the mortgages on the properties.
On appeal the Third District Court held that the bank was a purchase money mortgagee but reaffirmed the ultimate holding of the trial court. This decision was quashed by the Supreme Court of Florida, holding that under the circumstances the bank was entitled to the priority established by its original mortgage under the doctrine of equitable subrogation. The court stated that Caribank v. Frankel, relied on by the contract purchasers, was erroneously decided. The court concluded that the bank was a purchase money mortgagee and that the mortgages had priority over the claims of the contract purchasers to the extent that the bank's funds were used to purchase the lots, but the bank lost its priority with respect to the additional construction monies advanced to the developer.
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