Can a Construction Lien Survive a Mortgage Foreclosure?

In the recent case of CDC Builders, Inc. v. Biltmore-Sevilla Debt Investors, LLC, 151 So. 3d 479 (Fla. 3d DCA 2014), the Third District Court of Appeal found one instance where a construction lien would survive a mortgage foreclosure.

In this case, CDC Builders, the contractor, entered into a contract with the Riviera entities, the developers, to build twenty five luxury homes.  The Riviera entities obtained financing from SunTrust.  The Riviera entities failed to pay for the last eight homes constructed and CDC Builders recorded two construction liens.

The principal of the developers formed a new corporation, BSDI, which purchased the Riviera entities’ loans from SunTrust.  BSDI then filed a lawsuit to foreclose the construction loans against the Riviera entities and seeking to wipe out CDC Builder’s liens.  The trial court granted final summary judgment of foreclosure in favor of BSDI and wiped out CDC Builder’s liens.

On appeal, the Third District Court of appeal reversed the trial court holding that “[t]he law does not permit a person to borrow money from a bank, give the bank a mortgage, incur additional liens and junior mortgages on the property, purchase the mortgage back from the bank, and then foreclose on the mortgage for the primary purpose of eliminating the additional liens and junior mortgages.”  The court went on to state that “persons cannot do indirectly what they are not permitted to do directly.”