Equitable liens are judicially imposed against property in the absence of any statutory or contractual basis for the creation of a lien.1 These liens arise in a number of different situations,2 but the below discussion is limited to situations involving construction financing. In this context, the project has gone awry and the construction lender may be pitted against two distinct sets of potential claimants: contractors or subcontractors furnishing labor or materials to the project and contract purchasers of improvements being constructed on the project. In almost all of these cases, the builder/developer has failed, become bankrupt, or disappeared; and the only source of recovery for a contractor or contract purchaser is the project or the construction lender. 

Equitable lien claims are typically based on theories of either equitable estoppel or unjust enrichment.3 An equitable estoppel claim is predicated on some unsavory action by the construction lender4 while an unjust enrichment claim is grounded in a lender being inappropriately benefited as a result of the activities of the claimant to the detriment of such claimant.5 Whatever the theory, because the basis for recovery lies in equity, the claimant has to be without an adequate traditional legal remedy in order to prevail.6 

Lender vs. Contractor 

The leading case in the area of contractor claims is Rinker Materials Corp. v. Palmer First National Bank and Trust Company of Sarasota, 361 So. 2d 156 (Fla. 1978). In Rinker, the Florida Supreme Court articulated the basis for imposing an equitable lien under the theory of equitable estoppel: “[A] party may successfully maintain a suit under the theory of equitable estoppel only where there is proof of fraud, misrepresentation, or other affirmative deception. To hold otherwise would inject an unnecessary amount of uncertainty into the construction loan industry.”7 Plaintiffs in Rinker were subcontractors alleging that they continued to perform work on this project after receiving assurances from the bank furnishing construction financing that there were sufficient funds in the loan to complete the project. Although those assurances proved untrue, they were held insufficient to meet the threshold established by the Supreme Court. Subsequent cases relying on this standard proved the difficulty of relying on equitable estoppel for contractors’ recovery.8 

A more successful theory pursued by contractors has been unjust enrichment. The basis for recovery under this cause of action is that the lender is receiving an enhanced value of its collateral by reason of the contractor’s improvements without paying for it.9 Under such a basis for recovery, it is unnecessary to allege fraud or quasi-fraud.10 

However, Florida courts have imposed roadblocks to recovery even when a lender has received the alleged benefits of the contractor’s work. Unless a contractor could demonstrate that his or her work had been totally completed in accordance with the construction contract, the courts were not inclined to award unjust enrichment claims. Courts refused to grant awards after “substantial completion”11 and when there was 96 percent completion.12 The articulated rationale of the courts appears to be that a contractor should not be compensated if he or she failed to complete a contract. However, it seems implausible to expect a contractor to complete performance of his or her obligations under a contract after the owner has previously defaulted by failing to make payment. Although not articulated by the courts, it might be argued that the cost to the lender of re-hiring a new contractor to complete unfinished work and incurring remobilization costs might outweigh the benefits of any near-completed construction. 

The concept of equitable liens as applied to contractor claims may be vitiated as a result of a recent case that appears to have changed the landscape on contractors’ equitable lien claims. In Jax Utilities Management v. Hancock Bank, 164 So. 3d 1266 (Fla. 1st DCA 2015), the court held that a statute adopted by the Florida Legislature in 1992 precluded contractors from asserting both equitable estoppel and unjust enrichment claims against a construction lender. The court’s analysis of the contractor’s claims was filtered through F.S. §713.3471(2). Paragraph (a) of this section requires a construction lender to give notice to a contractor when it intends to cease funding construction: 

(2)(a) Within [five] business days after a lender makes a final determination, prior to the distribution of all funds available under a construction loan, that the lender will cease further advances pursuant to the loan, the lender shall serve written notice of that decision on the contractor and on any other lienor who has given the lender notice. The lender shall not be liable to the contractor based upon the decision of the lender to cease further advances if the lender gives the contractor notice of such decision in accordance with this subsection and the decision is otherwise permitted under the loan documents. 

Paragraph (b) deals with the situation when a lender has failed to give such notice: 

(b) The failure to give notice to the contractor under paragraph (a) renders the lender liable to the contractor to the extent of the actual value of the materials and direct labor costs furnished by the contractor plus 15 percent for overhead, profit, and all other costs from the date on which notice of the lender’s decision should have been served on the contractor and the date on which notice of the lender’s decision is served on the contractor. The lender and the contractor may agree in writing to any other reasonable method for determining the value of the labor, services, and materials furnished by the contractor. 

The First DCA analyzed the statute and noted that the legislature did not specifically provide for the continued viability of common law claims after adopting the remedy provided in F.S. §713.3471(2)(b). The court recognized that there was a presumption that “the common law remains in effect when a statute is enacted in derogation of the common law.”13 The court found the statute to be “repugnant” to the common law and held that the language of F.S. §713.3471(2) evinced a legislative intent to displace the common law remedies. Based on this analysis, the court concluded that the statutory remedy was exclusive, intended to govern all contractors’ claims.14 It, therefore, superseded common law liability based on estoppel and unjust enrichment. 

The court’s analysis was not buttressed by any existing case authority and the court noted that this issue was a case of first impression. However, the court failed to note that numerous cases arising after the 1992 enactment date continued to rely on common law theories of recovery notwithstanding the enactment of F.S. §713.3471.15 

Because construction loan advances are typically made monthly in arrears for work already completed, it is unclear whether this statutory provision permits a lender to provide notice and thereby avoid payment for all of the completed work to the date of such notice or merely to shield itself from future liability for work performed after such notice. It appears inequitable to permit a lender to await the end of any monthly or longer period and then serve a notice to eliminate its liability for work already performed and for which it will obtain the benefit in enhanced collateral. 

F.S. §713.3471(2)(b) creates two distinct periods: one ending on the date the lender should have given notice and one from such date on which the lender failed to give notice to the date lender actually gives notice. With respect to the latter period, the lender bears liability for the cost of the work. This provision appears to subsume that the lender would not be responsible for the cost of the work to the date it should have given notice, which, if correct, would imply that the lender’s liability under paragraph (a) is not cut off only on a prospective basis but extends to work performed prior to giving notice. The statute is not a model of clarity and we will need to await subsequent judicial decisions or a legislative clarification to indicate whether it only absolves a lender from liability for work arising after a notice is given or for work completed both before and after notice is given and for which payment has not been previously made. 

In Jax, even though it was not clear from the record whether the bank had given notice in compliance with F.S. §713.3471(a), the court noted that the contractor had not sought recovery under the statute. The court held that, in the absence of seeking such relief, the contractor could not recover under the statute. Since the statute barred the contractor from seeking the common law remedies of estoppel or unjust enrichment sought in its complaint, the contractor was left without any remedy. 

Construction Lender vs. Buyers 

Buyers of residences to be built typically deposit a portion of the purchase price under their purchase contracts for the benefit of seller/developer prior to construction of their dwelling units. These contracts and deposits are relied upon by a construction lender to satisfy underwriting criteria and to provide the source for repayment of the loan. A conflict arises when the project is not completed by the developer; the buyers’ deposits have been utilized to fund some of the costs of construction or are otherwise not available; and the construction lender has advanced funds against an incomplete project that will have to be completed by someone other than its borrower. 

In such cases, buyers have asserted equitable lien claims in foreclosure actions brought by lenders against projects on which the buyers’ or claimants’ residences were to be built. The courts have permitted such equitable lien claims against the mortgaged property. Allowing such claims has the effect of subordinating a portion of the construction loan to the lien claims of buyers.16 

The courts’ analysis in these cases, while addressing equitable lien claims, does not appear founded on equitable estoppel or unjust enrichment, as in the cases of contractors asserting equitable lien claims, but rather on the fact that the construction lender had knowledge of the buyers’ interests in the property by reason of existing purchase contracts. This knowledge disqualifies a construction lender from being able to take advantage of the priority afforded by the recording statute. This statute protects only parties of recorded instruments who acquire their liens without notice of an adverse claim.17 

Although these cases are pursued under an equitable lien theory, the interest of the contract purchasers could be akin to ownership of the property under the theory of equitable conversion, which treats a contract purchaser as the owner of the property.18  This analysis leading to subordination of a construction lender lien to the interests of the contract purchasers has been consistent in the limited cases on this subject. In Caribank v. Frankel, 525 So. 2d 942 (Fla. 4th DCA 1988), the Frankels posted a $60,000 deposit with a developer who subsequently acquired title to the property for the development of homes with funds from Caribank. Caribank was aware of the Frankels’ contract and deposit. The court held that Caribank was not a bona fide purchaser for value because of its knowledge of the Frankels’ contract and deposit. A similar result was obtained in the Third DCA in BancFlorida v. Hayward, 659 So. 2d 1329 (Fla. 3d DCA 1995), reversed in part, 689 So. 2d 1052 (Fla. 1997). 

The Florida Supreme Court, however, created an exception to the subordination of construction loans in Hayward. In this case, BancFlorida required the developer to obtain a certain number of purchase contracts from prequalified purchasers before making an acquisition and construction loan. Here, the court was asked to address a certified question as to the priority of equitable lien claims from the contract purchasers as against the mortgage made by the bank utilized, in part, to acquire title to the property. The court’s analysis centered around the status of purchase money mortgages and the special priority they are afforded at law.19 The court held that the portion of BancFlorida’s loan that was used to purchase the property to be developed enjoyed priority over the equitable lien claims of the contract purchasers. However, as to the balance of the funds advanced by the bank, the court held: “The bank loses its priority with respect to the additional construction moneys advanced to the [d]eveloper.”20 

This ruling confirmed that construction lenders are exposed to subordination of their mortgages to potential equitable lien claims from contract buyers to the extent the lenders’ funds are not used to purchase property. While the subordination issue may present risks affecting underwriting of such construction loans, it does not appear to have discouraged construction lending. The potential risk of subordination to equitable liens should be capable of being avoided by appropriate language in purchase contracts waiving or subordinating potential equitable lien claims to a developer’s construction financing.21Relying on this factor, pre-construction contracts generally contain such subordination provisions or provisions waiving any equitable lien. 


Equitable lien claims may be predicated on different legal bases when asserted by contractors from those claims asserted by contract purchasers. Contractors attempting to assert such claims need to be mindful of the Jax case and assert their claims based on F.S. §713.3471 unless the Florida Supreme Court reverses the analysis of the First District Court of Appeal or other district courts of appeal rule otherwise.22 

With respect to construction loans, counsel for developers and lenders must make sure that appropriate waivers and subordination language are contained in the home purchase contracts to protect the construction lender from potential subordination to equitable lien claims asserted by purchasers.

This article was first published in The Florida Bar Journal on February  6, 2015.