Case Name: SUNTRUST BANK, Appellant, v. RIVERSIDE NATIONAL BANK OF FLORIDA, et al., Appellee
Court: Florida District Court of Appeal
Jurisdiction: Florida
Decision Date: 2001-08-29
Citations: 792 So. 2d 1222
Docket Number: No. 4D00-2341
Parties: SUNTRUST BANK, Appellant, v. RIVERSIDE NATIONAL BANK OF FLORIDA, et al., Appellee.
Judges: POLEN, C.J., DELL, WARNER, STEVENSON, SHAHOOD, GROSS, TAYLOR and HAZOURI, JJ., concur.
Reporter: Southern Reporter, Second Series
Volume: 792
Pages: 1222–1234

Head Matter:
SUNTRUST BANK, Appellant, v. RIVERSIDE NATIONAL BANK OF FLORIDA, et al., Appellee.
No. 4D00-2341.
District Court of Appeal of Florida, Fourth District.
Aug. 29, 2001.
David S. O’Quinn of Dean, Mead, Minton & Klein, Fort Pierce, for appellant.
Alan S. Polackwich, Sr. of Clem, Polack-wich, Vocelle & Berg, Vero Beach, for appellee.

Opinion:
KLEIN, J.
Pursuant to appellee's motion for en banc rehearing, the court agreed to consider this case en banc because the panel opinion receded from two prior decisions of the court. The majority of the court having agreed with the majority opinion of the panel,, the panel opinion, filed February 14, 2001, is withdrawn and the following opinion, which is identical, is substituted in its place. The motions for rehearing are denied.
The issue presented in this foreclosure action is whether Suntrust Bank, which lost the priority of its original first mortgage when it refinanced and satisfied that mortgage,' is entitled to relief under the doctrine of equitable subrogation. The trial court denied relief, holding that the mortgage of Riverside Bank, which was recorded between the original first mortgage and the refinancing mortgage, had first priority. We reverse.
In 1993 Suntrust recorded a balloon first mortgage in, the. amount of $148,500. Two years later Riverside recorded a $100,000 second mortgage, notifying Suntrust of the second mortgage and asking for a limitation of future advances. Three years after that, in 1998, Suntrust refinanced the first mortgage, lending $136,800. Suntrust's original first mortgage was paid from the proceeds and satisfied of record. Suntrust assumed that the new mortgage was a first mortgage .because its title search failed to disclose the Riverside mortgage.
When the property went into foreclosure and Suntrust discovered it had lost its priority, it sought relief under the doctrine of equitable subrogation, which provides that when loan proceeds are used to satisfy a prior lien, the lender stands in the shoes of the prior lienor, if there is no prejudice to other lienors. The trial court determined that it was precluded from applying that doctrine because of two decisions of this court and granted Riverside's motion for summary judgment. Although the trial court was correct in its interpretation of our decisions, those decisions did not recognize an earlier Florida Supreme Court case which applied equitable subro-gation under similar facts.
In Federal Land Bank of Columbia v. Godwin, 107 Fla. 537, 145 So. 883 (1933) the borrower had given a bank a first mortgage and Alderman a second mortgage. When the borrower refinanced the original mortgage with the bank, he told the bank there were no other mortgages of record, and the bank's title search failed to show the Alderman second mortgage. In the refinancing transaction, as in the present case, the original first mortgage was satisfied and a new mortgage was recorded.
Subsequently, in foreclosure proceedings, the bank discovered it had lost its priority. Under the doctrine of equitable subrogation, the bank sought to be subro-gated to the priority of its original first mortgage, because the funds derived from the refinancing mortgage were used to satisfy the original first mortgage. The Florida Supreme Court granted the relief, explaining:
The doctrine of subrogation does not arise from statute or custom, but is peculiarly a creation of equity, grounded on the proposition of doing justice to the parties without regard to form. It rests on the maxim that no one shall be enriched by another's loss, and may be invoked when and where justice demands its application. It has been greatly expanded in this country, may be employed to relieve from fraud or mistake, but is not allowed if it works any injustice to the rights of others. 25 R.C.L. § 2.
The rule is academic that one who makes a loan to discharge a first mortgage, pursuant to an agreement with the mortgagor that he shall have a first mortgage on the same lands to secure it, the lender will be subrogated to the rights of the first mortgagee, notwithstanding there is at the same time a second outstanding mortgage of which he (the lender) is ignorant.
In representing that there were no other incumbrances on the lands mortgaged, Godwin perpetrated a fraud on appellant. As a result of this fraud and failure to locate any adverse claimant to said lands, appellant advanced money to retire Godwin's first mortgage on the express agreement that it (appellant) was to have a first lien on said lands to secure repayment of the sum loaned. It would be grossly inequitable under such circumstances to hold that the appellant was not entitled, as against the holder of the second mortgage, to be treated as the assignee of the first mortgage, and thus by chance or fortune raise the second mortgage to the dignity of the first, contrary to the intention of the parties.
The application of this rule works common justice to all; it prevents injury to appellant, who furnished the money to pay off the first mortgage in ignorance of the second; it gives appellant the benefit of its payment, carries out the intention of the parties; and leaves Alderman, the holder of the junior mortgage, in his original position.
Godwin, 145 So. at 885-86.
The only distinction between Godwin and the present case is that in Godwin, in addition to the bank negligently failing to find the second mortgage when it searched the title, the owner fraudulently misrepresented that there were no other liens. Although there was no fraud in the present case, it is clear from the opinion in Godwin that equitable subrogation will be applied to relieve negligence, where the position of the original junior lienors will be no worse than before the first mortgage was satisfied.
The doctrine of equitable subrogation was more recently applied by our supreme court in Palm Beach Savings & Loan Ass'n, F.S.A. v. Fishbein, 619 So.2d 267 (Fla.1998). In Fishbein there had been first, second and third mortgages on a residence owned by a husband and wife who were in dissolution proceedings. In order to consolidate the debt, the husband borrowed $1.2 from a bank and forged his wife's signature to the mortgage. He used $930,000 of the loan proceeds to pay off the three existing mortgages.
When the bank's mortgage went into foreclosure it was uncontested that the wife had not consented to the mortgage and that the residence was a homestead. The trial court thus ruled that the mortgage could not be foreclosed, but did grant the bank an equitable lien to the extent that $930,000 of its loan was used to satisfy preexisting mortgages. This court reversed, concluding that the bank's negligence in not requiring the wife to sign the mortgage in person was not a basis on which to impose an equitable lien against a homestead. The bank sought review in the Florida Supreme Court, which characterized the bank's argument as follows:
The bank argues, however, that because its loan proceeds were used to satisfy the prior liens, it stands in the shoes of the prior lienors under the doctrine of equitable subrogation. Thus, the bank argues that it has the same rights to enforce a lien against the homestead property as the prior lien-holders.
Fishbein, 619 So.2d at 269.
The Florida Supreme Court held that the bank was entitled to equitable subro-gation, emphasizing that if the bank had not lent the money which was used to pay off the three prior mortgages, the wife's interest in the home would have been subject to those mortgages, and she was "not entitled to a $930,000 windfall." Id. at 271.
The Florida Supreme Court has also recognized, without referring specifically to the doctrine of equitable subrogation, that equity will grant relief where a mortgage is satisfied by mistake and no rights of third parties have intervened. United Serv. Corp. v. Vi-An Constr. Corp., 77 So.2d 800 (Fla.1955) and cases cited. So has this court. Sunrise Sav. & Loan Ass'n v. Giannetti, 524 So.2d 697 (Fla. 4th DCA 1988).
Under the Restatement (Third) of Property: Mortgages section 7.6 cmt.e (1996), a refinancing lender is equitably subrogated to the priority of the first mortgage even where it has actual knowledge of the intervening lien:
[ujnder this Restatement, however, sub-rogation can be granted even if the pay- or [the refinancing lender] had actual knowledge of the intervening interest; the payor's notice, actual or constructive, is not necessarily relevant. The question in such cases is whether the payor reasonably expected to get security with a priority equal to the mortgage being paid. Ordinarily lenders who provide refinancing desire and expect precisely that even if they are aware of an intervening lien. A refinancing mortgagee should be found to lack such an expectation only where there is affirmative proof that the mortgagee intended to subordinate its mortgage to the intervening interest.
In rejecting the doctrine of equitable subrogation in the present case, the trial court relied on two decisions of this court which we now address.
The first of those decisions is Bank of South Palm Beaches v. Stockton, Whatley, Davin & Co., 473 So.2d 1358 (Fla. 4th DCA 1985), in which Stockton had a first mortgage on property owned by a builder, and there were several junior mortgages. When the builder fell behind on the Stockton loan, the builder asked Stockton for an additional loan, and Stockton agreed. Stockton apparently obtained oral agreements from the intervening lenders to subordinate their junior mortgages, but, through oversight, never procured the subordination agreements. When the Stockton second mortgage went into foreclosure, Stockton argued that the portion of its second loan which was used to pay off a portion of the first mortgage should have the same priority as the first mortgage. This court rejected that argument without addressing either the doctrine of equitable subrogation or Godwin.
The other case relied on by the trial court is Independent Life & Accident Insurance Co. v. New Age Development Corp., 625 So.2d 1243, 1244 (Fla. 4th DCA 1993), in which the majority affirmed without opinion, but a special concurring opinion showed that the facts were the same as in Godwin. A bank had refinanced and satisfied a first mortgage, but lost its priority because it failed to detect a second mortgage which had been recorded in the interim. Citing Stockton, the concurring opinion explained that no relief was available for this type of neglect.
Independent Life is indistinguishable from the supreme court's opinion in God-win. Although Stockton involves slightly different facts, the opinion's inflexible rule that time of recording determines priority is also contrary to Godwin. We therefore conclude that our two decisions, on which the trial court relied, are incorrect in light of Godwin
After we decided Stockton, but before Independent Life, we did recognize the doctrine of equitable subrogation in a forfeiture case and cited Godwin. In In re Forfeiture of United States Currency in the Amount of Ninety-One Thousand Three Hundred Fifty-Seven and ls/ioo Dollars ($91,857.12), 595 So.2d 998, 1000 (Fla. 4th DCA 1992), we reversed a summary judgment denying equitable subrogation, explaining:
[W]e reverse the summary judgment as to appellant's claim for equitable subro-gation. The mortgage proceeds were used to pay off two prior recorded mortgages which would have remained liens on the property but for the refinancing. Here, there is also the additional equity that those liens were not satisfied of record at the time of the seizure.
The doctrine of equitable subrogation is designed to apply where the claimant satisfied an obligation of another and then stands in the shoes of the satisfied creditor. The doctrine is founded on established principles of equity to prevent an unjust forfeiture, on the one hand, and a windfall amounting to unjust enrichment, on the other. Federal Land Bank of Columbia v. Godwin, 107 Fla. 537,145 So. 883 (1933).
In the present case the trial court granted Riverside's motion for summary judgment holding that, under Stockton and Independent Life, equitable subro- gation was not available as a matter of law. Because those decisions are incorrect, we reverse and remand for further proceedings. We emphasize, however, that equitable subrogation "is not allowed if it works any injustice to the rights of others." Godwin, 145 So. at 885. Accordingly Sun-trust will only be entitled to equitable sub-rogation to the extent that Riverside will be no worse off than it would have been if the original Suntrust mortgage had not been satisfied.
POLEN, C.J., DELL, WARNER, STEVENSON, SHAHOOD, GROSS, TAYLOR and HAZOURI, JJ., concur.
STONE, J., concurs specially with opinion.
FARMER, J., dissents with opinion in which GUNTHER, J., concur.
. Fishbein v. Palm Beach Sav. & Loan Ass'n, F.S.A., 585 So.2d 1052 (Fla. 4th DCA 1991).
. In Hieber v. Florida National Bank, 522 So.2d 878 (Fla. 3d DCA 1988), the third district assumed that the question of whether equitable subrogation should be applied under similar facts was a question of first impression and rejected it. Before and after Hieber, however, the third district recognized the doctrine. Eastern Nat'l Bank v. Glendale Fed. Sav. and Loan Ass'n, 508 So.2d 1323 (Fla. 3d DCA 1987); Wolf v. Spariosu, 706 So.2d 881 (Fla. 3d DCA 1998).
. We respectfully disagree with Judge Farmer's interpretation of Godwin in his dissent. His reading of Godwin would make the availability of the doctrine of equitable subrogation depend on how negligent was the party seeking to apply the doctrine. Yet in both Godwin and in the present case the second mortgage was of record, but the lender refinancing the first mortgage did not pick it up. We read Godwin as standing for the proposition that equitable subrogation will be granted to prevent unjust enrichment, even though the party seeking it was negligent, as long as there is no prejudice.
Fishbein is consistent with that view. In Fishbein the lender, although it knew the husband and wife were getting a divorce, trusted the husband to obtain his wife's signature on the new mortgage. Despite the bank's negligence, which the supreme court recognized in Fishbein, it granted relief based on the doctrine of equitable subrogation. The language we quoted from Godwin explains that the doctrine is "employed to relieve from fraud or mistake, but is not allowed if it works any injustice to the rights of others." Godwin, 145 So. at 885-86. The RESTATEMENT (THIRD) OF PROPERTY: MORTGAGES § 7.6 cmt.e (1996), supports our conclusion that Suntrust's negligence does not preclude equitable subrogation.