Board-Certified In Construction Law By The Florida Bar

Builder Burned, Lender Burned Worse


By: Robert S. Tanner, Esq.

About the Author: Larry Leiby, Esq. was the founder and first chairman of the Florida Bar Construction Law Committee in 1976. He is the author of the Florida Construction Law Manual. He is Board Certified in Construction Law and was on the Construction Law Certification Committee that creates and grades the tests for construction law board certification. He was awarded the lifetime achievement award by the Florida Bar Construction Law Committee and teaches construction law at the Florida International University College of Law. He can be reached at [email protected]. For more information, please visit

In CTX Mortgage Co., LLC v. Advantage Builders of America, Inc., 2010 WL 3813166 (Fla. 2d DCA 2010), Kremlin Lee (“Owner”) entered into a loan agreement with CTX Mortgage Co., LLC (“Lender”) for the purchase of property on which Owner was to build a single family residence. Owner, Lender, and Advantage Builders of America, Inc. (“Builder”) entered into a Residential Construction Loan Agreement (“RCLA”) pursuant to which Lender lent money to Owner for the construction of the residence. Lender’s loans to Owner covered $357,300 of the total price of $361,000 to purchase the property and build the improvements.

The RCLA defined the rights and duties among Owner, Lender, and Builder. The final advance under the RCLA represented retainage, and Lender was not required to make the final advance until Owner executed a loan modification for the permanent financing, in addition to other conditions being met. Additionally, the RCLA provided that Lender would “not be liable to any Builder … for goods delivered or for services performed in or upon the Property or employed in construction of the Project or for any debt or claim against [the Owner] or others or against the Property or the Project.” Lender also retained the right to make no further advances in the event of Owner’s default.

Timing can be everything. The contracts were entered around February 2006, Builder started construction late due to being spread thin during the housing boom and obtained a certificate of occupancy in May 2007. Owner refused to proceed to the final closing, Lender refused to disburse retainage ($21,306.64), and Builder sued Owner and Lender. Owner filed for bankruptcy protection. Lender foreclosed on the mortgage, obtained title to the property, and sold it for $123,000.00, taking a loss of more than $250,000.00. In the trial court, Builder prevailed against Lender on its claim for an equitable lien on the undisbursed construction funds. Lender appealed.

An equitable lien may be imposed on undisbursed construction funds when the lender retaining those funds is unjustly enriched by the contractor’s labor, materials, and services. The appellate court found that, “to the extent that the Lender may have been enriched by the builder’s completion of the [ ] construction, the allocation of the loss of the relatively small amount of the final draw to the Builder – in accordance with the parties’ written agreement – does not result in a windfall to the Lender that is unjust.” Although perhaps irrelevant to that finding, the appellate court also reflected on the fact that by undertaking the written agreement that they did, both Builder and Lender assumed risks in the event Owner either was unable or unwilling to proceed with the final closing.

Nearly any deal includes some level of risk, and many believe that with greater risk is (the potential for) greater reward. Smart contracting can greatly reduce risks but requires a firm understanding of the contract under consideration. Working with knowledgeable attorneys in the contracting stage can enhance understanding the contract language and its legal ramifications.