First Federal Sav. and Loan Ass'n of South Carolina v. Finn

• Decision Date: 11 December 1989
• Docket Number: No. 23123,23123
• Parties: FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SOUTH CAROLINA, Respondent, v. Timothy G. FINN and Mary G. Finn, Appellants.
• Court: South Carolina Supreme Court

Page 253

387 S.E.2d 253

300 S.C. 228

FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SOUTH

CAROLINA, Respondent, v. Timothy G. FINN and Mary G. Finn, Appellants.

No. 23123.

Supreme Court of South Carolina.

Submitted June 9, 1989.

Decided Dec. 11, 1989.

James W. Poag, Jr., West Columbia, for appellants.

W. Cliff Moore, III, and Steven B. Licata, Columbia, for respondent.

GREGORY, Chief Justice:

Respondent commenced this foreclosure action pursuant to a note and mortgage given to secure a construction loan for $129,600. Appellants counterclaimed for damages on various causes of action alleging respondent mishandled disbursement of the loan proceeds to appellants' contractor. Appellants also sought to impose an equitable lien on the property with priority over respondent's mortgage lien. The trial judge granted respondent summary judgment on this cause of action and this appeal follows. We affirm.

In May 1986, appellants signed a contract to purchase a residential lot for $42,500 and began making payments on it. They then arranged with a contractor to build a home to their specifications. The contractor suggested appellants deed the lot to him in order to obtain construction financing. Accordingly, on June 8, 1986, appellants signed a contract of sale to purchase from the contractor a structure on the lot for a total price of $112,000 and paid the contractor $5,000 as downpayment on this amount. The contract specified appellants would pay off the amount due on the lot before the closing on a construction loan. Appellants acquired title to the lot in July 1986 and on August 18, 1986, deeded the lot to the contractor in fee simple with an added notation that: "This conveyance is made to allow the grantee to obtain construction loan financing in order to comply with the provisions of the contract of sale between the grantee and the grantor herein." The contractor obtained the construction loan from respondent secured by a mortgage on the property.

Although the contractor commenced building appellants' home, it eventually became apparent he was not using the construction loan proceeds to complete construction as intended. On April 1, 1987, appellants obtained from the contractor a quitclaim deed to the lot and improvements. This deed specified the property was "subject to all mortgages" outstanding at the time of the conveyance. Because this conveyance by the contractor violated the provisions of the construction note and mortgage, respondent asserted the debt due under the terms of the note and commenced this foreclosure action.

Appellants counterclaimed asserting an equitable lien against the property with priority over respondent's mortgage lien. The trial judge ruled the notation on the deed was insufficient to diminish the conveyance of a fee simple title to contractor. See Shealy v. South Carolina Electric and Gas Co., 278 S.C. 132, 293 S.E.2d 306 (1982). Appellants contend on appeal that other evidence presented may establish the existence of an equitable lien on the property, including the contract of sale for the structure and evidence that respondent knew of the arrangement with the contractor. Appellants therefore assert summary judgment was improperly granted.

For an equitable lien to arise, there must be a debt, specific property to which the debt attaches, and an expressed or implied intent that the property serve as security for payment of the debt. Perpetual Federal Savings and Loan Assoc. v. Willingham, 296 S.C. 24, 370 S.E.2d 286 (Ct.App.1988). Even if appellants could prove the existence of an equitable lien, however, we conclude as a matter of law it did not survive reconveyance of the property from the contractor to appellants.

Ordinarily, when equitable and legal titles unite in the same person, merger occurs and the equitable encumbrance...