## Facts

- Ryall Grows, Inc. (RGI), the senior mortgagee, filed a foreclosure action on October 9, 1979 against the mortgagor and several alleged inferior interest holders, including D.A.D., Inc. (DAD) and Willie (and Alice) Poole.
- DAD claimed a junior mortgage interest that was recorded on September 26, 1978.
- The Pooles were judgment creditors whose judgment was recorded on December 6, 1978.
- Other judgment creditors were also named, including (with recording dates alleged in the foreclosure complaint) General Finance Corporation of Florida (Aug. 17, 1978), Southeast Bank of Sebastian (Sept. 11, 1978), and Fuchs Baking Co. (Oct. 15, 1978).
- DAD filed an answer admitting its mortgage but denying that its interest was inferior as alleged; at least one defendant judgment creditor was defaulted.
- DAD did not file a cross-claim in the foreclosure action seeking to foreclose its junior mortgage.
- The trial court entered a summary final judgment of foreclosure for RGI, ordered the property sold, directed payment of the first mortgage and costs, and ordered any surplus held by the clerk pending further order.
- The sale produced a surplus of \$6,943.81 after payment of the senior mortgage and costs.
- The Pooles moved for distribution of the surplus; DAD and other creditors responded and asserted competing claims of priority to the surplus.
- After a hearing on the motions, the trial court ruled that the judgment creditors had priority over DAD’s earlier-recorded but “unforeclosed” junior mortgage because DAD had not foreclosed by cross-claim in the senior foreclosure action.
- DAD appealed the surplus distribution order.

## Issues

1. Whether a junior mortgagee must foreclose its mortgage by cross-claim in the senior mortgagee’s foreclosure action to preserve its right to assert priority to surplus foreclosure proceeds.
2. Whether, when the pleadings and post-sale filings raise a dispute over priority to surplus proceeds, the trial court may distribute the surplus without an evidentiary determination of the competing lien priorities.

## Decision

- The Fourth District Court of Appeal reversed the order distributing the surplus and remanded.
- The court held that a cross-claim is permissive under Florida procedure and that DAD’s failure to file a cross-claim did not, by itself, justify subordinating DAD’s mortgage claim to later-recorded judgment liens.
- Because the priority question was placed in dispute by the pleadings and the competing motions/ प्रतिक्रions for distribution, the trial court was required to conduct an evidentiary hearing to determine the priorities among the competing lienholders before disbursing the surplus.

## Legal Principles

- Surplus proceeds from a foreclosure sale are to be distributed among junior lienholders based on established lien priorities, after the senior mortgage and costs are paid.
- Cross-claims under Florida Rule of Civil Procedure 1.170(g) are permissive; a junior mortgagee is not required to file a cross-claim in the senior foreclosure action merely to preserve its ability to claim priority to surplus proceeds.
- When the record shows a genuine dispute among competing claimants to a foreclosure surplus, the trial court must resolve priority through an evidentiary hearing rather than distributing funds based solely on a party’s failure to file a cross-claim or similar procedural label.

## Conclusion

D.A.D., Inc. v. Poole reversed a trial court’s distribution of foreclosure surplus proceeds that elevated judgment creditors over an earlier-recorded junior mortgage on the theory that the junior mortgagee failed to file a cross-claim. The appellate court ruled that cross-claims are permissive and that, where priority is disputed, the court must hold an evidentiary hearing to determine the lien priorities before distributing the surplus.


D.A.D., Inc. v. Poole, 407 So. 2d 1072 (1981)