A farmer purchased several acres of land for grazing his she…
A farmer purchased several acres of land for grazing his sheep. Because of the terrain, the land was not useful for much else and was relatively inexpensive. Shortly thereafter, an adjacent neighbor accidentally discovered gold on the property and began seeking the necessary permits to begin mining. As soon as word got out, real estate values in the area soared. Rather than sell his land for a profit, the farmer decided to try to open a mine on his property. To finance the mining project, the farmer borrowed $100,000 from the bank secured by a mortgage on his land. The bank promptly recorded the mortgage. A week later, the farmer went to a friend asking her to invest in the mining project. The friend loaned the farmer an additional $50,000 in exchange for a mortgage on the property. The friend knew of the bank’s mortgage, and the friend promptly recorded her mortgage. A few weeks after that, the farmer went back to the bank and, after notifying them of the friend’s mortgage, obtained another advance of $25,000 from the bank, increasing the amount of the bank’s mortgage from $100,000 to $125,000. The bank promptly recorded the change. After spending most of the funds on engineers, surveys, and construction equipment, it was determined that the gold strike was limited to a very small portion of the neighbor’s land. No gold was found on the farmer’s land or any of the neighboring parcels. Land values plummeted. The farmer stopped making the mortgage payments to the friend but continued to make payments to the bank. The friend brought a foreclosure action against the farmer and included the bank as a party. The proceeds at the foreclosure sale were just $60,000 after attorneys’ fees and court costs. How should the proceeds be divided?