Collection Options for Community Associations Limited by Court Ruling: The Role of Lis Pendens in Exclusive Court Jurisdiction

In the recent case of Jallali v. Knightsbridge Village Homeowners Association, Inc., 2016 WL 320601 (Fla. 4th DCA Jan. 27, 2016), Florida’s Fourth District Court of Appeal held that when a bank files a lis pendens against a property, the Court in which the case is filed obtains exclusive jurisdiction over all encumbrances on the property – including unrecorded interests (e.g., HOA liens). This means that any judgment entered in a case filed after the original lis pendens is void.

Lis pendens refers to a suit pending, or a written notice that a lawsuit has been filed which concerns the title to real property or some interest in that real property. The notice is filed with the clerk of the court and is then recorded in public records. This gives notice to the defendant who owns the property that there is a claim against it and also informs the general public (particularly anyone interested in buying or financing the property) that there is a potential claim against the property.

In Jallali, the homeowner appealed a non-final order denying her motion to vacate the final judgment of foreclosure obtained by a homeowners’ association. Jallai claimed that the trial court lacked subject matter jurisdiction because the association’s foreclosure proceeding was filed after the bank’s separate mortgage foreclosure was pending against the same property.

In May 2007, the bank filed a foreclosure action against Jallali and recorded its notice of lis pendens against her property. The association was named as a defendant, and the bank’s successor-in-interest obtained a final judgment of foreclosure in 2014.  However, in 2011, while the above  action was pending, the association recorded a claim of lien, and, in 2012, foreclosed against the same property. Subsequently in 2015, Jallali moved to vacate the association’s 2012 final judgment of foreclosure based on the ruling in U.S. Bank National Association v. Quadomain Condominium Association, 103 So. 3d 977 (Fla. 4th DCA 2012), and Section 48.23, Florida Statutes (2015).

In Quadomain, the holder of a first mortgage (bank) on a condominium filed a foreclosure action, recorded a notice of lis pendens, and obtained a final judgment. Thereafter, the condominium association recorded a claim of lien for unpaid fees, filed a foreclosure action, obtained a default judgment, and the property was sold. The bank moved to vacate, arguing the association’s foreclosure was barred because it was filed after the bank had filed its lis pendens. The trial court denied the motion, and the bank appealed.

The issue on appeal was whether the bank’s lis pendens divested the trial court of jurisdiction to adjudicate the association’s lien. The Quadomain Court concluded that:

…the only way to enforce a property interest that is unrecorded at the time of lis pendens is recorded is by timely intervening in the suit creating the lis pendens—all other actions are barred…Therefore, the court presiding over the action which created the lis pendens has exclusive jurisdiction to adjucate any encumbrance or interest in the subject property from the date the lis pendens is recorded to the date it enters final judgment.

Following this reasoning, the Jallali Court ruled:

In the present case, when the mortgagee filed its foreclosure action and recorded its notice of lis pendens in May 2007, the association had not yet recorded a notice of lis pendens with regard to its 2011 lien and 2012 foreclosure action……Accordingly, based on section 48.23, Florida Statutes (2015), Quadomain, and the cases cited therein, we conclude that the final foreclosure judgment which the association obtained in the 2012 case was void because the trial court lacked jurisdiction at that time. Exclusive jurisdiction to foreclose on Jallali’s property was in the circuit court conducting the mortgagee’s foreclosure action in the 2007 case. Accordingly, we reverse the order denying Jallali’s motion to vacate final judgment of foreclosure.

In the past several years, community associations have filed separate lien foreclosure actions despite the existence of a pending mortgage foreclosure on the same property. The rationale was that the community association could complete its foreclosure quicker than the bank, and, then, rent the property while the mortgage foreclosure was pending – often associations were able to rent the property for many years.  Unfortunately, based on the rulings in Quadomain and Jallali, this strategy may be coming to an end.