Florida’s 4th DCA Reverses Course – Community Associations Can Pursue Lien Foreclosure Despite Pending Mortgage Foreclosure
In March we published an article discussing the ruling in Jallali v. Knightsbridge Village Homeowners Association, Inc., 2016 WL 320601 (Fla. 4th DCA Jan. 27, 2016) wherein Florida’s Fourth District Court of Appeal held the filing of a notice of lis pendens by a first mortgage holder constitutes a bar to a community association’s foreclosure action that is based upon a claim of lien filed after the mortgagee’s notice of lis pendens. Upon a rehearing of the arguments, the Fourth District Court of Appeal set aside its previous ruling.
To recap, in May 2007, the first mortgage holder filed a foreclosure action against Jallali and recorded its notice of lis pendens against her property. The association was named as a defendant, and a final judgment of foreclosure was obtained. However, in 2011, while the bank’s action was pending, the association recorded a claim of lien and foreclosed against the same property. Subsequently in 2015, Jallali moved to vacate the association’s final judgment of foreclosure citing the ruling in US Bank National Ass’n v. Quadomain Ass’n,, 103 So. 3d 977 (Fla. 4th DCA 2012), and Florida Statute §48.23 Fla. Stat. (2015). The Fourth District Court Appeal originally upheld the trial court’s ruling setting aside the association’s judgment.
However, upon a second review, The Fourth District Court of Appeal set aside its previous ruling and substituted it with their new decision cited as Jallali v. Knightsbridge Village HOA, Case No. 4D15-2036 (Fla. 4th DCA, June 29, 2016). Distinguishing the ruling in Quadomain, the Court held that:
Because the Declaration of Covenants, which included provisions with respect to the Association’s right to lien and to foreclose on the property, was a recorded “interest” at the time of the filing of the lis pendens, we conclude that, even though the lien was inferior to the mortgage, §48.23, Florida Statutes, constitutes no bar to the enforcement of the lien between the Association and Jallali.
The Court explained that the association sought to enforce a lien arising from its declaration. Since the declaration’s language and §720.3085 Fla. Stat. (2015) provided that the lien “relates back” to the date the declaration was recorded, Fla. Stat. §48.23 did not grant the mortgage foreclosure court sole jurisdiction over the property because the declaration is a recorded interest at the time of the bank’s filing of their lis pendens excluding it from the purview of Fla. Stat. §48.23.
In practice, this should allow most community associations to proceed with separate lien foreclosure actions even if there is a pending mortgage foreclosure. Of course, association counsel should review the association’s declaration and the pending mortgage foreclosure carefully to confirm Quadamain is not controlling in that specific action.
This ruling should also put an end to a recent investor strategy wherein – after years of having rented and profited from properties purchased at association foreclosure sales and simultaneously employing every tactic to delay the pending mortgage foreclosure – these investors, citing Jallali and Quadomain, sought to set aside an association’s judgment and foreclosure sale in the hopes of recovering the funds paid at the sale.