NEWS

NEW DECISION: LIEN V. MORTGAGE FORECLOSURES (JALLALI V. KNIGHTSBRIDGE VILLAGE HOA ON REHEARING WITH ATTACHMENT)
January 12, 2017

The new year includes a reprise, a rehearing decision issued in Jallali v. Knightsbridge Village HOA, Inc.¸ Case No. 4D-15036 (Fla. 4th DCA, January 4, 2017). The decision addresses an association’s ability to file an independent action to foreclose a lien while a mortgage foreclosure action protected by a lis pendens is pending, a very meaty issue, so plenty of analysis.

THE FACTS.

To bring new readers up to speed, and as a quick reminder to those on line last year, the quick sequence of events which spans two separate foreclosure actions, lien and mortgage, and appeals of each:

2007: Parcel owner Jallali’s first mortgagee filed a mortgage foreclosure action including as defendants the owner and the condominium association.

2011: The mortgage foreclosure still pending (surprised?), the Association filed a lien foreclosure naming the owner as a defendant, but not the lender.

2014: A final judgment in the Association’s lien foreclosure action was per curium affirmed. Jallali v. Knightsbridge Village HOA, Inc.¸ 185 So.3d 1251 (Fla. 4th DCA, 2017). It is unclear when the final judgment was entered, but that is not relevant, except that judgment was apparently before the mortgage foreclosure judgment which was also in 2014. Jallali v. Christina Trust, 184 So.3d 559 (Fla. 4th DCA, 2016).

After entry of the mortgage foreclosure judgment, the owner moved to vacate the Association’s final judgment of foreclosure relying upon US Bank Nat’l Ass’n. v. Quadomain Cd’m. Ass’n, 103 So. 3d 1977 (Fla. 4th DCA, 2012). The trial court denied the motion to vacate.

DIGRESSION: QUATOMAIN.

As a quick very short summary, Quadomain addressed an association lien foreclosure based on a lien, both filed after US Bank filed a re-foreclosure action with a supplemental notice of lis pendens. The association named as a defendant lender US Bank, and (surprise!) US Bank did not respond and was defaulted. The trial court denied US Bank’s motion to vacate, the motion asserting that the trial court not having jurisdiction because of the Bank’s lis pendens. Reversing, the Quadomain court held:

the only way to enforce a property interest that is unrecorded at the time the lis pendens is recorded is by timely intervening in the suit creating the lis pendens — all other actions are barred.

* * *

Accordingly, the court in the Association's lien foreclosure action did not have jurisdiction to foreclose the lien. If the Association wanted to recover its unpaid Association fees, it was statutorily required to intervene in the re-foreclosure action as prescribed in section 48.23(1)(d).

(Citations omitted.)

THIS APPEAL.

Back to the appeal of the Association’s lien foreclosure judgment. The original decision was issued in January 27, 2016. A rare successful rehearing resulted in the Association prevailing, affirming the trial court’s order denying the owner’s motion to vacate the final judgment of foreclosure. In this January, 2017, decision the appellate court denies the owner’s motion for rehearing. To allow readers an easy method to follow and observe what was changed from June, attached is a red-line comparison of the June 2016 decision with the January 2017.

JUNE REHEARING.

In the first rehearing decision, June of last year, the appellate court referred to Quadomain’s concluding jurisdiction” text as “dicta,” and distinguished the decision on the basis that the Association in Jallali was not seeking to foreclose the first mortgagee’s interest. In addition,Quadomain did not address the impact of the Association’s declaration of covenants, a recorded instrument, and that:

Moreover, we note that, in the context of this case, a lis pendens recorded by a mortgage holder serves to protect the mortgage holder from liens unrecorded at the time of the filing.

(Emphasis in original.)

THIS, JANUARY 2017, DECISION.

This decision provides clarity to the June 2016 decision on rehearing by explaining how the lien foreclosure proceeding is not an interest barred by the lis pendens statute. The declaration of condominium which created the lien right was recorded before the lis pendens. The declaration “constitutes a recorded interest and thus takes the case out of the purview of Section 48.23 Fla. Stat.” Thus, because the declaration contained a relation-back provision, the Association was not pursuing an interest that was unrecorded at the time of the notice of lis pendens which would otherwise be barred by the lis pendens if there was no intervention.

ERRATA.

The decision reinforces the cry that “Quadomain is dead” at least to the extent of allowing associations to file an independent action to foreclose during the pendency of a first mortgagee’s foreclosure. This ability is especially important as we have seen that many first mortgage lenders have stalled, whether intentionally or otherwise and an association is stuck between a proverbial “rock and hard place” as it is and does not need to additional issues arise as Quadomain reported.

Manny Farach in a posting to the Real Property Litigation Committee list-serve recognized that two of the three panelists in the decision Jallaliwere panelists in the recent decision of Ober v. Town of Lauderdale by-the-sea, 41 Fla. Law. W. 198, Case No.: 4D-144597 (Fla. 4th DCA, August 24, 2016). The Ober decision held that a town’s code enforcement lien recorded after a final foreclosure judgment, but before the issuance of a certificate of sale, was an enforceable lien against the property pursuant to the lis pendens statute, Section 48-23 Fla. Stat. It is noted that the RPPTL Section has filed a rare amicus brief in the Ober court seeking re-hearing because of the adverse impact of the decision and the apparent improper limitation of the effectiveness of a lis pendens in a foreclosure through only a final judgment, not to the end of the case which ususally is the certificate of title.

There has been a question as to whether the Jallali decision conflicts with Ober. The January 2017 rehearing in Jallali decision identifies that the interest at issue, the declaration was created before the lender’s lis pendens which differentiates Ober where the interest, the town’s claim of lien was not created until it was recoded after the final judgment.

The Jallali determination that the declaration of condominium is a recorded real property interest raises other interesting consequences for the association practitioner. Primary is that the rational would presumably support a lis pendens as of right for in communities recorded covenant enforcement matter. Quite some time ago Tetrault v. Calkins, 79 So. 3d 213 (Fla. 2d DCA, 2012), indicated that a restrictive covenants was not an interest in property sufficient to support a lis pendens without bond, a decision that was criticized, and seemingly challenged by 100 Lincoln Rd SB, LLC v. Daxan 26 (FL), LLC, 180 So. 3d 134 (Fla. 3rd DCA, 2015) (citing §48.23(1)(b)), and now the determination in Jallali.

Of course, there is always the need to “read the documents.” Importantly the declaration language in Jallali apparently contained express relation-back language. Not all declarations have that language. It may be appropriate for associations to review their declaration’s lien language and perhaps suggest amendments, taking careful note not to violate protected first mortgagee rights or run afoul of Fannie Mae underwriting guidelines.

Michael J. Gelfand

Florida Bar Board Certified Real Estate Attorney

Florida Supreme Court Certified Mediator: Civil Circuit Court & Civil County Court

Immediate Past Chair

Real Property, Probate and Trust Law Section of The Florida Bar

Click www.RPPTL.com for Breaking News

About Florida’s Largest Substantive Law Section!

Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section

© 2017 Michael J. Gelfand

The Real Property Probate and Trust Law Section of The Florida Bar
651 East Jefferson Street twitter Tallahassee, Florida twitter 32399-2300

twitter facebook