Despite a slowing in the number of Florida mortgage foreclosure cases, many community associations still face situations where a foreclosing lender fails to timely complete its foreclosure resulting in the property sitting abandoned and not contributing financially to the community. As a result, many community associations are faced with a decision of whether to proceed with their own foreclosures for non-payment of assessments or simply wait out the lender’s mortgage foreclosure.
In the past couple years, those communities that proceeded with their own foreclosures were faced with a new challenge by the investors who purchases the properties at the association’s lien foreclosure sales. Specifically, after having rented the property for several years and earning a substantial profit, investors belatedly sought to vacate the foreclosure and recover their purchase bid arguing the association’s foreclosure was invalid due to a superior interest mortgage foreclosure having been pending when the association filed their case.
In July 2016, we wrote an article about the Fourth District Court of Appeal reversing its own ruling in favor of a bank asserting the same argument. The Court explained that since the association sought to enforce a lien arising from its declaration that “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. The Fourth District Court of Appeal has now extended this ruling to third party investors.
In Fountainspring II Homeowners Association, Inc. v. Veliz, Case No. 4D15-3408 (Fla. 4th DCA March 15, 2017), Fountainspring II Homeowners Association, Inc. (“Association”) challenged an order entered by a trial court vacating its final judgment of foreclosure and dismissing its foreclosure action for lack of jurisdiction.
In 2011, while the lender’s mortgage foreclosure action was pending, the Association recorded two claims of liens for unpaid assessments and commenced an action to foreclose the liens. A final judgment of foreclosure was entered in favor of the Association. At the foreclosure sale the property was sold to a third-party purchaser.
The third-party purchaser held the property and rented it out. Presumably, during this period of time, he derived income from the property. However, the third-party purchaser did not pay any assessments to the Association.
Approximately two years after the third-party purchaser purchased the property, the lender in 2009 mortgage foreclosure action completed its action. The lender’s mortgage foreclosure action resulted in the sale of the property and another person purchased it at lender’s foreclosure sale. The lender’s foreclosure sale caused the third-party purchaser to lose title to the property.
In light of this loss of title to the property, the third-party purchaser challenged the Association’s action to foreclose its claims of lien on the basis that the trial court did not have jurisdiction to enter a foreclosure judgment because the lender’s mortgage foreclosure action was pending and the lender’s mortgage was of a higher priority than the Association’s claims of lien. Despite owning the property for 2 years, the trial court agreed with the third-party purchaser and determined that it was without jurisdiction to have entered the foreclosure judgment in favor of the Association, vacated the Association’s foreclosure judgment and dismissed the Association’s action.
The Association appealed the trial court’s order to the Fourth District Court of Appeal. The appellate court agreed with the Association and reversed the trial court’s order vacating the Association’s foreclosure judgment. The Court’s decision was based on the language in the Association’s declaration that stated the Association’s claims of lien related back to the date the declaration was recorded (i.e., 1989), which predated the lender’s lis pendens recorded in 2009.
Despite not changing the priority of the liens, this confirms, again, that most community associations possess the right to bring their own foreclosure actions despite a pending mortgage foreclosure.
CREDITS: AriasBosinger Real Estate & Association Attorneys. Original article can be found online at:
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