Can Associations Foreclose?
Associations Foreclose. Once a dirty little secret is now almost as common as purchasing a home. The foreclosure process in the State of Florida is painstakingly slow. On the last day of the Legislative session, Friday, May 2, 2013 the Florida Legislature (both the FL House of Representative and the FL Senate), through overwhelming support, passed a bill that would speed up the foreclosure process in the State. That bill now sits on Governor Scott’s desk, waiting for signature to become law in Florida. Foreclosures have flooded the United States due to the housing crisis that resulted from the economic recession of the past decade and the State of Florida is one of the states hardest hit by the real estate collapse. Foreclosure proceedings in Florida can take anywhere from 1 to 2 years or even longer to finalize.
One of the provisions in the new law allows relief to Homeowner and Condominium Associations that have been waiting, sometimes years, to be paid while the bank’s foreclosure drags on in court. If a homeowner living in a property subject to a homeowner’s association – and association dues – defaults on their mortgage, which creditor has priority in the foreclosure action? The answer depends on which creditor was the first to record a Notice of lis pendens (which is Latin for “lawsuit pending”). Florida courts have ruled that a lis pendens has two purposes: to protect future purchasers or persons with interests in the property from becoming trapped in the dispute, and to protect the party bringing the lawsuit from other subsequent creditors that could interfere with property rights claimed by the plaintiff.
In a recent court decision, U.S. Bank Nat. Ass’n v. Quadomain Condominium Ass’n, Inc., decided in December 2012, the mortgage lienholder, U.S. Bank, commenced a foreclosure proceeding against a condo unit homeowner and foreclosed the home. During this time the association fees payable to Quadomain went unpaid, and Quadomain brought a separate action to foreclose on its lien for the unpaid association dues, as often happens in this type of situation. The trial court granted judgment to Quadomain and against US Bank and the unit was sold. However, this action by the court eliminated US Bank’s lawsuit and therefore the Bank moved to have the Association’s judgment vacated. That Circuit court denied the Bank’s motion and the Bank appealed to the District Court of Appeal of Florida, Fourth District. The Appellate court ruled in favor of U.S. Bank ruling that the trial court in the foreclosure action brought by Quadomain did not have jurisdiction to find in favor of Quadomain over US Bank.
The Appellate Court ruled that U.S. Bank should have been successful in its foreclosure action against the unit owner (and subsequently his heirs as the original unit owner passed away during the proceedings) because it correctly filed a foreclosure action, recorded a lis pendens in the public record, and obtained a final judgment against the unit owner and received a certificate of title to the property. The Bank’s proceedings were put on hold at the death of the original unit owner so that U.S. Bank could file a supplemental complaint that would make the new owners (heirs to original owner) parties to the lawsuit. It was during this time that the Association fees went unpaid and Quadomain recorded a claim of lien against the Bank for those fees and filed suit. Quadomain received a default final summary judgment because U.S. Bank did not respond to its lawsuit.
Though technically, U.S. Bank’s failure to respond to the suit did permit the judgment in favor of Quadomain, the judgment against the Bank was improper because of state law which declares that when a creditor records a lis pendens it bars the enforcement of all other claims and interests to the property as long as it has not expired or been withdrawn or discharged. U.S. Bank had only asked that the proceedings be put on hold while it amended its complaint to include the new owners of the unit, the lis pendens was never withdrawn, dismissed, and had not expired. Therefore, this case could be used to argue that ANY association foreclosure should be dismissed if it was filed while a bank has a pending foreclosure lawsuit because the Court hearing the association’s foreclosure lacks jurisdiction to hear the dispute based on the lis pendens filed in bank’s foreclosure lawsuit.
If you are a homeowner facing foreclosure by both your bank and your association, it is important to know which party was the first to file the lawsuit AND record the lis pendens. Please let us know because that information may help you save your home.
Yesner Law, P.L. would like to thank Jerrika K. Jones, Cumberland School of Law, Samford University, for her contributions to this article.