Every state has a law regarding recording of liens, and recording statutes typically fall within one of three categories: (i) a race statute (e.g., the first to record the lien has priority); (ii) notice (e.g., these statutes typically protect a subsequent lienholder provided such lienholder does not have notice of the prior lien, whether through actual notice, by means of the public records, or otherwise); or (iii) race-notice statute (e.g., a prior lien is void against a later lien if the later lienholder was without notice of the prior lien and was the first to record the lien). Pursuant to Section 695.01, Fla. Stat., Florida is a notice state.  This means that a subsequent mortgagee who provides a mortgage loan for value and without notice of a prior mortgage or other lien will prevail against the prior mortgagee or lien holder.

However, can a lien for assessments imposed by a homeowner association have priority over a previously recorded mortgage? The answer is “it depends”.  Section 720.3085(1), Fla. Stat., states:

When authorized by the governing documents, the association has a lien on each parcel to secure the payment of assessments and other amounts provided for by this section. Except as otherwise set forth in this section, the lien is effective from and shall relate back to the date on which the original declaration of the community was recorded. However, as to first mortgages of record, the lien is effective from and after recording of a claim of lien in the public records of the county in which the parcel is located.

This issue was addressed tangentially in the recent case of U.S. Bank, N.A. v. Grant, et. al. No. 4D14-979 (Fla. 4th DCA December 2, 2015) where the Fourth District Court of Appeals addressed the issue of whether a homeowner association’s lien has priority over the lien of a mortgagee in a foreclosure proceeding.  While the mortgagee’s lien was recorded prior to the homeowner association’s lien, the homeowner association contended that its lien has priority due to the declaration stating that unpaid assessments becomes delinquent on the date due and, along with interest and he cost of collection, becomes “a continuing lien on the Unit and Equity Certificate against which the assessment is made, and shall also be the continuing and personal obligation of the Owner against whom the assessment is levied.”  The specific section in the declaration continues by stating that if the charges or assessments are not paid within 30 days after the due date, the homeowner association may record a claim of lien and bring an action to foreclose.

The Court ruled in favor of the secured lender noting that because the homeowner association’s declaration did not expressly state (in other words, the declaration was silent) that the homeowner association’s lien related back to the time of the recording of the underlying declaration, the mortgage lien took priority over the subsequently recorded lien in favor of the homeowner association. The statute and this decision provide clarity to all parties as follows:

  • Unless the declaration provides otherwise, the first lien to be recorded (e.g., by giving notice) has priority over other liens. This provides the protection first mortgage lenders need to issue first mortgage loans that are secured by property governed by a homeowner association’s declaration.
  • If the declaration includes language required by the statute, the association’s lien will have priority over all mortgage liens except for first mortgage liens. As such, if the loan is a second mortgage, then the association’s lien relates back “to the date on which the original declaration of the community was recorded” and the association’s lien has priority over the second mortgage.

Accordingly, lenders must carefully read the homeowner association documents before providing mortgages on property subject to a homeowner association to ensure they understand the priority risks associated with their mortgage liens and to ensure that the governing documents do not state that the association’s lien “relates back to the time of the recording of the declaration”.

The good news is that if the developer obtains a construction loan, in all likelihood the lender will be required to join into the declaration and would most likely require the declaration to provide a super priority to first mortgage liens. And, developers of new developments governed by a homeowner association should consider that  the association’s documents will need to contain proper priority protections for first mortgage liens to ensure the needed mortgage liquidity to end users.

However, in short-sighted decisions, some homeowner associations are amending their documents post turnover to remove the priority of the first mortgage lien. They are doing this to ensure that the association’s lien trumps all liens, even first mortgage liens.  The unintended consequence of this action is that lenders may choose not to provide the much needed liquidity to the homeowners in this community because the lenders’ first mortgage position would not be protected.  Homeowner associations should carefully consider any amendments to their governing documents, especially those that affect the liquidity to their homeowners.