Mortgage lenders and prospective purchasers of foreclosure properties in Florida are keeping a close eye on a recent District Court of Appeals case, Ober v. Town of Lauderdale-by-the-Sea. In August 2016, the District Court of Appeal of the State of Florida, Fourth District (the DCA) issued an opinion on Ober, upholding a controversial trial court ruling regarding Florida’s lis pendens statute and its effect on liens recorded against properties being foreclosed.
In Ober, the purchaser of a foreclosure property (Ober) appealed from a trial court’s summary judgment in favor of the Town of Lauderdale-by-the-Sea (Lauderdale) regarding code enforcement liens. In November 2007, Bank of America recorded a lis pendens on the subject property in connection with its foreclosure proceedings. Bank of America was awarded final judgment of foreclosure in September 2008, and the property was sold at foreclosure sale in September 2012.
A lis pendens has been thought to bar subsequent liens through the foreclosure sale, which is supported by Form 1.996(a) (Final Judgment of Foreclosure) of Florida’s Rules of Civil Procedure, which states “[o]n the filing of the certificate of sale, defendant(s) and all persons claiming under or against defendant(s) since the filing of the notice of lis pendens shall be foreclosed.” Section 48.23 of the Florida Statutes also appears to support such a conclusion, stating that the recordation of a lis pendens constitutes a bar to the enforcement of all interests and liens unrecorded at the time the lis pendens is recorded (unless an interested party intervenes within 30 days of the recordation of the lis pendens) and upon judicial sale the subject property is “forever discharged from all such unrecorded interests and liens.”
Lauderdale placed a total of 11 liens on the subject property. One of the liens was recorded prior to the judgment of foreclosure in 2008. Of the remaining 10 liens, seven were recorded between the final judgment and the foreclosure sale, with the final three recorded after the foreclosure sale.
Ober argued Bank of America’s lis pendens barred subsequent liens from attaching to the subject property through the foreclosure sale, whereas Lauderdale argued such liens are barred only through the date judgment of foreclosure is entered.
The trial court ruled in Lauderdale’s favor stating that liens recorded against a property after judgment of foreclosure, but prior to foreclosure sale, are valid and enforceable. The DCA upheld that ruling, which advanced the point subsequent liens are barred from the sale date up to the date final judgment of foreclosure issues. In upholding the trial court’s ruling, the DCA noted Section 48.23 does not cap the time a lis pendens applies to a property. The DCA held the action itself is the lis pendens, which takes effect when the notice of lis pendens is recorded, and has a “shut off” date which is coterminous with the underlying lawsuit (i.e., 30 days after the court’s issuance of final judgment, unless an appeal is timely filed).
Ober thereafter filed a Motion for Rehearing supported by amicus briefs from the Florida Banker’s Association, the Florida Land Title Association and the Business Law Section of The Florida Bar, among others.
On reconsideration in January 2017, the DCA reversed its original decision upholding the trial court’s ruling, and instead held the lis pendens statute discharges liens up through the foreclosure sale, unless an interested party moves to intervene within 30 days of filing the lis pendens. In changing its course, the DCA noted that foreclosure suits operate differently than other lawsuits, in that final judgment of foreclosure is not the end of the action, but the staging for further action, such as foreclosure sale or the pursuit of a deficiency judgment. The DCA also cited Form 1.996(a), which was revised by the Florida Supreme Court as recently as 2016, and supports the idea that liens recorded prior to foreclosure sale are discharged. The DCA reasoned that courts are entitled to consider the practical construction which has been adopted by the industry.
However, while the DCA reversed a controversial trial court ruling, due to heightened scrutiny and the large number of interested parties, signs point to the case being appealed to the Florida Supreme Court. Depending on how that appeal is resolved, mortgage lenders in Florida may find themselves having more difficulty clearing title to properties following foreclosure sale. Similarly, prospective purchasers of foreclosure properties may need to be more diligent in determining which liens may be discharged through foreclosure.