ASSOCIATIONS CAN ONCE AGAIN FORECLOSE THEIR ASSESSMENT LIEN AFTER A LENDER COMMENCES ITS FORECLOSURE – KAYE BENDER REMBAUM CRUSHES THE QUADOMAIN DECISION

Like people, associations can have good days and bad days. Not too long ago, in December 2012, as a result of the Florida’s Fourth District Court of Appeal (4th DCA) decision in U.S. Bank National Association v. Quadomain Condominium Association, Florida associations experienced a very bad day. By way of an overly simplistic explanation, the Quadomain case has been applied to effectively block an association from initiating an assessment foreclosure after a lender’s recording of its lis pendens, a notice of a pending foreclosure, where the association had not yet recorded its assessment lien. This was disastrous because, in practical application, it means that if the association had not yet recorded its lien before the lender’s recording of its lis pendens, the association was barred from foreclosing its assessment lien. In plain English, the recording of a lis pendens places the world on notice of the litigation concerning real property such that, if the property is transferred, the buyer takes the property subject to the outcome of the litigation.

Then, on June 29, 2016, Florida community associations had a very good day because of the 4th DCA’s opinion in the case of Jallali v. Knightsbridge Village Homeowners Association, Inc., in which Kaye Bender Rembaum was instrumental as legal counsel for the appellee, Knightsbridge Village Homeowners Association, Inc. In Jallali, the 4th DCA recognized that the association’s recorded interest related back to the date the association’s declaration is recorded, and once again, perfected an association’s right to foreclose, in spite of the lender’s recordation of its lis pendens.

Although the 4th DCA’s judgment in Jallali is not yet final (because the appellant, Jallali, has 15 days to file a motion for rehearing), Kaye Bender Rembaum successfully argued that the association’s assessment lien foreclosure action was not barred by the lender’s pending mortgage foreclosure action, despite being commenced after the lender’s mortgage foreclosure action and thus, after the recordation of the lender’s lis pendens, because the association’s claim of lien relates back to the recordation of the declaration, which was recorded before the lender’s notice of lis pendens, and because the association’s assessment lien foreclosure action was against the owner and member of the association and not the superior interest of the lender.

In order to understand the 4th DCA’s discussion and determination in Jallali, it is necessary to know what happened in Quadomain. In Quadomain, the lender recorded its lis pendens and commenced foreclosure of its mortgage. While the lender’s mortgage foreclosure action was underway, the owner of the property died, and the unit transferred to the owner’s heirs. Once the lender found out about the owner’s passing, the lender recorded a supplemental notice of lis pendens to name the new owners in the mortgage foreclosure action. After the lender recorded the supplemental notice of lis pendens, the association recorded its assessment lien against the lender (who had obtained a certificate of title against the deceased owner) and commenced foreclosure of its assessment lien against the lender.

The 4th DCA in Quadomain held that the association’s assessment lien foreclosure action was barred due to the lender’s pending mortgage foreclosure action based upon the 4th DCA’s application of section 48.23 of the Florida Statutes, which provides that the recording of an active notice of lis pendens against a property constitutes a bar to the enforcement of an unrecorded interest in the property unless the holder of the unrecorded interest intervenes in the pending foreclosure action within 30 days after the notice of lis pendens is recorded. Because of the length of time it may take for lender mortgage foreclosure actions to reach final conclusion, the use of the decision in Quadomain has been problematic for associations whose assessments have gone unpaid during the lender’s mortgage foreclosure action.

However, to the sheer happiness of associations throughout this great State, the Quadomain decision was clarified (some folks might say, “corrected”) by the 4th DCA in Jallali. Similar to the facts in Quadomain, in Jallali, the lender recorded a notice of lis pendens and commenced foreclosure of its mortgage. While the lender’s mortgage foreclosure action was pending, the association recorded its assessment lien against the owner and successfully foreclosed its assessment lien against the owner. On appeal, the owner, relying on Quadomain, argued that the association’s assessment lien foreclosure action was barred because of the lender’s pending mortgage foreclosure action. The 4th DCA, distinguishing the Jallali case from the Quadomain case, and rightfully so, held that the lender’s recording of a notice of lis pendens does not bar the association’s subsequent assessment lien foreclosure action against the owner where the association’s lien is imposed under the association’s declaration which was recorded before the lender recorded its notice of lis pendens. Additionally, the 4th DCA provided that section 48.23 of the Florida Statutes was intended to protect the lender, not the delinquent homeowner.

Germaine to the 4th DCA’s decision was language in the Knightsbridge Village’s declaration that all liens, once recorded, relate back to the date that the declaration was initially recorded. Not all declarations contain this relation back language. Does yours? If not, the board should discuss amending the declaration to include the “relation back” language with the association’s lawyer.

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