Does the Bank’s Foreclosure Action Prevent the Association From Initiating its own Action? – January 19, 2017
January 19 th, 2017 .
Mr. Andrew Cuevas, Esq., is the President of Cuevas, Garcia & Torres, P.A., and Vantage Property Title Company. Cuevas, Garcia & Torres, P.A., provides legal services in the areas of Community Association Law, Corporate Law, Real Estate law, and Business Immigration, including title insurance services through Vantage Property Title Company. If you have any questions regarding this article or any other questions, you may contact Mr. Cuevas at (305) 461-9500 or via e-mail at [email protected]. If you are interested in reading previous newsletters, please visit www.cuevaslaw.com, select the icon for Newsletters , and then choose the area of law you are interested in.
Does the Bank’s Foreclosure Action Prevent the Association From Initiating its own Action?
Legal practitioners in the area of community association law have been burdened with what we feel was an improper decision that thankfully seems to have been thrown out the window. For nearly five years there has been a very questionable decision that protected banks and prejudiced associations when it came to initiating foreclosure actions to collect maintenance arrears. In the case of US Bank Nat’l Ass’n. v. Quadomain Cd’m. Ass’n,103 So. 3d 1977 (Fla. 4th DCA, 2012), the Fourth District Court of Appeal placed an unreasonable and arguably a legally unsupported burden on the ability of an association to pursue its statutory rights to file its lien foreclosure action. In Quadomain the association pursued a lien foreclosure action where both the lien and the lis pendens in the Association’s action was filed after US Bank filed its mortgage foreclosure action. The association named as a defendant lender US Bank, and (surprise!) US Bank did not respond and was defaulted. The Fourth DCA in Quadomain ruled that the Association’s action was improper since “the only way to enforce a property interest that is unrecorded at the time the lis pendens is recorded is by timely intervening in the suit creating the lis pendens — all other actions are barred. Accordingly, the court in the Association’s lien foreclosure action did not have jurisdiction to foreclose the lien. If the Association wanted to recover its unpaid Association fees, it was statutorily required to intervene in the re-foreclosure action as prescribed in section 48.23(1)(d).”.
In other words, pursuant to Quadomain if the Association wanted to pursue its collection matter, it had to become a party to the bank existing foreclosure action by intervening in such action. We all know that in many instances bank foreclosure actions can take years since the banks usually sit on their cases, while an efficient Association can take title to a unit and rent for several years in order to minimize its losses before a bank actually finalizes its action. Therefore, why should the Association in effect “wake up” the bank if the bank is prejudicing the Association by not taking title to the unit quickly?
Thankfully, the Fourth DCA has apparently clarified and distinguished its Quadomain ruling in the case of Jallali v. Knightsbridge Village HOA, Inc.¸ Case No. 4D-15036 (Fla. 4th DCA, January 4, 2017). The Jallali decision addresses an association’s ability to file an independent action to foreclose a lien while a mortgage foreclosure action protected by a lis pendens is pending. The facts were:
- 2007: Home owner’s first mortgagee filed a mortgage foreclosure action including as defendants the owner and the condominium association.
- 2011: Four years later the mortgage foreclosure was still pending (surprised?), so the Association filed a lien foreclosure naming the owner as a defendant, but not the lender.
- 2014: A final judgment in the Association’s lien foreclosure action was per curium affirmed. Jallali v. Knightsbridge Village HOA, Inc., 185 So.3d 1251 (Fla. 4th DCA, 2017).
After some procedural steps, the court ruled that in Jallali the Association was not seeking to foreclose the first mortgagee’s interest. In addition, Quadomain did not address the impact of the Association’s declaration of covenants, a recorded instrument, and that “[m]oreover, we note that, in the context of this case, a lis pendens recorded by a mortgage holder serves to protect the mortgage holder from liens unrecorded at the time of the filing.” This decision provides clarity by explaining how the lien foreclosure proceeding is not an interest barred by the lis pendens statute. The declaration of condominium which created the lien right was recorded before the lis pendens. The declaration “constitutes a recorded interest and thus takes the case out of the purview of [the lis pendens statute].” Thus, because the declaration contained a relation-back provision, the Association was not pursuing an interest that was unrecorded at the time of the notice of lis pendens which would otherwise be barred by the lis pendens if there was no intervention.
The decision reinforces the cry that “Quadomain is dead” at least to the extent of allowing associations to file an independent action to foreclose during the pendency of a first mortgagee’s foreclosure. This is so important because as mentioned above when the bank is taking its time on its own foreclosure action the Association is usually stuck with not getting paid by the home owner nor the bank.
Hopefully I did not bore you with citation to cases and references to court rulings. The hopeful impact of this decision is that associations can be active in pursuing its collection actions, even if there is a pending bank foreclosure action. Remember, even if the bank takes title, so long as you have personal service on the owner in your association foreclosure action, you can always seek a personal judgment so long as you have plead in the alternative. Obviously from time to time people file for bankruptcy protection, but this is a business decision of the Board to be or not be aggressive in its collection actions for the benefit of their community
This article is solely a partial explanation of all the issues related to the topic of this newsletter, and is not to be considered legal advice. Associations who seek to determine whether they should proceed with their lien foreclosure action should consult with legal counsel to obtain explanations of all issues addressed herein. This Newsletter is for informational purposes only and should not be relied upon as a legal opinion..