Foreclosure Nick Bastian FlickrOn August 24, 2016, the Fourth District Court of Appeal issued an opinion in Ober v. Town of Lauderdale-by-the-Sea, No. 4D14-4597, 2016 WL 4468134 (Fla. 4th DCA August 24, 2016) that is likely to have broad implications on Florida’s foreclosure process and negatively impact investor interests in distressed real estate. Moving forward, from a land use perspective, the case should also serve as a cautionary tale and reminder about the importance of a prospective buyer’s due diligence.

Background

The genesis of the case began on November 26, 2007, when a lis pendens was recorded on a property as part of a foreclosure proceeding against a homeowner. Thereafter, a bank obtained a final judgment of foreclosure on the property in September of 2008. Several years following the final judgment, a real estate investor, Ober, purchased the property on September 27, 2012 at a judicial sale.

The crux of the case revolved around seven (7) separate code enforcement liens that had been recorded on the property by the Town between the dates of July 13, 2009 and October 27, 2011, all stemming from violations that occurred after the final judgment was entered. Finally, in 2013 the Town began to impose three more liens on the property in relation to the earlier violations.

In an attempt to strike the liens against his property, Ober filed an action to quiet title in civil court. In response, the Town filed counterclaims to foreclose the ten (10) liens, which were later approved by the trial court in its final judgment that was entered against Ober.

According to the Ober Court, Florida’s Lis Pendens Statute Does Not Apply to Liens Recorded Between Final Judgment and the Judicial Sale

On appeal, the specific legal issue addressed by the Fourth District was whether Florida’s lis pendens statute, Section 48.23, Florida Statutes, operates to discharge multiple code enforcement liens that were placed on a property between its final judgment of foreclosure and the judicial sale. More simply, the court was faced with determining the proper “shut off” date under the lis pendens statute.

The Town argued that the lis pendens applied only to liens that existed or accrued prior to the date of final judgment, but Ober argued that the lis pendens continued to the date of the judicial sale, which in his particular case was over four years later.

In determining whether the lis pendens applied to the liens, the Court began with an analysis of Section 48.23(1)(d) itself, which provides in relevant part:

[T]he recording of . . . lis pendens . . . constitutes a bar to the enforcement against the property described in the notice of all interests and liens . . . unrecorded at the time of recording the notice unless the holder of any such unrecorded interest or lien intervenes in such proceedings within 30 days after the recording of the notice. If the holder of any such unrecorded interest or lien does not intervene in the proceedings and if such proceedings are prosecuted to a judicial sale of the property described in the notice, the property shall be forever discharged from all such unrecorded interests and liens. . . .”

In a stated effort to avoid the absurd result of precluding any liens ever being placed on the property into perpetuity, the Fourth District affirmed the trial court’s decision and held that “a lis pendens bars liens only through final judgment, and does not affect the validity of liens after that date, even if they are before the actual sale of the property.”  Accordingly, since the Town’s ten (10) code enforcement liens had all been recorded and were based on conduct that occurred after the date of the first final judgment, it concluded that the trial court did not err in foreclosing the liens.

What’s the Legal Scoop?

In cases like Ober, where it is not uncommon for several years to elapse between the date of final judgment and judicial sale, the Fourth District’s seemingly simple recent holding could lead to some very harsh results.

Moving forward, given that Florida’s lis pendens statute does not operate to discharge liens that accrue during this “limbo” time period, many real estate investors may elect to place lower bids at a judicial sale or even avoid participating in the foreclosure process altogether. Moreover, following this decision, it is vital for real estate investors to consult a local land use attorney to perform a thorough due diligence analysis before purchasing property in order to reveal any code enforcement violations or liens that may be recorded.

For questions regarding the Fourth District’s recent foreclosure decision, or any general inquiries on code enforcement cases or due diligence, please contact me at austin.turner@henlaw.com or 239-344-1178.

 

Photo Courtesy of Nick Bastian under Flickr Creative Commons License