HOA

CONDO ASSOCIATION BEATS BANK IN RACE FOR TITLE

by Grant W. Kehres* | Posted 02/24/2014

It’s rare that a bank’s mortgage is wiped out by a condominium association.  Condominium Association of La Mer Estates, Inc. v. The Bank of New York Mellon Corporation[1] decided by Florida’s Fourth District Court of Appeals on February 19, 2014 proves that with the right facts, a little timing and the right court, winning the lottery is possible.

This case turns on the distinction between a judgment that is void, and one that is merely voidable.

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The owners of a condominium in La Mer Estates executed a mortgage in 2006.  By 2008, they had stopped paying both the mortgage and the condominium association.  The condo association filed a claim of lien for unpaid condominium maintenance, filed an action to foreclose its claim of lien, and as the only bidder at the condominium lien foreclosure sale, received a certificate of title to the condominium unit.

After the condominium association received title, the bank continued to sit on its mortgage and in addition made no payments to the condo association.  The condo association wrote to the bank offering to convey to it the title to the condominium unit, but the bank did not respond.  Several months later the condo association filed a suit to quiet title, alleged that the bank’s mortgage constituted a cloud on its title, and that the bank had no bona fide interest or claim to the property.[2]

The bank was served with the quiet title suit but failed to respond.  The clerk of the court entered a default against the bank, and the condo association filed its motion for entry of final judgment against the bank to quiet title.  The bank was given notice of the motion but failed to appear at the hearing.  The court entered the final judgment against the bank on February 10, 2011, and the bank was given notice of the entry of the judgment but did nothing until over a year later[3].

On August 31, 2012, the bank finally shows up and moves the court to vacate the judgment quieting title pursuant to the court rule that a judgment may be vacated if the judgment is void, no matter how late the movant comes to the party.  The bank claimed that the judgment was void due to some technical pleading rules that the condo association failed to follow.

Although the bank was probably correct in its analysis of the condo association’s pleadings, the Fourth District Court of Appeals found that the quiet title judgment was not void but merely voidable, and that a voidable judgment may not be overturned more than a year after it is entered, even if incorrect, absent some fundamental failure of due process.  The court followed the Florida Supreme Court holding in Malone v. Meres[4] that if a court has the authority to rule on the subject matter before it and has jurisdiction of the parties, a judgment that is entered by error or due to irregularities or even wrongdoing in the proceedings is not void but only voidable as long as the adverse parties were given an opportunity to be heard.

In this case, even thought the quiet title judgment might have been obtained by the condo association by mistake, the court had jurisdiction of the subject matter and the bank.  The fact that the bank sat on the results of the quiet title judgment for over a year prevented it from overturning the mistakenly obtained quiet title judgment.

The result of this case, however, conflicts with similar decisions from both the First District Court of Appeals as well as the Third District Court of Appeals.  Because of the importance of this issue to the finality of judgments and the stability of property titles based upon those judgments, the Florida Supreme Court has jurisdiction to resolve the conflict between the Districts.  I expect we will be hearing further on this case by the Supreme Court.  But until then, at least in the Fourth District with the right facts and a little luck, timing once again is everything, and a condo association can beat a bank and wipe out its mortgage!


[1]Condominium Association of La Mer Estates, Inc. v. The Bank of New York Mellon Corporation, No. 4D13-17 (Fla. DCA February 19, 2014)

[2]Of interest to lawyers and layman alike, there is no rule against making an incorrect statement of law, fact or legal conclusion in a court pleading so long as it is not done in bad faith.  When one thinks about it, at least one of the party’s pleadings in every case is always (after the fact) determined to be incorrect on one of these points.

[3]The one year is significant because of under Rule 1.540(b) of the Florida Rules of Civil Procedure, a voidable judgment may not be attacked after it has been entered for more than a year.

[4]Malone v. Meres, 109 So. 677 (Fla. 1926)


*Grant Kehres is Board Certified by the Florida Bar Board of Legal Specialization as a Real Estate Law Specialist.  He holds a doctorate in jurisprudence from Vanderbilt University, an MBA (finance) from Babson College and a dual undergraduate degree in Investments and Economics from Babson College.  Admitted to The Florida Bar in 1978, he has handled more than 10,000 closings for more than 8,000 clients.  For more information on our services and what distinguishes our office from other law firms and title companies, call (561) 392-5200 or e-mail us at info@bocaclosings.com.

 


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TAX DEED PURCHASER BEATS HOMEOWNERS’ ASSOCIATION LIENS

by Grant W. Kehres* | Posted 01/10/2014

Some say you can’t beat the HOA unless you are the bank.  Lunohah Investments[1], decided by Florida’s Fifth District Court of Appeals on December 27, 2013, demonstrates that along with certain mortgage lenders there’s a new protected player in town.

Foreclosure

In 2007, the Florida legislature amended the Florida homeowners’ association statute to allow homeowners’ associations to impose liability on a parcel owner for all unpaid assessments due up to the time of transfer of title.[2]  In 2008, a safe harbor provision was added to the law that limited that liability for a first mortgagee who acquired title by foreclosure or deed in lieu of foreclosure to the lesser of twelve months of unpaid HOA fees or 1 percent of the original mortgage amount.[3]  Thanks to Lunohah Investments, LLC v. Gaskell, tax deed purchasers can now defeat the HOA for pre-tax deed assessments.

Lunohah Investments, LLC acquired title to a parcel of real estate by tax deed and initiated a suit to quiet title against the prior owner and two homeowners’ associations holding liens on the property for unpaid HOA assessments.  The HOA’s asserted that Lunohah remained liable for the HOA liens by virtue of Section 720.3085(2)(b), F.S. (2011) which imposes joint and several liability on a parcel owner for unpaid assessments that came due up to the time of transfer of title.  Lunohah countered that the lien and liability to pay the unpaid assessments were extinguished upon issuance of the tax deed by virtue of Sections 197.552 and 197.573(2), F.S. (2011) which provide that covenants creating any debt or lien upon property or requiring the grantee of the tax deed to expend money for any purpose do not survive the issuance of a tax deed.

The Court observed that the tax deed statutes preserve the validity of covenants that control the use of the property but extinguish all such covenants, upon issuance of the tax deed, to the extent they authorize a lien for unpaid assessments or require the grantee to expend money.  The HOA statute is a more general statute that imposes liability on any grantee for unpaid assessments without specific reference to the manner by which the grantee acquires title.  The Court held that when two statutes embrace the same subject and produce contradictory results, the law requires that the specific statute be given effect over the general statute.

From this case we learn the homeowners’ association statute that imposes joint and several liability on a parcel owner for unpaid assessments does not apply to a parcel owner that acquires title by tax deed.  As a practical matter, tax deed purchasers, who might have limited their interest in a property “encumbered” by a substantial unpaid HOA assessment no longer have to factor this into their bid.  Although this case addressed only the HOA statute, the result for a condominium association assessment would likely be similar.

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[1] Lunohah Investments, LLC v. Gaskell, No. 13-1175 (Fla. DCA December 27, 2013)

[2] Section 720.3085(2), F.S. (2007)

[3] Section 720.3085(2)(c), F.S. (2008)


*Grant Kehres is Board Certified by the Florida Bar Board of Legal Specialization as a Real Estate Law Specialist.  He holds a doctorate in jurisprudence from Vanderbilt University, an MBA (finance) from Babson College and a dual undergraduate degree in Investments and Economics from Babson College.  Admitted to The Florida Bar in 1978, he has handled more than 10,000 closings for more than 8,000 clients.  For more information on our services and what distinguishes our office from other law firms and title companies, call (561) 392-5200 or e-mail us at info@bocaclosings.com.

 


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