Consumer Finance Litigation

It is not uncommon for a homeowner association ("HOA") to file a separate claim of lien foreclosure action against a resident even though the bank's mortgage foreclosure action remains pending. Therefore, a homeowner can potentially face two foreclosure actions against the property at the same time: one for unpaid assessments to the HOA and another for default under the note and mortgage. This trend is about to change. The Fourth District Court of Appeal recently issued another opinion reversing an HOA's final judgment of foreclosure for lack of jurisdiction. Relying on Florida's lis pendens statute, the Fourth DCA found that only one court has exclusive jurisdiction to adjudicate the encumbrances on the property including unrecorded interests such as an HOA's claim of lien for unpaid assessments. In the recent case of Jallali v. Knightsbridge Village Homeowners Association, Inc., the borrower appealed the trial court's order denying her motion to vacate the final judgment obtained by the HOA. 2016 WL 320601 (Fla. 4th DCA Jan. 27, 2016) (per curiam). On appeal, Jallali argued that the HOA's 2012 foreclosure court did not have jurisdiction to enter final judgment while the bank's separate 2007 mortgage foreclosure action was pending against the same property. In a very short opinion, the court found that the well-reasoned decision announced in U.S. Bank National Association v. Quadomain Condominium Association, 103 So. 3d 977 (Fla. 4th DCA 2012), applied to the instant case. In Quadomain, the holder (the bank) of a first mortgage on a condominium filed a foreclosure action, recorded a notice of lis pendens, and obtained a final judgment. Id. at 978. Thereafter, the condominium association recorded a claim of lien for unpaid fees, filed a foreclosure action, obtained a default judgment, and the property was sold. The bank moved to vacate, arguing the association's foreclosure was barred because it was filed after the bank filed its lis pendens. The trial court denied the motion and the bank appealed. The issue on appeal was whether the bank's lis pendens divested the trial court of jurisdiction to adjudicate the association's lien. The Quadomain court concluded that Section 48.23, of Florida's lis pendens statue created exclusive jurisdiction to only one court with the authority to adjudicate any encumbrance or interest in the subject property from the date the lis pendens is recorded to the date it enters final judgment. Applying this reasoning to the Jallali case, when the lender filed its foreclosure action and recorded is notice of lis pendens in May 2007, the HOA had not yet recorded its notice of lis pendens regarding the 2011 claim of lien and the related 2012 foreclosure action. As a result, the Fourth DCA found that Section 48.23, Florida Statutes and Quadomain necessarily rendered the HOA's 2012 final judgment void for lack of jurisdiction. The court further reasoned that "exclusive jurisdiction to foreclose" Jallali's property was in the circuit court conducting the lender's foreclosure action. The trial court's order denying Jallali's motion to vacate was reversed; the lis pendens statute required the HOA to timely intervene in the mortgage foreclosure action. The Second DCA recently adopted this reading of Florida's lis pendens statute. See Bank of America, N.A. v. Kipps Colony II Condo. Assoc., Inc., 2015 WL 83212618, at 5 (Fla. 2d DCA Dec. 9, 2015) (applying Quadomain and holding that because "Bank of America filed its lis pendens and original foreclosure suit in 2009, in order for the Association to enforce its property interest-which was unrecorded at the time Bank of America's lis pendens was filed-the Association was required to intervene in the Bank's foreclosure suit.") Overall, while Chapter 720 permits enforcement of a claim of lien through the HOA's foreclosure of the property, the HOA can only do so if the bank has not first recorded a lis pendens on the property. Based on the holdings of these cases, third party purchasers or investors who take title at an association foreclosure sale should be aware that if the court lacks jurisdiction under Florida's lis pendens statute to enter final judgment, they have bought themselves a void certificate of title, which can be vacated at any time.