The Priority of Interests in Real Estate
In Bank of America, N.A. v. Kipps Colony II Condominium Association, Inc., the Second District Court of Appeal reversed a 2011 final judgment entered in favor of Kipps Colony II Condominium Association, Inc. ("Association"). See Nos. 2D14-858, 2D14-4436, 2015 WL 8321268 (Fla. 2d DCA Dec. 9, 2015). Though Bank of America had been defaulted in the Association's claim of lien foreclosure action, the appellate court found the trial court erred in denying Bank of America's Florida Rule of Civil Procedure 1.540(b) motion. Judge Black delivered the opinion of the court finding that the trial court's 2011 final judgment was void for two key reasons: (1) Bank of America's 2004 mortgage lien encumbering the property took priority over the Association's 2011 claim of lien; and (2) Florida's lis pendens statute conferred exclusive jurisdiction to the court in Bank of America's 2009 mortgage foreclosure to adjudicate any interest or encumbrance in the subject property. Concerning facts relevant to the first part of the Second District Court of Appeal's holding, the court explained that Kipps Colony II Condominium Association filed a lien foreclosure action against the property owners Charles and Megan Knighton for failure to pay their condominium assessments. The Association's complaint named Bank of America as a defendant. The complaint further alleged that the Association was not required to give Charles Knighton notice of its intention to foreclose the lien because Bank of America's foreclosure action was pending before the trial court. The Association requested all persons who have any lien junior to the lien of the Association be barred and forever foreclosed of all right, title, interest, equity or redemption or lien in or to or against the condominium unit. A default was entered against Bank of America in the Association's claim of lien foreclosure action. The Association then moved for summary judgment, and a final summary judgment of foreclosure was entered on December 19, 2011. The Association's final judgment states that its interest is superior to any right, title, or interest in the property including Bank of America's. The property was then sold on January 28, 2013, more than a year after entry of the final judgment. Inland Assets, LLC, purchased the property at the Association's foreclosure sale. A certificate of title was issued in February 2013, and Inland Assets immediately filed a quiet title action against Bank of America and the Knightons. Bank of America again failed to appear, and Inland Assets obtained a quiet title judgment on March 18, 2013. On August 21, 2013, Bank of America filed a motion to vacate and set aside the final judgment citing to Rule 1.540(b)(4). The motion alleged, among other things, that the final judgment is void and erroneous as a matter of law insofar as paragraph five purported to foreclose the first mortgage. The trial court denied the Rule 1.540(b)(4) motion, and Bank of America appealed that order. Relying on Florida's well settled law governing lien priority, the Second District Court of Appeal reversed the trial court's denial of Bank of America's motion to vacate final judgment. The court reasoned the priority of interests in real estate under Florida law is generally determined by the operation of Florida's statutes. See Fla. Stat. § § 28.222(2), 695.11, 695.01(1). The legislature has, however, separately provided for the priority of certain liens over the priority established under Florida's Chapter 695. For example, Section 718.116(5)(a), Florida Statutes allows the Association to have a lien on each condominium parcel to secure the payment of assessments. Except the lien is effective from and relates back to the recording of the original Declaration of Condominium. "However, as to first mortgages of record, the condominium association's lien is effective from and after recording of a claim of lien in the public records of the county in which the condominium parcel is located." Fla. Stat. § 718.116(5)(a). Therefore, the Association, a junior encumbrancer, cannot compel a first mortgagee to be a party to a suit by foreclosing his lien. In this case, Bank of America's first mortgage was recorded at O.R. Book 13524, Page 595, on April 23, 2004. The Association's claim of lien was recorded in O.R. Book 17154, Page 711, on February 8, 2011. Citing to the bedrock cases governing lien priority, the court rightly concluded that Bank of America's interest was superior to the Association's claim of lien. A prior mortgagee may "elect for himself the time and manner of enforcing his security." CitiMortgage, Inc. v. Henry, 24 So. 3d 641, 643 (Fla. 2d DCA 2009) (citing Cone Bros. Constr. Co. v. Moore, 193 So. 288, 290 (Fla. 1940). The court reasoned that a foreclosure action only extinguishes the liens of any junior mortgagees or interests. But it "does not terminate interests in the foreclosed real estate that are senior to the mortgage being foreclosed." U.S. Bank Nat'l Ass'n v. Bevans, 138 So. 3d 1185, 1187 (Fla. 3d DCA 2014). It is on that basis the court held the Association's action could not foreclose Bank of America's first mortgage and that the final judgment is void in its entirety. As a matter of law, the court concluded that Bank of America, a superior lien holder, is not required to litigate in the Association's foreclosure action. Concerning facts relevant to the second part of the court's void judgment holding, the opinion acknowledges that the third party purchaser's, Inland Assets, interest in the property was directly impacted. The court, however, reiterated that Bank of America is the superior lien holder, and it was not required to litigate its lien priority in the Association's foreclosure action. See Bevans, 138 So. 3d at 1187. Further, 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. See U.S. Bank Nat'l Ass'n v. Quadomain Condo. Ass'n, 103 So. 3d 977, 979 (Fla. 4th DCA 2012) (vacating the association's final judgment as void for lack of jurisdiction and holding the court presiding over the mortgage foreclosure action which created the lis pendens has exclusive jurisdiction 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). The 2011 final judgment was, therefore, found void because the trial court was without jurisdiction to adjudicate the Association's claim of lien action pursuant to the lis pendens statute.