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How to Determine Whether Your Association’s Lien Has Priority

Posted by attorney Andrew Bernhard

How to Determine Whether Your Association’s Lien Has Priority

Andrew J. Bernhard

Recording date has provided lien priority for more than 130 years

Since 1885, the Florida Legislature has continuously resolved that the priority of property encumbrances shall be determined by their official recording numbers, under Florida Statutes Section 695.11: “An instrument bearing the lower number in the then-current series of numbers shall have priority over any instrument bearing a higher number in the same series." Thus, a mortgage lien recorded prior to any association lien will bear a lower instrument number, and therefore should have priority over that association lien.

Prior liens are superior to subsequently recorded liens. The priority and superiority of liens is paramount to lienholders because the judicial foreclosure of prior, superior liens extinguishes subsequently recorded liens, while foreclosure of inferior liens does not affect prior, superior liens.

Associations misuse association statutes to assert lien priority

Florida Statutes §§718.116 and 720.3085 provide an association’s statutory rights to claim a lien on property for unpaid assessments. Chapter 718 generally regulates condo associations, and Chapter 720 generally regulates homeowners and master associations (however, the association’s declaration ultimately determines which chapter governs). The 2012 enactments of these chapters state that, except as regards first mortgages of record, an association’s lien for unpaid assessments is effective from, and shall relate back to, the recording of the original declaration of covenants, leading most associations to erroneously assert that all of their liens relate back.

In the context of lien priority, the relation back doctrine allows subsequent lienholders to treat their liens as superior to prior claims on a property, despite having recorded later in time, by relating the subsequent lien’s recording date to a particular moment earlier in time.Geiser v. Permacrete, Inc., 90 So. 2d 610, 613 (Fla. 1956).

Accurate legal analysis combines contract and statute

While the “relates back" language in §§718.116 and 720.3085 does have teeth, it does not automatically catapult an association’s lien into second priority without a case-by-case analysis of the association’s declaration and a title report on the property at issue.

Chapters 718 and 720 expressly limit the scope of the relation back doctrine. Prior to 1992, Chapter 718 did not provide for relation back of association liens. Prior to 2008, Chapter 720 did not provide for relation back. Thus, at the very least, the relation back doctrine per se does not apply to mortgages and other liens recorded prior to the 1992/2008 cutoffs, unless the association declaration expressly provides this right to the association, as discussed further below.

Further, because many condominiums were founded prior to 1992, and a greater proportion of HOAs were founded prior to 2008, whether an association can apply post- 1992/2008 relation back statutes to pre- 1992/2008 declarationsis a strictly contractual matter determined by language in each declaration, which mortgagees, as third-party beneficiaries, are entitled to enforce.Coral Lakes Cmty. Ass'n, Inc. v. Busey Bank, N.A., 30 So. 3d 579, 584 (Fla. 2d DCA 2010).

Florida law supports the conclusion that a declaration’s language is the true determining factor of whether a pre-1992/2008 association may employ the relation back doctrine that is provided in post-1992/2008 enactments of Chapters 718 and 720. Unless expressly declared otherwise, the date of filing of a declaration of condominium fixes the rights and obligations in that declaration, and the date of declaration recording determines which statutes are applicable to a given cause. Sans Souci v. Div. of Florida Land Sales and Condominiums, Dep’t of Bus. Regulation, 421 So. 2d 623, 628-29 (Fla. 1st DCA 1982). “Thus, the law on the date of filing of the [declaration] engrafts the law of Florida into the documents, as if it were expressly stated in the documents." Id.

With a trained eye, any reader can spot an express declaration provision intended to incorporate subsequent enactments of the Florida statutes. Knowledgeable foreclosure lawyers quickly scan through a declaration’s (a) preamble and definitions, (b) lien and assessment enforcement provisions, (c) final miscellaneous provisions and (d) amendments. The reader is looking for specific language altering lien rights or incorporating new law. For example, an association may protect itself by putting investors on notice of its intent to later supersede investors’ interests by directly including language in the declaration that its lien for unpaid assessments relates back to the date that the declaration was recorded or that it otherwise had lien superiority over intervening mortgages. An association may also protect itself by directly including language that the declaration will be subject to Chapter 718 or 720 as amended “from time to time," invoking the “automatic amendment theory" and putting investors on notice that the declaration will later be altered by subsequent statutory enactments altering lien priority.Ass’n of Golden Glades Condo Club, Inc., v. Sec. Mgmt. Corp., 557 So. 2d 1350, 1352 (Fla. 1990) (holding that investors not bound by changes in Condo Act where no “as amended from time to time" language). In addition, an association may protect itself by affirmatively amending its declaration to place any future lenders on notice that its economic position will thereafter be subordinate to the association’s claims. If this language is not in the declaration or amendments, then that association cannot apply post-1992/2008 statutes in its lien foreclosure action, and cannot claim superiority over prior second mortgages.

In drafting and recording one of these pre-1992/2008 declarations, an association has “made [a] promise, by and through the [d]eclaration, to induce lenders to extend mortgages on property subject to the [d]eclaration," that the association’s liens would never subordinate mortgages recorded prior in time.Ecoventure WGV, Ltd. v. Saint Johns Northwest Residential Ass’n. Inc., 56 So. 3d 126 (Fla. 5th DCA 2011). As discussed above, that contractual promise became forever memorialized upon the declaration’s recording date.

Upholding that promise in a present association foreclosure action is the only equitable action for a court because the association has already benefitted from its conscientious and intentional choice to subordinate its liens to those liens recorded prior in time by gaining investments in the units of the association. The association’s intent to subordinate its liens can be readily inferred by the association’s failure to exercise the numerous contractual tools that subordinate prior liens or incorporate future enactments of Chapters 718 or 720.

Upholding a declaration’s provisions requiring application of the statute enacted at the document recording date is the only legal action for a court because the Florida Constitution prohibits any law impairing, retroactively or otherwise, the obligations and rights imposed by the declaration.Any subsequent statutory change in Fla. Stat. §718.116 cannot constitutionally disturb the association’s prior, established contractual choice to be governed by the pre-1992/2008 enactments. Where an association’s declaration is expressly subjected to the statutory scheme enacted on the declaration’s recording date, or where the declaration is silent on priority of second mortgagees, the lien provisions of the documents should be unaffected by subsequent changes in Florida Statutes because, in interpreting or modifying the declaration contract, the Court must construe all provisions of the declaration against the association-drafter, and the Florida Constitution prohibits any law impairing, retroactively or otherwise, the obligations and rights imposed by the declaration.Century Village, Inc. v. Wellington, E,F, K, L, H, J, M, & G, Condo Ass’n, 361 So. 2d 128, 133 (Fla. 1978) (holding that even if there is an ambiguity as to the application of subsequent statute enactments to a condo declaration, the Court must construe against the association).

Conclusion

In sum, where the association’s declaration is recorded prior to the effective date of a statutory provision, that statutory provision cannot be applied in that association’s lien foreclosure to gain superiority over a second mortgage, unless the declaration of covenants expressly incorporates subsequent statutory enactments.Tradewinds of Pompano Ass’n, Inc. v. Rosenthal, 407 So. 2d 976, 977 (Fla. 4th DCA 1981); Ero Properties, Inc. v. Cone, 418 So. 2d 434, 435 (Fla. 3d DCA 1982).

This is necessarily so even if the second mortgagee became a beneficiary to the declaration, with enforcement rights, after the effective date of the statute. Therefore, if the Third District ever assumed in Grondin that a mortgagee’s defenses to an association foreclosure are governed by the statute as it existed on the recording date of the mortgage, then that assumption communicates an incomplete analysis. Independent of when a mortgagee’s rights vest, an association’s contractual duties vest on the date of the declaration recording, and an association is obligated to abide by those contractual duties and agreements while pursuing foreclosure in 2013.

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