Last Update: 02/24/16
It’s sad but true that when someone gets behind on their home mortgage payment, all too often they are falling behind on other debts, too. Property taxes may not be paid on time, or at all. Payments to contractors who built the addition or put in the swimming pool may become delinquent. Assessments to municipalities for things like trash pickup may not get paid.
In all the furor over the Florida foreclosure crisis, the idea that there are many other creditors looking to that property to secure their receivable being paid sometimes gets ignored. Except by those creditors, of course.
Sometimes these debts sneak up in Florida real estate deals, and both Florida real estate sellers and Florida real estate buyers need to be aware that without clearing up all these debts, there will not be clear title to pass at the closing table.
In May 2013, the decision came down in City of Palm Bay v. Wells Fargo Bank, N.A., where Palm Bay had given its own municipal liens “super-priority” status by a local ordinance in order to get the Palm Bay liens paid.
And by “super-priority,” the ordinance stated that the municipal lien was to be paid before the lender as first mortgage holder. That’s super, all right.
This May, the Florida Supreme Court ruled that home rule powers of a municipality in the State of Florida do not extend this far, and that Florida cities can’t overstep their bounds into areas of the law established by the state legislature. In other words, the municipal ordinance could not control over Florida state statute.
Florida Statute 695.11 states that the highest priority goes to the lowest number or first filed instrument as officially recorded in the local public register. From Florida Statute 695.11:
695.11 Instruments deemed to be recorded from time of filing.—All instruments which are authorized or required to be recorded in the office of the clerk of the circuit court of any county in the State of Florida, and which are to be recorded in the “Official Records” as provided for under s. 28.222, and which are filed for recording on or after the effective date of this act, shall be deemed to have been officially accepted by the said officer, and officially recorded, at the time she or he affixed thereon the consecutive official register numbers required under s. 28.222, and at such time shall be notice to all persons. The sequence of such official numbers shall determine the priority of recordation. 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.
Florida Statute 695.01(1) states that an interest in a piece of Florida property has to be recorded in the public records in order to be valid and enforceable against a bona fide purchaser. From Florida Statute 695.01(1):
695.01 Conveyances and liens to be recorded.— (1) No conveyance, transfer, or mortgage of real property, or of any interest therein, nor any lease for a term of 1 year or longer, shall be good and effectual in law or equity against creditors or subsequent purchasers for a valuable consideration and without notice, unless the same be recorded according to law; nor shall any such instrument made or executed by virtue of any power of attorney be good or effectual in law or in equity against creditors or subsequent purchasers for a valuable consideration and without notice unless the power of attorney be recorded before the accruing of the right of such creditor or subsequent purchaser.
Municipal Liens Aren’t So Super Special Now – But They Are Still Valid Liens To Be Respected
So, the Florida Supreme Court held that the “super priority” ordinance passed by the City of Palm Bay was void. Palm Bay is far from the only city or town in the State of Florida to pass ordinances labeling municipal debts as “super-priority.”
The Florida Supreme Court ruling here will have statewide impact. Why?
In the past, banks tipped their hats to municipal liens on homes and believed them to be “super-priority” under Florida law. Lenders in the process of foreclosing on a home would either pay off the city’s debt and free the title from the municipality’s claim or the bank would let the city foreclose under its super-priority lien. Now, banks are happy because they don’t have to do this any longer. Now, banks can foreclose and if they get that judgment, the municipal lien will be extinguished. Key thing here: unlike the practice of banks in the past, they are going to have to make sure to check that a municipal lien has been filed in the public record and then make sure to include the city or town in the foreclosure lawsuit.
Larry Tolchinsky’s Tip
The lesson from the recent Florida Supreme Court case is this: there’s more than one creditor out there who is looking to get that home or condo title in order to get paid for the debt that is owed by the home owner / mortgage borrower. These debts may not be anywhere near the amount of the mortgage, but legally they have the ability to foreclose on the home and they have to be dealt with in foreclosure considerations.
Florida liens against condos or homes can come from municipalities as well as other creditors and both Florida sellers trying to avoid foreclosure as well as Florida home owners and buyers of Florida condos and homes needs to be aware of the importance of checking for these liens.
Not knowing about the lien and the powers it gives the creditor will not stop that creditor from acting on a legally valid lien.
And the results are sometimes cruel. Consider the recent story in the Washington Post, where retired Marine Bennie Coleman was evicted from his family home — a duplex he had bought with cash – because he had failed to pay a $134.00 property tax bill and the municipal tax lien was the basis of a foreclosure action on his home.
By the way: Bennie Coleman is 76 years old.
A good piece of advice when you and your family are purchasing or selling your family home in one of the biggest transactions of your life is to at least talk with a Florida real estate lawyer. Getting someone to review all of the paperwork including the all important promissory note, isn’t as costly as most of us think it is. And it’s always a lot cheaper than paying to fix a problem after a closing occurs. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.
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