201703.03
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THE LIS PENDENS “EFFECT” IN THE CONTEXT OF A FORECLOSURE

The Fourth DCA recently reversed itself on rehearing in the matter of Ober v. Town of Lauderdale-By-The-Sea in a decision that favorably impacts the foreclosure industry. Ober, 2017 Fla. App. LEXIS 789 (Fla. 4th DCA Jan. 25, 2017). In Ober, the Court interpreted and applied Fla. Stat. § 48.23, commonly referred to as the lis pendens statute[1], in the context of a quiet title action where the parties disputed the effect of the lis pendens on their relative interests in real property. “‘Lis pendens’ literally means a pending lawsuit, and is defined as the jurisdiction, power, or control that courts acquire over property involved in a pending suit.”[2] In short, the lis pendens statute requires a party who seeks to foreclose a lien on real property to record a lis pendens. Fla. Stat. 48.23(1)(a). A party usually files the lis pendens with its complaint and the clerk of the court records it shortly thereafter making it a publicly accessible record. The lis pendens is intended “to protect unidentified third parties” and notify them they will “take the property subject to whatever valid judgment may be rendered in the litigation.”[3] The “lis pendens also operates to protect its proponent by preventing intervening liens that could impair or extinguish claimed property rights.”[4]

In Ober, the time period a lis pendens (filed in a foreclosure action) remained in effect became an issue because the clerk conducted the foreclosure sale more than four years after entry of the final judgment and during that four-year period the city recorded several code enforcement liens against the property. The bank purchased the property at the foreclosure sale and subsequently sold the property to Ober. Ober brought a quiet title action against the city arguing the city’s liens, which were recorded prior to the bank’s foreclosure sale, were discharged by the foreclosure. The city argued the liens were not discharged since the code violations and related liens occurred after entry of the foreclosure judgment and prior to the foreclosure sale. Id.

The City argued – “although the lis pendens statute provides [that] the lis pendens becomes effective upon recording, it does not “provide an end date for a lis pendens.” Ober. The Court interpreted the language of the lis pendens statute to mean the “end date for a lis pendens” was upon “termination” of the foreclosure action. Ober

Not surprisingly, the parties disputed when a foreclosure action terminated for purposes of the statute. Ober argued the foreclosure action terminated on the date of the sale while the city argued the action terminated upon entry of final judgment. Relying on “controlling and persuasive case law” the Court, in its first opinion, agreed with the city and held: “[A] lis pendens bars liens only through final judgment, and does not affect the validity of liens after that date, even if they are before the actual sale of the property.” Id The Court then concluded the city’s post-judgment liens were not discharged by the foreclosure since the liens were recorded after entry of the final judgment. Id.

Five months later the Fourth DCA granted rehearing and reversed itself finding, in the context of a foreclosure action, termination of the action occurs once the sale takes place.[5] In defining “termination of an action,” the Court distinguished “other civil actions,” which terminate upon entry of final judgment, with foreclosure actions which require additional judicial labor or supervision after entry of judgment including the foreclosure sale, the issuance of certificates of sale and title, and, sometimes, the prosecution of a deficiency claim. The Court explained, in a foreclosure action “[t]he final judgment is not the end of the road, but merely a way station to the final result.” Id., at *5. The Court concluded:

A proper reading of section 48.23(1)(d) is…that ‘when a foreclosure action is prosecuted to a judicial sale, that sale discharges all liens, whether recorded before the final judgment or after, if the lienor does not intervene in the action within 30 days’ after the recording of the notice of lis pendens.

The mortgage banking industry was served well with the Court’s correction of the Ober opinion. The fact the protective nature of the lis pendens remains intact through the foreclosure sale date facilitates sale of foreclosed properties and avoids potential title issues which would have further complicated the REO process.

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[1] See generally, Chiusolo v. Kennedy, 614 So. 2d 491, 493 (Fla. 1993).

[2] De Pass v. Chitty, 90 Fla. 77, 105 So. 148, 149 (Fla. 1925).

[3] Adhin v. First Horizon Home Loans, 44 So. 3d 1245, 1251-52 (Fla. 5th DCA 2010).

[4] Adhin, 44 So. 3d at 1251 (citing Chiusolo v. Kennedy, 614 So. 2d at 492).

[5] Ober v. Town of Lauderdale-by-the-Sea, 2017 Fla. App. LEXIS 789, *4-5 (Fla. 4th DCA Jan. 25, 2017).