"BEWARE REAL PROPERTY LITIGATORS" warns a former chair of the Real Property, Probate and Trust Law Section of the Florida Bar.
This advice, given in response to a new appellate ruling blunting the protections of Florida's lis pendens statute, signals the potential apocalyptic impact of a decision by the Fourth District Court of Appeal in Ober v. Town of Lauderdale-By-The-Sea. While this decision marks a win for municipalities around the state dealing with unoccupied "zombie" properties, it could haunt the foreseeable future for lenders, borrowers, and junior lien-holders.
Under Florida law, a lis pendens provides formal notice to all interested parties of an pending legal action to enforce a lien encumbering a given property. Florida's lis pendens statute states that the recording of a lis pendens effectively bars the enforcement of any subsequently recorded liens against the property unless the lienholder intervenes in the proceedings within 30 days. The statute also provides that anyone who acquires an interest in the property during the "pendency of the action" shall take that interest subject to the rendering of a final judgment in such action.
According to the Ober decision, the interpretation of "pendency of the action" establishes the proper cut-off date for lis pendens protections. Indeed, this was the very issue addressed in Ober, as the court sought to determine whether lis pendens protection continues (a) to the date of the judicial sale of the property, or (b) only until the date of final judgment.
In Ober, the date of judicial sale was more than four years after the court entered its final judgment of foreclosure. The Town of Lauderdale-by-the-Sea, concerned about "zombie" properties that are unoccupied and untended for the duration of the foreclosure process, recorded numerous code enforcement liens related to violations that occurred after the final judgment but prior to the judicial sale of the property.
Drawing upon the language of the lis pendens statute and an interpretation of related statutes and case law, the court in Ober held that "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." In short, the lis pendens protections terminate at the time the action terminates, which according to Ober was 30 days after the entry of a final judgment. As a result, Lauderdale-by-the-Sea retained its liens on the property for the code violations that occurred between the final judgment and foreclosure sale.
While helping municipalities enforce their codes and record liens for noncompliance on "zombie" properties, the reasoning in Ober does not appear to adequately account for the practical effects and potential unintended consequences of the court's opinion. The fallout from this decision could discourage lenders from continuing post-judgment settlement negotiations and lenders to hurriedly consummate foreclosure sales that may have otherwise been avoidable under the purview of pre-Ober protections.
After the court's ruling in Ober, given that Florida's lis pendens statute does not effectively discharge liens accruing during the "limbo" period between final judgment and judicial sale, many real estate investors may elect to place lower bids at a judicial sale or even avoid participating in the foreclosure process altogether due to the substantial uncertainty as to the status of title.
That is why the Ober decision has been met with a sea of criticism, and a motion for rehearing is already pending with the Fourth District Court of Appeal. In any event, lenders should take immediate action to identify all properties more than 30 days past final judgment and still pending a judicial sale. Lenders should also evaluate and actively monitor such properties for additional liens that may be recorded during this "limbo" period.
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