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Recent Decision Destroys Certain Lis Pendens Protections

By: Tracy M. Evans, Associate, Saxon Gilmore & Carraway, P.A.

TracyEvans-cA new decision from the Fourth District Court of Appeal (the “Fourth DCA”) regarding Florida’s lis pendens statute undermines the statute’s purpose, weakens the foreclosure process, and is likely to prove detrimental to lenders, borrowers, and junior lien-holders, alike.

A notice of lis pendens is a notice filed at the outset of a foreclosure case, recorded in the county’s public records where a foreclosure suit is filed. The notice of lis pendens provides notice of the pending foreclosure to all parties who may claim an interest in the property, and effectively bars any interests unrecorded at the time the notice of lis pendens was recorded, or that arise during the foreclosure process. In the past, it was commonly assumed by most lenders, lien holders, title companies, and foreclosure sale purchasers that the lis pendens protection terminates only after a certificate of title is issued following the foreclosure sale.

In Ober v. Town of Lauderdale-by-the-Sea, Case No. 4D 14–4597(Fla. 4th DCA, August 24, 2016), the Fourth DCA weighed-in with its opinion as to the date on which the lis pendens protection ends. The Fourth DCA used the lis pendens statute, Florida Statutes § 48.23(1)(d), and related statutes and case law, to formulate its holding that the lis pendens protections terminate at the time the action terminates, which is 30 days after the entry of a final judgment.

The Fourth DCA’s opinion does not appear to take into account the practical effect of its decision or any resulting unintended consequences. The Fourth DCA fails to account for the possibility that a foreclosure sale may be delayed due to a borrower’s bankruptcy or other extenuating circumstances outside the control of the foreclosing lender. The decision offers no insight as to how its hard and fast rule will be applied in those circumstances.

The Ober decision also discourages lenders from agreeing to delayed foreclosure sale dates to give borrowers additional time to negotiate foreclosure alternatives. Without lis pendens protection, lenders will be less inclined to continue post-judgment settlement negotiations, and will be forced to hastily proceed with foreclosure sales that may have otherwise been avoidable. The decision will also likely reduce negotiated consent judgments where lenders permit borrowers to remain in the property for an extended period of time prior to the foreclosure sale, as inducement for borrowers to consent to a final judgment. In the past, this practice has proven beneficial to borrowers by permitting them additional time to find new living arrangements and has helped avoid needless litigation.

Another concern deals with the administrative side of scheduling foreclosure sales, which falls on the clerks of court. Under Florida Statute § 45.031(1)(a), the clerk is required to set the foreclosure sale to occur no more than 35 days after the final judgment date. During the foreclosure crisis peak, however, it was not uncommon for clerks to set foreclosure sales 45-60 days from the final judgment date, due to understaffing and insufficient funding. Additionally, in the past, judges have often exercised discretion by avoiding assigning sale dates during the holidays, and sometimes taking into consideration a borrower’s individual circumstances and hardship as justification to assign a sale date beyond the required 35 days. Under Ober, even if sales were timely set to occur within 35 days, this still leaves a 5 day gap where new liens could potentially attach. Lenders may have no choice now but to insist on a 30 day sale date, and challenge any sale dates assigned beyond 30 days after final judgment.

Also, uncertainty as to the status of title will discourage bidding on properties at foreclosure sales occurring more than 30 days past judgment because the purchaser will have no protection from intervening, post-judgment liens that may attach prior to the sale. Reduced bidding will result in lower sale prices, which will not only hurt foreclosing lenders, but also borrowers relying on a fair market sale to reduce the deficiency owed, and junior lien holders hoping to recover any surplus from the sale.

The Fourth DCA’s decision is likely to face widespread criticism, and a motion for rehearing is already pending. In the meantime, lenders should take immediate action, and identify all properties more than 30 days past final judgment and still pending foreclosure sale. Lenders should review any intervening liens that may have been recorded against the properties after final judgment, and continue to monitor the properties for additional liens. Lenders should ensure properties pending foreclosure sale are secured, and monitor the properties for code violations that may give rise to a lien. For cases pending the entry of final judgment, lenders should avoid proceeding to judgment immediately if they anticipate the sale will need to be delayed for any reason.

Our firm will continue to monitor the Fourth DCA’s decision, and report on any updates.


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