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Aug 24th, 2016

A Valuable Lesson in Representing Condominium and Homeowner’s Associations

 Bank of America v. Kipps Colony II Condominium Association, Inc.,

A Valuable Lesson in Representing Condominium and Homeowner’s Associations

By: Adam B. Edgecombe, Associate Attorney, Jimerson & Cobb, P.A.

The recent case of Bank of America, N.A. v. Kipps Colony II Condominium Association, Inc., --- So. 3d ----, 2016 WL 3766582 (Fla. 2d DCA 2016), is instructive for attorneys representing condominium and homeowner associations, and emphasizes the need for such attorneys to have a firm grasp of Florida’s lien law with respect to prior mortgagors.

In this case, a condominium owner’s association (the “Association”), filed a lien foreclosure action against the owners of a condo unit for failure to pay their monthly assessments.  The Association’s complaint named Bank of America (“boa”) as a Defendant by virtue of the fact that it held a mortgage on the unit.  While the Association’s complaint identified BOA’s mortgage by its recorded book and page number, it failed to clearly indicate that BOA actually held both the first and second mortgages on the property – the second of which was inferior to the Associations’ lien. The Association’s complaint requested that BOA’s rights in the unit be forever foreclosed, because its mortgage was inferior to the Association’s[1]

BOA defaulted and the Association obtained final summary judgment of foreclosure.  The judgment stated that the Association’s lien was superior to any claim of BOA, and that the unit would be sold free and clear of all of BOA’s claims.

The unit was purchased by Inland Assets, LLC (“Inland”), which had come to realize that the final judgment foreclosed all of BOA’s claims, including the first mortgage lien.  Shortly thereafter, Inland moved to quiet title to the property. BOA was again defaulted in Inland’s quiet title action, thus rendering Inland the record title holder free and clear of any other claims.  On the same day Inland obtained quiet title, BOA filed a motion to vacate its default on the quiet title action, and sought to set aside the foreclosure summary judgment on the basis that it was erroneous as a matter of law due to the fact that it foreclosed BOA’s superior first mortgage lien.  The trial court entered an order denying BOA’s motion to vacate, which BOA appealed to the Second District Court of Appeal. 

On appeal, the Second District recited the general rules of priority of interest in real estate in Florida: (1) that the clerk of the circuit court records every instrument, giving each a filing number; (2) that the filing number controls the priority of recordation such that the lowest, and thus earliest recorded, filing number takes priority of any higher filing number on that property; and (3) that no conveyance, transfer or mortgage of real property shall be good and effectual unless recorded according to Florida law.

On that basis, the Second District found that BOA’s first mortgage lien was superior to the Association’s by virtue of its prior recordation, and that the Association’s final summary judgment of foreclosure was thus ineffectual as to the first mortgage lien.  As such, the Second District concluded that the Association’s judgment of foreclosure was void. The Court recognized that its ruling would affect the result of Inland’s quiet title judgment, but held that BOA’s superior lien rights had to be respected. 

Importantly, the Court noted that because BOA had already filed a lis pendens and foreclosure action with respect to the first mortgage at the time the Association obtained its foreclosure judgment, the Association was required to intervene in the foreclosure action – to which it was not named as a Defendant – if it wished to enforce its interest in the unit.

The takeaway from this case is important for attorneys representing condominium associations, not because it states any new or unique holding of law, but because it emphasizes the importance of properly and timely recording instruments, conducting thorough and detailed property searches prior to filing a foreclosure suit, ensuring that an association’s pleadings are specific when dealing with multiple mortgages or other encumbrances on a unit, and of taking the proper action to enforce an association’s rights in a unit when a mortgagee forecloses its superior interest.

As a result of the Association’s failure to specifically identify in its complaint which of the liens it was seeking to foreclose he Association spent valuable time and fees pursuing, and then defending, its foreclosure judgment only to have the judgment invalidated 5 years after it was entered.  Further, the Association may have opened itself to liability to Inland as well, whose title to the unit was completely undone as a result of the Association’s complaint’s lack of specificity.  Both of the foregoing could have been avoided had the Association’s counsel known what to look for before filing the complaint.

Simply put, attorneys representing condominium associations must always thoroughly analyze and assess the effect of any prior and/or subsequent mortgages or other encumbrances on its interest in a unit prior to instituting a foreclosure of its lien.


[1] It is important to note that it does not appear that the Association was acting nefariously or otherwise trying to trick the Court into extinguishing BOA’s superior lien related to its first mortgage.  Rather, it seems the Association failed to specify that BOA had two liens on the unit, as to the first and second mortgages, and further failed to specify that it was only seeking to foreclose the second mortgage.