FORECLOSING JUNIOR LIENHOLDERS AND RECORDING A LIS PENDENS

When you foreclose on a construction lien, there are a couple of pointers to remember.

First, you want to make sure you include junior lienholders or interests you are looking to foreclose (or you want to be in a position to amend the foreclosure lawsuit to identify later).  The reason being is you want to foreclose their interests to the property. “[J]unior interest holders are a narrow class of mortgagees whose interest in the underlying property is recorded after the foreclosing contractor’s claim of lien is filed. This class is routinely joined to the construction lien enforcement action under section 713.26 to allow the construction lienor to foreclose out the junior lienholder’s interest in the property encumbered by the construction lien.” See Decks N Sunch Marine, infra.

Second, you want to record a lis pendens with the lien foreclosure lawsuit.  Failure to do so could be problematic because Florida Statute s. 713.22(1) provides in part, “A lien that has been continued beyond the 1-year period by the commencement of an action is not enforceable against creditors or subsequent purchasers for a valuable consideration and without notice, unless a notice of lis pendens is recorded.”

A recent case, Decks N Such Marine, Inc. v. Daake, 45 Fla.L.Weekly D1168b (Fla. 1st DCA 2020), discusses these pointers.  In this case, a contractor filed a construction lien foreclosure action in 2006 against residential real property. However, the contractor did not record a lis pendens until 2013.  The lis pendens, however, was recorded after the owner had a mortgage recorded on the property.  The contractor amended its construction lien foreclosure action to foreclose the mortgagee claiming the mortgagee was a junior lienholder.  The mortgagee moved for summary judgment pursuant to Florida Statute s. 713.22 arguing the lien was “not enforceable against creditors or subsequent purchasers for valuable consideration and without notice, unless a notice of lis pendens is recorded.”   In other words, the mortgagee was not a lienholder that could be foreclosed in light of the untimely recording of the lis pendens.  The mortgagee prevailed on this issue.

The mortgagee then sought its attorney’s fees against the contractor as the “prevailing party” under Florida Statute s. 713.29 (in Florida’s Lien Law).  The trial court agreed.  The appellate court did not.  The appellate court held that a junior lienholder is not entitled to attorney’s fees under Florida Statute s. 713.29 when prevailing in a construction lien enforcement action.  The contractor is not enforcing its lien against the junior lienholder but “joining it to the underlying action to ensue determination of superiority of liens or security interests upon a foreclosure sale.” Decks N Sunch Marine, supra.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

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