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Docket Number

No. 3D12–3445.

Attorney(S)

Timothy D. Padgett, P.A., and Timothy D. Padgett, Matthew E. Bryant, Evan S. Singer, and Preston C. Davis, Tallahassee, for appellant. The Offices of Roman Groysman, P.A., and Roman Groysman, Fort Lauderdale, for appellees.

Judges

Thomas W. Logue

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Smart Summary

Summary of Opinion: U.S. Bank National Association v. Bevans

Factual and Procedural Background

In November 2007 Mary Bevans executed a note and mortgage to purchase a condominium; the mortgage was recorded in January 2008 and later assigned to U.S. Bank National Association (the Bank). Bevans ceased making mortgage payments and condominium assessments. In 2009 the Condominium Association recorded a lien for unpaid assessments and in January 2010 filed a foreclosure action on that junior lien. The Association did not name the Bank in its suit. The Association obtained a final judgment of foreclosure in July 2010 and later sold the property at a judicial sale in March 2011, where IES Holdings, LLC purchased and subsequently conveyed the property to Striding Figure Holdings, LLC (Striding).

In February 2011 the Bank filed this foreclosure action to foreclose its mortgage; the Bank named the Association as a defendant but did not cause a notice of lis pendens to be recorded (there is an unresolved dispute in the record whether that failure was the Bank's or the Clerk's). The trial court later entered a final judgment of foreclosure in favor of the Bank. Striding, which then held legal title, filed a limited appearance and moved to vacate the Bank's final judgment, asserting it took title free of the Bank's claims because no lis pendens had been recorded in the Bank's foreclosure action and Striding had not been named as a party. The trial court granted relief: it vacated the Bank's final judgment and ordered that Striding "shall keep the property exempt from the claims of U.S. Bank." The Bank appealed.

Legal Issues Presented

Whether Striding, a purchaser at a judicial sale resulting from a junior lien foreclosure, obtained title to the property exempt from the Bank's senior mortgage (i.e., whether the purchaser took free and clear of the Bank's mortgage when the Bank had not recorded a lis pendens).
Whether the Bank's foreclosure action (in which Striding was not a named party and no lis pendens was properly recorded) nevertheless extinguished or otherwise terminated Striding's inferior interest in the property.

Arguments of the Parties

Appellee's (Striding Figure Holdings, LLC) Arguments

Striding argued it took title to the property free and clear of the Bank's mortgage because the Bank failed to record a notice of lis pendens in its foreclosure action and did not name Striding as a party.
Striding relied on section 48.23(b), Florida Statutes (2012), arguing that a person acquiring for value during the pendency of an action in which no lis pendens was recorded takes the interest exempt from claims and judgments entered in that proceeding, "as if such person had no actual or constructive notice."

Appellant's (U.S. Bank National Association) Arguments

The Bank's foreclosure action was based on a duly recorded instrument (the Bank's recorded mortgage); accordingly the portion of section 48.23(b) on which Striding relied does not apply to the Bank's action.
Foreclosure of a junior lien does not eliminate a superior recorded mortgage; the Bank thus retained its senior interest despite the Association's foreclosure.
A purchaser who acquires property subject to a recorded superior mortgage has constructive notice of that mortgage from the public records; therefore Striding took title subject to the Bank's recorded mortgage.
If Striding had actual or constructive knowledge of the Bank's foreclosure, the Bank's foreclosure would terminate Striding's inferior interest even though no lis pendens was recorded and Striding was not a party.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Gonzalez v. Chase Home Fin. LLC, 37 So.3d 955 (Fla. 3d DCA 2010)	Parties claiming title superior to the lien being foreclosed are not proper parties to that foreclosure suit.	Used to explain why the Association's foreclosure did not and could not include the Bank as a defendant and thus could not extinguish the Bank's senior interest.
Garcia v. Stewart, 906 So.2d 1117 (Fla. 4th DCA 2005)	Foreclosure of a junior lien does not terminate interests senior to the mortgage being foreclosed.	Applied to conclude that the Bank's senior mortgage survived the Association's foreclosure and that Striding took title subject to the Bank's mortgage.
Davanzo v. Resolute Ins. Co., 346 So.2d 1227 (Fla. 3d DCA 1977)	A legal title holder is normally an indispensable party to a foreclosure action affecting that title.	Relied upon to state that Striding, as legal title holder at the time of the Bank's final judgment, would normally be an indispensable party.
English v. Bankers Trust Co. of Cal., N.A., 895 So.2d 1120 (Fla. 4th DCA 2005)	Similar principle regarding indispensability of legal title holders to foreclosure proceedings.	Used to support the proposition that the lower court normally could not adjudicate the Bank's foreclosure in Striding's absence.
Westburne Supply, Inc. v. Cmty. Villas Partners, Ltd., 508 So.2d 431 (Fla. 1st DCA 1987)	A lis pendens serves as constructive notice of claims asserted against the property; filing of lis pendens not required to enforce a lien against a subsequent purchaser who has actual or constructive knowledge of the pending litigation for actions based on a duly recorded instrument.	Applied to explain that even without a recorded lis pendens the Bank could enforce its lien against a purchaser who had actual or constructive knowledge of the Bank's foreclosure.
U.S. Bank Nat. Ass'n v. Quadomain Condo. Ass'n, 103 So.3d 977 (Fla. 4th DCA 2012)	One who purchases property subject to a lis pendens is bound by the judgment or decree rendered against the party from whom the purchase was made, as though the purchaser had been a party to the judgment.	Used to illustrate the effect of a properly recorded lis pendens on subsequent purchasers and support the court's discussion of lis pendens consequences.
Greenwald v. Graham, 100 Fla. 818, 130 So. 608 (1930)	Authority quoted for the principle that a purchaser subject to lis pendens is bound by the judgment as if a party.	Quoted by the court (through Quadomain) to support the proposition about the binding effect of lis pendens on purchasers.

Court's Reasoning and Analysis

The court proceeded in two analytical steps corresponding to the main issues raised.

First, the court addressed whether Striding's purchase at the Association's foreclosure sale freed the property from the Bank's senior mortgage. The court observed that the Association's foreclosure targeted a junior lien and, as a general rule, foreclosure of a junior lien does not affect interests senior to the lien being foreclosed. Relying on Gonzalez and Garcia, the court concluded the Association could not, and did not, extinguish the Bank's senior mortgage by its foreclosure. The court then examined Striding's reliance on section 48.23(b) (the lis pendens statute). The court explained that the statute's protection for purchasers who acquire without a recorded lis pendens is expressly inapplicable to actions "based on a duly recorded instrument." Because the Bank's foreclosure was based on a duly recorded mortgage, the statutory exception Striding invoked did not apply. Consequently, because the Bank's mortgage was recorded, Striding had at least constructive notice of the Bank's mortgage and therefore took title subject to it; the court reversed the portion of the order exempting the property from the Bank's claims.

Second, the court considered whether the Bank's foreclosure judgment could have eliminated Striding's inferior interest despite the Bank not having recorded a lis pendens and despite Striding not being named in the Bank's foreclosure action. The court acknowledged the general rule that a legal title holder is an indispensable party, but identified two exceptions: (1) where a lis pendens has been properly recorded, which provides constructive notice to subsequent purchasers; and (2) where a purchaser has actual or constructive knowledge of the pending litigation, which under common law (and as applied to actions based on duly recorded instruments) allows enforcement against a subsequent purchaser even absent a lis pendens. The court concluded the record did not establish whether Striding had actual or constructive knowledge of the Bank's pending foreclosure at the time of purchase. Because that factual question is unresolved, the court held the Bank's foreclosure could not be set aside on the current record. The court reversed the portion of the order vacating the Bank's final judgment and remanded for further proceedings to determine whether Striding had actual or constructive knowledge; if so, the Bank's foreclosure would have terminated Striding's junior interest, and if not, the Bank would need to include Striding in a foreclosure to eliminate Striding's interest.

Holding and Implications

REVERSED and REMANDED.

Holding (core rulings):

The portion of the trial court's order providing that "Striding Figure Holdings, LLC shall keep the property exempt from the claims of U.S. Bank" is reversed; Striding did not acquire the property free of the Bank's senior mortgage under the lis pendens statutory provision because the Bank's action was based on a duly recorded instrument.
The portion of the order vacating the Bank's final judgment of foreclosure is reversed and the case is remanded for further proceedings to determine whether Striding had actual or constructive knowledge of the Bank's foreclosure at the time it purchased the property; that factual determination will govern whether the Bank's foreclosure extinguished Striding's junior interest.

Implications:

Direct effect on the parties: The Bank's senior mortgage survived the Association's foreclosure and the trial court's order exempting the property from the Bank's claims has been reversed. Whether Striding's interest was terminated by the Bank's foreclosure depends on the factual determination of Striding's actual or constructive knowledge; the case is remanded for that inquiry.
The court's decision applies established principles about the priority of liens, the effect of recorded instruments, the limited scope of the lis pendens statute for actions based on duly recorded instruments, and the role of actual or constructive notice. The opinion does not announce a new legal rule beyond applying existing authorities to the facts before the court.

Disposition: Reversed and remanded for further proceedings consistent with this opinion.

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U.S. BANK NATIONAL ASSOCIATION, etc., Appellant, v. Mary BEVANS, etc., et al., Appellees.

LOGUE

Timothy D. Padgett, P.A., and Timothy D. Padgett, Matthew E. Bryant, Evan S. Singer, and Preston C. Davis, Tallahassee, for appellant. The Offices of Roman Groysman, P.A., and Roman Groysman, Fort Lauderdale, for appellees.
Before WELLS, EMAS, and LOGUE, JJ.

LOGUE, J.

U.S. Bank National Association challenges an order that (1) vacated a final judgment of foreclosure entered in favor of the Bank; and (2) elevated above the Bank's mortgage the interest of a party that obtained title to the subject property through the foreclosure of a junior lien. We reverse and remand for further proceedings.

FACTS AND PROCEDURAL BACKGROUND

In November 2007, Mary Bevans borrowed money from a financial institution to purchase a condominium. Bevans executed a note and mortgage. The mortgage was recorded in January 2008 and was subsequently assigned to the Bank. At some point, Bevans stopped making her mortgage payments and stopped paying her condominium fees. In 2009, the Condominium Association recorded a lien against the property for unpaid assessments. At that point in time, there were two relevant liens on the property: the Bank's senior mortgage lien and the Association's junior lien.

In January 2010, the Association filed a foreclosure action. That case is not before us, but developments in that case bear directly on the issues in this case. In the Association's foreclosure action, it did not name the Bank as a defendant. The court in that case entered a final judgment of foreclosure in favor of the Association in July 2010. Final Judgment, Palm Residences of S. Beach Condo. Ass'n v. Bevans, 10–1895–CC–23 (Fla. 11th Cir. July 19, 2010).

In February 2011, the Bank filed the present case to foreclose on its mortgage. The Bank's action was filed before the judicial sale on the Association's foreclosure took place. The Bank named the Association as a defendant but failed to record a notice of lis pendens, although there is an unresolved dispute in the record whether this failure was caused by the Bank or the Clerk of the Court.

In March 2011, after the Bank had filed its foreclosure action, the judicial sale based on the Association's foreclosure took place. At the sale, IES Holdings, LLC purchased the subject property. IES then sold the property to Appellee Striding Figure Holdings, LLC by quit-claim deed in July 2011.

The trial court subsequently entered a judgment of foreclosure in favor of the Bank in this case. Striding, which held legal title to the subject property by that time, filed a notice of limited appearance in the Bank's foreclosure suit. Striding moved to vacate the final judgment. In Striding's motion, it argued that it took title to the subject property free of the Bank's claims. This was so, Striding reasoned, because a notice of lis pendens was not properly recorded in the Bank's foreclosure action and because the Bank did not name Striding as a party in that suit. The trial court agreed and entered an order vacating the final judgment. Besides vacating the Bank's final judgment of foreclosure, the order states: “Striding Figure Holdings, LLC shall keep the property exempt from the claims of U.S. Bank, N.A. (‘Plaintiff’).”

ANALYSIS

We first consider whether Striding obtained an interest exempt from the Bank's mortgage. Striding purchased its interest in the property at a judicial sale that resulted from the Association's foreclosure. The Association did not and, in fact, normally could not name a superior lienholder like the Bank as a defendant in the Association's suit to foreclose on its junior lien. See Gonzalez v. Chase Home Fin. LLC, 37 So.3d 955, 957 (Fla. 3d DCA 2010) (“[P]arties claiming title superior to the lien of a mortgage being foreclosed are not proper parties to the foreclosure suit.”) (internal quotations and citations omitted). Thus, the final judgment of foreclosure entered in favor of the Association in the Association's foreclosure action did not eliminate the Bank's senior mortgage interest because “[f]oreclosure does not terminate interests in the foreclosed real estate that are senior to the mortgage being foreclosed.” Garcia v. Stewart, 906 So.2d 1117, 1120 (Fla. 4th DCA 2005) (citations omitted). Accordingly, the Bank's senior interest in the property survived the Association's foreclosure.

Striding, however, argues that it took title free and clear of the Bank's senior mortgage because it acquired title while the Bank's mortgage foreclosure action was pending and the Bank failed to cause the Clerk to record a lis pendens. In support, Striding cites section 48.23(b), Florida Statutes (2012), which reads, in pertinent part:

1. An action that is filed for specific performance or that is not based on a duly recorded instrument has no effect, except as between the parties to the proceeding, on the title to, or any lien upon, the real or personal property unless a notice of lis pendens has been recorded and has not expired or been withdrawn or discharged.

2. Any person acquiring for value an interest in the real or personal property during the pendency of an action described in subparagraph 1 ... shall take such interest exempt from all claims against the property that were filed in such action by the party who failed to record a notice of lis pendens or whose notice expired or was withdrawn or discharged, and from any judgment entered in the proceeding ... as if such person had no actual or constructive notice of the proceeding or of the claims made therein or the documents forming the causes of action against the property in the proceeding.
(emphasis added).

Striding argues that under this statutory language, its actual or constructive notice of the Bank's mortgage is irrelevant because the Bank did not file a lis pendens. Striding's argument in this regard fails because the statute specifically provides that this provision is inapplicable to actions based on a duly recorded instrument. The Bank's foreclosure action was based upon a duly recorded instrument, namely the Bank's recorded mortgage. The language relied upon by Striding, therefore, does not apply to the Bank's mortgage or foreclosure action.

This statutory scheme makes sense. A person that acquires property for value can protect itself by checking the public records for duly recorded instruments that reflect superior liens. In the instant case, Striding had at least constructive knowledge of the Bank's mortgage when it purchased the property because the mortgage was recorded in the public records. When Striding purchased the property, therefore, it assumed the position that its predecessors-in-interest held: it obtained legal title to the property subject to the Bank's senior mortgage. See Garcia, 906 So.2d at 1120. Accordingly, we reverse that portion of the order that provides “Striding Figure Holdings, LLC shall keep the property exempt from the claims of U.S. Bank.”

We next consider the slightly-different issue of whether the Bank's foreclosure action eliminated Striding's inferior interest in light of the fact that the Bank did not file a lis pendens and Striding was not a party to the Bank's foreclosure. Striding was the legal title holder of the subject property at the time the court entered a final judgment of foreclosure in favor of the Bank. As legal title holder, Striding would normally be an indispensable party to the Bank's foreclosure action and the lower court could not normally adjudicate the suit in Striding's absence. Davanzo v. Resolute Ins. Co., 346 So.2d 1227, 1228 (Fla. 3d DCA 1977); English v. Bankers Trust Co. of Cal., N.A., 895 So.2d 1120, 1121 (Fla. 4th DCA 2005).

One exception to this rule is when a lis pendens had been properly filed in the public records giving notice of the Bank's foreclosure action. A lis pendens “serves as constructive notice of the claims asserted against the property in the pending litigation” with respect “to one acquiring an interest in the property after the lis pendens is filed.” Westburne Supply, Inc. v. Cmty. Villas Partners, Ltd., 508 So.2d 431, 434 (Fla. 1st DCA 1987). “One who purchases property subject to a lis pendens ‘is bound by the judgment or decree rendered against the party from whom he makes the purchases as much so as though he had been a party to the judgment or decree himself.’ ” U.S. Bank Nat. Ass'n v. Quadomain Condo. Ass'n, 103 So.3d 977, 979 (Fla. 4th DCA 2012) (quoting Greenwald v. Graham, 100 Fla. 818, 130 So. 608, 611 (1930)). That said, there was no properly recorded lis pendens giving notice of the Bank's foreclosure action in this case.

Another exception to this rule concerns a party who acquires an interest in property with actual or constructive knowledge of another party's lawsuit concerning the property. This common law exception was modified in part by section 48.23(b), but, as explained above, the modification does not apply to actions based on duly recorded instruments. For actions based on a duly record instrument, like the Bank's mortgage in this case, the common law rule still applies: the filing of a notice of lis pendens is not required in order to enforce a lien against a subsequent purchaser who has actual or constructive knowledge of the pending litigation. See Westburne, 508 So.2d at 435.

Based on the record before us, we do not know whether Striding had actual or constructive knowledge of the Bank's foreclosure action when it purchased the property. Until that issue is resolved, the Bank's foreclosure cannot be set aside. For this reason, we also reverse that portion of the order vacating the Bank's final judgment. If Striding had actual or constructive knowledge of the Bank's foreclosure before it purchased the property, the Bank's foreclosure terminated Striding's junior interest; if Striding did not have such knowledge, the Bank will have to include Striding in a foreclosure action to eliminate Striding's interest.

Reversed and remanded for further proceedings.

U.S. Bank Nat'l Ass'n v. Bevans