>
>Daily Development
for Thursday, March 30, 2006
>by: Patrick A.
Randolph, Jr.
>Elmer F. Pierson Professor of
Law
>UMKC School of Law
>Of Counsel: Blackwell Sanders Peper Martin
>Kansas City, Missouri
>dirt@umkc.edu
>
>CONDOMINIUMS; ASSESSMENTS; FORECLOSURE PROCEEDS:
Although, under Florida law, a condominium owner is jointly and severally liable
for assessment liens against the unit, the association may not reach surplus
proceeds from foreclosure of a mortgage junior to the association’s assessment
lien unless it obtains an adjudication of a personal claim against the unit
owner in the foreclosure proceeding. The Association’s retains the right
to foreclose its senior lien against the foreclosure sale
purchaser.
>
>Garcia v. Stewart,
906 So. 2d 1117 (Fla. App. 2005)
>
>Garcia was in default in
payment of assessment liens on his condominium unit, and also on both a first
and second mortgage. The first mortgagee commenced a foreclosure
action. The association joined that action and cross-claimed for
foreclosure of its lien in that action. No final judgment was ever filed
in that action, and a foreclosure sale was never held.
>
>Following the
filing of the first mortgage foreclosure action, the junior mortgagee commenced
an independent lawsuit by naming the condominium association as a party
defendant and alleging that it had priority as against the association’s
lien. The association appeared and established that its lien, under
Florida law, was in fact senior to that of the foreclosing mortgagee. The
court then dismissed the association from the action. (Remember that at
this time the first mortgage foreclosure, with the association’s cross complaint
for its own foreclosure, was still pending.)
>
>The unit owner
himself defaulted in the second mortgage foreclosure action, and the foreclosure
sale was held, producing a surplus of almost $18,000. The purchaser at
that sale entered the first lien foreclosure action before it was final and
offered to pay off the first mortgage. The first mortgagee accepted.
>
>The association
then went into the court where the first mortgage foreclosure and its own
foreclosure were still pending, and claimed that the surplus proceeds from the
second mortgage foreclosure should be paid over to it. It asserted
that what was once a assessment lien claim for about $1200 had now grown,
through interest, attorney’s fees, and an additional special assessment, to a
claim of over $17,000. The trial court in the first mortgage foreclosure
action ordered disbursement of the proceeds to the association from the surplus
created by the second mortgage foreclosure action.
>
>On appeal by the
mortgagor (suddenly awakened by this turn of events: Held: Reversed.
>
>The Florida Court
of Appeals noted that the trial court in the second mortgage foreclosure had
been correct in its initial ruling determining that the holder of a junior
lien could not compel a senior lienholder to participate in the junior’s
foreclosure proceeding, and that the court consequently properly dismissed the
association from the foreclosure action.
>
>It noted, however
that the Association did have an alternative remedy - it could have joined the
foreclosure action as a party plaintiff, seeking a personal judgment against the
owner for its assessment claim and payment out of proceeds of that claim with
priority. It might have sought a personal judgment or a foreclosure of its
senior lien. It had elected to do neither, and therefore had no
claim to the foreclosure proceeds. It cited the Restatement of Mortgages
as authority for this position. The fact that the association already had
an action pending to foreclose its lien in the first mortgage foreclosure action
was of no consequence to the court. That action was in the wrong court to
permit it to get at these proceeds. It retained the right, at least so far
as the court was concerned to proceed for foreclose its lien against the second
mortgage foreclosure purchaser.
>
>Comment: The editor suspects that what really was going
on here was that the association and the second mortgage foreclosure purchaser
had cut a deal and that the association had already released its claim against
the property, assuming that it was protected by the surplus proceeds. The
appeals court action likely was a bit “whoopsie!!”
>
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here and in the ABA publications
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