By: Donald Lunny & Quentin E. Morgan
Today, the Florida Supreme Court issued its long awaited and much anticipated Opinion in the City of Palm Bay v. Wells Fargo Bank N.A. case. In a 5-2 decision, the Court determined that Florida’s cities lack home rule authority to make municipal code enforcement liens superior to prior recorded mortgage liens. As of today, the Court’s Opinion has not been released for publication in the permanent law reports and is subject to revision or withdrawal.
On January 21, 2011, the 5th District Court of Appeal rendered an Opinion, in the City of Palm Bay v. Wells Fargo Bank N.A., holding that a municipal ordinance giving a code enforcement lien “super priority” over a prior recorded mortgage lien is not enforceable. The District Court of Appeal determined that such an Ordinance is invalid because it conflicts with Florida’s Recording Law. The Recording Law generally indicates that instruments are given legal priority over each other based on the date and time the instrument is recorded in the County real property Official Records. When the 5th District Court of Appeal rendered its decision, it certified the question to the Florida Supreme Court as being one of “Great Public Importance”. The Case pitted competing interest of local governments (which are charged with promoting and enhancing the neighborhood quality of life for citizens through code enforcement) against those of banks and lenders (which provide loans for real property purchases or improvements, and foreclose on such property when the loans go into default). The Case attracted attention from across the State and the Florida Supreme Court received Amicus Briefs from the Florida League of Cities, the Florida Land Title Association, the Florida Bankers Association, and many cities.
Many local governments throughout Florida have adopted ordinances which declare that a code enforcement lien is superior to mortgage liens, regardless of when a mortgage is recorded. A primary reason why a local government adopts a “super priority” provision is to encourage a mortgage lender to maintain problem properties so as to protect property values and prevent or eliminate “community eyesores”. On the other hand, Lenders are reluctant to spend money maintaining property when a loan is in default. If a code enforcement lien is superior to a mortgage lien, a lender may decide to maintain the mortgaged property pursuant to standard clauses in mortgages that allow lenders to “protect the loan security” to avoid having a municipal fine and lien threaten the Lender’s mortgage lien.
This Case will affect the ability of local governments to encourage mortgage holders to expend funds to maintain properties when defaulting owners do not, thus affecting a local government’s ability to protect property values and community appearance standards using the cost effective Code Enforcement process. On the other hand, for banks or other lenders which hold loans in default, they will not need to expend funds to maintain their secured property solely to reduce risks of local community appearance code enforcement efforts.
The material appearing on this blog is meant to provide general information only and is not a substitute for nor is it legal advice to you. With regard to specific law issues, readers of this article should seek specific advice from legal counsel of their choice. Articles may not be reprinted without the express permission of Brinkley Morgan.
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By Roberta Stanley