Tag Archives: lien foreclosure

TIMELY AND PROPERLY ASSERT AFFIRMATIVE DEFENSES AND UNDERSTAND STATUTORY CONDITIONS PRECEDENT

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A recent case serves as a reminder to TIMELY and PROPERLY assert affirmative defenses and to understand statutory conditions precedent to construction lien claims. Failing to do one or the other could be severely detrimental to the position you want to take in a dispute, whether it is a lien foreclosure dispute, or any other dispute.

In Scherf v. Tom Krips Construction, Inc., 2024 WL 3297592 (Fla. 4th DCA 2024), the president of a construction company and his wife were building a residence. They orally accepted the proposal from the concrete shell contractor and asked for invoices to be submitted to the president’s construction company.  No written contract was memorialized.  The president and his wife did not pay the concrete shell contractor and the contractor recorded a lien and sued to foreclose on the lien.   Years later (the case had been stayed because the president and his wife filed for bankruptcy and the shell contractor had to get leave of the automatic bankruptcy stay to pursue the lien foreclosure), the shell contractor moved for summary judgment.  The president and his wife moved for leave to file an amended answer and affirmative defenses. They claimed the oral contract was with the construction company and the shell contractor was required to serve a Notice to Owner under Florida Statute s. 713.06. Alternatively, they argued that if the oral contract was with the president and his wife, the shell contractor was required to serve a Final Contractor’s Payment Affidavit at least 5 days before filing its lien foreclosure claim, and did not, as required by s. 713.06.

Due to the length of time that had gone from the filing of the lawsuit to the motion for leave to amend to add affirmative defenses, the trial court denied the motion for leave and granted summary judgment in favor of the shell contractor. The trial court noted that had the defense on the final contractor’s payment affidavit been raised from the onset, the shell contractor could have cured the issue where, now, it was non-curable. In other words, granting the amendment would be prejudicial to the shell contractor:

In the years leading up to the motion for leave to amend, the [president and his wife] had consistently taken the position thatthey were not parties to the Construction Agreement, that the contract was with [the president’s construction company], and that[the shell contractor] had failed to serve the required notice to owner upon them. In their proposed amended answer, the[president and his wife] changed their position by adding the alternative argument that [the shell contractor] had failed to serve acontractor’s affidavit, which would only come into play if [the shell contractor’s] contract was with the [president and his wife].

Allowing the amendment would have prejudiced [the shell contractor] because the statute of limitations had run on the lien foreclosure claim, so it was too late to cure the notice problem. [The shell contractor] was required to file the foreclosure actionwithin one year of recording its claim of lien. [The shell contractor] recorded its claim of lien on February 8, 2016, and filed itsoriginal complaint on April 27, 2016. Before filing for bankruptcy, the [president and his wife] challenged the original complaint,but did not raise [the shell contractor’s] failure to provide the contractor’s affidavit. Had the issue regarding the contractor’s affidavit been raised at that time, [the shell contractor] would have had over seven months to cure a failure to serve the affidavit.

Scherf, supra, at *3-4 (internal citations omitted).

In affirming the trial court, the appellate court relied on precedent where leave to amend was denied “to assert a defect that could have been cured by the opposing party had it been raised earlier in the litigation.” Scherf, supra, at *4.  In other words, the proposed amendment came too late and would have prejudiced the shell contractor due to the statute of limitations that the shell contractor could have cured (under existing precedent) had the president and his wife’s amendment come much earlier.

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.

HUH? ACTION ON CONSTRUCTION LIEN “RELATES BACK” DESPITE NOTICE OF CONTEST OF LIEN

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Not every case law you read makes sense. This sentiment goes to the uncertainty and grey area of certain legal issues.  It is, what you call, “the nature of the beast.”  You will read cases that make you say “HUH?!?” This is why you want to work with construction counsel to discuss procedures and pros / cons relative to construction liens.

An example of a case that makes you say “HUH” can be found in Woolems, Inc. v. Catalina Capstone Creations, Inc., 2023 WL 2777506 (Fla. 3d DCA 2023) dealing with a construction lien foreclosure dispute.

Here, a contractor filed a lawsuit against a subcontractor with a summons to show cause why the subcontractor’s construction lien should not be discharged.  This is a specific complaint filed under Florida Statute s. 713.21(4). This statute requires the lienor to essentially foreclose on its construction lien within 20 days after it was served with a “show cause” summons.  The subcontractor filed its answer and counterclaim but did NOT assert a claim to foreclose its construction lien.

Around the time of subcontractor’s answer and counterclaim, the contractor transferred the subcontractor’s lien to an all-cash lien transfer bond in accordance with Florida Statute s. 713.24. Once the lien transfer bond was recorded, the owner recorded a notice of contest of lien under Florida Statute s. 713.22. The notice of contest of lien shortens the limitations period to foreclose on a lien to 60 days.

The subcontractor did NOT timely foreclose its lien against the lien transfer bond and the general contractor moved to have its all-cash lien transfer bond returned, as it should do. The subcontractor filed its lien foreclosure against the lien transfer bond AFTER the 60-day window expired. The trial court, and affirmed by the appellate court, denied the general contractor’s request to have the lien transfer bond returned and allowed the subcontractor to assert its (dilatory) claim against the lien transfer bond claiming it related back in time to the subcontractor’s initial counterclaim.  HUH?!?

ISSUES GIVING RISE TO THE HUH

Here are the issues with this ruling:

  1. The subcontractor should have foreclosed its construction lien with the 20-day time period from receiving the summons to show cause. The case reflected the subcontractor asserted claims, but not the lien foreclosure claim subject to the summons to show cause. (The appeal did not discuss this point for reasons currently unknown.)
  2. Regardless of (1), the lien was transferred to a bond and a notice of contest of lien was recorded shortening the time period to foreclose the lien (as to the bond) to 60 days. There is case law referencing this procedure. Yet, the subcontractor still did not timely assert its claim against the lien transfer bond.
  3. The trial court applied the relation back doctrine which does nothing but completely water down the statutory purpose of a notice of contest of lien (not to mention the summons to show cause complaint).

RECOMMENDATIONS IN LIGHT OF RULING

In light of this ruling, here are my recommendations:

  1. If you are going to transfer a lien to a lien transfer bond, do it from the get-go. Then, record the notice of contest or pursue the summons to show cause complaint.
  2. If filing the summons to show cause complaint, wait for the 20-day time period to expire. If the time period expires, move to have the lien discharged before making the decision to transfer the lien to a lien transfer bond.
  3. If recording a notice of contest of lien, wait for the 60-day time period to expire before taking action.

The reality is that the procedure implemented in this case should have been fine but for the application of the relation back doctrine that makes you say HUH?!?

As mentioned, if dealing with a lien, please make sure to discuss strategic considerations with a construction counsel that can help navigate the process and advise on the pros and cons.

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.

UNPREDICTABLE OPINION REGARDING CONSTRUCTION LIEN (REINSTATEMENT??)

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Here comes the discussion of an appeal I was intimately involved in dealing with a construction lien. See Suntech Plumbing and Mechanical Corp. v. Bella Isla, LLC, 2022 WL 14672765 (Fla. 3d DCA 2022).  Unfortunately, it was a losing result on my end but not a losing result to the issue at-hand.  You should ask what in the world does this mean.  I will tell you.

Here is the fact pattern.  A subcontractor files a construction lien foreclosure lawsuit against an owner for unpaid contract balance.  In the same lawsuit, the subcontractor sues the general contractor for breach of contract and unjust enrichment associated with an approximate three-year delay on a construction project.  The project was scheduled to be completed in 2019.  It was not.  The project was pushed into COVID and into 2022.  (The subcontractor did not sue the general contractor for amounts subject to the lien foreclosure claim.) The general contractor, assuming the defense of the owner, moved to stay the lawsuit pending the outcome of arbitration based on an arbitration provision in the subcontract.  The subcontractor did not dispute the arbitration provision, but argued that arbitration provision should not extend to the owner that was (a) not bound by the subcontract, (b) would not be a party to the arbitration, and (c) the amounts pled against the general contractor did not include the amounts subject of the lien foreclosure lawsuit.  At a minimum, the lawsuit should be stayed, not dismissed. Nevertheless, the trial court dismissed the entire lawsuit in an order that states that it is a final order with language that the lien may be “reinstated” after the outcome of the arbitration (that the owner is not a party to).

This is a big deal.  Construction liens are creatures of statute. And, a construction lien, no different than a mortgage, is only as good as its lien priority.  (The priority of a lien is critical!). Well, there is NO statutory procedure to reinstate a construction lien. None. There is also no authority that even contemplates such a procedure.  Thus, what happens to the priority of the lien and what happens to the corresponding lis pendens?  I have no clue other than the best recourse was to immediately appeal on two fronts: (1) appeal the trial court’s ruling as a final order based on language in the order stating it is a final order, and (2) in an abundance of caution, move for a petition of writ of certiorari due to the irreparable harm posed by the dismissal of a lien foreclosure lawsuit (regardless of the unheard-of reinstatement language).  This is the recourse pursued with the appeals consolidated.  The sentiment was that, at worst case, the appellate court would remand for the lawsuit to be stayed, not dismissed, so as not to impact the integrity (priority) of the lien and lis pendens.  The worst thought was that if the appeal was lost, there was not really a loss in this case because a loss would ultimately mean the lien and lis pendens are still in play where an argument cannot be made otherwise.  Although, honestly, a loss was not really considered here because there is no such thing as reinstating a lien.

Welcome to the unpredictability of the law.

First, the appellate court ruled that the trial court’s order, despite saying it was a final order, was not really a final order subject to an automatic appeal. “Because the trial court’s order of dismissal, however, is neither a final order nor an appealable nonfinal order we lack jurisdiction to consider [subcontractor’s] appeal of the dismissal order.”  See Suntech, supra, at *1.

Second, the appellate court ruled that the reinstatement language did not constitute irreparable harm to support the basis of certiorari relief.

[Subcontractor] alternatively seeks certiorari review of the trial court’s order of dismissal; however, the trial court’s order expressly retained jurisdiction to enforce any arbitration award and to reinstate [subcontractor’s] lien foreclosure claim against [owner] should arbitration not resolve the matter. [Subcontractor] has therefore failed to establish irreparable harm necessitating exercise of our certiorari jurisdiction.

Suntech, supra, at *1.

Ok.  So, the lien (and lis pendens) should remain in effect.  But what about their priority?  How do you reinstate a dismissed construction lien (and how does this effect lien priority)? Why is the lien even dismissed when the owner is not a party to the arbitration and not bound by any arbitration award?  How is a dismissed lien not irreparable harm when the lien serves as the collateral for nonpayment? What happens to the lis pendens? Does this mean that a general contractor can always move to dismiss a lien foreclosure claim from a subcontractor based on an arbitration provision that the owner is not bound to or an arbitration the owner is not a party to?

I don’t know the answers to any of these questions. Do you?  The continued lack of answers prompted a motion for rehearing seeking clarity because the ruling, frankly, benefits no one in the construction industry and extends to buyers, sellers, title companies, etc. You can’t ignore the lien and lis pendens based on the appellate court’s ruling. But how do you treat the lien from a priority standpoint (including the lis pendens) and how the lien gets reinstated is another thing.

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.

 

And, again, welcome to the law! In my view, this is a bad opinion for the construction industry as a whole.  It will be used in the wrong fashion to create a situation where the lien and lis pendens are in some unknown legal purgatory with an undefined outcome.

 

FILING LIEN FORECLOSURE LAWSUIT AFTER SERVING CONTRACTOR’S FINAL PAYMENT AFFIDAVIT

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If you are an unpaid contractor in direct contract with the owner of real property, you should be serving a Contractor’s Final Payment Affidavit prior to foreclosing on your construction lien.  This should extend to any trade contractor hired directly by the owner.  As a matter of course, I recommend any lienor hired directly by the owner that wants to foreclose its lien to serve a Contractor’s Final Payment Affidavit.  For example, if you are a plumbing contractor hired by the owner and want to foreclose your lien, serve the Affidavit.  If you are a swimming pool contractor hired by the owner and want to foreclose your lien, serve the Affidavit.  You get the point.  (If you are not in direct contract with the owner, you do not need to serve the Affidavit, but you need to make sure you timely served your Notice to Owner; when you are in direct contract with the owner, you do not need to serve the Notice to Owner because the owner already knows you exist.)

The Contractor’s Final Payment Affidavit is a statutory form.   I suggest working with counsel to help execute to avoid any doubts with the information to include.  The unpaid amount listed should correspond with the amount in your lien and you want to identify all unpaid lienors (your subcontractors and suppliers) and amounts you believe they are owed.

If you are in direct contract with the owner, serving the Contractor’s Final Payment Affidavit is a condition precedent to foreclosing your lien.  To this point, Florida Statute s. 713.06(3)(d)(4) provides:

The contractor shall have no lien or right of action against the owner for labor, services, or materials furnished under the direct contract while in default for not giving the owner the affidavit; however, the negligent inclusion or omission of any information in the affidavit which has not prejudiced the owner does not constitute a default that operates to defeat an otherwise valid lien. The contractor shall execute the affidavit and deliver it to the owner at least 5 days before instituting an action as a prerequisite to the institution of any action to enforce his or her lien under this chapter, even if the final payment has not become due because the contract is terminated for a reason other than completion and regardless of whether the contractor has any lienors working under him or her or not.

In a recent case, A. Alexis Varela, Inc. d/b/a Varela Construction Group v. Pagio, 47 Fla. L. Weekly D1112b (Fla. 5th DCA 2022), the appeal was based on whether the contractor filed suit one day before it should have filed suit after serving the Contractor’s Final Payment Affidavit.  The Affidavit was served on 5/5/21.  The contractor then filed its lien foreclosure lawsuit on 5/10/21.  The trial could dismissed the lien action claiming the contractor did not properly comply with the 5-day condition precedent because the earliest it could have foreclosed its lien was 5/11/21.  The appellate court reversed.  The plain reading of the statue provides it should be delivered to the owner “at least 5 days before instituting an action.”  The statute does not require the lien foreclosure lawsuit to be filed no earlier than the 6th day and does not specifically preclude the lawsuit from being filed on that 5th day.

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.lien

 

 

VALUE IN RECORDING LIEN WITHIN EFFECTIVE NOTICE OF COMMENCEMENT

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Construction lien priority is no joke!   This is why a lienor wants to record its construction lien within an effective notice of commencement.  A lien recorded within an effective notice of commencement relates back in time from a priority standpoint to the date the notice of commencement was recorded.  A lienor that records a lien wants to ensure its lien is superior, and not inferior, to other encumbrances.  An inferior lien or encumbrance may not provide much value if there is not sufficient equity in the property. Plus, an inferior lien or encumbrance can be foreclosed.

An example of the importance of lien priority can be found in the recent decision of Edward Taylor Corp. v. Mortgage Electronic Registration Systems, Inc., 45 Fla.L.Weekly D1447b (Fla. 2d DCA 2020). In this case, a contractor recorded a notice of commencement for an owner.  While an owner is required to sign the notice of commencement that the contractor usually records, in this case, the owner did not sign the notice of commencement.  Shortly after, the owner’s lender recorded a mortgage and then had the owner sign a notice of commencement and this notice of commencement was also recorded.  When there is a construction lender, the lender always wants to make sure its mortgage is recorded first—before any notice of commencement—for purposes of priority and has the responsibility to ensure the notice of commencement is recorded.  Here, the lender apparently did not realize the contractor had already recorded a notice of commencement at the time it recorded its mortgage.

An unpaid subcontractor recorded a lien and foreclosed on the lien.  Because the lien related back in time to the original notice of commencement, the subcontractor moved to foreclose the mortgage as an inferior interest.  (Remember, the mortgage was recorded after the notice of commencement the contractor recorded that was not signed by the owner.)  The lender argued that the notice of commencement was a legal nullity because it was not signed by the owner, therefore, its mortgage had priority.  The trial court agreed with the lender.  The appellate court did not:

[W]e hold that a notice of commencement not signed by the owner, but instead signed by the general contractor with the owner’s authority, is not a nullity, per se, in a lien foreclosure action brought by a subcontractor where the subcontractor has strictly complied with chapter 713 and relies upon the defective notice of commencement, which is otherwise in substantial compliance with section 713.07. In other words, the lender may not use the deficient notice of commencement as a sword against a subcontractor who bears no duty to ensure the validity and accuracy of the notice of commencement.

Edwin Taylor Corp., supra.

This is a good result for a subcontractor that is now in a position to have a lien that is superior to a lender’s mortgage — a situation that rarely occurs and should not occur.

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.

 

CONSTRUCTION LIEN FORECLOSURE ACTION MUST BE BROUGHT IN COUNTY WHERE PROPERTY LOCATED

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A construction lien foreclosure action is an action against the real property and MUST be brought in the county where the property is located. It is an action concerning subject matter jurisdiction (the jurisdiction of the court to hear the matter) and, thus, can be raised at any time in a proceeding.  If you are looking to foreclose a construction lien, please make sure 1) the lien is recorded in the right jurisdiction and 2) the lien is foreclosed on in the right jurisdiction.

In a recent case, Prime Investors & Developers, LLC v. Meridien Companies, Inc., 2020 WL 355930 (4th DCA 2020), a dispute arose between a general contractor and subcontractor on a hotel project in Miami-Dade County. The general contractor filed suit against the subcontractor for untimely and defective installation in Broward County. The subcontractor counter-sued the general contractor for breach of contract and asserted a claim against the developer of the hotel to foreclose a construction lien. Remember, the property was located in Miami-Dade County but the lawsuit was in Broward County.

The trial court granted summary judgment in favor of the subcontractor and against the developer and contractor. The trial court entered a money judgment against the contractor and the developer, but did not initiate any foreclosure proceedings.

The appellate court reversed the summary judgment because there were genuine issues of material fact. The subcontractor, in its motion for summary judgment, did not address the general contractor’s affirmative defenses. (“When a party raises affirmative defenses, a summary judgment should not be granted where there are issues of fact raised by the affirmative defenses which have not been effectively factually challenged and refuted. The movant must disprove the affirmative defenses or show they are legally insufficient.”). Prime Investors & Developers, LLC, 2020 WL at *4 (citation omitted).

The appellate court did address the construction lien foreclosure issue by reminding “that “[a] lien against property is in rem, affecting title to the property, and must be brought in the circuit with jurisdiction over the property.” Prime Investors & Developers, LLC, 2020 WL at *4 (citation omitted).  In other words, the subcontractor filed the construction lien foreclosure lawsuit in the WRONG jurisdiction. Oops!

However, the appellate court did not seem to challenge the right of the subcontractor to obtain a monetary judgment, absent the foreclosure proceedings, against the developer. While the subcontractor cannot foreclose its construction lien, it may have a basis to obtain a monetary judgment that excludes foreclosure against the developer if it prevails at trial. This is certainly not the same leverage the subcontractor wanted when it recorded the lien and initiated a construction-lien foreclosure.

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.

 

CONTRACTORS SHOULD NOT FORGET TO DELIVER CONTRACTOR’S FINAL PAYMENT AFFIDAVIT

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shutterstock_46898038If you are a contractor and entered into a contract with an owner, then you need to serve the owner with a Contractor’s Final Payment Affidavit at least 5 days before filing a lien foreclosure lawsuit.  Fla. Stat. s. 713.06(3)(d).    Many times, when I am preparing a lien for a contractor, I like to work with the contractor on the Contractor’s Final Payment Affidavit at the same time as the lien to (for lack of a better phrase) kill two birds with one stone.  This way, both the lien and Contractors’ Final Payment Affidavit can be served on the owner at the same time and the contractor has perfected its right to foreclose on the lien when it is ready to do so.

 

As Florida Statute s. 713.06(3)(d) states:

 

The contractor shall have no lien or right of action against the owner for labor, services, or materials furnished under the direct contract while in default for not giving the owner the affidavit; however, the negligent inclusion or omission of any information in the affidavit which has not prejudiced the owner does not constitute a default that operates to defeat an otherwise valid lien. The contractor shall execute the affidavit and deliver it to the owner at least 5 days before instituting an action as a prerequisite to the institution of any action to enforce his or her lien under this chapter, even if the final payment has not become due because the contract is terminated for a reason other than completion and regardless of whether the contractor has any lienors working under him or her or not.

Failing to serve the Contractor’s Final Payment Affidavit can be hugely detrimental to an otherwise valid lien.  Without serving the Contractor’s Final Payment Affidavit, the lien foreclosure lawsuit is not proper and should be dismissed.

 

For example, in Puya v. Superior Pools, Spas & Waterfalls, Inc., 902 So.2d 973 (Fla. 4th DCA 2005), a swimming pool contractor hired by a homeowner filed a lien foreclosure lawsuit and received a foreclosure judgment in its favor.  There was one huge problem.  The contractor never served a Contractor’s Final Payment Affidavit 5 days before filing the lawsuit.   The Fourth District reversed the foreclosure judgment because the contractor’s failure to serve the Contractor’s Final Payment Affidavit deprived the contractor of the right to foreclose on the lien:  “Where a contractor fails to timely furnish a final payment affidavit, the owner is generally entitled to dismissal of the contractor’s foreclosure lawsuit.”  Puya, 902 So.2d at 974.  See also Nichols v. Michael D. Eicholtz, Enterprise, 750 So.2d 719 (Fla. 5th DCA 2000) (affirming trial court’s dismissal of lien foreclosure action where contractor failed to properly provide contractor’s final payment affidavit).

 

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.

 

LIS PENDENS – RECORDATION AND DISSOLUTION

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When you file a construction lien foreclosure lawsuit, you must also record a lis pendens in the official (public) records against the property.  This lis pendens serves as written notice that there is a lawsuit concerning the real property, and more specifically, title relating to that real property. If the property is then sold or rented, the buyer or tenant will ultimately be bound by a final determination relating to the lawsuit concerning title to the property.  This is the value in recording a lis pendens and why it is a MUST in any foreclosure lawsuit.  (This is the same value in any mortgage foreclosure lawsuit and why lis pendens are recorded in these lawsuits too.)  A lis pendens will show up in a title report.  In most instances, title companies will not issue a title policy if there is a lis pendens or may require a certain amount of money escrowed as a result of the lis pendens and pending action in order to issue a title policy.  Also, a buyer, in particular, and a tenant are not going to want to invest in property where the title to that property is at-issue in a lawsuit.  Hence, the lis pendens impacts the sale and potential re-financing of the property. 

 

With respect to the dissolution of a lis pendens, Florida Statute s. 48.23(3) provides:

 

When the pending pleading does not show that the action is founded on a duly recorded instrument [e.g., mortgage or Declaration of Condominium] or on a [construction] lien claimed under part I of chapter 713 or when the action no longer affects the subject property, the court shall control and discharge the recorded notice of lis pendens as the court would grant and dissolve injunctions.

 

Therefore, if the lawsuit (i) does not affect title to the real property, (ii) is not based on a construction lien, or (iii) is not based on a duly recorded instrument, such as a mortgage, an owner of real property is going to move to dissolve the lis pendens so that title to their property is not impacted by the lis pendens.   This is, at least, what an owner should do.

 

What happens if a lis pendens is recorded but the lawsuit is not a construction lien foreclosure lawsuit or founded on a duly recorded instrument such as a mortgage?

 

For example, what if there is a lawsuit for the specific performance of a purchase-sale contract involving real property?  In this instance, the party suing for the specific performance of the real property to be sold to it will want to record a lis pendens to put the public on notice that there is an action concerning title to that property.  But, this type of lawsuit is not founded on a duly recorded instrument or construction lien.  For this reason, the owner of the property will move to dissolve the lis pendens so that they can sell the property or re-finance the property, as the case may be.

 

A recent decision in Regents Park Investments, LLC v. Bankers Lending Services, Inc., 41 Fla.L.Weekly D1688c (Fla. 3d DCA 2016), exemplifies the scenario of a lis pendens being recorded in a dispute concerning the sale of real property and the owner of the property moving to dissolve the lis pendens.  The buyer filed a lawsuit for specific performance to force the owner to sell the property to it.  The buyer also recorded a lis pendens (as the buyer did not want the owner to sell the property to another buyer).  The owner moved to dissolve the lis pendens so that it could do what it wanted with the property without the impact of the lis pendens. 

 

The Third District explained that the burden was on the proponent of the lis pendens—the buyer that sued for specific performance that recorded the lis pendens—to establish a fair nexus between the claim asserted in the lawsuit and the real property’s title.  Regents Park Investments, quoting Nu-Vision, LLC v. Corporate Convenience, Inc., 965 So.2d 232, 234-36 (Fla. 5th DCA 2007).  This fair nexus means the proponent of the lis pendens must make a minimal evidentiary showing they have a good faith, viable claim in the lawsuit concerning the property’s title.  Id.

 

The appellate court, based on this minimal evidentiary showing of a fair nexus between the asserted claim and title the property, maintained:

 

Applying the standard of a minimal showing that there is at least some basis for the underlying claim and a good faith basis to allege facts that would at least state a viable claim, we conclude that Regents [buyer suing for specific performance that recorded lis pendens] met that standard. Regents’ showing that its claims arose out of a written contract for sale of the subject properties established a “fair nexus” to the properties and its Interrogatory answers swearing that it was ready, willing and able to close on the closing date, together with evidence that Bankers [owner] was not able to close because of the outstanding lot clearing liens against the property, provided a sufficient minimal basis to support either a claim that Regents could have performed or that its performance was excused. Consequently, we find that the trial court should not have discharged the lis pendens and reverse with instructions that it be reinstated. 

This fair nexus standard requiring a minimal evidentiary showing provides an advantage to a buyer that sued for specific performance and recorded the lis pendens.  It simply requires the buyer to proffer some evidence to support that they have a good faith, viable claim concerning title to the property.  If the buyer cannot do this, the lis pendens should be dissolved. On the other hand, if a buyer supports this fair nexus standard, then the lis pendens will not be dissolved meaning the owner’s real property will continue to be impacted by the lis pendens.  In such scenario, the owner may ask the court to require that the proponent of the lis pendens furnish a bond in the event it turns out that the buyer’s claim is not valid meaning the lis pendens was wrongfully recorded.

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.

 

 

 

 

AN AMENDED LIEN DOES NOT DELAY THE 60 DAY WINDOW TO FORECLOSE A LIEN WHEN A NOTICE OF CONTEST OF LIEN IS RECORDED

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I previously discussed the value of an owner recording a Notice of Contest of Lien under Florida Statute s. 713.22 to shorten a lienor’s statute of limitations to foreclose a construction lien to 60 days from the date the lien is contested.   For more information on recording a Notice of Contest of Lien please look at this posting and this posting.

 

What happens if after a Notice of Contest of Lien is recorded the lienor amends its construction lien? For instance, say the following sequence occurs:

 

1:  Lien

2:  Notice of Contest of Lien

3: Amended Lien

 

Does an owner need to record another Notice of Contest of Lien for the Amended Lien?  If an owner does, then a lienor could extend its 60 day window to foreclose its lien by simply recording an amended lien.

 

This exact scenario was addressed long ago by the Florida Supreme Court in Jack Stilson & Co. v. Caloosa Bayview Corp., 278 So.2d 282 (Fla. 1973) which held that the foreclosure of an amended lien MUST still be brought within the 60 days from the initial Notice of Contest of Lien.  In other words, the recording of an amended lien does NOT toll (or stop) the running of the 60 day window to foreclose the lien when a Notice of Contest of Lien is recorded.

 

Therefore, if you are an owner, there is certainly a benefit to recording a Notice of Contest of Lien.  Conversely, if you are a contractor, do not think you can delay or escape the 60 day window to foreclose your construction lien if you received a Notice of Contest of Lien by simply amending your lien.

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.

 

YES, LIEN PRIORITY IS IMPORTANT

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When a construction lender forecloses, a lienor (e.g., contractor, subcontractor, supplier) is in a bad predicament because the lender’s mortgage will maintain priority over the lienor’s construction lien. The lienor would be named in the lender’s lawsuit (provided a lien has been recorded) because the lender will look to foreclose or wipe out the lienor’s inferior construction lien. 

From a real-world standpoint, if there is not enough equity in the real property to satisfy the lender’s mortgage / loan, there is not going to be any surplus from a foreclosure sale to satisfy the inferior construction lien(s).  Since a lien really is only as good as the equity in the real property being liened, if there is not any equity in the real property and/or the construction lender is foreclosing, pursuing the lien may be an exercise in futility.

Sometimes, due to the lack of equity in the real property at the time of the foreclosure, the lender will file the foreclosure lawsuit but delay in prosecuting the action.  One reason is that the lender knows the owner is under water and hopes the value in the property increases down the road.  The lender knows that it will ultimately take possession of the real property but at the time of the foreclosure the value of the property is much less than the amount owed under the loan. 

 

Unfortunately, irrespective of any delay by the lender in prosecuting the foreclosure, the lender’s interest in the real property will always take priority.  There is little the lienor can do to establish that its lien should jump priority over the lender’s mortgage.  This point was confirmed in the non-construction case U.S. Bank National Association v. Farhood, 39 Fla. L. Weekly D12594a (Fla. 1st DCA 2014), where the appellate court claimed that it was error for a trial court to sanction a lender in a mortgage foreclosure lawsuit for dilatory practices by deeming that a condominium association’s lien on a unit for unpaid assessments took priority over the mortgage.

 

So, yes, the priority of your construction lien is important and should always be a consideration in a lien foreclosure action.

 

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.