DENIAL OF MOTION TO DISSOLVE LIS PENDENS DOES NOT AUTOMATICALLY CREATE BASIS FOR CERTIORARI RELIEF

Posted on October 29, 2023October 29, 2023 by David Adelstein

A recent appellate decision out of Florida’s Sixth District Court of Appeal holds that a trial court’s denial of motion to dissolve a lis pendens does NOT automatically give a basis for a petition for a writ of certiorari. Generalized allegations of “irreparable harm” to support the basis for the petition for writ of certiorari are insufficient. Rather, the party moving for the petition MUST clearly demonstrate the irreparable harm; otherwise, the petition for writ of certiorari will fail.

A lis pendens has legal significance. It is a recorded document that notifies the world that there is a pending lawsuit dealing with the real property at issue. This is important because who wants to buy a piece of property that is subject to litigation – that would be a risky transaction!

In CPPB, LLC v. Taurus Apopka City Center, LLC, 48 Fla.L.Weekly D1837a (Fla. 6^th DCA 2023), a dispute arose as to a real estate transaction. The owner sold a parcel to a buyer. The owner also owned three adjacent parcels. As part of the transaction, the buyer agreed to perform certain improvements to all of the parcels including those adjacent parcels owned by the owner. The owner deposited funds in escrow for purposes of its share of the improvements. A payment dispute arose regarding the improvements and the buyer sued the seller. The seller filed a counterclaim to rescind the transaction along with a recorded lis pendens on the parcel purchased by the buyer. The buyer moved to dissolve the lis pendens which the trial court denied. This prompted the appeal – a petition for a write of certiorari based on the trial court’s denial of the motion to dissolve the lis pendens.

The Sixth District explained that a petition for a writ of certiorari is an extraordinary remedy which may ONLY be granted on when the following are established:

“(1) a departure from the essential requirements of the law, (2) resulting in material injury for the remainder of the case (3) that cannot be corrected on postjudgment appeal.” “A finding that the petitioning party has ‘suffered an irreparable harm that cannot be remedied on direct appeal’ is a ‘condition precedent to invoking a district court’s certiorari jurisdiction.’ ” As such, appellate courts should analyze irreparable harm first to determine if jurisdiction exists before deciding whether the trial court’s order departed from the essential requirements of law.

CPPB, supra (internal citations omitted).

Here, the Sixth District declined to adopt a rule that a petition for certiorari relief was always available when a trial court declined to dissolve a lis pendens. Instead, the Sixth District held:

[W]e find that irreparable harm is not presumed in cases involving orders denying motions to dissolve lis pendens because this would create a new category of non-final orders reviewable on interlocutory appeal, which the Florida Supreme Court has expressly declined to do. Accordingly, it was incumbent upon [the seller] to explain how it would suffer irreparable harm absent immediate review of the order denying its motion to dissolve the lis pendens. Having failed to do so, we dismiss its petition.

CPPB, supra (internal citations omitted).

This ruling is clearly not what a party dealing with the denial of a lis pendens want to hear. Or deal with. However, the takeaway here is that if moving to dissolve a lis pendens, make sure to establish irreparable harm to support the certiorari relief.

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??)

Posted on January 14, 2023January 14, 2023 by David Adelstein

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.

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.

RECORDING A LIS PENDENS IS CRUCIAL

Posted on December 17, 2022December 17, 2022 by Edward Garber

If you are in a construction dispute where you are pursuing a construction lien foreclosure action, recording a lis pendens is crucial. Did I say crucial? “[O]ne purpose of a notice of lis pendens is to alert all others that title to the property is involved in litigation and that ‘future purchasers or encumbrancers of that property’ are at risk of being bound by an adverse judgment.” Henry v. AIM Industries, LLC, 47 Fla.L.Weekly D653b (Fla. 2d DCA 2022). There really is never a reason not to record a lis pendens when pursing a construction lien foreclosure. Please remember that – don’t forget to record the lis pendens!

There are times a lis pendens is recorded when the lis pendens is NOT based on a duly recorded instrument (e.g., construction lien or mortgage). A lis pendens, however, is recorded because the dispute is tied to the property in which the lis pendens is being recorded. The lis pendens is recorded to best safeguard the plaintiff’s interest in the real property without fear that the real property will be sold impacting the purpose (and, of course, security) of the lawsuit.

“When an action is not founded on a duly recorded instrument or chapter 713 lien [construction lien], but alleges a nexus between the real property and the claims set forth, an evidentiary hearing is required on a motion to discharge lis pendens.” Henry, supra.

“[T]he supreme court held that a lis pendens could not be dissolved if, ‘in the evidentiary hearing on request for discharge, the proponent [of the lis pendens] can establish a fair nexus between the apparent legal or equitable ownership of the property and the dispute embodied in the lawsuit.’ ” Discharging a notice of lis pendens without affording the proponent notice and an opportunity to be heard is a departure from the essential requirements of law.

Henry, supra (internal citations omitted).

If you are involved in a dispute where there is a fair nexus between the dispute and the real property, discuss with your counsel the pros/cons of recording a lis pendens. Yes, the other side will and should move to discharge the lis pendens which should be subject to an evidentiary hearing. However, if your lawsuit hinges on the security of the real property, this strategically will presumably be the needed avenue during the pursuit of the litigation.

QUICK NOTE: PURCHASE-AND-SALE CONTRACTS AND THREE POINTERS

Posted on June 5, 2022June 5, 2022 by Edward Garber

When you enter into a purchase-and-sale contract for real estate, keep in mind that you can modify the contract to include terms particular to the transaction. These modifications can be important if an issue arises such as if closing does not timely occur. In a new case, discussed here, three noteworthy pointers can be found below:

Including an addendum with a drop-dead closing date can be valuable to a buyer and seller because it prevents any excuse to the closing date. For example, if the seller cannot deliver marketable title by this drop-dead date, the buyer has the option to terminate the contract. However, the addendum can include any modification or provision important to you for purposes of the transaction.
The arguments of waiver and estoppel are very difficult arguments to raise when it comes to real estate contracts. This is because: (a) the contract will provide that modifications to it must be in writing and signed by the parties, and (b) the statute of frauds requires contracts relating to real estate transactions to be in writing and signed by the party to be charged. In other words, if the objective is to modify the contract, that modification needs to be in writing and signed otherwise the statute of frauds and the contract itself can bar that argument.
A lis pendens does create a cloud on title. Thus, if you purchase a property with a lis pendens, this prevents the seller from delivering marketable title to you as the buyer. A lis pendens remains a cloud on title until the appellate time period expires as it pertains to any order to discharge the lis pendens.

QUICK NOTE: DETERMINING “FAIR NEXUS” TO SUPPORT LIS PENDENS

Posted on December 12, 2021December 12, 2021 by Edward Garber

When a lis pendens is recorded and the underlying action is NOT based on a duly recorded instrument and is NOT a construction lien action, an evidentiary hearing should generally be held to determine: (a) whether there is a fair nexus to support the basis of the lis pendens, and if so, (b) the amount of the lis pendens bond. Check out this posting to determine more on the meaning of “fair nexus” to support the basis of a lis pendens in this context.

Without supporting a fair nexus between the underlying lawsuit and property subject to the lis pendens, the lis pendens will be dissolved / discharged. It is important to note, however, that even if a fair nexus is supported, the party maintaining the lis pendens will, and should, be required to post a lis pendens bond as determined by the trial court. If the lis pendens bond is not posted within a reasonable period of time set by the trial court, the lis pendens should be dissolved / discharged.

QUICK NOTE: PARTY ENTITLED TO EVIDENTIARY HEARING ON MOTION TO DISCHARGE LIS PENDENS NOT BASED ON DULY RECORDED INSTRUMENT

Posted on February 25, 2020February 25, 2020 by Edward Garber

When a lis pendens is recorded and it is NOT founded on a duly recorded instrument such as a mortgage or a lien, the Court has the power to either discharge the lis pendens or require that a lis pendens bond be posted. Typically, when the lis pendens is not recorded on a duly recorded instrument, the defendant will move to discharge the lis pendens or require the plaintiff to post a lis pendens bond to cover the defendant’s damages if the lis pendens is wrongfully recorded. In a recent case, the Court held that a party is entitled to an evidentiary hearing on this motion and the plaintiff has the burden in in proving a fair nexus between the claim on the property and the lawsuit.

QUICK NOTE: LIS PENDENS BOND WHEN LIS PENDENS NOT FOUNDED ON RECORDED INSTRUMENT OR STATUTE

Posted on April 17, 2019February 25, 2020 by Edward Garber

If a lis pendens is recorded and the lis pendens is NOT founded on a duly recorded instrument (e.g., mortgage or lien), a lis pendens bond should be recorded. The lis pendens bond should cover prospective damages associated with the wrongful / unjustified recording of a lis pendens that were suffered by the property owner. The reason being is that the lis pendens has an effect on the title to the property as long as the lis pendens is recorded. Damages could stem from a decline in the market value of the property, continued upkeep and maintenance of the property, and there may also be (and, really, should be) consideration for loss of investment return associated with the equity in that property. Finally, prospective attorney’s fees that could be incurred in discharging the lis pendens should also be included. For more information on this, please check out this article.

IMPACT OF LIS PENDENS ON UNRECORDED INTERESTS / LIENS

Posted on August 27, 2016November 8, 2024 by Edward Garber

In a previous article, I discussed the importance of recording a lis pendens in a construction lien foreclosure action.

There is another noteworthy point relating to the impact of lis pendens that can provide quite a bit of consternation.

Florida Statute 48.23(1)(d) provides:

Except for the interest of persons in possession or easements of use, the recording of such notice of lis pendens, provided that during the pendency of the proceeding it has not expired pursuant to subsection (2) or been withdrawn or discharged, constitutes a bar to the enforcement against the property described in the notice of all interests and liens, including, but not limited to, federal tax liens and levies, unrecorded at the time of recording the notice unless the holder of any such unrecorded interest or lien intervenes in such proceedings within 30 days after the recording of the notice. If the holder of any such unrecorded interest or lien does not intervene in the proceedings and if such proceedings are prosecuted to a judicial sale of the property described in the notice, the property shall be forever discharged from all such unrecorded interests and liens. If the notice of lis pendens expires or is withdrawn or discharged, the expiration, withdrawal, or discharge of the notice does not affect the validity of any unrecorded interest or lien.

The language in this statute requires persons with unrecorded interests / liens to intervene in a lawsuit subject to a lis pendens within 30 days or else they are barred from proceeding against the property (unless the property subject to the lis pendens is not foreclosed on or the lis pendens is discharged). This is a harsh outcome because such a person’s (unrecorded) interest may not accrue until it is already too late—beyond the 30 days of the recording of the lis pendens.

The best way to explain the potentially harsh application of this statute is to examine its application in a few cases.

In Adhin v. First Horizon Home Loans, 44 So.3d 1245 (Fla. 5^th DCA 2010), a lender recorded mortgages associated with a construction loan. The borrower entered into an agreement to sell parcels and any homes currently built on the parcels. The parcels were sold, however, the closing agent failed to record the deeds and mortgages associated with the closing, and failed to secure any release from the construction lender as to the parcels that had been sold. Subsequently, the construction lender foreclosed on its mortgage which included a foreclosure that applied to the parcels that had been sold. A lis pendens had been recorded. Approximately two months after the lis pendens was recorded, the purchasers of the parcels recorded their deeds and corresponding mortgages and moved to intervene in the construction lender’s foreclosure lawsuit. The construction lender opposed the motion to intervene arguing that the purchasers of the parcels failed to timely intervene pursuant to s. 48.23(1)(d) since the lender’s foreclosure action impacted their rights to the parcels they purchased. The appellate court agreed with the lender finding that the language operates as a nonclaim statute that bars enforcement against the property by a holder of an unrecorded interest (such as the purchasers of the parcels in this case) after the prescribed statutory period (30 days), provided the litigation proceeds to a final judgment and judicial sale of the foreclosed property. This meant the purchasers of the parcels could not intervene and their rights as it related to their parcels were entirely dependent on whether the construction lender’s foreclosure action proceeded to a final foreclosure judgment and judicial sale of the property (inclusive of their property). Ouch!!!

In Jallali v. Knightsbridge Village Homeowners Ass’n, Inc., 2016 WL 3548843 (Fla. 4^th DCA 2016), a homeowner’s lender filed a mortgage foreclosure action and recorded a lis pendens. While the mortgage foreclosure action was pending, the homeowner’s association recorded a lien for unpaid assessments and moved to foreclose its assessment lien. The issue was whether the lender’s notice of lis pendens barred the homeowner’s association’s subsequent foreclosure action based on its lien for unpaid assessments. The appellate court held it did not because the lien was based on a recorded Declaration of Covenants that was recorded prior to the filing of the lis pendens—thus, s. 48.23(1)(d) did not apply because the Declaration was an interest recoded prior to the lis pendens.

In Ober v. Town of Lauderdale-by-the-Sea, 2016 WL 4468134 (Fla. 4^th DCA 2016), a lender filed a foreclosure action and recorded a lis pendens. The lender obtained a final judgment in foreclosure. Subsequent to the final judgment in foreclosure, but before any foreclosure sale, the Town of Lauderdale-by-the-Sea recorded liens against the property for code violations that occurred post-final judgment. The property was sold at a foreclosure sale and the new owner filed suit to quiet title and remove the Town’s liens. The appellate court held that s. 48.23(1)(d) does not operate to bar liens that accrue and are recorded AFTER the final judgment. Hence, recording a lis pendens does not operate to bar liens that occur (accrue) and are recorded post-final judgment but before a foreclosure sale.

When it comes to construction projects, sometimes there are multiple construction lien foreclosure actions relating to the same property. All of these foreclosure actions are routinely accompanied by a lis pendens. Some of these actions could arguably be barred under s. 48.23 since they may be based on liens recorded outside of the 30-day window of the first lis pendens that was recorded. So, if the initial foreclosure action results in a judicial sale of the property, the subsequently recorded liens on the property whose holder’s failed to timely intervene may be out of luck – they would not be able to foreclose on the same property that was already sold at a judicial sale. On the other hand, under Jallali, liens relate to a notice of commencement, and similar to a Declaration of Covenants (or Condominium), could be considered a recorded interest. The notice of commencement would be recorded prior to any construction lien, meaning that any construction lien is not based on an unrecorded interest at the time a lis pendens is recorded. If this is true, than s. 48.23(1)(d) arguably would not apply to bar any liens that accrue and/or are recorded after 30 days from the initial lis pendens. To preserve this argument, it is important that liens are recorded within the effective period of a notice of commencement so that the liens can relate back to the date the notice of commencement is recorded.

LIS PENDENS – RECORDATION AND DISSOLUTION

Posted on July 24, 2016November 8, 2024 by Edward Garber

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. 5^th 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.