|June 26, 2013|
Previously published on June 19, 2013
The Florida Supreme Court held that municipalities lack the authority to enact local ordinances which establish superpriority status for their code enforcement liens.
In the last decade, numerous Florida municipalities enacted local ordinances which held their code enforcement liens had the same priority as ad valorem taxes, a status referred to as “superpriority.” Under such ordinances, a municipality could record liens against real property for accrued code enforcement fines and demand a first mortgagee satisfy this lien to protect its senior lien position. For the same reason, a first mortgagee may be unable to foreclose the code enforcement fine even if the municipality was named in the foreclosure action.
The City of Palm Bay was one such municipality which passed a local ordinance establishing superpriority status for its municipal code enforcement liens. The City of Palm Bay argued the authority to pass such an ordinance was within in its broad “home rule powers,” authority delegated to municipalities under the Florida Constitution. The Florida Supreme Court affirmed the Fifth District Court of Appeal’s holding that the City of Palm Bay exceeded its authority when it enacted its local superpriority lien ordinance. The Florida Supreme Court held that the ordinance enacted by the City of Palm Bay “would allow the municipality to destroy rights that the Legislature established by state law.” The Supreme Court noted that state law created a general scheme for priority of rights with respect to claims to real property, and that the ordinance by City of Palm Bay conflicted with this scheme. This Florida Supreme Court decision offers clarity to lenders, lienholders, and title insurers.
This Florida Supreme Court decision allows first mortgagees to name municipalities in foreclosure actions to foreclose junior code enforcement fines. However, any code enforcement fine or lien which accrues after the date a first mortgagee or subsequent purchaser takes title is the responsibility of such title holder. Accordingly, a foreclosing lender should take appropriate actions to cure the underlying code enforcement violation prior to the date of taking title. Curing the underlying code enforcement violation occurring at the property can be achieved through cooperation with the mortgagor, or the local code enforcement board, or through a receiver during the pendency of the foreclosure action.
It must be noted that this Florida Supreme Court decision relates only to the priority of code enforcement fines and liens, and does not affect the priority of other liens which could be imposed by municipalities and be superior to first mortgages. Following this decision by the Florida Supreme Court, a national title insurer published a Bulletin which reiterated that the following liens remain exceptions to the priority of a first mortgagee, pursuant to the cited section of the Florida Statutes:
- Liens for taxes under § 197.122(1);
- Special assessment liens under § 170.09;
- Liens for gas, water and sewer under § 159.17;
- Liens for special assessments for water system improvements and sanitary sewers under § 153.05(10);
- Bonds issued by a drainage district under § 157.12; and
- Liens for non-ad valorem assessments for independent fire districts under § 191.01(7).
The City of Palm Bay decision by the Florida Supreme Court provides helpful clarity for lenders relating to the priority of code enforcement liens. However, this decision does not affect the numerous other types of statutory liens that may have priority over a lender’s mortgage.