Friday, May 6, 2011
Deficiency Judgments Increasing in Number
According to this piece written by Kris Hundley in the St. Pete Times, lenders are becoming more and more likely to seek a deficiency judgment after a foreclosure. There has been some thought that lenders have been uninterested in pursuing deficiency judgments. "Two years ago, a waiver of the deficiency was normal course, but it's been eroding ever since," said Richard Zaretsky, a lawyer in West Palm Beach. "Banks came to the conclusion they were throwing away the opportunity to collect funds." Banks are more sophisticated than that, and knew from the inception of the foreclosure boom that they had plenty of time to commence efforts to obtain deficiencies. I am actually surprised that the number of deficiencies cited (270 in Lee County in 2010, a five-fold increase from 2008) is not much higher, as drastically falling real estate prices have led to many residences worth less than the debt against them, with second mortgages likely to be undersecured. Many second mortgagees find themselves without any value in the collateral at all. Wherever collateral is worth less than the balances of loans, judgments on deficiencies will remain the norm.
Tuesday, February 8, 2011
Liability of Qualifying Agent
As all certified and registered Florida contractors know, every company which engages in the business of contracting (be it general contracting or specialty contracting) must have a designated "qualifying agent," the person who personally holds a contractor's license and who bears the responsibility to supervise, direct, manage, and control the contracting activities of the business organization with which he or she is connected and who has the responsibility to supervise, direct, manage, and control construction activities on a job for which he or she has obtained the building permit. A qualifying agent who does not fulfill these responsibilities is subject to sanctions imposed by the Division of Professional and Business Regulation (DBPR), including fines, suspensions, and license revocations. The responsibilities and sanctions are set forth in Chapter 489, Florida Statutes, and the accompanying regulations.
Recently, a private property owner attempted to use the sanctions in chapter 489 as a basis for a private cause of action (lawsuit) against a qualifying agent. The court held (reaffirming existing law) that the qualifying agent's breach of the duties imposed by chapter 489, providing administrative remedies against a qualifying agent, does not give rise to a private cause of action against the qualifying agent for a building code violation. Scherer v. Villas Del Verde Homeowners Ass'n, Inc., --- So.3d ----, 2011 WL 148801 (Fla.App. 2 Dist.,2011). In other words, only the state agency can use Chapter 489 against a qualifying agent, and a person cannot bring a lawsuit in court based only on an individual's status as a qualifying agent.
Most contractors are honest businesspeople who strive to fulfill responsibilities which come along with their trade and status as qualifying agent. However, when exceptions to this rule arise, despite the court's recent ruling, the threatened or actual consequences of a complaint to the DBPR which may result in a DBPR action for sanctions can often inspire a qualifying agent to act to remedy a situation for which he is ultimately responsible. Therefore, even though the remedies of Chapter 489 belong only to the DBPR, they still can often indirectly address private grievances because anyone can file a complaint asking the DBPR to exercise its powers under Chapter 489.
Recently, a private property owner attempted to use the sanctions in chapter 489 as a basis for a private cause of action (lawsuit) against a qualifying agent. The court held (reaffirming existing law) that the qualifying agent's breach of the duties imposed by chapter 489, providing administrative remedies against a qualifying agent, does not give rise to a private cause of action against the qualifying agent for a building code violation. Scherer v. Villas Del Verde Homeowners Ass'n, Inc., --- So.3d ----, 2011 WL 148801 (Fla.App. 2 Dist.,2011). In other words, only the state agency can use Chapter 489 against a qualifying agent, and a person cannot bring a lawsuit in court based only on an individual's status as a qualifying agent.
Most contractors are honest businesspeople who strive to fulfill responsibilities which come along with their trade and status as qualifying agent. However, when exceptions to this rule arise, despite the court's recent ruling, the threatened or actual consequences of a complaint to the DBPR which may result in a DBPR action for sanctions can often inspire a qualifying agent to act to remedy a situation for which he is ultimately responsible. Therefore, even though the remedies of Chapter 489 belong only to the DBPR, they still can often indirectly address private grievances because anyone can file a complaint asking the DBPR to exercise its powers under Chapter 489.
Code Enforcement Liens - Judicial Restriction on Priority
Municipalities often issue notices of violation to property owners who do not keep their property in compliance with codes and ordinances. If the property owners do not come into compliance within the allowed time, or if they are repeat offenders, fines can be imposed. Chapter 162 of the Florida Statutes provides that a municipality may levy certain fines for noncompliance, and that the fines, until paid, create a lien on the owner's property.
The general rule is that liens, mortgages, and the like, have priority over each other based on when they were recorded. Some cities have passed ordinances providing that their lien rights are superior to the rights of mortgage lenders and other persons with liens on property (even if they were recorded first), meaning that a mortgage lender could be forced to pay off the lien to avoid losing their rights. For example, the city can foreclose its lien rights and, unless someone pays the fines, become the owner of the property free and clear of mortgages.
There has been a case winding through appellate court where a mortgage lender challenged a City’s right to declare its code enforcement liens to be superior to other liens by its ordinances. The 5th DCA has ruled against the City of Palm Bay in that case. City of Palm Bay v. Wells Fargo Bank, N.A., --- So.3d ----, 2011 WL 180363 (Fla.App. 5 Dist.). This decision came out on January 21, 2011.
The gist of the ruling is that a city ordinance purporting to give code enforcement liens “superpriority” goes beyond home rule powers of Art. VIII of the Florida Constitution because such an act directly conflicts with the legislative rule at 695.11, F.S., setting forth that priority is determined by the timing of recording – “first in time, first in right.”
Unless the legislature acts to create an exception to the “first in time, first in right” rule for code enforcement liens, or the supreme court overrules the Fifth District (an unlikely outcome, although my understanding is that the City of Palm Bay is seeking review and has solicited support from other municipalites in this regard), then code liens will be subordinate to mortgages recorded earlier, and city foreclosures of code liens will be much less desirable in many occasions.
The general rule is that liens, mortgages, and the like, have priority over each other based on when they were recorded. Some cities have passed ordinances providing that their lien rights are superior to the rights of mortgage lenders and other persons with liens on property (even if they were recorded first), meaning that a mortgage lender could be forced to pay off the lien to avoid losing their rights. For example, the city can foreclose its lien rights and, unless someone pays the fines, become the owner of the property free and clear of mortgages.
There has been a case winding through appellate court where a mortgage lender challenged a City’s right to declare its code enforcement liens to be superior to other liens by its ordinances. The 5th DCA has ruled against the City of Palm Bay in that case. City of Palm Bay v. Wells Fargo Bank, N.A., --- So.3d ----, 2011 WL 180363 (Fla.App. 5 Dist.). This decision came out on January 21, 2011.
The gist of the ruling is that a city ordinance purporting to give code enforcement liens “superpriority” goes beyond home rule powers of Art. VIII of the Florida Constitution because such an act directly conflicts with the legislative rule at 695.11, F.S., setting forth that priority is determined by the timing of recording – “first in time, first in right.”
Unless the legislature acts to create an exception to the “first in time, first in right” rule for code enforcement liens, or the supreme court overrules the Fifth District (an unlikely outcome, although my understanding is that the City of Palm Bay is seeking review and has solicited support from other municipalites in this regard), then code liens will be subordinate to mortgages recorded earlier, and city foreclosures of code liens will be much less desirable in many occasions.
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