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.