Relation Back to Notice of Commencement: Liens

by | Mar 31, 2010 | Bonds, Getting Paid, Liens

Under Fla. Stat. §713.07(2), liens under §713.05 (persons in privity) and §713.06 (persons not in privity) attach and take priority as of the time that the notice of commencement is recorded.  But what happens if a mortgage is recorded after a Notice of Commencement has expired, and the mortgage is then followed by a Claim of Lien?  Does the Claim of Lien relate back to the Notice of Commencement, even though it was recorded after the Notice of Commencement expired (i.e. over one year after the Notice of Commencement was recorded), or does the mortgage take priority over the Claim of Lien?  Does it matter whether the mortgage was recorded during the one year period in which the Notice of Commencement was effective?

Unfortunately, the state of Florida law on the issue of whether a Claim of Lien relates back to a Notice of Commencement when the Notice of Commencement has expired is rather convoluted.

Under Fla. Stat. §713.07(3), such liens have priority over any conveyance, demand or encumbrance not recorded against the real property prior to the time that the lien attached, which in our example would be when the notice of commencement was recorded.  Conversely, §713.07(3) further provides that any conveyance, demand, or encumbrance recorded prior to the time that the lien attaches has priority over such liens.

Fla. Stat. §713.13 governs notices of commencement.  In particular, following its amendment in 1980, §713.13(5) states that:

Unless otherwise provided in the notice of commencement or a new or amended notice of commencement, a notice of commencement is not effectual in law or equity against a conveyance, transfer, or mortgage of or lien on the real property described in the notice, or against creditors or subsequent purchasers for a valuable consideration, after 1 year after the date of recording the notice of commencement.

Can a notice of commencement adversely affect a mortgage?

It is unclear whether a mortgagee may be adversely affected when the mortgage is recorded during the one year period in which a notice of commencement is effective, even though the notice of commencement has since expired at the time a party seeks to enforce its rights under the mortgage.

Because there are no meaningful post-1980 cases discussing the amendment to §713.13(5), the law on this issue remains a tangle of contradictory conclusions.  On one hand, it seems that a mortgage should now have priority over a claim of lien.  On the other hand, there is pre-1980 legal authority which indicates that, even if the legislature amended the statute (as it ultimately did), mortgages would continue to remain vulnerable to losing priority if they were recorded during the one year period in which the notice of commencement was initially effective.

It does seem that a mortgage recorded after a notice of commencement has expired would be entitled to priority.  It remains intuitive however, that a mortgage holder should rush to record its mortgage as quickly as possible in order to preserve its priority against other claims on the subject property.  That logic should not be altered by these developments.

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