Assocation Actions to Quiet Title & Unenforceable Mortgages

Where doubt exists as to the legal ownership of a piece of real property due to conflicting or invalid claims, title to the property is “clouded.” Outstanding instruments, records, claims, or encumbrances such as mortgages, deeds, or liens that are invalid or inoperative may constitute clouds on the title to the subject property and impair clear ownership. An action seeking to “quiet title” is a lawsuit seeking to remove any cloud on the title of the property and conclusively determine the true and proper owner.

A quiet title action can be filed pursuant to Chapter 65 Florida Statutes by any person or corporation claiming title to the subject property. All persons or corporations claiming any interest in or claim against the property are joined as parties and all rights and interests of those parties with regard to the property are determined.

Where an association has taken title to a property through lien foreclosure pursuant to Chapters
718 or 720 Florida Statutes, quieting title may be necessary to establish the association’s
ownership of the property clear of other encumbrances. Typically, if a mortgage exists on the property when the association takes title, the holder of the mortgage has a superior right to enforce that mortgage and foreclose on the property, taking title from the association.

However, pursuant to §95.11 Florida Statutes, the period in which an action to enforce a mortgage can be brought is limited to five years from the date of default thereon (the “statute of limitations.”) If a mortgage has been in default continuously for a period of more than five years, the mortgage becomes unenforceable. This means the mortgage holder would not be able to foreclose against the property and the association would own the property unencumbered by the mortgage. However, the existence of the mortgage in the public records would constitute a cloud on the association’s title to the subject property. A quiet title action establishing that the mortgage is unenforceable can remove such a cloud and “quiet” the mortgage holder’s claim against the property.

Such an action would only be successful if the mortgage is, in fact, unenforceable. It is difficult to determine when the statutory period has run because the association typically does not know when the initial default on the mortgage occurred. In addition, if the mortgage has been reinstated subsequent to the initial default, the five-year limitations period would be reset and begin running from the date of the next default. This information is typically not available to the association.

Generally, if a mortgage foreclosure action has been filed, it is clear that the date of default preceded the date of filing of the action. If such an action languishes for several years without being resolved or dismissed, it is possible that more than five years have elapsed since the date of

default. If such an action is dismissed by the court and there is no indication that the homeowner reinstated the mortgage, the mortgage may be unenforceable.

If the association is the titleholder to a property in such a situation, a quiet title action may remove any legal doubt as to the association’s clear ownership of the property. If successful, this would allow the association to sell the property for its market value, which would not be possible if the property was encumbered by a mortgage. This means that any amount beyond what the association is owed for past due assessments in relation to the property is kept by the association.

Consider the following example. A homeowner defaults on his mortgage and the mortgage holder files a foreclosure action. However, that case, for any number of reasons, remains idle for several years. Meanwhile, the association is owed $10,000 in past due assessments (including fees and costs) from the homeowner. The association files a lien against the property and • ultimately forecloses, taking title to the property. After languishing for several years, the bank foreclosure action is dismissed by the court. The association files a quiet title action and it is determined that the mortgage, the date of default now being more than five years in the past, is now unenforceable. The association, having clear title, sells the property to a purchaser for
$60,000. The total cost of the quiet title action to the association was $5,000. This process results in a net gain to the association of $45,000.

The potential benefit to the association in pursuing a quiet title action in such a situation outweighs the costs involved. If, however, enforcement of the mortgage is not barred by the statute of limitations, the quiet title action filed by the association will alert the mortgage holder to the impending deadline. This may still be beneficial to the association in that the mortgage holder may be forced into taking action to avoid losing the right to enforce the mortgage, preventing further delay and uncertainty.

By Jaremy J. Shelton, Esq.