Homeowner and Condominium Association Actions to Quiet Title and Unenforceable Mortgages

If there is any uncertainty to the legal ownership of real property because of invalid or differing claims, the title to the property in question is generally regarded as “clouded.” Claims, records, instruments, or encumbrances that remain on the real property like mortgages, liens, or deeds, which are defective or unenforceable create clouds on the title of the subject property and thus prohibit to see clear ownership. Filing a quiet title action, is a legal proceeding that is appropriate remedy in seeking the removal of cloud on the title of the subject property and categorically establish the proper owner of the property.

In Florida, an action for quiet title is governed by Florida Statutes Chapter 65 and can be brought by a person or corporation alleging ownership in the subject property. Any person or corporate entity asserting an interest or claim against the subject property become joined parties and all rights and interests of the joined parties are decided regarding the property. In situations where a homeowner or condominium association take title to property by way of lien foreclosure in accordance to Chapters 718 or 720 Florida Statutes, an action for quiet title may be required to ascertain whether the association’s title of the subject property is clear from encumbrances. Usually, when there is a mortgage on the property on which the association takes title, the mortgage holder has better rights in enforcing that mortgage and foreclosing the property, thereby acquiring title from the association.

Conversely, under Florida Statute §95.11, the time during which an action for enforcement of a mortgage is restricted to five years from the date of default which is the statute of limitations. Where a mortgage default has been continuous more than five years, the mortgage turns out to be unenforceable. In this situation, the mortgage holder cannot foreclose against the subject property and the association retains ownership in the property without the encumbered of the mortgage. Nonetheless the presence of the mortgage in the public records would represent a cloud on title for the association’s property. An action for quiet title showing that the mortgage cannot be enforced would get rid of the aforementioned cloud and any claim by the mortgage holder against the property would be quieted.

An action for quiet title in the aforesaid example would only succeed if the mortgage is unenforceable. Establishing when the statutory period has run can be problematic because usually the association is unaware of when the initial default occurred on the mortgage. Additionally, provided that there has been a reinstatement of the mortgage after the original default, the five-year statute of limitations period would restart and start at the date of a subsequent default. Generally, the association would not know this information as it normally not available.

Commonly, when a filing for an action of mortgage foreclosure has occurred, there is clear evidence that the default date came before the foreclosure action. When such an action remains unresolved for a number of years, there is a higher probability that greater than five years have passed since the default date. In a scenario where the court has dismissed the foreclosure action and there is no sign that the homeowner has had the mortgage reinstated, the mortgage might not be enforceable.

In the situation where the association is the titleholder of certain property, an action for quiet title could eliminate any uncertainty as to the association’s legally free and clear ownership in the property. If such an action is successful, the association could to sell the property at market value, where conversely it would be impossible if a mortgage still encumbered the property. Therefore, amounts owed beyond the association’s past due assessments pertaining to the property are held by the association

For example, a mortgage holder files a foreclosure action on a homeowner that has defaulted on his mortgage. Nonetheless, for some unknown reason the foreclosure action has stalled for the most part in the court. In the interim, the homeowner accrues $5,000 in past due assessments which is owed to the association. A lien is filed by the association against the property and the eventual foreclosure of the property results in title passing to the association. After almost no activity on the foreclosure, the court dismisses the suit. The association then quickly files an action for quiet title and the mortgage if found by the court to be unenforceable. The association sells the property to a purchaser for $50,000. The complete legal cost of the action for quiet title was $5,000 for the association. The result is that the association ends up with a net gain of $40,000.

The prospective value for the association to pursue an action for quiet title in similarly situated situations generally outweighs the costs of the action. If by chance the statute of limitations has not run and the mortgage can still be enforced, the filling by the association for quiet title will put the mortgage holder on notice as to the imminent deadline. However, this will serve a benefit for the association due to the fact that the mortgage holder will likely be compelled to take action so as to prevent the loss of the right in enforcement of the mortgage