Third District Court of Appeal
State of Florida
Opinion filed November 16, 2016.
Not final until disposition of timely filed motion for rehearing.
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No. 3D15-1575
Lower Tribunal No. 14-201-K
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Norma Barton,
Appellant,
vs.
MetroJax Property Holdings, LLC, a Nevada limited liability
company, et al.,
Appellees.
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MetroJax Property Holdings, LLC, a Nevada limited liability
company,
Cross-Appellant,
vs.
The City of Key West, a Florida municipal corporation,
Cross-Appellee.
An Appeal from the Circuit Court for Monroe County, Donald C. Evans,
Senior Judge, and Mark Jones, Judge.
Highsmith & Van Loon, P.A., and David Van Loon and Kasey W.
Liberatore, for appellant.
McGlinchey Stafford, and Manuel Farach (Fort Lauderdale), for
appellee/cross-appellant, MetroJax Property Holdings, LLC.
Shawn D. Smith, City Attorney, and George B. Wallace, Assistant City
Attorney, for appellee/cross-appellee, The City of Key West.
Before WELLS and LOGUE, JJ., and LEVY, Senior Judge.
Partial Confession of Error
PER CURIAM.
Norma Barton (“Barton”) appeals and MetroJax Property Holdings, LLC
(“MetroJax”) cross-appeals from a final judgment of foreclosure. We affirm in
part, reverse in part, and remand for entry of a final judgment consistent with this
opinion.
On October 22, 2003, Barton executed a note and mortgage in favor of
Bayrock Mortgage Company (“Bayrock”), and the mortgage was recorded on
November 5, 2003. The note was assigned to Wells Fargo Bank, N.A. (“Wells
Fargo”) on October 28, 2003, but the assignment of the mortgage was not
recorded.
In July and September 2011, The City of Key West (“the City”) recorded
code compliance liens against Barton. Thereafter, in January 2013, an affidavit of
lost or missing assignment was recorded reflecting the assignment of the mortgage
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from Bayrock to Wells Fargo. Eventually, in March 2013, the note and mortgage
were assigned to MetroJax.
In March 2014, MetroJax filed a mortgage foreclosure action against Barton
and the City, alleging that MetroJax was the current owner and holder of the
promissory note and mortgage originally executed by Barton in favor of Bayrock.
In addition, MetroJax alleged that the City may claim an interest in the real
property based on the City’s recorded liens, but the mortgage has priority over the
City’s liens. In response, the City filed its answer and affirmative defenses,
asserting that because an assignment of the mortgage from Bayrock to Wells Fargo
was not recorded prior to the City’s recording of its liens, based on the application
of section 701.02(1) of the Florida Statutes,1 the City’s liens were superior to the
mortgage, even though the mortgage was recorded first.
Following a bench trial, the trial court entered a final judgment foreclosing
MetroJax’s mortgage. The trial court, however, ruled that “because Wells Fargo
failed to comply with the clear language of F.S. 701.02(1),” the City’s code
1 Section 701.02(1), Florida Statutes (2011), provides:
Assignment not effectual against creditors unless recorded and
indicated in title of document; applicability.—
(1) An assignment of a mortgage upon real property or of any
interest therein, is not good or effectual in law or equity, against
creditors or subsequent purchasers, for a valuable consideration, and
without notice, unless the assignment is contained in a document that,
in its title, indicates an assignment of mortgage and is recorded
according to law.
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compliance liens are superior to MetroJax’s lien on the property. Barton’s appeal
and MetroJax’s cross-appeal followed.
Without any further discussion, we affirm the portion of the final judgment
foreclosing MetroJax’s mortgage. However, based upon MetroJax’s proper partial
confession of error, we reverse the portion of the final judgment awarding
attorney’s fees and costs to MetroJax and remand for the entry of an amended final
judgment reflecting the correct amount due from Barton to MetroJax.
In its cross-appeal, MetroJax contends that the trial court erred by holding
that the City’s later-recorded code compliance liens have priority over MetroJax’s
earlier-recorded mortgage based on the application of section 701.02(1). We
agree.
In determining the priority of interests in real property, Florida is a “notice”
state. See § 695.01(1), Fla. Stat. (2013) (“No conveyance, transfer, or mortgage of
real property, or of any interest therein, . . . shall be good and effectual in law or
equity against creditors or subsequent purchasers for a valuable consideration and
without notice, unless the same be recorded according to law . . . .”); Argent
Mortg. Co., LLC v. Wachovia Bank, N.A., 52 So. 3d 796, 800 (Fla. 5th DCA
2010) (rejecting argument that Florida was converted from a “notice” state to a
“race-notice” state based on the addition of the following language in 1967 to
section 695.11, titled “Instruments deemed to be recorded from time of filing”:
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“The sequence of such official numbers shall determine the priority of recordation.
An instrument bearing the lower number in the then-current series of numbers
shall have priority over any instrument bearing a higher number in the same
series.”) (emphasis added); see also City of Palm Bay v. Wells Fargo Bank, N.A.,
114 So. 3d 924, 927 n.1 (2013) (providing that “[a] thoughtful discussion of the
operation of Florida law in determining priority of interests in real property is
contained in Argent Mortgage”). However, the Florida Legislature has enacted
statutes giving priority to “certain liens over the priority established under chapter
695.” City of Palm Bay, 114 So. 3d at 928 (noting that section 197.122(1) of the
Florida Statutes provides that “[a]ll taxes imposed pursuant to the State
Constitution and laws of this state shall be a first lien, superior to all other liens”).
In the instant case, prior to recording its code compliance liens in 2011, the
City had constructive notice of the earlier-recorded mortgage executed by Barton
in favor of Bayrock in 2003. See Regions Bank v. Deluca, 97 So. 3d 879, 883 (Fla.
2d DCA 2012) (“Constructive notice is a legal inference, and it is imputed to
creditors and subsequent purchasers by virtue of any document filed in the
grantor/grantee index—the official records.”) (quoting Dunn v. Stack, 418 So. 2d
345, 349 (Fla. 1st DCA 1982), quashed on other grounds, 444 So. 2d 935
(Fla.1984)). Therefore, based on section 695.01(1), the earlier-recorded Bayrock
mortgage, which is now owned by MetroJax, is superior to the City’s later-
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recorded code compliance liens. However, the City argued below, and the trial
court found, that the earlier-recorded mortgage lost its priority based on the
application of section 701.02(1) solely because an assignment of the mortgage
from Bayrock to Wells Fargo was not recorded prior to the City’s recording of its
liens. The City’s and the trial court’s reliance on section 701.02(1) is misplaced.
In JP Morgan Chase v. New Millennial, LC, 6 So. 3d 681 (Fla. 2d DCA
2009), our sister court addressed the application of section 701.02(1) as it relates to
the failure to record an assignment of a mortgage. In JP Morgan, Mr. Jahren
obtained two mortgages from AmSouth when he purchased real property in 2000.
In 2004, AmSouth assigned these mortgages to JP Morgan, but the assignments
were not recorded.
In 2006, Mr. Jahren sold his real property to New Millennial, who executed
a note and mortgage in favor of BB & T. Based on the closing agent’s error, the
AmSouth mortgages, which at the time were assigned to JP Morgan, were never
satisfied. Shortly thereafter, the two mortgages went into default, and JP Morgan,
as AmSouth’s assignee, filed a foreclosure action against several defendants,
including New Millennial and BB & T. New Millennial and BB & T defended the
foreclosure action “by arguing that the mortgages were ineffective and
unenforceable against them because JP Morgan had not recorded the assignments
received from AmSouth, as required by section 701.02, Florida Statutes (2004).”
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Id. at 683. Both sides filed motions for summary judgment.
The trial court granted New Millennial and BB & T’s motion for summary
judgment, finding that New Millennial was protected by section 701.02 because it
is a subsequent purchaser for valuable consideration who was without notice of the
assignments. The trial court also determined that BB & T was protected by section
701.02 because it is a subsequent creditor for valuable consideration who was
without notice of the assignments.
On appeal, the Second District Court of Appeal reversed the summary
judgment granted in favor of New Millennial and BB & T, concluding that the trial
court misapplied section 701.02(1). In doing so, the Second District held that
section 701.02(1)
only applies to estop an earlier purchaser/assignee of a mortgagee—
the person or entity that loaned the money involved in the mortgage
and obtained a security interest on the piece of property—from
claiming priority in the same mortgage chain as against a subsequent
assignee of the same mortgage when the earlier mortgagee fails to
record the earlier assignment of the mortgage. In other words, if the
original mortgagee assigns the mortgage to Entity A and Entity A fails
to record that assignment, Entity A cannot claim priority over a latter
assignee of the same mortgage (Entity B).
In reaching this conclusion, the Second District relied on Kapila v. Atlantic
Mortgage & Investments Corp. (In re Halabi), 184 F.3d 1335 (11th Cir. 1999),
which held that section “701.02’s recording requirement is applicable only to (and
enforceable by) competing creditors or subsequent bona fide purchasers of the
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mortgagee, not by the mortgagor.” Id. at 1338 (emphasis added in JP Morgan).
The Second District also noted that in In re Halabi, 184 F.3d at 1338, the Eleventh
Circuit stated:
The recording requirement is not intended to protect one claiming
under a mortgagor-against whose property there is already a perfected
mortgage-with respect to subsequent assignments of the mortgage.
The mortgagor has actual notice of the original mortgage, and anyone
claiming under the mortgagor has constructive notice if the mortgage
is recorded. From the point of view of the mortgagor or someone
standing in his shoes, a subsequent assignment of the mortgagee’s
interest-whether recorded or not-does not change the nature of the
interest of the mortgagor or someone claiming under him. Nor should
a failure to record any subsequent assignment afford the mortgagor or
[anyone] standing in his shoes an opportunity to avoid the mortgage.
(emphasis added and alteration supplied in JP Morgan).
As stated earlier, it is undisputed that the City had, at the very least,
constructive notice of the earlier-recorded Bayrock mortgage when it recorded its
code compliance liens against Barton. As set forth in JP Morgan, the purpose of
section 701.02(1)’s recording requirement is to protect assignees of mortgages, not
creditors of borrowers or others who place liens on the real property after the
mortgage has been recorded. The failure to record an assignment of the mortgage
from Bayrock to Wells Fargo prior to the City’s recording of the code compliance
liens does not give the City’s liens priority over the earlier-recorded mortgage. See
Bradenburg v. Residential Credit Sols., Inc., 137 So. 3d 604, 605 (Fla. 4th DCA
2014) (“[T]he failure to record an assignment [of the mortgage] does not render it
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invalid but simply affects the rights/priority of the assignee mortgagees against
other assignees.”) (citing § 701.02, Fla. Stat. (2013); JP Morgan, 6 So. 3d at 684-
86). As stated in JP Morgan, “[a]ny other interpretation of section 701.02 would
turn well-established secured transaction principles on their heads[.]” Id. at 685.
Therefore, we reverse and remand for entry of an amended final judgment of
foreclosure that reflects that MetroJax’s earlier-recorded mortgage has priority
over the City’s later-recorded code compliance liens.
Affirmed in part, reversed in part, and remanded for entry of an amended
final judgment of foreclosure consistent with this opinion.
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