Recently, the Florida Supreme Court affirmed the Fifth District Court of Appeal’s opinion in City of Palm Bay v. Wells Fargo Bank, N.A., Case No. SC11-830, 2013 WL 2096257 (Fla. May 16, 2013), aff’g, 67 So. 3d 271 (Fla. 5th DCA 2011), by finding that a municipal ordinance provision conferring superpriority status to its code enforcement liens is invalid because it conflicts with state law. Therefore, code enforcement liens do not have priority over an earlier recorded mortgage.
In the past, both trial and appellate courts1 have ruled against local ordinances granting priority to code liens over a prior recorded mortgage. Despite the provisions of F.S. Ch. 162, some local governments continued to claim authority to grant superpriority status to code enforcement liens. Given the foreclosure crisis Florida faces today, local governments increasingly argued that their code enforcement liens were superior to the lien of a prior recorded mortgage. For mortgage lenders, in general, the enactment of such ordinances created new risks in our already fragile mortgage market. Now, with the recent ruling of the Florida Supreme Court, the uncertainty surrounding the appeal of the City of Palm Bay case has come to an end. The court found that “the conflict between the Palm Bay ordinance and state law is a sufficient ground for concluding that the ordinance superpriority provision is invalid.”2The Supreme Court’s decision was based on a conflict preemption analysis.
This article contributes to the discussion and analysis on the city of Palm Bay’s ordinance, which granted superpriority status to its code enforcement liens, and how it contravened both state law and the Florida Constitution.
What Are Code Enforcement Liens?
Code enforcement liens are statutory liens created by F.S. Ch. 162. This chapter, also known as the Local Government Code Enforcement Boards Act,3 p rovides for a quasi-judicial proceeding for code violations. Specifically, pursuant to Ch. 162, the code enforcement board or a special magistrate must hold a formal hearing on the alleged code violation, which includes presentation of testimony, evidence, and arguments prior to any action imposing fines or affecting individual rights. Code enforcement proceedings must follow fundamental due process requirements,4 i.e.,the respondent must receive notice and an opportunity to be heard before the imposition of any fines. Upon finding a code violation, the code enforcement board or the special magistrate is to provide the respondent with a reasonable amount of time to correct the violation. If the violation is not corrected within a stated time period, the code enforcement board or special magistrate may enter an order of violation against the respondent and may impose daily fines of up to $500 per violation5 u ntil the violation is corrected. Upon the proper recording of the order of violation, these fines become a lien against the real property on which the violation occurred, as well as on any other real or personal property owned by the violator/respondent.6
Code enforcement fines are intended to provide local governments with leverage to ensure compliance with the applicable code of ordinances. The practical effect of the statute is to induce a property owner to maintain all real property he or she may own in compliance with the code.
Regulatory Framework of Code Enforcement Liens
The enactment of F.S. Ch. 162 responded to the need to implement an administrative enforcement proceeding allowing the imposition of administrative fines by local governments to satisfy the requirements of the Florida Constitution, which states: “No administrative agency…shall impose a sentence of imprisonment, nor shall it impose any other penalty except as provided by law.”7 “Commissions established by law, or administrative officers or bodies may be granted quasi-judicial power in matters connected with the functions of their offices….”8
Clearly, the Florida Constitution prohibits local governments and administrative agencies from imposing fines or penalties except as provided by law. The creation of the code enforcement proceedings in Ch. 162 accomplishes the delegation of the legislature’s power and offers local governments the option of creating or abolishing by ordinance such code enforcement boards.9 The prescribed quasi-judicial procedure, in essence, requires notice and an opportunity to be heard before imposition of any fines that may become liens on real property upon proper recording in the public records.
The Second District Court of Appeal invalidated a fine in City of Tampa v. Braxton, 616 So. 2d 554 (Fla. 2d DCA 1993), holding that once the city chooses to use a code enforcement board as contemplated in Ch. 162, it is prohibited from enforcing code ordinances by any method other than those prescribed in the statute.10 T hus, the constitutional mandate on the assessment of penalties prohibits local action contrary to the method prescribed by the state statute. Fla. Const. art. I, §18 clearly precludes the assessment of fines that are not statutorily authorized.11
In City of Palm Bay, the Florida Supreme Court reviewed the constitutional and statutory provisions relevant to the city’s exercise of power and found that Fla. Const. art. VIII, §2(b) contains a general provision relating to the exercise of municipal powers: “Municipalities shall have governmental, corporate and proprietary powers to enable them to conduct municipal government, perform municipal functions and render municipal services, and may exercise any power for municipal purposes except as otherwise provided by law” (emphasis added). The court reasoned that the critical phrase of the constitutional mandate establishes the superiority of the legislature’s power over municipal power. Consequently, when a municipal ordinance cannot be reconciled with state law, then the ordinance “cannot be sustained.”12
The enforcement procedure established by Ch. 162 and the resulting code enforcement liens are consistent with current state laws and principles of law governing priority of liens. F.S. §162.09(3) establishes the creation of a code enforcement lien by recording in the public records a certified copy of an order of violation imposing a fine. Only then it “shall constitute a lien against the land on which the violation exists and upon any other real or personal property owned by the violator ” (emphasis added).
As the court pointed out in its recent decision, Ch. 162 “contains no provision expressly authorizing municipalities to establish superpriority for such liens.”13 The statute does not provide a “superpriority” status for code liens. Since code liens are not the type of municipal liens that enhance the value of a real property, they do not have priority over private rights, including prior recorded mortgages.14 To the contrary, code liens are administrative fines that become liens only upon the recording of a certified copy of the order finding the respondent in violation of the code of ordinances.15
Ch. 162 further provides that once the certified copy of the code lien is recorded in the public records, the lien will attach to any other real property owned by the violator. These are commonly referred to as “bleeding” liens. The statute is silent, however, on the scope of the cross-attaching effect of a code lien. Does the code lien attach to other real property owned by the violator within the city, the county, or anywhere in the state? This question is a concern, especially for foreclosing lenders that acquire title to hundreds of real properties that may have more than one bleeding lien as a result of common ownership. For practical reasons and as a business decision, many title underwriters do not require a release or partial release of bleeding liens when the seller is an institutional lender and title is transferred by either a general or special warranty deed. Notwithstanding this current practice, the legislature should set clear boundaries or requirements on the cross-attaching effect of the so-called bleeding liens.
City of Palm Bay Ordinance No. 97-07
The gist of the city of Palm Bay’s appeal was that, being a municipality, it was entitled to pass ordinances creating superpriority code liens and, therefore, its Ordinance 97-07 did not contravene Florida law. Ordinance 97-07 (§52.086 of the City of Palm Bay Code of Ordinances) in pertinent part provides:
Liens created pursuant to a [b]oard order and recorded in the public record shall remain liens coequal with the liens of all state, county, district and municipal taxes, superior in dignity to all other liens, titles and claims, until paid, and shall bear compound interest annually at a rate not to exceed the legal rate allowed for such liens and may be foreclosed pursuant to the procedure set forth in Fla. Stat. Ch. 162 (emphasis added).
Ordinance 97-07, by elevating the code liens to the rank of state, county, district, and municipal taxes, superior to all other liens, goes beyond the express mandate of Ch. 162 and the municipality’s home rule powers.16 It is a principle of law that while county and municipal governments do have authority to enact local laws, such laws may not conflict with general state law.17 The intention of Ch. 162 is to establish a uniform system for the enforcement of local codes of the counties and municipalities. It also provides certainty that code enforcement fines become a lien on real property upon the recording of a certified copy of the order of violation entered by a code enforcement board or special magistrate.
In City of Palm Bay, the Florida Supreme Court also reviewed the statutory provisions creating the general scheme for priority of rights with respect to interest in real property18 and reasoned that allowing municipalities to enact ordinances with superpriority provisions would obliterate the policy judgment reflected in the legislature’s enactment of the statutory provisions.
In City of Palm Bay, the Fifth District Court of Appeal found that local ordinances such as Ordinance 97-07 are in direct conflict with F.S. §695.11, which reflects the long-established rule that priority of liens is determined by time of recordation.19 On appeal, the Supreme Court emphasized that the legal significance of the priority of recordation comes into play in the context of the rule established in F.S. §695.01(1).20This is the general rule and, although from time to time the Florida Legislature has created express exceptions to the priority of recorded interests,21 There is no statutory exception for a code enforcement lien. On the contrary, Ch. 162 expressly provides that a code enforcement lien is created only when a certified copy of the order of violation is recorded in the public records. Furthermore, the Second District Court of Appeal found that a county’s attempt to assert the superpriority status of a code lien over a prior recorded mortgage was a substantial impairment of the first mortgagee’s contractual rights.22 The court reasoned that if, by applying the county’s ordinance, the mortgage lien was relegated to a second lien position of less value, it was not the first-priority lien position for which the lender had contracted. Thus, the ordinance retrospectively impaired the lender’s bargained-for contractual position.23
Foreclosures have a devastating effect on local communities. During the foreclosure process, many properties are vacant, which can lure vandals and squatters, increasing not only the potential for criminal activity, but also the potential for neighborhood blight. In addition to the loss of tax revenue, local governments face increased expenditures to combat a rise in criminal activity because of abandoned properties. At the same time, lenders face an avalanche of defaulted mortgage loans and anticipate significant losses because of distressed real properties. The majority of these distressed properties become real estate owned (REO) by lenders after they took title to the property because of an unsuccessful sale to a third party at the foreclosure auction.
Local governments have responded to the proliferation of REO properties that remain vacant and unattended by implementing other preventive measures. Relying on their police power, many local governments have enacted vacant property registration ordinances. These ordinances impose registration requirements on foreclosing lenders to prevent vacant properties from becoming a nuisance and to avoid an increase in criminal activities, which may result in overall neighborhood decline.24 In response to these new ordinances, lenders have created property preservation departments to monitor the status of properties in foreclosure or facing foreclosure and to serve as a channel of communication with local governments for code compliance and remediation of code violations.
In Florida, it is now settled that code enforcement liens are not “superpriority” liens. The Florida Supreme Court confirmed the regulatory framework of Ch. 162, which provides for a well-designed, quasi-judicial system for the imposition of administrative fines in compliance with the Florida Statutes and the Florida Constitution. These fines may become liens against real property only upon their proper recordation in the public records, which take priority from the date of their recordation, provided the code enforcement proceeding meets the statutory requirements. Foreclosures have created a proliferation of abandoned properties in local communities with consequences that affect local governments, lenders, and surrounding communities. Local governments should focus on enforcing their codes by promoting compliance and working with lenders to bring the affected properties into compliance to minimize the harmful effects of foreclosures. Allowing a liberal construction of Ch. 162 to justify the imposition of superpriority code enforcement liens only resulted in uncertainty for the loan industry and would have continued to impair Florida’s real estate market recovery.
1 See Sarasota County v. Andrews, 573 So. 2d 113 (Fla. 2d DCA 1991). On May 15, 1984, the county passed Ordinance 84-06 pursuant to Ch. 162. Section 11 of the ordinance mirrors the procedure referred to in §162.09, but additionally provides that when a certified copy of such an order is recorded, it becomes a lien “superior to all other liens, except a lien for taxes.” The court found that the county’s attempt to assert that a code enforcement lien created by ordinance was superior in right to a prior recorded mortgage was a substantial impairment of the first mortgage lien for federal and state constitutional purposes.
2 City of Palm Bay v. Wells Fargo Bank, N.A., Case No. SC11-830, 2013 WL 2096257, 2013 Fla. Lexis 1000 (Fla. May 16, 2013), aff’g, 67 So. 3d 271 (Fla. 5th DCA 2011).
3 Fla. Stat. §162.01 (“Sections 162.01-162.13 may be cited as the Local Government Code Enforcement Boards Act.”).
4 Fla. Stat. §162.07(3) (“Formal rules of evidence shall not apply but fundamental due process shall be observed and shall govern the proceedings.”). See Donaldson v. Clark, 819 F.2d 1551, 1558 (11th Cir. 1987). Procedural due process requires notice and an opportunity to be heard before any governmental deprivation of a property interest (citing Boddie v. Connecticut, 401 U.S. 371, 378 (1971)).
5 Fla. Stat. §162.09(2)(a) (“A fine imposed pursuant to this section shall not exceed $250 per day for a first violation and shall not exceed $500 per day for a repeat violation….”).
6 Fla. Stat. §162.09(3) (2012).
7 Fla. Const. art. I, §18.
8 Fla. Const. art. V, §1.
9 Fla. Stat. §162.03(1) (“Each county or municipality may, at its option, create or abolish by ordinance local government code enforcement boards as provided herein.”).
10 See City of Tampa v. Braxton, 616 So. 2d 554 (Fla. 2d DCA 1993) (“We conclude that once the [c]ity opted for a code enforcement board under chapter 162, it was prohibited by article 1, section 18 of the state constitution to enforce its ordinance by any other manner except that described in chapter 162.”); AGO 97-26; AGO 92-73; AGO 84-55; AGO 81-25 (discussing the legislative intent of the session law that originally enacted Ch. 162 and noting that the code enforcement board was intended to replace the county court as the forum for resolution of technical code violations).
11 Judge James R. Wolf et al. , The Effectiveness of Home Rule: A Preemption and Conflict Analysis, 83 Fla. B. J. 92 at *7, (June 2009).
12 City of Palm Bay v. Wells Fargo Bank, N.A., 2013 Fla. Lexis 1000 at 7 , citing Barragan v. City of Miami, 545 So. 2d 252, 255 (Fla. 1989).
13 Id. at 3.
14 Lybass v. Town of Fort Myers, 56 Fla. 817, 827 (1908); Gleason v. Dade County, 174 So. 2d 466 (Fla. 3d DCA 1965); First Nationwide Mortgage Corp. v. Brantley, City of Lauderdale Lakes, 851 So. 2d 885 (Fla. 4th DCA 2003).
15 Personal Rep. of Estate of Jacobson v. Fund, 685 So. 2d 19 (Fla. 3d DCA 1996).
16 Fla. Const. art. VIII, §2(b) (“may exercise any power for municipal purposes except as otherwise provided by law ”); Fla. Stat. §166.021(1) (“may exercise any power for municipal purposes, except when expressly prohibited by law ”)
17 See Tallahassee Mem’l Reg. Med. Ctr. v. Tallahassee Med. Ctr. , 681 So. 2d 826, 831 (Fla. 1st DCA 1996).
18 City of Palm Bay v. Wells Fargo Bank, N.A., 2013 Fla. Lexis 1000 at 4 (“The priority of interests in real estate under Florida law is generally determined by the operation of three statutes. Section 28.222(2), Florida Statutes…, Section 695.11, Florida Statutes…, Section 695.01(1), Florida Statutes….”).
19 See Guaranty Title & Trust Co. v. Thompson, 93 Fla. 983, 989 (1927) (citing Peoples Bank v. Arbuckle, 82 Fla. 479 (1921); Palm Beach Bank & Trust Co. v. Lainhart, 84 Fla. 662 (1922)) (“the general rule of priority is that the lien which is first in time is first in right”).
20 City of Palm Bay v. Wells Fargo Bank, N.A., 2013 Fla. Lexis 1000 at 5 (“The legal significance of priority of recordation comes into play in the context of the rule established in section 695.01(1), Florida Statutes (2004)….”) (establishing that Florida is a notice jurisdiction).
21 Express exceptions made by the legislature for property taxes ( Fla. Stat. §197.122); special assessment liens ( Fla. Stat. §170.09); utility liens ( Fla. Stat. §159.17); special assessments for water and sanitary sewers improvements ( Fla. Stat. §153.05); non-ad valorem assessments for fire districts ( Fla. Stat. §191.01).
22 Sarasota County v. Andrews, 573 So. 2d 113 (Fla. 2d DCA 1991).
24 Timothy A. Davis, A Comparative Analysis of State and Local Government Vacant Property Registration Statutes, 44 The Urban Lawyer (Spring 2012).