Lenders Beware–Retroactive Tax Lien Trumps Recorded Mortgage [Florida]

Under Florida law, a mortgage lender’s lien against real property takes priority over later filed liens. However, under Fla.Stats. §197.122(1), ad valorem tax liens filed against Florida real property will take priority over a previously filed mortgage – such tax liens become super liens. Not great for lenders, but at least they can deal with exposure to these tax liens against their security by making sure ad valorem taxes are properly paid (e.g., through mortgage escrows and/or covenants in the mortgage to keep taxes current).

Fla.Stats. §196.161 allows a property assessor to go back 10 years and assess taxes, a penalty of 50% of taxes, and 15% interest, for taxes that the assessor lost out on if the owner of the property was improperly granted a homestead exemption. If a lien for these taxes is superior to a mortgage that has been filed prior to the filing of this lien, a mortgage lender’s risk for unpaid ad valorem taxes would be significantly increased.

In a recent case, a mortgage lender recorded a mortgage against real property in September 2007. In January 2014, the county recorded a tax lien under Fla.Stats. §196.161 against the property. In May 2015, the lender foreclosed its mortgage. The trial court held that the county’s tax lien was inferior to the lender’s mortgage lien. So far, so good for the mortgage lender.

On appeal, the county argued that Fla.Stats. §197.122(1) gives superiority to ad valorem tax liens, and thus, the special 10 year tax lien under Fla.Stats. §196.161 was superior to the lender’s mortgage lien. The lender argued that Fla.Stats. §196.161(3) gives the lender superiority – that provision provides “[p]rior to the filing of such notice of lien, any purchaser for value of the subject property shall take free and clear of such lien.” Equating itself to a purchaser, the mortgage lender argued Fla.Stats. §196.161(3) gives it the superior lien.

The appellate court noted that yes, Fla.Stats. §196.161(3) does allow BUYERS of real property to acquire real property without being subject to this 10 year lien if the tax lien is filed after the purchase. However, Fla.Stats. §196.161(3) says nothing about making the 10 year lien subordinate to previously filed liens. Thus, the super lien granted to the tax collectors under Fla.Stats. §197.122(1) trumps mortgage holders.

Mortgage holders will now need to deal with this exposure when making loans, if the property has been granted homestead status. Note that there are other ad valorem tax liens that allow a 10 year retroactive adjustment period, including Fla.Stats. §193.703 (reduction in assessment for living quarters of parents or grandparents), Fla.Stats. §196.075 (additional homestead exemption for persons 65 years or older), Fla.Stats. §196.011, and Fla.Stats. §193.155 (Save our Homes annual limitation in value increases for homestead property). So presumably, the same exposure to mortgage lenders will apply for these other potential retroactive adjustments. The last one could be especially onerous since the potential tax adjustments if the Save our Homes cap is found not to apply to a parcel of real property can be significant.

Increasing the risks to mortgage lenders will likely result in higher costs to borrowers. Perhaps the Florida legislature may want to reorder the tax lien priorities for these retroactive liens.

Miami-Dade County v. Lansdowne Mortgage LLC, 2017 WL 4655060 (3rd DCA 2017)