The Florida Supreme Court, in a 5-2 decision Thursday, ruled cities cannot create "super priority" real estate liens that trump existing first mortgages.
Answering a certified question raised by the Fifth District Court of Appeal, the high court cited the Florida Constitution on municipal governing authority. The section states cities may exercise any power for municipal purposes "except as otherwise provided by law."
Palm Bay was defending code enforcement liens when Wells Fargo Bank filed a foreclosure action in 2007. The Brevard circuit court rejected the city’s claim, reasoning the Legislature’s failure to bestow a priority on code enforcement liens over existing recorded mortgages and judgment liens.
The city was relying on a 1997 ordinance that asserted its liens were equal to other government liens and "superior in dignity to all other liens, titles and claims."
The opinion written by Justice Charles Canady said a clause in the state Constitution stating "except as otherwise provided by law" establishes the superiority of the Legislature’s power over municipal power.
"A more direct conflict with a statute is hard to imagine" than the Palm Bay ordinance, Canady wrote.
He agreed with the reasoning of the Fifth District, which noted in its 2011 opinion the common law rule of "first in time, first in right."
Because the Wells Fargo lien was recorded first, the Fifth District said it had priority.
Justice James E.C. Perry wrote a dissent with a concurrence from Justice Barbara Pariente. He asserted the case before them — City of Palm Bay v. Wells Fargo Bank — was not the appropriate test. Perry said the majority relied on an implied interpretation of the Constitution while no explicit prohibition existed.
"It is not whether the Legislature has expressly authorized municipal power but whether such power has been expressly prohibited," Perry wrote. "Here, there has been no express pre-emption that would prohibit the city’s action."
Canady insisted there was no need for an express prohibition. Citing case law, he said, "We have held that the pre-emption need not be explicit so long as it is clear that the Legislature has clearly pre-empted local regulation of the subject."
The lien issue has been closely watched by the mortgage industry and cities across the state. Both sides submitted friend of the court briefs including Palmetto, Winter Park, Palm Coast, the Florida Bankers Association and Florida Land Title Association.
The Florida League of Cities in its brief asked for reversal, arguing the Fifth District’s interpretation of the "first in time, first in right" rule was too narrow.
"This is particularly so where … Wells Fargo Bank entered into the mortgage relationship at issue fully cognizant of existing municipal law that granted greater priority to the city’s code enforcement liens regardless of their date of recordation," wrote League attorney Edward Guedes of Weiss Serota Helfman Pastoriza Cole & Boniske in Coral Gables.
He argued the ordinance formed part of the bank’s mortgage contract, and the bank was in the best position to assess the risks of making loans in the city.
Attorneys for Palm Bay and Wells Fargo did not respond to requests for comment by deadline.