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LIENORS BEWARE: THE SECOND DISTRICT COURT OF APPEAL’S DECISION IN HILLER ESTABLISHES A MECHANISM TO ACCELERATE THE REMOVAL OF YOUR LIEN RIGHTS

Property owners in Florida have a number of statutory options to accelerate the removal of mechanics liens on their property. Among the procedures that can be followed are: (1) record a notice of contest of the lien; (2) provide lienors with 60 days notice to institute foreclosure proceeding; or (3) file a 20 day summons for an order to show cause, which shortens the time in which lienors can foreclosure on their lien to 20 days. Alternatively, a property owner can secure a bond, which transfers the lien from the property to a security, normally a cash or surety bond, removing the cloud of the lien from the property’s title.

In the past, it was uncommon for a property owner to shorten the time period in which a lienor could foreclosure while simultaneously bonding off the lien. Once the lien was transferred to a bond, there was less external pressure on an owner from a purchaser or a mortgagee and the owner could simply allow the transferred lien to lay dormant until it expired after a year. However, a recent ruling by the Second District Court of Appeal in Georgia Hiller v. Phoenix Associates of South Florida, 189 So. 3d 272 (Fla. 2d DCA 2016) has created a potential new opening for property owners to accelerate the removal of unknowledgeable lienors’ lien rights.

In Hiller, a homeowner retained a contractor to perform maintenance work on her home. The homeowner then allegedly failed to pay the contractor pursuant to their oral agreement. The contractor elected to record a lien for the amount due under the contract against the property and timely commenced an action against the homeowner for breach of contract, unjust enrichment, and to foreclose on the lien. The homeowner responded by posting a transfer bond pursuant to Fla. Stat. § 713.24 to remove the encumbrance from her property. In addition, the homeowner recorded a notice of contest under Fla. Stat. § 713.22(2), shortening the time frame in which the contractor could commence an action against the transfer bond to 60 days.

Despite having notice of the transfer bond and the notice of contest, the contractor failed to timely commence an action against the surety within the required 60 day timeframe and delinquently filed a motion to amend its complaint to add the surety of the transfer bond to the lawsuit after the 60 day period had expired. Operating under the presumption that the transfer bond was automatically extinguished by operation of law after the 60 days elapsed, the homeowner filed a motion for an order directing the clerk to release the transfer bond.

The homeowner cited Cool Guys LLC V. Jomar Properties, LLC, 84 So. 3d 1076, 1078 (Fla. 4th DCA 2012), which holds that a contractor must commence an action against the surety of a transfer bond within the 60 day timeframe or the transfer bond extinguishes automatically. Nevertheless, the trial court relied on American Fire & Casualty Co. v. David Water & Waste Industries, Inc., 377 So. 2d 164 (Fla. 1979) and found that the suit to enforce the lien was timely filed and that the “delay in joining the surety . . . did not violate the statute or prejudice the surety in any way.” As a result, the trial court denied the homeowner’s motion for an order directing the clerk to release the transfer bond and granted the contractor’s motion to file a supplemental complaint naming the surety in the lawsuit even though the 60 days had elapsed. The property owner took an appeal of the trial court’s denial of its motion to release the transfer bond.

The Second District Court of Appeal reversed the trial court’s decision and held that Fla. Stat. § 713.24 provided for a mechanism for an owner whose property is encumbered by a lien to obtain clear title by transferring the lien to another security. The statute allows the owner to shorten the time period to commence an action against the security by filing a notice of contest. The contractor’s failure to timely sue the surety after the transfer results in the extinguishment of its right to make a claim against the transfer bond. In sum, the appellate court concluded that the contractor was free to precede with its underlying contract claims against the homeowner but could not continue to encumber the homeowner’s real or personal property until the contractor obtained a final judgment.

Lienors should be aware of the important precedent established by the Second District Court of Appeal in Hiller. Even if a bond is transferred to security, a lienor must be mindful of an owner’s right to shorten the time in which it must foreclosure by timely moving to join the surety into the lawsuit. Otherwise, lienors will lose their security interest in the value of their enhancement to the property they contracted to improve. Having experienced legal counsel on your side can help ensure that you can protect your valuable legal right. For reliable advice and diligent representation regarding creditor rights, reach out to the experienced and skilled attorneys at Stok Folk + Kon. Our attorneys are ready and equipped to help you protect your interests.