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Fla. Supreme Court Resolves Conflict on Deadline to Claim Foreclosure Surplus Funds

In a dispute over surplus funds from a judicial foreclosure property sale, the Florida Supreme Court recently held that a subordinate lienholder’s claim to surplus funds — filed 61 days after the public auction — was timely and superior to the claim of the former record owners of the property.

In so ruling, the Florida Supreme Court resolved a certified conflict between Florida’s Second and Fourth District Courts of Appeal by concluding that the 60-day timeframe for filing a claim to surplus funds under the provisions of chapter 45, Florida Statutes, begins upon the clerk’s issuance of the certificate of disbursement, and not the date of the public auction.

A copy of the opinion in Bank of New York Mellon v. Glenville is available at:  Link to Opinion.

After final judgment of foreclosure was entered against the former owners of real property, a public auction sale date was set, and in accordance with section 45.031(1)(a), Florida Statutes, the final judgment included the requisite statement regarding a potential surplus.

The public auction was held on July 2, 2015. The clerk issued the certificate of sale on July 6, 2015 and the certificate of title was issued on July 14, 2015.  The certificate of disbursements, reflecting a surplus of $86,093.27, was not issued until July 29, 2015.

On Aug. 4, 2015, the holder of a subordinate third mortgage on the subject property (“third mortgagee”) filed a claim asserting its right to $20,573.64 of the surplus amount.  On Sept. 1, 2015, 61 days after the public auction, the former owners filed a verified claim for mortgage foreclosure surplus, acknowledging the timely claim of the third mortgagee, and requesting issuance of an order disbursing $20,573.64 to the third mortgagee, and the remainder to themselves.

On Sept. 2, 2015, the holder of a subordinate second mortgage (“subordinate lienholder”) filed a claim asserting its right to the entire surplus amount.  The subordinate lienholder’s claim was filed more than 60 days after the public auction, but within 60 days of the clerk’s filing of the certificates of sale, title and disbursement.

At a hearing on the parties’ competing claims for surplus, the trial court rejected the subordinate lienholder’s claim to the surplus as untimely under section 45.031 because it “was not submitted within 60 days of the foreclosure sale held on July 2, 2015,” and directed the clerk to disburse $20,573.64 of the surplus to the third mortgagee, and the remainder to the former owners.

The subordinate lienholder appealed to the Florida District Court of Appeals for the Second District, arguing “that a foreclosure sale is not complete until the clerk issues the certificate of sale.”

Focusing primarily on the language within section 45.031(7)(b), which provides the form for the clerk’s certificate of disbursements and “only refers to the ‘sale,’ not the ‘certificate of sale,’ and consistent with two prior decisions of the Court, the Second District concluded that the statute unambiguously provided that the cutoff for submitting claims for surplus funds is 60 days from the date of the public auction.  Bank of New York Mellon v. Glenville, 215 So. 3d at 1285-1286 (Fla. 2d DCA 2017).

The Second District further rejected the subordinate lienholder’s argument that the 60-day period should begin from the day the clerk issues the certificate of title, concluding that it waived that argument by not raising the issue prior to rehearing, but noting that it was consistent with the Florida Fourth District Court of Appeals’ ruling in Straub v. Wells Fargo Bank, N.A., 182 So. 3d 878, 881 (Fla. 4th DCA 2016).

In Straub, the Fourth District affirmed the trial court’s ruling that the subordinate lienholder’s claims to surplus was timely because the 60-day period begins to run upon the issuance and filing of the certificate of title.  Straub, 182 So. 3d at 881.  Notably, the Fourth District’s opinion in Straub did not mention the clerk’s issuance of the certificate of disbursements.

Observing conflict between the two rulings, the Second District certified conflict with Straub, while opining that Straub’s construction of the term “sale” “confuses the meaning of several subsections of section 45.031.”  Straub, 182 So. 3d at 1287 (Fla. 2d DCA 2017).

The certified conflict issue before the Florida Supreme Court required it to construe the term “60 days after the sale,” as used in section 45.031, Florida Statutes (2015).

As an initial matter, Section 45.032(1)(c) defines “surplus” to mean “the funds remaining after payment of all disbursements required by the final judgment of foreclosure and shown on the certificate of disbursements.”  Section 45.032(3) references a very specific 60-day period, referenced in the following three paragraphs of the subsection, stating “[d]uring the 60 days after the clerk issues a certificate of disbursements, the clerk shall hold the surplus pending a court order.”

The Florida Supreme Court first noted that the Second District failed to take this specific 60-day period identified in 45.032(3) in reaching its conclusion in the underlying appeal, instead focusing largely on what it considered to be a clear meaning of section 45.031(7)(b) that avoided confusing the meaning of other subsections of section 45.031. Glenville, 215 So. 3d at 1286-87.

In examining the statute’s plain meaning, the Supreme Court noted that the Second District’s conclusion that “sale” as used in section 45.031(7)(b) referred to the public auction given the use of the term in other subsections of the statute stopped short in its consideration of relevant provisions of the statutory scheme for judicial sales.  However, looking to section 45.032 to understand the meaning of section 45.031 is proper because section 45.031, section 45.032, and several other sections of chapter 45 together comprise a statutory scheme relating to judicial foreclosure sale procedures. See Sch. Bd. of Palm Beach Cty. v. Survivors Charter Sch., Inc., 3 So. 3d 1220, 1234 (Fla. 2009).

It is well established under Florida law that the term “sale” in Chapter 45 must be understood in light of the specific context in which it is used.   Allstate Mortgage Corp. of Florida v. Strasser, 286 So. 2d 201 (Fla. 1973).  Here, interpretation of the 60-day provision of section 45.031(7)(b) in light of the 60-day provision of section 45.032(3) is supported by the rule that “a specific statute covering a particular subject area always controls over a statute covering the same and other subjects in more general terms.” McKendry v. State, 641 So. 2d 45, 46 (Fla. 1994).  Indeed, “surplus” is defined under section 45.032.

The Florida Supreme Court thus disagreed with the Second District and reasoned that “the sixty-day period in section 45.031(7)(b) must be understood in a way that is consistent with the sixty-day period in section 45.032(3),” and is not triggered by the public auction.   However, this reasoning also required the Supreme Court to disapprove of the Fourth District’s reasoning in reaching its conclusion in Straub.

While acknowledging that the Fourth District’s opinion in Straub correctly determined that the 60-day cutoff period does not begin until after the actual transfer of ownership of the property, the Supreme Court found fault in its conclusion that the 60-day period begins upon the issuance of the certificate of title, as the certificate of disbursements may not always be issued on the same day as the certificate of title, as demonstrated in the underlying action before the Second District.  (Compare § 45.031(7)(a), Fla. Stat. requiring the clerk to file the certificate of disbursements “[o]n filing a certificate of title”).

Accordingly, the Florida Supreme Court concluded that the actual triggering event for filing a claim to surplus “sixty days after the sale” under the provisions of chapter 45, Florida Statutes, begins with the issuance of the certificate of disbursements.

Because the subordinate lienholder’s claim was timely filed before the expiration of that 60-day period, the Supreme Court quashed the Second District’s underling decision in Glenville, and expressly disapproved the Fourth District’s reasoning of Straub as inconsistent with its reasoning here.

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Christopher P. Hahn practices in Maurice Wutscher’s Commercial Litigation, Consumer Credit Litigation and Insurance Recovery and Advisory groups. Prior to joining Maurice Wutscher LLP, he served under the General Counsel at the Florida Office of Financial Regulation. He also obtained extensive experience litigating property insurance claims through all phases of discovery, motion practice and other pre-trial activities. Christopher obtained his Bachelor of Science degree in Business Administration from the University of Southern California, followed by his Juris Doctorate degree from the University of Miami School of Law. He is also a graduate of the University of Miami’s Masters of Business Administration program, completing his degree with an emphasis on finance and mergers and acquisitions.

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