Motion-Secondary: Conti, John R Vs Unknown Spouse Of John R Conti

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                                Filing # 177425589 E-Filed 07/14/2023 11:26:13 AM


                    IN THE CIRCUIT COURT OF THE TWENTIETH JUDICIAL CIRCUIT
                               IN AND FOR COLLIER COUNTY, FLORIDA

            LAKEWOOD VILLAS VII
            HOMEOWNERS
            ASSOCIATION, INC.,                                                               CASE NO. 21-CC-2422

                                         Plaintiff,
            vs.


            JOHN R. CONTI, et al

                                         Defendants.



                              UNITED STATES’ MEMORANDUM TO ITS MOTION FOR
                                          DISTRIBUTION OF SURPLUS

                    HUD holds a subordinate Second and Third mortgage to the original mortgage held

            by PROSPECT            MORTGAGE,             LLC.      HUD           does not hold the primary            FHA-insured

            mortgage     here,     nor    are they      the     owner.         PROSPECT          MORTGAGE           still holds    the

            first/primary mortgage. PROSPECT MORTGAGE would not have a claim to any excess

            proceeds as they hold the first mortgage, which survived the HOA foreclosure.

                    1   On       or about     January     30,    2017,         John     R.   Conti   took   out   a mortgage      from

                        PROSPECT            MORTGAGE              on the piece of property in question. See Official

                        Records of Collier County, Book 5358, Page 29.!7

                        On or about August 11, 2020, HOA recorded its choate claim of lien. See Official


            1 A court can take judicial notice of government websites and publications. See FAS Capital, L.L.C. v.
            Carr, 7 F. Supp. 3d 1259, 1267 (N.D. Ga. 2014) (collecting cases where “courts have defined ‘public
            records’ to include facts found on the websites of the FDIC and other government agencies.”); Taser
            Intl, Inc. v. Phazzer Elecs., Inc., No. 6:16-CV-366-ORL-40KRS, 2016 WL 7137560, at *1 (M.D. Fla.
            July 14, 2016).
                         Ilierclerk.com/r                           rch.              Ler        last visited July 13, 2023.

                                                                           1




FILED: COLLIER COUNTY, CRYSTAL K. KINZEL, CLERK, 07/14/2023 11:26:13 AM
Records of Collier County, Book 5800, Page 1890. And again, on November 3,

             2021. See Official Records of Collier County, Book 6036, Page 1933.

             On or about October 5, 2021, a couple of months before the initiation of this

             lawsuit,     John Conti took out a second mortgage on the property with HUD. See

             Dkt.; Exhibit A, Certificates of Indebtedness.

             The Homeowners Association (HOA) instituted a foreclosure action against John

             R. Conti. Mr. Conti was aware of and took part in the lawsuit. Dkt.

             HOA recorded their Declaration of Covenants on or about October 30, 2012. See

             Complaint, 4 8 and Ex A. They recorded their choate lien on November 3, 2021.

             Id. at ¢ 11 and Ex. B.

             On or about September 15, 2022, a third party bought the property, and the Clerk

             issued a Certificate of Sale. Dkt. Nos. 45-49

             Despite knowing that the property was sold at auction and no longer his, on

             September 19, 2022, John Conti took out a third HUD mortgage on the property.

             See Ex. A.

                                      MEMORANDUM       OF LAW

       The Court must use federal law to govern HUD’s security interest. See Ex. A, p. 5, 12,

§5. (“This     Security Instrument shall be governed by Federal law and the law of the

jurisdiction in which the Property is located”).

       The United States holds a second mortgage, recorded in the Official Records of Collier

County on October 5, 2021, and a Third Mortgage, recorded in the Official Records of Collier

County on October 4, 2022. Id.
The review of the Florida case law and statutory law dealing with the relative priorities

of associations and mortgage         holders can be summarized        as follows. First, under the

applicable case law, the “first in time, first in right” common-law rule applies. U.S. by & v.

McDermott, 507 U.S. 447, 449 - 50 (1993); Holly Lake Ass'n v. Fed. Nat. Mortg. Ass'n, 660 So. 2d

266 (Fla. 1995). “Priority for purposes of federal law is governed by the common law principle

that ‘the first in time is the first in right.’”   U.S. by & v. McDermott, 507 U.S. 447, 449 (1993)

(quoting United States v. City of New Britain, 347 U.S. 81, 85 (1954)). It is established law that

a state lien, when competing with a federal lien, is deemed to be “in existence for ‘first in time’

purposes only when it has been ‘perfected’ in the sense that ‘the identity of the lienor, the

property subject to the lien, and the amount of the lien are established.’” McDermott, 507 U.S.

at 449-50, (emphasis omitted) (quoting New Britain, 347 U.S. at 84). Put another way,

“{c]hoate state-created liens take priority over later federal [] liens, while inchoate liens do

not.”   United States v. Pioneer
                               Am. Ins. Co., 374 U.S. 84, 88 (1963) (internal citations omitted).

In order for HOA to have priority over the federal lien, it must have established a choate,

perfected, security interest in the property before the United States filed its lien.

        Second, under a statutory modification to this case law, the holder of a first mortgage

(PROSPECT MORTGAGE,                LLC.) is given certain protections. In this respect, even if the

declaration of covenants contained explicit language to the effect that the assessment liens

were superior to any mortgage recorded after the recording of the declaration of covenants,

the first mortgage holder's lien would still be superior to the association lien unless the first

mortgage was recorded after the recording of a claim of lien. Any security interest by any
party filed after the primary mortgage would be subordinate to that primary mortgage,

excluding the association 's liens.

           Third, under Florida Fla. Stat. § 720.3085(1), HUD’s Second and Third mortgages are

subordinate. Fla. Stat. § 720.3085(1) provides:

          When authorized by the governing documents, the association has a lien on
          each parcel to secure the payment of assessments and other amounts provided
          for by this section. Except as otherwise set forth in this section, the lien is
          effective from and shall relate back to the date on which the original declaration
          of the community was recorded. However, as to first mortgages of record, the
          lien is effective from and after recording of a claim of lien in the public records
          of the county in which the parcel is located. This subsection does not bestow
          upon any lien, mortgage, or certified judgment of record on July 1, 2008,
          including the lien for unpaid assessments created in this section, a priority
          that, by law, the lien, mortgage, or judgment did not have before July 1,
          2008. (Emphasis added)

The language of the Florida statute is unambiguous. As such, HUD’s Second and Third

mortgages are subordinate to the primary mortgage.

           Additionally, in the foreclosure context, anyone holding a mortgage that has priority

over      a HUD   subordinate mortgage must give HUD          notice of foreclosure or default. This

further shows that HUD 's mortgages are subordinate to PROSPECT MORTGAGE.                       See Ex.

A, p. 6, 13 (request for notice of default and foreclosure under superior mortgages or deeds of

trust).

           Here, the HUD’s     mortgage   is subordinate to the HOA’s         lien and PROSPECT

MORTGAGE           first mortgage for two reasons. First, viewed from the perspective of the terms

of the original      declaration   of covenants   and   the   common    law   discussed   above,    the

PROSPECT MORTGAGE’s first mortgage is not subordinate to the Association's lien for

unpaid fees by virtue of the language contained in the Declaration of Covenants. This
language specifically subordinates the assessment lien to a first mortgagee. Additionally,

HUD’s Second and Third mortgages are subordinated to the HOA’s lien also by virtue of the

choate liens. Second, section 718.116(5)(a) specifically provides the holder of a first mortgage

with priority over a lien for assessments unless the mortgage is recorded after the recording of

the claim of lien. Here PROSPECT MORTGAGE’s recorded its mortgage years before the

filing of a claim of lien. Additionally, HUD           recorded its mortgages after PROSPECT

MORTGAGE’s recorded its mortgage and HOA recorded its first lien.

       So,    according   to Holly Lake   and   the   Florida   Statutes,   the   priority   of liens   for

distribution of surplus is as follows:

       a.    PROSPECT MORTGAGE’S mortgage is unaffected by the HOA foreclosure, and

             they have no right to seek proceeds.

             The HOA first lien is second and would jump ahead of HUD’s Second Mortgage.

             HUDS Second and Third mortgages would be next in line.

             Because Mr. Conti knowingly took out a Third mortgage from HUD                      after the

             property was no longer his, he should not be allowed to profit from his potentially

             fraudulent behavior. See 18 U.S.C. § 641, 1343

       e     After payment of the surplus to HUD, John Conti or any creditors would be last.

       Mr. Conti alludes that HUD did not file acclaim for surplus within 60 days. However,

the United States is not subject to a statute of limitations about filing a claim within 60-days.

       The doctrine of Sovereign Immunity             precludes enforcement of a state statutory

limitation upon a federal claim to surplus funds. See United States v. Summerlin, 310 U.S. 414,

416 (1941); United States v. John Hancock Mut. Life Ins. Co., 364 U.S. 301, 308 (1960); General
Electric Capital Corporation v. SRSA, L.L.C., 16-2005-CA-006400-MA;          985 So.2d 1095 (Fla.

App.1 Dist.)

       Sovereign immunity precludes application of the limitations of chapter 45 to the claims

of the federal government. The court cannot interpret the limitations of Fla. Stat. § 45.032 to

result in a complete forfeiture of federal rights. Although it is a matter guided by the

Supremacy Clause of the federal constitution, the issue is fundamentally one of sovereign

immunity, and is jurisdictional in nature. The United States Supreme Court has repeatedly

held that the state statutes of limitation does not bind the sovereign, which is precisely what

is created by the sixty-day time limit imposed by chapter 45 of the Florida Statutes. See

Summerlin, 310 U.S. at 416; John Hancock Mut. Life Ins. Co., 364 U.S. at 308. The holding of

Summerlin leaves little room for argument on this issue. In that case, the United States was

faced with a state law bar date for the filing of claims against a probate estate. In reversing the

decision by the Supreme Court of Florida that enforced a bar date that required the United

States to file claims within eight months of the publication of a notice to creditors, the

Supreme Court declared:

       [I]f the statute, as sustained by the state court, undertakes to invalidate the claim
       of the United States, so that it cannot be enforced at all, because not filed within
       eight months, we think the statute in that sense transgressed the limits of state
       power.

310 US. at 417. This, of course, is precisely the effect of chapter 45.032 and its limitation of

sixty days for the filing of claims against surplus proceeds. Such a state law is not enforceable

against the sovereign.
Respectfully submitted,

                                                    ROGER B. HANDBERG
                                                    United States Attorney

                                             By     s/ John F. Rudy, II
                                                    JOHN F. RUDY, IIT
                                                    Assistant United States Attorney
                                                    Florida Bar No. 0136700
                                                    Amber L. Watson, Legal Assistant
                                                    400 North Tampa Street, Suite 3200
                                                    Tampa, Florida 33602
                                                    Telephone: (813) 274-6000
                                                    Facsimile: (813) 274-6200


                                 CERTIFICATE OF SERVICE

        THEREBY CERTIFY that on July 14, 2023, I electronically filed the foregoing

with the Clerk of the Court by using the E-Filing system and a copy has been furnished

by the Florida E-Portal to all parties of record.
                                                         s/ John F. Rudy, IT
                                                          JOHN F. RUDY, III
                                                          Assistant United States Attorney