Examining This Year’s Legislative Changes to Condo, HOA Association Acts

Every year, after the legislative session is concluded, it is always an adventure to see how various bills were tweaked along their way to becoming laws. Drafting legislation is a process in which the bill’s author must not maintain any pride of authorship whatsoever. For example, often a bill’s text is tweaked when Senate and House bills are combined, each needing to leave their unique mark.

This year’s 2011 community association legislation is no exception, and as a result, both the Condominium and Homeowners Association Acts now provide that “an association, or its successor or assignee, that acquires title to a unit through the foreclosure of its lien for assessments is not liable for any unpaid assessments, late fees, interest, or reasonable attorney’s fees and costs that came due before the association’s acquisition of title in favor of any other association, as defined in s. 718.103(2) or s. 720.301(9), which holds a superior lien interest on the unit. This subparagraph is intended to clarify existing law.”

Florida legislature photo.jpgBefore we examine how this law can affect your association, let’s first take a peek at how the new law actually “clarifies existing law.” Remember learning not to believe everything you read? Well, it’s true! There is little chance this new law is a clarification of existing law because there is no existing law addressing this subject matter in the first place! Nevertheless, let’s apply the new law to a hypothetical situation that will soon likely mirror real life events:

Let’s say Daniel Debtor lives in a sub-association community that has a master association, too, and that Daniel is behind in his assessment obligations to both the sub-association in the amount $3,000, and to the master association in the amount of $2,500. Both associations send Daniel Debtor the statutorily required notice of intent to record a lien and notice of intent to foreclose the lien. Not only was the master association’s declaration recorded before the sub-association, but the master association recorded its lien against Daniel’s property one month before the sub-association. As fate would have it, the sub-association decides to foreclose, acquires title to the home, and leases it out to Timmy Tenant for $500 per month. Shortly after the sub-association acquired ownership of the home, the lender begins its own foreclosure and, as a result, around one year later, Betty Buyer purchases the home during the court ordered auction. What does Betty owe to the master association?

Betty Buyer will only have to pay assessments that remain due to the master association from the date the sub-association acquired the title. As a result of the new law, the master association’s prior assessment debt against this lot (through the date the sub-association acquired title) is wiped out, as the sub-association along with its successors in title no longer have liability to pay the master association’s assessment arrearage. Title to the home passes from the sub-association to Betty through a “clerk’s deed” because she was the successful bidder at the lender’s court ordered auction. Thus, Betty Buyer is a “successor” in title to the sub-association. Applying the new law, the master association’s prior lien that secured its assessments owed is completely wiped out through the date that the sub-association acquired title.

That’s right! Based on this new law, the association that first acquired title wipes out any other association’s assessment lien through the date of acquisition of title, without regard to the actual lien priority. What was that, you ask? You believe that this sparkling new law actually retroactively impairs existing contracting rights? Well, at its very core, every “declaration” is a contract between the community and each homeowner. In addition, many declarations have language that provides that a recorded lien dates back to the day of recording of the declaration itself! There even already exist other statutes that address lien priority, too. Does this mean, similar to the application of the “safe harbor” statutes that define a lender’s assessment liability, that this new law only applies to declarations recorded after the effective date of the new law? Could be.

Remember, Timmy Tenant? During the year it owned the home, the sub-association leased it to him. Timmy is a tenant and not a “successor or assignee” to the sub-association’s acquisition of title. With that in mind, can the master association make demand upon the sub-association’s tenant to pay the rent to master association? A most excellent question indeed! Until the courts provide guidance or the legislature amends this new law, we’ll all be well advised to watch this one closely.