Court Ruling Finds Fannie Mae Does Not Qualify for Safe Harbor Protection from Liability for All Unpaid Assessments in Foreclosure Cases

A recent ruling in Broward County Circuit Court could have significant implications for Fannie Mae and the community associations with units in various stages of bank foreclosure. In the case of Federal National Mortgage Association v. Park Place at Pompano Condominium, the court ruled that Fannie Mae was not entitled to the statutory “safe harbor” that limits the amount of assessments that first mortgagees must pay to associations when they take title to a unit through foreclosure.

Under Florida law, first mortgagees — or their successors or assigns — who acquire title to a unit through foreclosure or a deed in lieu of foreclosure are only responsible to condominium associations for payment of unpaid condo dues in an amount equal to 12 months of assessments or one percent of the original mortgage debt, whichever is less. In cases where owners have not paid their condo dues in years and the bank finally takes title to the unit, this usually amounts to just a couple of thousand dollars.

However, in the Park Place ruling, the court found that even though Fannie Mae bought the loan and had been the assignee of the first mortgagee’s right to bid at the foreclosure sale, Fannie Mae did not receive an assignment of the mortgage as is required by Florida law. When Fannie Mae filed an action against the condominium association to have the court determine whether it was entitled to the “safe harbor” amounts, the circuit court agreed with the association that an actual “assignment of mortgage” had to be executed in order for Fannie Mae to be considered an assignee of the first mortgagee and to receive the safe harbor protections afforded to lenders in foreclosure cases.

fmae.jpgThe ruling applied the provisions of section 701.02, F.S. which provides that an assignment of a mortgage is ineffective in law or equity against creditors and subsequent purchasers “unless the assignment is contained in a document, that in its title, indicates an assignment of mortgage and is recorded according to law.”

Prior to this ruling, Fannie Mae had consistently been able to cap its exposure for past due condominium assessments in Florida by claiming to be the equitable assignee of the first mortgagee. However, in light of the recent ruling in this case, Fannie Mae may now be treated like any other new owner acquiring title to a foreclosed property, meaning it may be found to be jointly and severally liable with the prior owner for all unpaid common expenses and assessments.

As this was a circuit court ruling, it remains to be seen whether other Florida circuit courts will follow along the same lines or whether they will continue to find that Fannie Mae is the equitable assignee of the first mortgagee. In addition, the federal mortgage agency may now decide to alter its procedures and go through the formalities of assigning the loan.

Our firm’s other community association attorneys and I will monitor the repercussions of this decision as it plays out in similar cases in the coming months, and we will provide updates for community associations and property managers as they become available in this blog. We encourage association directors, members and property managers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.