Article by Michael Toback in Today’s Daily Business Review: “Rulings Clarify Application of Safe Harbor Caps on Association Dues”

The firm’s Michael Toback authored an article that appeared as a “Board of Contributors” guest column in today’s edition of the Daily Business Review, South Florida’s exclusive business daily and official court newspaper.  The article, which was titled “Rulings Clarify Application of Safe Harbor Caps on Association Dues,” focused on a couple of recent Florida appellate court rulings that brought additional clarity to the application of the criteria for foreclosing lenders and servicers to qualify for the caps that limit their liabilities for association dues.  Michael’s article reads:

In Brittany’s Place Condominium Association v. U.S. Bank, the Second District Court of Appeal settled some lingering questions as to whether a lender or servicer that takes title to a residence via a mortgage foreclosure must also be the current owner of the first mortgage when the final judgment of foreclosure is issued.

The case stems from a 2009 mortgage foreclosure action filed by U.S. Bank against the unit owner and all interested parties, including the association. The bank alleged that it was both the holder and servicer of the note and mortgage, acting on behalf of and with the authority of the owner. It was in possession of the note endorsed in blank, but the Federal Home Loan Mortgage Corp., better known as Freddie Mac, owned the note and mortgage.

After securing a final judgment of foreclosure and acquiring title to the property via the foreclosure sale, U.S. Bank requested an estoppel letter from the association to determine the amount of past-due assessments. The parties could not agree on the extent of the lender’s liability, and the association eventually filed a lien foreclosure complaint against the lender, which then filed a counterclaim to seek compliance with the safe harbor caps.

The trial court found that there were no genuine issues of material fact and U.S. Bank met the statutory requirements entitling it to the limited liability provisions provided by the safe harbor caps, so the court granted the bank’s motion for summary judgment.

In the subsequent appeal, the association contended that U.S. Bank did not satisfy the safe harbor statute, which requires the entity acquiring title to have also been the first mortgagee or its successor or assignee. The association interpreted “first mortgagee or its successor or assignees” as necessitating ownership of the loan.

Michael’s article concludes:

Ownership vs. Holdership

The appellate panel concluded that the statute’s plain language contemplates that limited liability may apply to an entity taking title via foreclosure or deed in lieu of foreclosure if it falls into one of two categories: first mortgagees, or their successors or assignees. So the question then becomes whether ownership of the note and mortgage is a requirement of either category.

The court found that neither the safe harbor statute nor the state Condominium Act defines first mortgagee, but in its recent examination of another provision of the statute the court identified a first mortgage as the mortgage having priority over all other mortgages on the property. It reasoned that a first mortgagee must therefore be defined as the holder of the mortgage lien with priority over all other mortgages.

Even though U.S. Bank was not the owner of the note and mortgage at the time of the entry of the final judgment of foreclosure, the lender/servicer held the note and first mortgage when the final judgment was entered. It was not the originating lender, so the court found that the bank was a non-owner, subsequent holder of the first mortgage and would be entitled to limited liability under the safe harbor provision only if ownership of the note and mortgage is not a requirement for subsequent holdership.

It concluded that holder is defined as one who holds as an owner or “a person in possession of and legally entitled to receive payment of a bill,” so a holder of a non-negotiable instrument may be an owner or a possessor of the instrument. The appellate panel also noted that the legislature did not use the word owner to restrict limited liability only to owners of the first mortgage (or note), bolstering its conclusion that ownership is not essential to a successor or assignee’s entitlement to limited liability under the safe harbor statute.

The court affirmed the trial court’s order granting final summary judgment, concluding that a successor or assignee of the first mortgage otherwise entitled to the limited liability need not also be an owner of the note and mortgage at the time of foreclosure.

Loan Servicer

A similar ruling was issued by the Fourth District Court of Appeal in January in San Matera The Gardens Condominium Association v. Federal Home Loan Mortgage. In this case, Bayview Loan Servicing acted as the servicer for owner Freddie Mac and obtained a final judgment of foreclosure by possessing the note endorsed in blank. It subsequently acquired title to the property at the foreclosure sale and executed a special warranty deed transferring the title to Freddie Mac.

A dispute then arose regarding Freddie Mac’s liability for past unpaid assessments to the association, and the trial court entered summary judgment in favor of Freddie Mac. It found that Bayview was protected as the first mortgagee, and when Freddie Mac acquired title to the property from the servicer it became jointly and severally liable with any balance owed by Bayview.

On appeal, the association argued that the liability caps are statutorily limited to the owner of the loan. Because Bayview was not the owner, it and Freddie Mac were jointly and severally liable for the full amount.

Freddie Mac countered by contending that Bayview was a first mortgagee because it had physical possession of the note, and the company’s status as servicer of the loan did not disqualify it from falling within the purview of the safe harbor provision.

Applying the principles cited in Brittany’s Place, the appellate panel found that Bayview, as the holder of the note, qualified for the safe harbor provision as the first mortgagee. It concluded that Freddie Mac, as an assignee of the first mortgagee, also qualified for the safe harbor provision, so the court affirmed the order granting final summary judgment.

Our firm congratulates Michael for sharing his insights into these rulings with the readers of the Daily Business Review.  Click here to read the complete article in the newspaper’s website (registration required).