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The firm’s Lindsey Thurswell Lehr wrote an article that appeared in today’s edition of the Daily Business Review, South Florida’s only business daily and official court newspaper, about the implications of the recent decision by the Fourth District Court of Appeal in the case of Pudlit 2 Joint Venture v. Westwood Gardens HOA. Her article reads:

. . . Pudlit had acquired two lots in the Westwood Gardens community via foreclosure, for which the association demanded payment for the past-due assessments that had accrued while Pudlit held the titles to the properties as well as all assessments due from the prior owner, as stipulated under Florida law.

Pudlit made the payment to the association but filed suit against the association seeking its money back by claiming that it was exempted from liability for the prior owners’ association debts due to the express language contained in the association’s own declaration of covenants, which read:

“The lien of the assessments provided for herein shall be superior to all other liens save and except tax liens and mortgage liens, provided said mortgage liens are first liens against the property encumbered thereby (subject only to tax liens). Sale or transfer of any lot which is subject to a mortgage as herein described, pursuant to a decree of foreclosure thereof, shall extinguish the lien of such assessments as to payments thereof which become due prior to such sale or transfer. No sale or transfer shall relieve such Lot from liability for any assessments thereafter becoming due or from the lien thereof.”

Lindsey’s article concludes:

The appellate panel found that the state law (Florida Statute §720.3085) could not impair or supersede a pre-existing declaration provision, as that would infringe on the prohibitions against the impairment of contract rights and freedom to contract under the state’s constitution. The appellate court found that as a successor to the mortgage holder, Pudlit is a third-party beneficiary of the HOA’s declaration and the protections which it provides.

The court also noted that the language under Chapter 720 of the Florida Statutes indicating that it is “not intended to impair such contract rights” that were “effective before the effective date of the act” made the existing law inapplicable in this case.

. . . In assessing the implications of this ruling, community association directors and managers should bear in mind that most associations do not have the restrictive language in their declarations nullifying a successor’s liability for the previous owner’s fees that was at issue in the Pudlit case. In addition, most association governing documents include a provision stating that all new state laws governing condominiums and homeowners associations are deemed to be expressly incorporated into their declarations.

However, this new appellate opinion, which is the first of its kind at the appellate level in the state, should serve as a notification to all community associations in Florida to review their declarations in order to determine if the language that was at issue in this case is found in their governing documents. If it is, they would be well-served to seek the guidance of qualified legal counsel in order to amend their governing documents through the membership meeting and voting process.

Our firm congratulates Lindsey for sharing her insight on this important new appellate decision with the readers of the Daily Business Review. Click here to read the complete article in the newspaper’s website (registration required).

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AEsteras.jpg MDeCastro.jpgBy: Awilda Esteras and Maryvel De Castro Valdes

In addition to the bills pertaining to construction defect litigation that our firm’s Georg Ketelhohn shared his insights on in previous articles in this blog as well as in a recent report in the Daily Business Review, another bill was recently introduced during the current session of the Florida Legislature that also presents significant concerns for community associations.

House Bill 611 (SB 736 in the Senate) aims to make major changes to the process, costs and effects of the estoppel certificates that are prepared by associations. Estoppel certificates are issued by associations, their attorneys or their property managers to provide the amounts owing to an association for a unit as of a particular date. Prospective buyers rely on the estoppel certificates to bind the association to the stated amount until the expiration date of the certificate.

The proposed bill intends to impose a maximum estoppel fee of $100 to $150, as opposed to a “reasonable fee” as the current law allows. Since the preparation of estoppel certificates can be highly detailed and labor intensive for experienced professionals, the newly proposed fee range is inadequate and may lead to increased management and legal fees that are passed on to associations for the preparation of these certificates, which in fairness should only be paid for by the buyers and sellers.

The bill also aims to eliminate the ability of an association and its agents to collect an estoppel fee prior to the closing of the sale of the underlying property by requiring that the estoppel certificate be paid from the proceeds of the sale. In addition, the proposed bill provides for extremely limited recourse for the collection of the fee should the closing never occur. Ultimately, the association may become liable for any fees that go uncollected.

flcap.jpgThe bill further proposes the reduction in the number of days that associations have to respond to estoppel requests from 15 days down to 10 days. In complex cases such as those that include fines levied against an account in addition to delinquent maintenance dues and/or litigation, the preparation of an estoppel certificate typically exceeds 10 days. According to the proposals found in the bill, associations that are unable or fail to meet the 10-day deadline will have effectively waived any claims for the amounts due that would have been provided in the estoppel certificate. This is an extreme measure that would seriously impact an association’s right to collect unpaid assessments.

Another important concern for associations is that the bill would require all estoppel certificates to be valid for 30 days from their issuance, and it prevents the association and its agents from collecting additional assessments or other costs that accrue within those 30 days. In the case where an estoppel certificate is being requested for a delinquent account in litigation, attorneys would either have to stay the case pending payment or would need to include additional attorney’s fees if there are pending matters to be addressed in the 30-day period from the issuance of the estoppel.

Lastly, the proposed bill would require a waiver language to be included in the estoppel certificate preventing the association from collecting moneys in excess of the amount set forth in the estoppel certificate.

For the professionals who prepare estoppel certificates for community associations on a regular basis, the measures that are being put forth in this bill appear to be drastically onerous. We encourage association directors, members and property managers to contact their state legislators to express their concerns and disapproval with this bill.

Click here to find the contact information for the legislators for your district.

As if collections of delinquent accounts were not already difficult enough for condominium associations and HOAs in Florida as the state recovers from the foreclosure crisis, a recent ruling by the Second District Court of Appeal has unfortunately created a new wrinkle that will require community association managers, directors and their legal counsel to pay close attention when accepting partial payment of assessments from owners. The court’s ruling in the case of St. Croix Lane Trust v. St. Croix at Pelican Marsh Condominium Association essentially now makes it a necessity for associations to consult with experienced legal counsel when they receive checks that are in any way endorsed as representing the full and final payment of assessments owed by the owner on whose behalf the payment is made.

Prior to this ruling, associations and their attorneys were guided by the 2008 ruling by the Third District Court of Appeal in the case of Ocean Two Condominium Association v. Kliger which held that associations cannot refuse partial payments of assessments made by or on behalf of owners. In its opinion, the court in Ocean Two further suggested that its conclusion might even apply in the event that the partial payment included a restrictive endorsement such as “Paid in Full” or “Full and Final Payment.”

However, in the St. Croix case, the unit owner’s attorney specifically wrote to the association attorney stating that the payment made by the owner in the amount of $840 was to be considered as the full and complete payment for the settlement of the account, which the association claimed was delinquent in excess of $38,000. While the association responded to the owner’s attorney by denying that the partial payment was the full and final payment of the amount owed, it accepted and deposited the check, applying the funds as a partial payment in accordance with Florida condominium law.

2dca.jpgDespite the previous ruling in the Ocean Two case, the appellate panel in St. Croix reversed the trial court’s ruling, finding that the association’s depositing of the check containing the above-described restrictive endorsement operated as an “accord and satisfaction,” resulting in a waiver of the association’s right to collect the remaining debt alleged to be owed by the owner.

This ruling appears to create a conflict with regard to the extent to which the appellate courts will consider the partial payment of assessments including restrictive endorsements to constitute an “accord and satisfaction” of a larger debt owed by the owner on whose behalf the partial payment is made. As such, it is possible that this conflict may ultimately be taken up for resolution by the Florida Supreme Court or may result in action by the state legislature.

In the meantime, associations should pay very close attention to any payments that are made with restrictive endorsements of any kind indicating that such payments reflect the complete and final payment of the amount owed to the association. Managers and directors presented with similar circumstances would be well advised to consult with experienced and qualified legal counsel before depositing such payments if they are not indeed for the full and final amount owed.

Our community association attorneys will continue to monitor and write about the consequences of this ruling as they relate to the handling of partial payments that are made with restrictive endorsements indicating such payments to be full payments. We encourage association directors and members as well as property managers to submit their email address in the subscription box at the top right of this blog in order to automatically receive all of our future articles.

Would you be surprised to learn that an owner could walk away from his home, stop making mortgage payments, avoid all personal liability for debt on the property and still make nearly $100,000 after the property is foreclosed upon by a mortgage lender? Well, it can happen.

In a recent opinion released on July 23rd by the Third District Court of Appeal, the appellate court ordered approximately $99,500 in surplus funds to be returned to Miami residents Walter and Eider Pineda. The ruling reverses a trial court order which directed the funds to be applied as payment toward the balance owed to the first mortgage lender, instead of being disbursed to the Pinedas. A review of this interesting ruling reveals that it was more of a case of the foreclosure auction buyer (third-party purchaser) making mistaken assumptions rather than a novel legal argument, but nonetheless the result is a huge amount of foreclosure surplus going to the ex-owners of the property despite their non-payment of both the first and second mortgages.

The ruling by the Third District Court of Appeal reverses the trial court order which directed that the approximately $99,500 in surplus generated by the foreclosure sale to Nocari Investment, LLC, the third-party purchaser at the auction, be applied as payment toward the balance owed to the first mortgage lender, which was Wells Fargo Bank. Nocari, however, argued that it would be inequitable for the Pinedas to have the surplus funds since they filed for bankruptcy protection and received a discharge of their debt to the first mortgage lender. 3rd district court of appeal.jpg While Nocari believed that the surplus funds would be refunded back to Nocari and applied as payment toward the superior lien on the property, the appellate court sympathetically disagreed. The opinion reads, in part, as follows:

While we are sympathetic to Nocari’s equitable argument, the fact remains that distribution of surplus foreclosure proceeds is governed by a plain and unambiguous statutory procedure which clearly provides that the owner of record is entitled to the surplus proceeds. Where the legislature has provided such a process, courts are not free to deviate from that process absent express authority.

Neither the statutes nor the case law governing distribution of surplus foreclosure sale proceeds provides a mechanism authorizing a third-party purchaser to obtain the surplus. The statute is clear: the owner of record at the time of the recording of the lis pendens is entitled to any surplus proceeds . . . Nocari was neither an “owner of record,” an assignee of an owner, nor “subordinate lienholder,” . . . and thus was not entitled to any surplus funds.

While there was no community association involved in this case, the ruling highlights some important reminders for associations as well as third-party purchasers. For the community associations, the ruling should serve as a reminder of the importance for condominium associations and HOAs to preserve their ability to collect surplus funds generated by foreclosure sales. Community associations are often named as subordinate lienholders in mortgage foreclosure cases, and they should engage counsel to closely monitor the status of such cases, file appropriate responses to protect their interests and entitlement to surplus generated by the foreclosure sale, and file timely motions with the court so they are not barred from collecting foreclosure surplus. For the third-party purchasers, the ruling illustrates the importance of performing due diligence and working with qualified legal counsel in order to act with certainty and understand the complete ramifications of their bids at foreclosure auctions.

I, along with our firm’s other community association attorneys, work very closely with our clients on foreclosure cases and motions for surplus to ensure that their lien rights and ability to collect as subordinate lienholders are protected. We monitor and write about important legal and business issues affecting Florida community associations in this blog, and we encourage association directors, members and property managers to submit their email addresses in the subscription box at the top right of the blog in order to automatically receive our future articles.

Jeffrey Berlowitz - Siegfried law firm.jpgOur community association attorneys contribute articles on association issues to a number of publications on a regular basis. In the July issue of Florida Community Association Journal, the leading publication focusing on associations in the state, partner Jeffrey S. Berlowitz wrote an extensive article on the latest court decisions and legal strategies that are offering some relief for associations which are contending with unit owners who file for bankruptcy.

The article discusses the “lien stripping” provisions of the bankruptcy code and how associations can respond:

With regard to associations, most owners who file for Chapter 13 are striving to save their home from foreclosure. However, what is becoming more prevalent with bankruptcy filers who reside in community associations is the taking advantage of a debtor friendly component of the bankruptcy laws affording a debtor the right to “strip off” second mortgages, lines of credit and association liens in the event that the debtor evidences to the court that the value of their unit is less than the amount due on their first mortgage. If successful, then the unit owner may receive the benefit of a complete avoidance of an association’s lien claim in the amount that existed as of the date of the bankruptcy filing; ultimately a remarkable benefit to a debtor and a potentially harsh outcome to the community association.

. . . Associations should be well advised that an owner’s intentions to lien strip an association claim does not mean that the association cannot challenge or object to the owner’s effort to avoid the association’s lien. My colleagues and I have assisted associations in overcoming lien stripping efforts by debtor owners notwithstanding the debtor-friendly law supporting lien stripping. This is accomplished by countering the owner’s value of their home with an appraisal procured by the association which demonstrates that the value of the unit at the time of the bankruptcy filing was greater than the amount due under the owner’s first mortgage. Simply stated, this is an “all-or-nothing” deal: If the bankruptcy court determines that the unit maintains even just a single dollar of equity, then the owner will be required to cure all arrears due to the association over the life of the bankruptcy plan. Should the court find that the unit is underwater and lacks equity, then the owner will be in a position to carry out the bankruptcy plan to strip off the amount due to the association as of the day in which the bankruptcy case was filed. Given the risk associated with going before the bankruptcy court in this all-or-nothing lien stripping venture, wherein the bankruptcy judge will make a finding on the unit’s value that will inure entirely to the benefit of either the association or the debtor/owner, often the parties will amicably resolve the matter wherein the association agrees to accept a portion of the arrears paid through the bankruptcy plan by the debtor/owner, as opposed to having the association’s lien avoided entirely. However, should the matter proceed to a valuation hearing before the bankruptcy judge, no matter the findings of the court, an owner remains liable to the association for all regular monthly maintenance assessments as well as any special assessment that come due after the day the bankruptcy case was filed.

flcaj_logo.jpgJeffrey also writes about recent rulings that preclude bankruptcy lien strips from being extended to subsequent buyers:

Additionally and as a related event connected to the craze of the foreclosure crisis in South Florida over the last several years, associations are finding that investors (a/k/a “third-party buyers”) are positioning themselves to purchase units in foreclosure. Florida Statutes governing associations provide that a “subsequent owner” is liable to the association for the prior owner’s outstanding maintenance obligations. Notwithstanding, these third-party buyers who purchase a unit out of foreclosure that was formerly owned by an individual who filed for bankruptcy relief have creatively argued that they should get the benefit of the prior owner’s bankruptcy discharge or, in certain circumstances, the prior owner’s avoidance of the association’s lien via the lien stripping action and, therefore, are not liable to the association as the subsequent owner for the prior owner’s liabilities that were released through the bankruptcy case.

Those arguments have failed. Recent court decisions favor associations that lose certain of their lien rights against bankrupt owners and then attempt to collect the past-due assessments from the subsequent buyers of the properties. In a case that was decided by one of the local bankruptcy judges in the Southern District of Florida earlier this year, the court determined that even if an owner strips off a condominium association lien because the unit lacks equity and that individual is ultimately released from their pre-bankruptcy personal obligations to the association, the subsequent owner will not receive the benefit of the prior owner’s lien strip and will remain liable to the association for the prior owner’s unpaid assessments that were due at the time title to the unit transferred to the subsequent owner. In other words, no matter what a unit owner in bankruptcy accomplishes in their bankruptcy case with respect to their liability for association assessments, nothing can impact a subsequent owner’s personal liability for the unpaid assessments and nothing in the prior owner’s bankruptcy impacts the association’s right to pursue payment from that subsequent owner.

Similarly, in a case in which I represented a community association, a successful third-party purchaser at the prior owner’s foreclosure sale argued in state court that it was not liable for the prior owner’s unpaid assessments because the prior owner filed bankruptcy and received a personal discharge from his monetary obligations to the association. The new owner asked the court to give it the benefit of the prior owner’s bankruptcy discharge and the resulting avoidance of the prior owner’s personal liability to the association for unpaid assessments. I successfully demonstrated to the court that the bankruptcy discharge had no legal bearing on the statute assigning liability for past unpaid assessments to the new subsequent property owner. The court concurred and issued a summary judgment in favor of the association and ruled that the subsequent purchaser does not receive the benefit of the prior owner’s bankruptcy discharge.

Click here to read the complete article.

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.

The housing market may be in recovery mode, but many community associations continue to face significant challenges with unpaid assessments from unit owners. One of the remedies that our firm’s community association attorneys have discussed in prior articles in this blog is the ability that associations have to collect the rent directly from the tenants of owners who are delinquent in the payment of their monthly association dues. In this two-minute video, I discuss how associations are now routinely demanding and receiving the rent payments directly from the tenants of the owners who fall behind on their assessments.

 

 

Last year, several of our firm’s community association attorneys wrote in this blog about the decision by the Third District Court of Appeal in the case of Spiaggia Ocean Condominium Association Inc. v. Aventura Management LLC that has since caused many Florida condominium associations to reconsider their collections strategy. In the split decision in early 2013, the appellate panel ruled that when the association for the Surfside condominium obtained title to a unit through its own foreclosure action, the association disavailed itself of its ability to collect assessments from the third-party purchaser at the bank’s foreclosure sale. The appellate court reversed the order from the Miami-Dade trial court and remanded the case back to the trial court. However, the trial court again ruled in favor of the association, and the third-party purchaser appealed to the Third DCA. This time, the appellate court reversed the ruling and remanded the case back to the trial court with specific instructions to enter judgment in favor of the third-party purchaser.

The new unanimous appellate panel found that the trial court misinterpreted the appellate court’s original majority opinion last year, but Judge Leslie B. Rothenberg wrote for the panel that the previous 2-1 split decision was “somewhat ambiguous” and “could have been clearer.”

3rd district court of appeal.jpgIn the 2013 majority opinion, the appellate court found that Florida law clearly provides that “the previous owner is jointly and severally liable” together with the new owner for all unpaid assessments that come due up to the time of the transfer of title. “The plain language of the Statute does not state or suggest that an exception is to be made when the previous owner is the condominium association.” Therefore, by positioning itself as the “previous owner,” the majority held that the condominium association became liable for the unpaid assessments and could not then impose that liability solely onto the eventual new owner.

After the case was remanded back to the trial court, the trial court ruled that all three parties were jointly and severally liable for the unpaid assessments, but that the association as the creditor could collect in full from any of the three parties it chose. The trial court ruled that the third-party purchaser was required to pay the full amount of unpaid assessments, and that its only remedy was to seek contribution from the prior owners: the association and the original owner.

The new appellate ruling concludes that the trial court “erred in holding Aventura Management jointly and severally liable with the prior two owners,” the association and the original owner who went into foreclosure. The new appellate opinion finds that the third-party purchaser “cannot be held liable for the unpaid assessments of the original owner.” The third-party purchaser could only be held liable for the unpaid assessments of the immediate prior owner, the association.

The Third DCA’s recent ruling in this case sends a clear message to Florida condominium associations that when they take title to a unit, they will be unable to collect prior owners’ past-due assessments from the subsequent third-party purchaser at the bank’s foreclosure sale. The Florida legislature remedied this loophole for homeowners associations last year by amending the law to exclude homeowners associations, under Florida Statutes Chapter 720 governing HOAs, from being considered as the previous owner under the statute when HOAs take ownership of foreclosure units prior to banks’ foreclosures. We will have to wait and see whether the Florida legislature will take similar action in 2014 in order to remedy this issue for condominium associations under Chapter 718, Florida Statutes.

I have written several articles in this blog about the challenges that community associations are facing with unit owners who file for personal bankruptcy and utilize what is known as the “lien stripping” provisions of the bankruptcy code to avoid pre-bankruptcy maintenance assessment arrears due to their associations. If approved by the bankruptcy court, these code provisions enable a debtor in bankruptcy to wipe away second mortgages and association liens tied to their real property if they are able to demonstrate that they owe more to their first mortgage lender than what their home is worth. However, recent court decisions are a boon for the associations that lose certain of their lien rights against these bankruptcy debtors and then attempt to collect the past-due assessments from the subsequent buyers of the properties.

In a case recently decided by one of our local bankruptcy judges in the Southern District of Florida, the court determined that even if an owner strips off a condominium association lien because their unit lacks equity and is ultimately released from their pre-bankruptcy personal obligations to the association, the subsequent owner will not receive the benefit of the prior owner’s lien strip off and will remain liable to the association for the prior owner’s unpaid assessments that were due at the time title to the unit transferred to the subsequent owner. bankruptcy court sign.jpg In other words, no matter what a unit owner in bankruptcy accomplishes in their bankruptcy case with respect to their liability for maintenance assessments, nothing can impact a subsequent owner’s personal liability for the unpaid assessments and nothing in the prior owner’s bankruptcy impacts the association’s right to pursue payment from that subsequent owner.

Similarly, in a case in which I represented the community association, a new third-party purchaser at the prior owner’s foreclosure sale argued in court that they were not liable for the prior owner’s unpaid assessments because the prior owner filed bankruptcy and received a personal discharge from his obligations to the association. The new owner asked the court to give it the benefit of the prior owner’s bankruptcy discharge and the resulting avoidance of the prior owner’s personal liability to the association for unpaid assessments.

I successfully demonstrated to the court that the bankruptcy discharge had no legal bearing on the statute assigning liability for past unpaid assessments to new property buyers. The court concurred and issued a summary judgment in favor of the association, ruling that the subsequent purchaser does not receive the benefit of the prior owner’s bankruptcy discharge.

The lien stripping provisions of the bankruptcy code have definitely taken a financial toll on many community associations throughout Florida. Thankfully for the associations, these recent rulings by a state circuit court and local bankruptcy court should provide some clarity that the courts are not going to exacerbate the damage lien stripping brings upon an association by applying it to subsequent buyers. Our other community association attorneys and I will continue to write about important issues for Florida associations in this blog, and we encourage association directors, members and property managers to submit their emails in the subscription box at the top right of the blog in order to receive all of our future articles.

The recent decision in the case of United States of America v. Forest Hill Gardens East Condominium Association, Inc. and Forest Hill Gardens Property Owners’ Association, Inc. serves to clarify an issue that many community associations have faced in years past. That is: Are foreclosing lenders responsible for costs, late fees, interest and attorneys fees in addition to the 12 months or one percent of past due assessments? Many law firms attempted to collect these fees on behalf of their community association clients and, for many years, banks paid. However, in recent years, the banks have started challenging the demand for payment of anything other than the statutory safe harbor amounts that they legally owe. The summary judgment issued by the federal district court in Forest Hill Gardens sends a strong warning to associations that are considering making these demands in the future.

The decision came in early January with the court issuing a partial summary judgment in favor of the federal government and its Housing and Urban Development agency (HUD), which as a result of bank foreclosures had become the successor and assignee to the mortgages issued on two units at the Forest Hill Gardens East condominium in West Palm Beach. The ruling found that HUD was not liable for interest and attorney fees as well as other collections costs against the units during the twelve-month period prior to foreclosure. The court found the statutory provision stipulating that foreclosing lenders are liable to community associations only for the “safe harbor” amounts of the last 12 months of assessments or one percent of the mortgage, whichever is less, to mean exactly what it says. The court also found that the association’s demands for additional funds for interest, collections costs and attorney fees had no legal basis.

Bank owned 2.jpgTo make matters worse for the condominium association – which had attempted to argue that a provision of its declaration of condominium was invalid – the court agreed with HUD that not only was the association’s declaration of condominium still valid, but that the provision at issue – which provided that foreclosing lenders will not be liable for any assessments which were due prior to taking title to a unit – applied in this case. The court found that HUD had no liability whatsoever to the association for the unpaid assessments that accrued prior to its taking title to each of the two units. Nada. Zero.

Further, potentially exacerbating the results of this disastrous ruling for the association in this case, the court may determine that the association must pay HUD’s attorney fees for the defense that it mounted to counter the association’s demands for sums that exceeded the safe harbor maximums. In a similar case issued last year, the Third District Court of Appeal in Miami ruled that a foreclosing lender was entitled to collect its attorney fees from an association.

While this ruling does not set a legally binding precedent for future rulings on this issue in state courts in Florida, the message that it and similar rulings in the state and appellate courts are sending to community associations appears to be very clear. Florida community associations would be well advised to avoid seeking sums from foreclosing lenders that exceed the safe harbor maximums, as more and more decisions are finding in favor of lenders. In addition, associations that pursue these “other” costs risk the possibility of having to pay lenders’ legal fees and costs, and they may also end up receiving nothing from the lenders for past-due assessments based on antiquated provisions from the associations’ own governing documents.

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