With so many mortgages having been sold off by their original lenders to other lenders during the foreclosure crisis, a ruling last week by the Fifth District Court of Appeal provides clarification as to whether subsequent assignees of the original first mortgage are entitled to the “safe harbor” limitation for past due assessments. The opinion affirms that subsequent mortgage assignees of the original first mortgage of a property are entitled to the safe harbor limitation of the lesser of twelve months of assessments or one percent of the original mortgage debt.
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.
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.
The Florida Legislature has enacted a number of new laws over the last several years that were in direct response to the foreclosure crisis and the meltdown in the housing market. The latest example of such a law was enacted during this year’s legislative session and deals with abandoned units in condominiums.
A decision last year by the Second District Court of Appeal clarified an issue that has caused some consternation and confusion among community association boards throughout Florida for many years. The court found that even though the Florida statutes under section 720 governing HOAs stipulate that new unit owners are liable for the unpaid assessments of prior owners, the statutes under section 197 governing ad valorem taxes supersede those under 720 in regards to whether liens for association assessments survive the acquisition of a property via the issuance of a tax deed.
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.
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.
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.
During the foreclosure crisis, lenders elected to file foreclosure actions but often failed to conclude their cases, resulting in the dismissal of many foreclosure actions throughout the state. Community associations were then left to decide whether to pursue their own foreclosure remedy or continue to wait for the lender to foreclose. In these situations, we recommended an aggressive strategy to our clients and advised them to pursue their foreclosure remedy notwithstanding the large mortgage on the property. This would at least allow the association to rent the unit while it waited for the lender to commence a second foreclosure action. However, in this recent case, the lender waited too long to re-file its second foreclosure action.
A decision earlier this month by the Third District Court of Appeal serves as a good lesson to community associations and their attorneys about the importance of working closely with their process servers to ensure that all of the statutory requirements for service or “constructive service” on unit owners in foreclosure actions are met. In the case of Castro v. Charter Club Inc., the appellate panel reversed a Final Judgment of Foreclosure finding that the search and inquiry performed by the Charter Club condominium association and its attorneys did not satisfy the constructive notice statute, its notice by publication was improper, and the foreclosure judgment against the homeowners was void and must be vacated.