“It’s really a better decision for the lending industry than it is for the community association industry,” said Michael Hyman, who is not involved in the Beltway case but knows the issue.
“It certainly doesn’t help the associations in trying to capture as much of their delinquencies as they can,” he said.
Hyman’s firm, Coral Gables-based Siegfried Rivera, has hundreds of condo association clients; he got his first one in 1970.
Over the years Hyman has watched the push-pull of the two industries in the courts and the Legislature.
“Safe harbor was a result of the banking industry years ago going to the Legislature and convincing them that lending would be in peril if a first mortgagee didn’t have priority over a condo assessment,” he said. “It was instituted so that a lender could always be in a position of priority over an association lien.”
Before the condo statutes were amended to add safe harbor, many of the older associations had governing documents that failed to address the liability or assessments post-bank foreclosure. Or they had provisions that would entirely extinguish the liability for assessments incurred before a bank received title through foreclosure.
Condo associations having a pretty strong lobby of their own, the point was taken that they were losing barrels of money. The resulting compromise added the 12 months or 1 percent provision for first mortgagees.
“It was sort of a bone that was thrown to the condo associations by the banking industry to prevent a catastrophe,” Hyman said.
Since the mortgage meltdown, however, the bone has lost meat. There were so many foreclosures and they took so long that associations found themselves “upside down” and suffering, he said.
“We had associations that had a large portion of their units in foreclosure and the associations had to change their operational motifs and pass special assessments because they didn’t have enough money to pay their bills,” Hyman said.
Most recently, the Legislature changed the safe harbor rules effective July 1 to help aggressive associations that beat out lenders in the competition to foreclose.
The banks argued that by foreclosing, an association would put itself in the position of the prior owner who isn’t entitled to collect any past-due fees. An amendment provided clarity, Hyman said.
“Now if the association takes title, the bank coming behind them on the bank’s foreclosure still has to pay the 12 months or 1 percent,” he said.
. . . Hyman has his own take on how Beltway came to be a case of first impression.
“The issue has never been brought up because nobody would have thought to argue it was even controversial,” he said. “It was never teed up for determination.”
Lawyers for the condo association used a creative defense against application of the safe harbor law that swayed the trial judge.
“Then the appellate court kind of straightened it out,” Hyman said. “The court basically said, ‘Hold on, you’re not looking at this in the appropriate way.’ “