“WHO’S ON FIRST?”; WHY FORECLOSURE SALE PURCHASERS CLAIMING THE SAFE HARBOR PURSUANT TO §718.116 ARE NOT ALWAYS ENTITLED TO IT
“WHO’S ON FIRST?”;
WHY FORECLOSURE SALE PURCHASERS CLAIMING THE SAFE HARBOR PURSUANT TO §718.116 ARE NOT ALWAYS ENTITLED TO IT
Recently, our office successfully obtained a voluntary payment from a lending institution of the entire past due balance of the previous delinquent unit owner, despite the fact that the bank became the owner of the unit after a bank foreclosure sale and had asserted the applicability of the statutory cap for lender liability found in §718.116. This payment saved the association from accumulating more than $12,000.00 in bad debt, and included over $2,000.00 in unpaid interest, never mind full payment of costs, late fees and attorneys fees. This may not happen often, but it is happening with increasing frequency.
In Condominiums (and Homeowners Associations generally), as is widely known, a unit owner, regardless of how their title was acquired, is liable for all maintenance while they are an owner, and are “jointly and severally liable with the previous owner for all unpaid assessments that came due up to the time of transfer of title.” However, there is a well known and infamous exception to this liability stated in the condominium statute (and similarly in the HOA statute) governing this joint and severable liability (or lack thereof in the case of first mortgagees):
” 718.116 Assessments; liability; lien and priority; interest; collection.-
(b)The liability of a first mortgagee or its successor or assignees who acquire title to a unit by foreclosure or by deed in lieu of foreclosure for the unpaid assessments that became due before the mortgagee’s acquisition of title is limited to the lesser of: …[12 prior months of units unpaid assessments / common expenses or 1% of the first mortgage]”
This statutory cap has been the bane of Associations for several years now, and is so widely known that there is no need to quote the rest. All assessments lost to the cap (the bad debt) become common expenses chargeable to all other owners in equal shares.
Due to the turbulent state of the banking industry and the frequent purchase of units in bank foreclosure by entities who were not the original plaintiffs in the case, the question of who qualifies as a successor or assignee of a first mortgagee has become an important one. The statute has a definition:
“… (g)For purposes of this subsection, the term “successor or assignee” as used with respect to a first mortgagee includes only a subsequent holder of the first mortgage.”
Several years ago, in a significant case, a wholly owned subsidiary of a first mortgagee who obtained a final judgment of foreclosure, took title to the unit foreclosed pursuant to an assignment of the Final Judgment of Foreclosure, and then argued that they fell within the cap. The Third District Court of Appeals disagreed, strictly adhering to the definition stated above and requiring that the new owner be the “subsequent holder of the first mortgage.”
Nowadays, with the upheaval in the banking industry and the omnipresence of Fannie Mae, the first mortgagee plaintiff who prevailed in their foreclosure is not always the entity that takes title to the unit after the foreclosure sale even if the unit is heavily underwater and no outright third party purchasers unrelated to the lender are successful bidders. A first mortgagee can obtain the winning bid at the foreclosure sale and subsequently assign its foreclosure sale bid to another entity that will own and operate the property, such as an investor entity, or a banking institution that is not a holder of the first mortgage, but that has received the right to reo assets of the first mortgagee who brought the complaint in the first place.
In the specific case mentioned above in which the Association was paid in full, the bank stated they were entitled to the cap, but were challenged to produced any documentation that would establish that they are the holder of the mortgage. The bank willingly paid the full amount instead of challenging the association or producing the required documentation. This incident is just an example of an event that is taking place with increasing frequency due to the upheaval in the banking industry, hopefully signaling a positive trend for associations.
The Law Office of Cuevas, Garcia & Torres, P.A. is providing this newsletter as a brief summary of certain aspects of community association law. The information provided herein is for informational purposes only and should not be construed as legal advice. The publication of this news letter does not create any attorney-client relationship between the reader and Cuevas, Garcia & Torres, P.A. The hiring of an attorney is a decision that should not be based solely on advertisements or this newsletter. Before you decide, ask us to send you free written information about our qualifications and experience.