There has been a flurry of newspaper articles
discussing a March 24, 2009 Miami-Dade
Circuit Court order that requires tenants in
condominium units that are in foreclosure by
the condominium association to pay rent to a
receiver who disburses the money to pay
delinquent assessments to the association.
The articles this author has read describe
the procedure as something new that could
save associations from financial ruin.
Despite some of the hyperbole in some of the
articles, the procedure is not new and does
not solve the problems facing most associations.
First of call, both the Condominium Act
(Chapter 718) and the Homeowners Association
Act (Chapter 720) have long authorized the
ability of an association to obtain the
appointment of a receiver to collect rents
that are being paid to the parcel owner while
the association is in the process of the
pursuing foreclosure of its lien. The
obstacle faced by most associations to
actually taking advantage of these laws is
the cost of the receiver. In the case
reported in Miami-Dade, the receiver had to
post a $20,000.00 bond to "secure the
faithful performance of its duties." The part
of the procedure employed in the Miami-Dade
case that was unique is that the court's
order applied to all of the pending
foreclosure actions in the community; only
one bond was required and the court order
applied to all cases the association files,
both current and future. For a community with
many pending and potential lien foreclosure
actions where the owners are collecting rent,
this procedure could prove useful.
Ok, I know the procedure may sound like the
panacea to save communities with crippling
levels of delinquencies, but it is time to be
Debbie Downer for a minute before everyone
clamors to have their very own receiver
appointed. First of all, the primary
delinquency problem in most communities today
does not arise from owners who are renting
their units while they are not paying their
assessments; in most communities, the problem
is that some owners are renting their units
while they are not paying their
mortgages and also not paying
their assessments. In most of those cases,
the lender is foreclosing and the association
has chosen not to file a foreclosure action.
In most cases, it does not make economic
sense to spend the costs and attorney fees in
a cross claim if the lender will extinguish
the association's claim anyway. Even the
prospect of collecting the rent may not be
enough to cover the costs involved. The
statute that was used in the Miami-Dade case
only applies when it is the association that
is foreclosing.
Secondly, assuming
that the association does file a cross claim
and does persuade the court to appoint a
receiver, the association and the lender may
end up in a fight over whether any rents that
are received by the trustee belong to the
lender or the association. Many mortgages
have assignment of rent language that lenders
may argue gives them a right to any rent
received from the property.
The result in the noted Miami-Dade case may
work for the community involved in that case
and other similarly situated communities if
they have enough delinquent unit owners who
are renting their units, but who are paying
their mortgage. If your community fits that
profile, your board should consult with your
legal counsel to determine whether the
procedure makes sense for your community.
