As if Florida homeowners associations
have not been struggling enough during the current
economic slump, a recent decision of the Florida
Second District Court of Appeal invalidated the
application of a portion of the Homeowners
Association Act (Chapter 720, Florida Statutes) that
required first mortgage holders to pay associations
when the mortgage holder acquired title to a lot at a
foreclosure sale. As many BackerReport readers may
know, the Homeowners Association Act contains a
provision that provides that a first mortgagee is
responsible for paying associations when the
mortgagee takes title to a lot. To fully understand what
happened here, a brief history lesson is in order.
Prior to July, 2007, there was nothing in
Florida Statutes which obligated a party that took title
to a lot at a foreclosure sale to pay anything to a
homeowners association for unpaid maintenance
assessments that came due before taking title. In fact,
there was nothing in the Statutes that obligated
any subsequent owner to pay the association
whether there was a foreclosure or not. Unless the
association had a lien on the property before a
transfer of title occurred, nothing in the Statutes prior
to July, 2007 required the new owner to pay anything
that was owed by the prior owner. That all changed
when, in July, 2007, an amendment to the
Homeowners Association Act made anyone
who acquired title to a parcel in a homeowners
association responsible for all unpaid
assessments that came due prior to taking title. There
was no exception included in the new law for
mortgage holders that took title at foreclosure sales.
You can imagine that the lending industry was not
pleased with the new law. The new law survived only
one year and, in July, 2008, the legislatures
amendment to the law became effective and limited
the exposure of mortgagees who took title to
properties through foreclosure to the lesser of 1% of
the original mortgage amount or 12 months of
assessments that came due prior to taking title.
During the year that the 2007 version of the statute
was in effect, Coral Lakes Community Association,
Inc., a community in Cape Coral, Florida, took a
position in the context of a first mortgage foreclosure
action that the mortgagee would owe all the back
assessments if the mortgagee took title. The trial
court ruled that the mortgagee had no liability for such
pre-title assessments and, on February 19, 2010, the
appellate court agreed. That brings us to our
discussion of how that case affects the rest of the
community associations in Florida.
The Second District Court of Appeal ruled
in Coral Lakes Community Association, Inc. v.
Busey Bank 2010 WL 567251 (Fla. App. 2 Dist.),
that language contained in the Coral Lakes
declaration controlled over the language in the statute.
Coral Lakes declaration, like many other Florida
communities declarations, contains language that
excuses the holders of first mortgagees from liability
for assessments that came due prior to taking title in
the context of a foreclosure action or deed in lieu of
foreclosure. The language in the declaration existed
when the mortgage was created and the Florida
statute that imposed liability on mortgagees was
adopted after the mortgage was given. The court
analyzed the statute and whether it could be applied to
mortgages that were already in place prior to the
effective date of the statute. There are constitutional
limitations on the ability of the legislature to make
statutes retroactive and other limitations on the ability
of the legislature to impair contracts by applying new
laws to existing contracts. The court held that the
language of the declaration relieved the mortgagee
from liability and the court held that to apply the later
adopted law to a mortgagee who lent based upon
such language would be constitutionally
impermissible.
There is no doubt that the Coral Lakes
case will impact many communities in Florida. Unless
the Supreme Court of Florida accepts this case for
review or unless another District Court of Appeal in
Florida rules differently, Coral Lakes will be the law on
this issue in cases with the same facts. Before
concluding that your association cannot collect any
assessments from a mortgagee that acquires title to
a parcel in your community, it is critical that your
attorney review your governing documents determine
whether there is language similar to the Coral Lakes
declarations language. It is entirely possible that the
language in your declaration does not completely
relieve the mortgagees from liability when they take
title.
