Florida’s legislature has made many efforts over the years to help condominiums collect assessments while not scaring off lenders. Lenders do not want to make loans secured by property that could end up with a big lien for assessments that takes priority over the mortgage. A lender may not even make a loan if it has to worry about inheriting assessments in addition to the risk of not being paid its loan. For that reason, and probably due to lobbying by the banking industry, Florida’s legislature gives lenders special treatment.
Section 718.116 Florida Statutes is the section of the Condominium Act that addresses assessments. It deals with all kinds of issues involving assessments, including but not limited to liability, requirements for liens and even how an association confirms status of assessments (known as an estoppel letter).
The statute starts by making it clear that a unit owner, regardless of how title is acquired, including purchaser at a foreclosure sale, is liable for all assessments that come due while owning the unit. The statute also provides that a unit owner is jointly and severally liable with the previous owner for all unpaid assessments that came due up to the time of transfer of title. The statute makes it clear the current owner may have right to recover from the previous owner the amounts unpaid by the previous owner. The statute carves out an exception by stating “previous owner” does not include an association that acquires title to a delinquent property through foreclosure or deed in lieu of foreclosure. When the association acquires title and conveys to another, the new owner’s liability for unpaid assessments is limited to unpaid assessments that accrued before the association acquired title.
The legislature has heard a lot about liability for unpaid assessments. One complaint was from condominium associations that were not getting paid assessments, foreclosed a lien for unpaid assessments and after acquiring title from the unit were saddled with assessments to a “master association” for the same unit. The legislature amended the statute to provide that when an association acquires title through foreclosure of its lien for assessments, it is not liable for unpaid assessments, late fees, interests or attorney fees and costs that came due before it acquired title and which are due to any other condominium association or homeowner association that holds a superior lien. That statutory protection extends to the association’s successor or assignee. It does not let the association off the hook for assessments due other association that come due while it is the owner, but it takes the albatross of prior assessments off of the association’s neck.
Special treatment for associations is an effort to keep them viable and help all owners in a condominium. The legislature also seeks to protect lenders, which helps property value by encouraging lenders to make mortgage loans for condominium units. How does the legislature do that? It limits a lender’s liability for unpaid assessments to the lesser of the assessments that came due during 12 months immediately before the lender acquires title through foreclosure or deed in lieu of foreclosure or 1% of the original mortgage debt. Early lender protection was unlimited as long as foreclosure was filed within six months of the borrower’s last payment (otherwise lender had no special treatment). Lenders did not like that. The statute was amended so that all first mortgage holder acquiring title through foreclosure or deed in lieu of foreclosure only had liability for six months of pre-ownership assessments or 1% of the mortgage. After years of complaining by condominium associations, the legislature expanded that liability to a full 12 months, but kept the 1% of the original mortgage capped. The statute not only provides protection to banks, but also to a bank’s successor or assignee who acquires title by foreclosure or deed in lieu of foreclosure. The protection is only for first mortgages, so second mortgages will not find any solace in the statute.
The lender protection only extends to the lender, its successor or assigns acquiring title. It does not protect a third party buyer at foreclosure sale, who inherits liability for all of the assessments that came due prior to taking title. Also not protected is the assignee of a foreclosure judgment, when the lender has foreclosed but the court has not yet sold the property. That assignee is not the assignee of the mortgage, but only of the judgment and the courts treat the assignee as a third party purchaser at foreclosure sale. A purchaser from the lender after the lender acquires title through foreclosure is jointly and severally liable with the lender only for those assessments that the lender owed after application of the statutory protection. But, the purchaser needs to be careful. If the lender was not foreclosing a first mortgage, both lender and purchaser will likely be liable for all of the unpaid assessments on the unit.
The mortgage meltdown in 2008/2009 really brought this area of law to the forefront. Lenders did not want condominiums that were severely devalued and worth far less than the mortgage debt. In some condominiums, the units were almost unsellable at any price because the whole condominium financially imploded. Lenders in those cases took years to foreclose, knowing that once they took title, they would owe assessments but until they took title through foreclosure, they would owe nothing, and the statutory cap would limit their liability for assessments accruing prior to taking title. Condominiums howled but the banking industry fought change. When the tsunami of mortgage foreclosures from the meltdown eased, the push on revisiting the statute to provide additional protection to associations ended as well.
Many believe that the original statutory requirement of pursuing foreclosure within six months of default to gain protection should be reinstated, albeit without the complete waiver of liability for assessments on the unit when the first mortgage holder acquires title. In any event, the statute remains a compromise effort to provide something to protect the different interests of associations, condominium owners and lenders.
William G. Morris is the principal of William G. Morris, P.A. William G. Morris and his firm have represented clients in Collier County for over 30 years. His practice includes litigation and divorce, business law, estate planning, associations and real estate. The information in this column is general in nature and not intended as legal advice.