Recently, the 3rd District Court of Appeal (“3rd DCA”) rules against a homeowner’s association (HOA) seeking costs and attorney’s fees in addition to the statutory amounts it received after a foreclosure. Opinion here.
Generally, after a foreclosure sale occurs, and the bank is the winning bidder (ONLY when the bank wins title), there are outstanding HOA assessments due as well. Who pays those? Well the Florida Legislature crafted a statute, Section 720.3085(2)(c) to remedy this. This Section, also referred to as the “Safe Harbor Provision” states:
(c) Notwithstanding anything to the contrary contained in this section, the liability of a first mortgagee, or its successor or assignee as a subsequent holder of the first mortgage who acquires title to a parcel by foreclosure or by deed in lieu of foreclosure for the unpaid assessments that became due before the mortgagee’s acquisition of title, shall be the lesser of:
1. The parcel’s unpaid common expenses and regular periodic or special assessments that accrued or came due during the 12 months immediately preceding the acquisition of title and for which payment in full has not been received by the association; or
2. One percent of the original mortgage debt.
In plain English, this says that if the bank takes title, it is only liable to the HOA for the 12 months of regular or special assessments prior to taking title, or 1% of the original mortgage price, whichever is less; typically the 12 months unless it was a very small mortgage.
The 2 HOAs in this appeal argued the same Section of the statutes “required them to apply any payments received from [the mortgagee] first to late charges and interest, and then to costs and attorney’s fees incurred in collection, and only then to assessments.”
The 3rd DCA found that if the legislature wanted the Safe Harbor Provision to include attorney’s fees and costs the language of the Section would say so. The court said that “‘unpaid common expenses and regular periodic or special assessments’ does not include amounts for attorney’s fees, costs, and interest. … Given the unambiguous language of the statute, we must conclude that if the Legislature intended to include attorney’s fees, costs, interest, or other charges as part of the first mortgagee’s liability, it would have included any one or more of those items in the safe harbor provision.”
The 3rd DCA thus rules against the HOAs.
In practice, this means that the HOA is likely out thousands in costs chasing the foreclosure in state court and on appeal; as well as paying the bank’s lawyers fees as prevailing party on appeal. This is likely in excess of the 12 months the bank had to pay the HOA.
This is a good lesson for HOA boards to take what the law provides and don’t chase parties in bank foreclosures hoping to get paid. Start your foreclosure EARLY; as previously discussed here the foreclosure MUST be filed before the bank files theirs or else the association’s is barred.