Typically after a foreclosure sale, if the lender retakes title which happens in many cases, its liability to the HOA for the former owner’s assessments are limited to the lesser of 1% of the original mortgage amount or 12 months of assessments. This concept is referred to as “safe harbor” and contained in Statute 720.3085
The question then becomes what if an individual buys the property from lender (such as an REO property) where the lender failed to pay the safe harbor amount; what amount is the individual now liable for? As typically a subsequent purchaser is jointly liable with the prior owner for the full assessment amount.
This issue was reviewed by the 4th DCA in Villas of Windmill Point II Property Owners’ Association, Inc. v. Nationstar Mortgage, LLC. In the case, the foreclosing lender sold the property to Fannie Mae without paying the safe harbor amount. Fannie Mae asserted it was entitled to only have to pay the lesser of 1% of the mortgage or 12 months of assessments, and the HOA asserted Fannie Mae owed the full assessment.
The trial court and appellate court both found that Fannie Mae was entitled to safe harbor. The court reasoned that in theory, Fannie Mae was jointly liable with the foreclosing lender for all unpaid assessments, as since the foreclosing lender was entitled to safe harbor so was Fannie Mae jointly for that amount.
This means that if you buy a REO property from a bank, you may only be on the hook for the lesser of 1% of the original mortgage amount or 12 months assessments, instead of the many years of assessments the prior owner may have owed.