The Tables Turn: Associations Foreclosing on Banks for Unpaid Dues on Properties They’ve Acquired
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The Florida Statutes are clear—persons who purchase a residential foreclosure with outstanding assessments and dues attached to it are responsible for paying those past-due amounts to the governing association upon taking possession of the property. See Fla. Stat. § 718.116(1)(a) (applying to condominiums); see also Fla. Stat. § 720.3085(2) (applying to property governed by homeowners’ associations). This Florida law applies to banks as well.
This means that when a bank purchases a residential property at a foreclosure sale, the bank is responsible for paying to the association the past-due fees and assessments on that subject property (up to a capped amount—see below). However, as reported by the Community Associations Institute, 70% of the time, banks don’t pay those past-due assessments and fees to the respective association. The result is associations are left without much-needed revenue used to maintain their communities.
Does this mean that associations are simply out of luck? Absolutely not! The Florida Statutes also provide associations with a much needed remedy. Florida associations are given a statutory lien on residential property for unpaid assessments and dues. That statutory lien allows associations to “foreclose a lien for assessments in the same manner in which a mortgage of real property is foreclosed. . . .” Fla. Stat. § 720.3085(1)(c) (applying to homeowners’ associations; see also Fla. Stat. § 718.116(6)(a) (applying to condominium associations). This statutory lien can be used by an association to foreclose on a bank that hasn’t paid the past-due assessments and fees it owes.
Florida’s condo associations must keep in mind, however, that if the bank acquiring the residential property through foreclosure is the first money mortgage lender for that property then its liability for past-due assessments is limited by the “safe harbor” provision of § 718.116(1)(b), Florida Statutes. The safe harbor provision states that the first mortgagee’s liability is limited to 12 months of unpaid past assessments or 1% of the original mortgage debt, whichever is less. That past due amount must be paid to the association within 30 days of the bank receiving the title. Moreover, the bank is then responsible for 100% of future assessments while it owns title to the property. If the bank fails to pay either the safe harbor amount or the future assessments, the association can foreclose on it.
In order to foreclose on the bank, the association must first file a valid claim of lien against the financial institution. See Fla. Stat. § 718.116(5); see also Fla. Stat. § 720.3085(1). If the claim of lien is recorded, and the bank doesn’t respond by paying in full the assessments and fees it owes, the association can then move forward with the foreclosure process. This process includes delivering to the bank the Notice of Intent to Foreclose Lien and, if the bank doesn’t respond to the Notice, ultimately foreclosing on the property.
This strategy is great for an association to ensure it is receiving the assessments and fees owed to it once a bank acquires one of its properties. Associations utilizing this strategy have found that banks, more often than not, pay the outstanding assessments and fees rather than risk losing the property via foreclosure.
However, if the bank never pays up, the association, through the foreclosure process, may end up in a position where it can ultimately generate extra revenue in this depressed housing market. For example, if the association obtains possession of these properties through the foreclosure process, it can then rent out those properties. Over time, the association may end up with more revenue from rental income than it would have by simply receiving the past-due assessments and fees in the first place.
For associations finding themselves in this situation, it may be time they turn the tables on the banks and initiate foreclosure proceedings on financial institutions that refuse to pay past-due assessments and fees.