A Condo Association’s Lien Foreclosure Does not Extinguish the Outstanding Past-Due Assessments Owed by the Previous Owner
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The Florida Legislature, in 2014, amended the section of the Florida Condominium Act concerning liens for unpaid condominium assessments and who shoulders that liability. Specifically, Section 718.116(1)(a) was amended to make clear that a condo association’s temporary ownership of a certain unit does not wipe out the unpaid assessment balance which existed on that unit prior to the association’s ownership. This change was the legislature’s strong reaction to the 2013 case, Aventura Management, LLC v. Spiaggia. This Blog post will discuss how that case prompted this amendment to the Florida Condominium Act and explain how this revised statute greatly benefits and protects condominium associations going forward.
This Blog previously discussed that 2013 case in a prior post, which can be reviewed for a more thorough analysis. To summarize, what occurred was the association brought its own lien foreclosure action against a property due to the unit owner’s unpaid assessments. This resulted in the association gaining title to the property. The mortgage lender eventually brought its own foreclosure action where a third-party bidder placed the winning bid at the foreclosure sale, becoming the new owner of the property. The association then attempted to collect all unpaid assessments from that new owner. The new owner refused to pay, the association filed a lawsuit and the court ultimately ruled that the association’s ownership, however brief, extinguished the prior unpaid assessment liability for the new unit owner.
That ruling was made despite the Florida Condominium Act stating that previous owners and new owners are “jointly and severally liable,” and despite the fact that the Florida HOA Act contained language that an HOA gaining title to a property did not extinguish the prior unpaid assessments. Apparently, the court ruled the way it did because the Florida Condominium Act did not include the same language as the HOA Act, leaving the condominium statutes silent on the matter. That ruling placed condo associations in a tough position over the past year.
What was an association to do when a unit owner became months behind in assessments without any sign that payments would begin anytime soon? Just sit and wait until the lender foreclosed? That could turn into years of waiting, and years of no assessment revenue, as the average lender foreclosure action was 853 days as of 2013. Moreover, what if the unit owner was just barely making the mortgage payments but not the assessments? In that situation the lender would never foreclose, leaving the association without this assessment revenue for an indefinite period of time. Because of that unknown, and despite the court’s ruling, the best course of action for a condo association over the past year, the majority of the time, remained moving forward with its own foreclosure action and then renting the unit out to recoup the unpaid assessments until the lender foreclosed. At least under The Protecting Tenants at Foreclosure Act, the foreclosing lender would still have to honor the existing lease.
The Florida Legislature, with its 2014 amendment to the Florida Condominium Act, eliminated this tough position that condo associations were placed in by the court’s ruling in Spiaggia. Section 718.116(1)(a), Florida Statutes, was amended to include the following language: “For the purposes of this paragraph, the term ‘previous owner’ does not include an association that acquires title to a delinquent property through foreclosure or by deed in lieu of foreclosure.” That new language makes clear that an association is no longer considered a “previous owner,” which means the prior unpaid assessments are not extinguished when a condo association briefly takes title to a property through its own foreclosure action. The prior justification for the court’s ruling in Spiaggia—that an association cannot owe itself money; therefore, when it takes title to a property a subsequent owner isn’t liable for the unpaid assessments—has been eliminated by this amended statutory language. Now the unit owners prior to the association gaining title to the property, along with the unit owners subsequent to the association gaining title, are both “jointly and severally liable . . . for all unpaid assessments that came due up to the time of transfer of title.” Fla. Stat. § 718.116(1)(a). As a result, the best course of action for a condo association to pursue when a unit owner’s unpaid assessment liability becomes unbearable is to move forward with its own foreclosure action and then rent the unit out to recoup the unpaid assessments.