Does Your Association’s Declaration Preclude Any Recovery From Foreclosing Lenders?

After the housing bubble collapse, the Florida Legislature ratified numerous amendments to the Florida Condominium Act and Homeowners’ Association Act to provide associations with more power in collecting past-due assessments. One amendment obligated lenders that foreclose on properties owing past-due assessments to pay, at the very least, a certain statutory amount to the governing association (see Fla. Stat. §§ 718.116; 720.3085). Nevertheless, if an association’s declaration waives any and all liability of a mortgage lender, then that association is precluded from collecting even the statutorily approved amount. The pressing question for all board members and community association managers is whether or not your governing documents allow your association to collect from foreclosing lenders. If not, your association could be missing out on thousands of dollars.

The Florida Statutes now state that a first mortgagee that forecloses on property is liable to the governing association for either one percent of the original mortgage debt, or the past 12-months of unpaid assessments on the property, depending upon whichever is less (Fla. Stat. § 718.116).  On the other hand, recent court opinions have held that if an association’s declaration contains language releasing a foreclosing lender from any obligation for past-due assessments, then the statutory liability for lenders will not apply (see Willoughby Estates v. BankUnited, Case. No. 2014AP000015; Fla. 15^th Cir. Ct., June 23, 2015).  In Willoughby Estates, the court explained that due to the association’s declaration relieving the lender from any assessment liability “the association . . . relinquished its right to collect unpaid assessments from [lenders].”

The following is a typical provision found in many outdated community association declarations created 15 to 30 years ago that prevents any recovery at all from foreclosing lenders:

The sale or transfer of any Lot or Unit pursuant to foreclosure of a first mortgage, or any proceeding in lieu thereof, shall extinguish the lien for assessments as to payments which became due prior to such sale or transfer.

Clauses like this one were likely drafted by an association’s developer with the intent to make it easier for purchasers to obtain financing, yet years later those clauses have had the effect of punishing associations trying to collect past-due assessments from foreclosing lenders. Such clauses are a death blow to any hope of recovery from a lender foreclosing on a property with unpaid assessments, no matter how large the delinquent assessment balance.

Every board member and community association manager should review its declaration to determine whether it contains any clause releasing foreclosing lenders from all assessment liability. If such a clause is found, the association should address this by amending that section of its declaration. The amendment should replace the existing restrictive language to include the new favorable statutory language containing the lender’s current statutory liability for past-due assessments. While amending its declaration, the association should also be sure to include Kaufman language in its amendment, which is a declaration provision that incorporates all future amendments to the Florida Statutes into the existing declaration.