Foreclosure Mortgage • Author Mark Martella, Esq • Sep 12, 2014
The ripple effects of the mortgage crises have affected many condominium and homeowners associations. The problem arises for the associations and all of the unit owners as a result of once someone stops making their mortgage payments, they also usually stop making their association payments. The problem gets exasperated by banks taking two to four years in many cases to complete their foreclosure actions. If the unit owner also files bankruptcy during the foreclosure, that further elongates the process.
When payments are not being made, the burden of the costs for maintaining the property’s common area maintenance, taxes and insurance is placed on the remaining homeowners. While a unit owner is also personally responsible for the payment of their association fees in addition to the lien on the property provided by statute, it is often not cost effective to attempt to obtain a personal judgment against the unit owner and try to collect on it, especially if they have filed bankruptcy. Unfortunately, the banks are not necessarily in a hurry to take possession of the property because they have a “safe harbor” provision under the Condominium Act. Specifically, while both a new owner and a prior owner are jointly responsible for any outstanding dues, due to certain provisions of the Condominium Act, a foreclosing bank who purchases the property at the foreclosure sale, is only responsible for up to twelve months of association dues that accrued prior to taking title to the property. This safe harbor provision costs tens of thousands dollars to associations who have multiple foreclosures.
However, the key to this safe harbor provision is that the foreclosing bank must also be the first mortgagee who purchases the property at the time of the sale. A twist on this issue arose in the case of Bermuda Dunes Private Residences v. Bank of America, 133 So. 3d 609 (Fl. 5th DCA 2014). In this case, Bank of America held a first mortgage on a residential condominium unit. It assigned the mortgage to Freddie Mac which then filed a foreclosure action and named the borrowers and association as defendants. A final judgment of foreclosure was entered in favor of Freddie Mac. However, at the time of the sale, Bank of America was the winning bidder and a Certificate of Title, which transfers the property to the successful bidder, was issued to Bank of America.
When Bank of America turned around to sell the property, it requested from the association an estoppel letter which advises the parties how much is owed fro association fees. Bank of America took the position that it was only responsible for 12 months under the safe harbor provisions. The association took the possession that since the bank was neither the assignee nor the successor to the first mortgagee, it was not entitled to the safe harbor protections.
While the Trial Court ruled in favor of Bank of America, on appeal, the Fifth District Court of Appeals ruled in favor of the condominium association stating that since Bank of America had assigned its rights as first mortgagee to Freddie Mac, Freddie Mac was for purposes of the statute, the first mortgagee. Since Freddie Mac did not purchase the property at the time of the public sale to qualify as the first mortgagee, Bank of America was not entitled to the safe harbor provisions.
Therefore, if you serve on an association board, it is very important to confirm that the bank that purchases the property at the time of the sale is the same as the foreclosing lender. In this case, Bank of America attempted to argue that Freddy Mac was just the servicer. However, the Fifth District Court did not buy that argument and the association prevailed.
Contact a Bankruptcy Attorney
If you have a situation as we described in this article and have questions or concerns, please don’t hesitate to contact us to answer your bankruptcy legal questions.
Martella Bankruptcy Firm
18501 Murdock Circle, Suite 304
Port Charlotte, FL 33948
5237 Summerlin Commons, Suite 411
Fort Myers, FL 33907