Avoid Overpaying Association Fees After Foreclosure or Deed in Lieu

March 07, 2012      |      Ana R. Cosculluela, Esq.

As part of Weltman Weinberg & Reis Co., LPA’s (WWR) growing REO practice, our REO attorneys expend substantial time and effort contesting the amount of association fees Homeowners Associations (HOAs) and Condominium Associations (COAs) claim to be due from the lender in title after foreclosure or deed-in-lieu of foreclosure.  There are statutory and contractual limits to the amounts owed to an HOA or COA by a foreclosing lender that substantially reduce the amount due -- yet the Associations and their attorneys often fail to apply those limitations when providing lenders with estoppel letters for association fees.  And the lenders often pay these unwarranted, excessive amounts without questioning their validity. An understanding of Florida law and effective REO counsel can help avoid these overpayments.

Homeowners’ Associations

Statutory Limitation.  §720.3085, Fla. Stat. (2008) limits a first mortgagee's liability for association fees to the lesser of a) 1% of the original mortgage debt, or b) unpaid common expenses and assessments accrued or due during the 12 months immediately preceding the lender's acquisition of title.   In most cases, the statutory amount is the most a lender should have to pay to an HOA after foreclosure. 

Contractual Limitation.  However, if the HOA's Declaration of Restrictions and the mortgage being foreclosed were recorded prior to July 1, 2007, the statute is not applicable.  Instead, the HOA's Declaration controls the lender's liability for HOA fees.  That is not necessarily a bad thing because a large number of these older HOA Declarations actually subordinate the association lien to the lien of the first mortgagee, such that the lender has no liability to the association for HOA assessments due prior to acquisition of title.  The developers included these subordination provisions in their Declarations to encourage lenders to finance purchases in their developments, and the Courts have held that the HOAs remain bound to these provisions.  Coral Lakes Community Assn v. Busey Bank, NA, 30 So. 3d 579 (2nd DCA Fla. 2010).

Condominium Associations 

Statutory Limitation (post 7/1/2010). - §720.116, Fla. Stat. (2010) limits the first mortgagee's  liability for condominium association fees, as with the HOA statute,  to the lesser of a) 1% of the original mortgage debt, or b) unpaid common expenses and assessments accrued or due during the 12 months immediately preceding the lender's acquisition of title.  Unlike the HOA statute, which is fairly new, the COA statute dates back to 1992 and will apply to most mortgages currently being foreclosed. We will rarely find a magical subordination provision in a Declaration of Condominium to release a lender of all COA liability. 

Statutory Limitation (pre 7/1/2010). However, there is a basis to limit the lender's liability for COA assessments to 6 months instead of 12 months if the mortgage being foreclosed was recorded prior to July 1, 2010, as is often the case.  The Courts have held that the 2010 amendment of the COA statute §720.116 that increased the lender's liability from 6 months to 12 months does not apply if the mortgage predates that amendment and the Declaration of Condominium did not incorporate future amendments to the Condominium Act.  Cohn v. the Grand Condo. Assn Inc., 62 So. 3d 1120 (Fla. 2011).

Also note the following:

  • Foreclosure and Deed in Lieu.  Both the statutory limitations and the contractual subordination provisions apply when the lender obtains title as a result of foreclosure or deed in lieu of foreclosure. If the lender obtains title via foreclosure, the HOA or COA must be joined as a defendant in the action for the statutory limitation to apply.
  • First Mortgages.  The statutory limitations and contractual subordination provisions generally only apply to and protect institutional first mortgages, not second mortgages or privately held mortgages.  Lenders must be careful not to disturb that priority when assigning the mortgage during the pendency of the foreclosure, or when assigning a judgment or bid post-judgment, as this could open the door to unlimited liability for association assessments.
  • Payment of Association Assessments.  The COA statute requires that the party taking title (i.e. the lender) pay the fees due within 30 days of the transfer of title.  We find no such time requirement in the HOA statute. The lender should also pay the association fees due before it conveys title to a third party (including deeds to FNMA, HUD and other insurers) or, upon the transfer of title, the third party could become liable for all association assessments due, without limitation.

This advisory is not all-inclusive, as there are exceptions and other factors to be considered; it is intended solely as a general simplified guideline. Where appropriate as part of WWR’s REO practice, our attorneys review the association documents and scrutinize association estoppel letters to ensure compliance with applicable laws and that the lender is paying no more than the law requires.

If you have any questions on this matter, please contact Ms. Ana Cosculluela, Esq.