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It's The Law: Condo Association Can Buy Unit At Foreclosure

Question: I am president of a condominium association. One of our units is in mortgage foreclosure. Our board is interested in buying the unit, renting it and eventually selling it at a profit when the market improves. Can we do that legally?

Answer: Florida's Condominium Act addresses your question at Section 718.111. Subsection (7) of the statute makes it clear that associations have power to acquire title to property and to own, sell, convey lease and mortgage association property for use and benefit of its members. Power to acquire personal property is exercised by the board of directors and does not require a unit vote. Real property is treated differently.

The statutes also provide that powers and duties of a condominium association include those set forth in the Condominium Act, the Florida Corporations Act and Florida's Not-For-Profit Corporations Act, to the extent not superseded by the Condominium Act. Both Florida's Corporation Act and its Corporations Not-For-Profit Act provide that Florida corporations may purchase, own, use and otherwise deal in and with real or personal property, or any interest therein and to sell, convey, mortgage, lease or otherwise dispose of any such property. The Not-For-Profit Corporations Act provides that all corporate powers must be exercised by or under the authority of its board of directors, subject to any limitations set forth in the Articles of Incorporations. Most condominium associations are not for profit corporations.

The Condominium Act provides that no association may acquire, convey, lease or mortgage association real property except in the manner provided in the declaration. If the declaration does not specify the procedure, then approval of 75% of the total voting interests is required, with two exceptions.

One exception gives associations power to purchase any land or recreation lease upon approval of such voting interest as is required by the declaration. If the declaration is silent, the required vote is the same as required to amend the declaration.

The other exception is the association has power unless prohibited by the declaration, articles of incorporation or by laws of the association, to purchase units in the condominium and acquire, hold, lease, mortgage and convey them. That means your association can buy a unit in a mortgage foreclosure, as long as its governing documents do not prohibit that purchase. And, if your documents are silent, the board of directors has the authority to make the purchase decision. The Condominium Act prohibits any restriction or limitation on the association's right to purchase a unit at a foreclosure sale resulting from the association's foreclosure of its own lien for assessments or to take title to such a unit by deed in lieu of foreclosure.

If your documents allow the purchase and provide no restrictions, you may proceed by board vote. However, you will then be treading in potentially rough waters.

The popular press has reported numerous examples of forgeries, fraud and procedural irregularities involving mortgage foreclosures. These can involve improper service of process and other simple mistakes, but can also involve forged borrower's signatures, false affidavits and forgeries. Even a properly conducted mortgage foreclosure cannot clear all title problems, such as IRS liens, property taxes and underlying title defects.

In one recent case, a purchaser at a mortgage foreclosure sale discovered that another person had bought the same property at a tax deed sale shortly after the mortgage foreclosure. The two owners are likely headed to court.

If you want to purchase at foreclosure sale, you will also have to pay for your purchase. Terms of sale are 5% down at time of sale and balance by 10:30 the next day. Although you may be planning on a special assessment of your owners to pay for the purchase, a special assessment cannot be adopted by the board on less than 14 days notice. Do you special assess in advance and hope that you are the successful purchaser? Do you try to arrange a line of credit or other funding source until you can special assess? And, even if the board thinks it's a good idea, how will your owners react?

Authority to purchase a condominium unit at foreclosure sale is probably the least of your concerns. Title problems, financing issues and owner agreement are likely more important. This is a complex scenario and you should retain an experienced attorney before proceeding further.

By: William G. Morris, Esquire

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