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It's The Law: Mortgage Holder Can Escape Payment Of Assessments

Question: I live in a condominium and some of our units are in mortgage foreclosure. The units are also behind in condominium assessments. After the bank finishes foreclosure, will the bank have to pay the past due assessments?

Answer: Section 718.116 of Florida Statutes provides detailed of liability for condominium assessments. The statute makes it clear that a unit owner, regardless of how title has been acquired, is liable for all assessments which come due while he or she is the unit owner. The unit owner is jointly and severally liable with the previous owner for all assessments that came due up to time of title transfer. This includes purchasers at foreclosure sale.

The statute makes it clear that the person owning the unit prior to foreclosure is personally liable for assessments that come due prior to transfer of title by foreclosure sale. That means the association can sue the prior owner for unpaid assessments, even after bank foreclosure. Buyers at foreclosure sale are liable for assessments that came due prior to date the buyer acquires title.

The statute makes one exception to its blanket rule. Liability of a first mortgage holder who acquires title by foreclosure or by deed in lieu of foreclosure is only liable for assessments coming due prior to acquisition of title in the lesser amount of six months of assessments that came due immediately prior to acquisition of title or one percent of the original mortgage principal.

Mortgage holders are often reluctant to foreclose on condominiums, because they become obligated to pay assessments accruing on and after date they acquire title in addition to the other costs and liabilities of property ownership. This is particularly true when condominiums are in communities with other assessments, such as homeowner associations or community development districts, all of which increase the costs of owning property.

When the unit is in a building or development that is distressed with limited likelihood of resale, the bank may have no interest in foreclosing at all.

Condominiums can sit for years without bank foreclosure with no one paying the assessments, because the association does not want to spend money foreclosing or pursuing its own remedies and is “waiting” for the bank to foreclose.

The statute is intended to encourage lenders to make loans secured by condominiums, by limiting their exposure to past assessments in event of foreclosure. In the current market, it has also had result of discouraging foreclosure and leaving some associations with mountains of unpaid assessments.

Florida’s legislature has considered legislation increasing the liability for unpaid assessments to twelve (12) months, but the statute is yet to be changed. That leaves many condominiums ringing their hands over the slow process of bank foreclosure. That led at least condominium association to seek court order that the bank’s beat up its foreclosure.

In a recent case, U.S. Bank National Association filed suit to foreclose a mortgage on a condominium unit owned by Danny Tadmore. The condominium association was joined as a defendant.

The foreclosure was delayed. Approximately one year after the foreclosure was filed, the condominium association filed a motion to compel the bank to proceed with its foreclosure or start paying the assessments. The association claimed that it was being unreasonably prejudiced by the bank’s “undue delay.” The trial court agreed and ordered the bank to “diligently proceed within thirty (30) days” or pay monthly maintenance fees. The bank appealed. On December 2, 2009, Florida’s Third District Court Of Appeal agreed with the bank.

The appellate court pointed out that the statutory protection. It provides that a first mortgage holder can only be required to pay maintenance fees after it acquires title and then only in a limited amount. Because the statute is clear equitable principals could not be utilized to impose an obligation to pay maintenance fees before title is passed. The court emphasized that in its quest to do equity, a court cannot “trammel” legal rights of the parties.

The Tadmore case makes it clear that first mortgage holders have substantial protection by statute. However, associations still have the right to pursue owners for assessments and to file and foreclose their own liens. Associations choosing to wait for bank foreclosure may be exacerbating the problem of unpaid assessments rather than solving it.

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