Chapter 9-4 Post-Foreclosure

9-4 Post-Foreclosure

9-4:1 Anatomy of an Estoppel Dispute

While associations may litigate with mortgagees over compliance with declarations, articles or bylaws regarding repairs, approval of prospective buyers, and other such mundane compliance issues, those issues are no different from issues an association may litigate with any other type of owner. The normal post-judgment issue, which is unique to a foreclosing lender and which arises with surprising frequency, is the amount of dues that a foreclosing first mortgagee owes to the association after it takes title after its foreclosure sale, and whether the foreclosing first mortgagee is entitled to "safe harbor." Without a proper estoppel, the foreclosing lender will find it difficult to find a buyer and the property may languish in REO status for months or years.

The issue arises because a borrower who does not pay his or her mortgage usually does not pay his or her association dues either. The general rule for condominiums and HOAs is one of joint and several liability, i.e., that a subsequent owner owes, as a "pre-title liability," the dues previously owed by the prior owner. For condominiums, Fla. Stat. § 718.116(1)(a) states that "a unit owner is jointly and severally liable with the previous owner for all unpaid assessments that came due up to the time of transfer of title." Similarly, for HOAs, Fla. Stat. § 720.3085(2)(b) states that "[a] parcel owner is jointly and severally liable with the previous parcel owner for all unpaid assessments that came due up to the time of transfer of title."

But the concept of safe harbor, which is a statutory provision that benefits first mortgagees, tempers the general rule of joint and several liability for dues liability, both for homeowners associations ("HOAs") and condominium associations.³³ Under these safe harbor statutes, a first mortgagee or its successors or assigns is not responsible for any past due assessments for amounts over 12 months of dues, or 1 percent of the mortgage amount, whichever is less.³⁴

However, after a first mortgagee forecloses on that defaulting borrower and takes title, associations often attempt to refuse "safe harbor" to foreclosing first mortgagees, and seek instead, to use the first mortgagee as a deep pocket to pay for the failure of the borrower/prior unit owner to pay all of the unpaid dues, late fees, costs, interest and attorney's fees incurred by the borrower (or even prior owners) that the first mortgagee foreclosed on. If allowed, this is like the bank getting hit twice for the misconduct of the borrower. Alternatively, the association may seek to extract unpaid dues from the third-party purchaser who buys directly from the judicial sale following a foreclosure, or more importantly for present purposes, from the third-party purchaser who buys directly from the REO inventory of the foreclosing first mortgagee who took title after the sale.

As noted, there is almost never a dispute that the current owner owes the dues that come due while the current owner owns the home or unit, referred to herein as "post-title" dues. These post-title dues become owed by the current owner once title is obtained from the immediate prior owner.³⁵

Instead, the dispute usually centers on "pre-title" dues and amounts, i.e., those amounts due as a "pre-title" liability that accrued before the current owner took title. Specifically, the litigated question is whether a third-party purchaser is liable just for the pre-title dues owed by just "the immediate-prior owner,"³⁶ or whether that third-party purchaser owes all unpaid dues owed by all prior owners who defaulted on their dues.

In Aventura Management, LLC v. Spiaggia Ocean Condominium Association, Inc. (Spiaggia I), the association obtained a foreclosure judgment and bought the condominium at the resulting foreclosure sale. Thereafter, the bank, the holder of the first mortgage on the condominium, foreclosed on the condominium and obtained a foreclosure judgment. A third party purchased the condominium at the foreclosure sale³⁷ following the bank's foreclosure action. The association therefore sought to recover from the third-party purchaser those condominium assessments that the original owner failed to pay pursuant to § 718.116(1)(a). In rebuttal, the third party argued that because the association was "an intervening owner" between the original owner and the third-party purchaser, the association was responsible for the original owner's assessments, not the third-party purchaser. The association argued, in so many words, that it was somehow exempt when it took title simply because it was "the association." The Third DCA rejected that position three times in three cases.³⁸ In that triumvirate of cases, the Third DCA explained that the singular definite article "the" in § 718.116(1)(a) (which by the way is identical to that in § 720.3085(2)(a)) meant that the association's taking of title made it "the immediate-prior owner" and that there was no statutory exception for an association when it took title.

After the Third District's Spiaggia line of cases discussed above,³⁹ the Florida Legislature legislated around those Third District cases in the sole instance when the association takes title.⁴⁰ Essentially, under the "Spiaggia Amendments" the association gets passed over as an "owner" for Spiaggia purposes, creating simultaneously a legal fiction and an exception to § 718.116(1)(a)'s and § 720.3085(2)(b)'s interpretation by the Third District that a subsequent owner is liable only for the unpaid dues of "the immediate-prior owner" (and none further back than that). If the HOA or condominium association took title before the relevant effective date, then the Spiaggia Amendment does not apply. The HOA Spiaggia Amendment was effective July 1, 2013, and the condominium Spiaggia Amendment was effective July 1, 2014.

In these Spiaggia Amendments, the Florida Legislature added two sentences. It amended Fla. Stat. § 720.3085(2)(b) by adding: "For the purposes of this paragraph, the term 'previous owner' shall not include an association that acquires title to a delinquent property through foreclosure or by deed in lieu of foreclosure. The present parcel owner's liability for unpaid assessments is limited to any unpaid assessments that accrued before the association acquired title to the delinquent property through foreclosure or by deed in lieu of foreclosure." And it amended Fla. Stat. § 718.116(1)(b) by adding: "For the purposes of this paragraph, the term 'previous owner' does not include an association that acquires title to a delinquent property through foreclosure or by deed in lieu of foreclosure. A present unit owner's liability for unpaid assessments is limited to any unpaid assessments that accrued before the association acquired title to the delinquent property through foreclosure or by deed in lieu of foreclosure."

This "association-as-immediate-prior-owner" scenario was the only aspect of the Spiaggia rulings that was overruled by the Legislature's Spiaggia Amendments, in that the Legislature created a statutory exception for title-taking Associations,⁴¹ that was previously non-existent, as noted by the Third DCA in these three cases.

How this issue can play out is demonstrated in a case from the Third District Court of Appeal, Bona Vista Condominium Association, Inc. v. FNS6, LLC, which was decided after the Spiaggia Amendments but decided on the prior version of the statute by agreement.⁴² In Bona Vista, Guido Brito ("Brito") owned a condominium unit governed by the Bona Vista Condominium Association, Inc. (the "Association"). Sometime in or around 2009, Brito failed to make his monthly mortgage payment to Wells Fargo, and failed to make his monthly assessment payments to the Association. The Association filed a lien foreclosure in June 2009, and later obtained a Final Judgment of Foreclosure. The Association then became the successful purchaser at the resulting foreclosure sale, and took title to the condominium unit. Thereafter, Wells Fargo foreclosed its own first mortgage and obtained a final judgment. At the resulting foreclosure sale, the unit was sold to FNS6, LLC ("FNS6"). Following FNS6's acquisition of title, the Association demanded nearly $21,000 in unpaid assessments from FNS6, that came due during the time the Association held title to the unit. FNS6 then sought declaratory relief in the trial court, seeking a determination as to its obligations under Section 718.116(1)(a), Fla. Stat. (2013), to pay assessments that came due during the Association's ownership. The trial court ruled that FNS6 did not owe any assessments to the Association because even though Bona Vista and FNS6 were "jointly and severally [liable]" for these assessments, FNS6's right to recover any amounts it paid to or on behalf of Bona Vista made FNS6's obligation "basically a wash." The Association then appealed the final declaratory judgment. The Bona Vista Court agreed with the trial court and affirmed the judgment. In so doing, the Bona Vista Court held that the liability of a purchaser of a condominium unit is limited to the assessments that accrued during the ownership of the immediate-prior owner.

As this court's decisions in Aventura Management, LLC v. Spiaggia Ocean Condominium Ass'n, Inc., 105 So. 3d 637, 638-39 (Fla. 3d DCA 2013) (Spiaggia I), Aventura Management, LLC v. Spiaggia Ocean Condominium Ass'n, Inc., 149 So. 3d 690, 693 (Fla. 3d DCA 2014) (Spiaggia II), and Park West Professional Center Condominium Ass'n, Inc. v. Londono, 130 So. 3d 711, 712 (Fla. 3d DCA 2013) (quoting Spiaggia I, 105 So. 3d at 639) make clear, under the 2013 version of Section 718.116(1)(a) which applies here: . . . a third party which takes title from the condominium association upon foreclosure of a superior lien is not responsible for unpaid assessments of the "original owner," but is both solely responsible for all assessments that become due during its ownership

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