Bank Not Required to Pay Assessments During Foreclosure
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Appellate Court Reverses Order Requiring Lender to Pay Assessments to Condominium Association.
In U.S. Bank National Association as Trustee for the Benefit of Harborview 2005-10 Trust Fund v. Tadmore, 2009 WL 4281301, 34 FLW D2505 (Fla. 3rd DCA 2009), the Third District Court of Appeal (Miami-Dade and Monroe Counties included) rejected the idea that equity and fairness supports rulings requiring lenders to pay association fees while a foreclosure case is still pending against the unit owner.
Lenders are required to pay up to 1% of the original mortgage debt or 6/12 months worth of assessments to an association after they acquire title to the unit via foreclosure or deed in lieu of foreclosure. Many believe lenders don't want title as they don't want to have the inventory on the books, do not want to absorb the costs of ownership (such as payment of maintenance fees, taxes, insurance, etc.) and do not want the administrative hassles of cleaning/restoring damaged units, marketing the units for sale, etc. In this case, the unit owner reportedly owed the association close to $100,000 for outstanding maintenance fees and costs.
In the best cases foreclosures are taking a year to 18 months, when in the past a simple foreclosure could be completed in approximately 9 months. In some cases the lenders cancel the sale last minute, arguably to prolong the process. To combat these delays and to mitigate losses in revenue, Associations have been asking the Courts for extraordinary relief by filing Motions to Compel and other Motions asking the Court to force the lender to move forward within a certain time frame, failing which, requiring the lender to pay assessments (maintenance fees). In this case, the condominium association filed its Motion to Compel after the foreclosure case was pending for about a year. The trial Court granted the Association's motion, ordering the bank to diligently proceed within thirty (30) days or pay monthly maintenance fees.
The appellate Court treated the obligation to pay assessments as a sanction and criticized the association for failing to take more traditional means to address delay, such as filing Notices for Trial or to Show Cause, before asking the Court for extraordinary relief. Finding no basis to require payment, the Court reversed the Order.
Associations still have options available to move mortgage foreclosure cases along though and cannot sit back and wait for lenders to do their part. There are several legislative proposals filed for consideration in 2010 that address lender liability - we will include information about those proposals on this site in the near future.
Note that the opinion in Tadmore is not yet final and, as such, ethically cannot be cited to the court nor relied on by a trial court in ruling on a motion to compel the plaintiff to foreclose.
I have contaced counsel for the appellees in Tadmore regarding whether he is moving for rehearing, but have had no response as yet.
Regarding the merits of Tadmore, I'd note that despite the fact that the District Court attempts to analyze the motion to compel using the law regarding requests for injunctive relief, the District Court includes exactly no analysis regarding the harm to the Association and the inadequacy of its remedies at law. Indeed, one of the more curious observations of the District Court is that "no claim was made below to justify imposition of a sanction against the Bank for failing to proceed as quickly as the Condominium Association would like." The District Court seems to believe, contrary to the evidence, that the Association sought to move the mortgage foreclosure case along simply out of preference rather than because of the harm it suffered because of the delay, to say nothing of ignoring the court's own interest in moving cases along for the sake of judicial economy and efficiency.
Rather than go on at length as to the deficiencies of the District Court's analysis, however, the fact remains that trial courts have the power to set deadlines for dispositive motions without relying on its equitable powers and, as an alternative basis for relief, our motions to compel include a request pursuant to Florida Rules of Civil Procedure 1.200(a) for a Case Management Conference.
Due to the Banking System in this country that has made bad loans to people who ordinarly would not have secured a bank loan, the banks have put our way of life in Condominium Associations throughout Florida at financial risk. The Banks made these bad loans, make them responsible for their ineptness. Withholding monies owed to Associations via maintinance fees through foreclosures can only do more harm as there monies are the operating expences of the Associations. The Banks were well aware of the possibility and ramifications of the "Housing Buddle" burst and still made unsecured loans.
So let me get this straight, you want to relieve the Banks of their financial responcability to the Associations and lay the financial burden onto the owners of Condo's in these Associations. What is wrong with this picture?
The Banks own these properties, let them shoulder the financial burden they created.
Richard Mooar Director
Palm Beach Leisureville Community Association
Board Liaison to Condominiums at PBLCA
President Leisureville Lake Condominium Association
In Sunday's Condo Q&A in the Florida Today, Gary P. said "Associations can possibly cut off bulk cable services" to renters who pay rent to Unit Owners in forecloseure who owe us over $7000 in 'monthly's'. The word "possibly" implies that some Association[s] has succesfully done this. Anybody know that this has been done? Many thanks. Ron
Thanks for the post - as well as thoughtful comments by others. As to "more traditional means to address delay, such as filing Notices for Trial or to Show Cause" - if the likely sanction is dismissal - how would that benefit the assoc? Please keep us updated, this issue is significant and nationwide.
I am interested in your thoughts about Fee Simple Communities foreclosing on properties and working with the banks to accept a short sale. As President of a small community (65 units)HOA, we have foreclosed on 3 units and soon to be 5. All but one have a mortgage and all 4 mortgages are above the value of the property. The banks are not accepting short sale offers without involvement from the mortgagor which in cases in close to impossible. Three of the banks are in foreclosure with the longest process exceeding 3 years. Motions to compel are denied and we are looking for creative ways to speed this process and begin to collect from a new homeowner or at least get my 1%/12. I am in Palm Beach County.
RESPONSE: In instances where the association has already foreclosed and taken title to the property, and the mortgagee has filed its own foreclosure, the association may be able to simply consent and stipulate to a judgment and either bring about a sale or transfer of title much sooner. The association, as owner, can also investigate whether offering the property for short-term rental is appropriate to recoup some of the lost revenue.
With regard to your response:
RESPONSE: In instances where the association has already foreclosed and taken title to the property, and the mortgagee has filed its own foreclosure, the association may be able to simply consent and stipulate to a judgment and either bring about a sale or transfer of title much sooner. The association, as owner, can also investigate whether offering the property for short-term rental is appropriate to recoup some of the lost revenue.
Have you handle a case where the HOA takes title, forces the Bank to take title back through reverse foreclosure at a summary judgment hearing and the Bank is still liable for the amounts owed under 720.3085, F.S. In other words the obligation for payment from past owner has jumped from the delinquent Homeowner - skipped the HOA when it took title - and now passed to the Bank?
If the property is sold at auction, and purchased by an individual, what happens to a condo association's claim of lien. It is clear that Florida Statute 718.116 says what happens to the claim of lien if a bank purchases the property. But it is not clear what happens to the claim of lien if an individual purchases the property.
Response: Both the condominium and homeowners' associations acts provide for joint and several liability - except for first mortgagees. That means if a third party purchases the unit (without the mortgagee obtaining title first) they become liable for the entire delinquency. Thus, short sales are beneficial for the Association.
Regarding the response to the Mar 1 post. The response implies that if a third party purchases the unit AFTER the mortgagee forecloses, the bank is responsible for the 6/12 th thing with no responsibility passing directly to the third party for past fees. What happens to the fees while the mortgagee is holding title beyond the 6/12-1% limit? It appears to me that this foolishness is an invitation for a domino effect to send a lot of innocent residents into bankruptcy.
Also, what happens if the association forecloses first. They they took title first and theoretically would be responsible for past HOA dues not the third party buying at foreclosure.