HB 319 is the primary condominium bill this session. It is neither anti-association nor pro-bank as some of its critics have said. In fact, it is one of the most pro-association bills we have seen in recent years. It protects associations from predatory collection agencies which are trying to take advantage of an association’s wish to be repaid fully once the foreclosure process is complete.
Ask yourself one simple question to determine if HB 319 is pro or anti association: if the Legislature is going to increase a bank’s liability to an association, should the increased funds go to pay legal fees or go to reimburse the community for unpaid assessments? In our view, any additional payments by made by banks MUST go back to the association.
Collection agency attorneys should not be incentivized to aggressively go after banks if the associations could be left with a large debt payable to the attorneys. We recently saw such a case where the collection attorney was demanding almost $14,000.00 to finalize the sale of a foreclosed unit. The purchaser was left without any good choices. One option is to pay the fees (which is what the “aggressive” firms have counted on). Another option is to go to court which can also be costly. Another alternative is to simply cancel the deal – defeating the whole purpose.
Let’s address the real problem by making the banks foreclose more quickly and pay the assessments due to the association, not by creating more financial opportunities for collection mill attorneys.
I have structured a Q&A below with the hope that it will better explain the real purpose of the bill and the problems that the bill is trying to fix.
Q: What is the “safe harbor” provision?
A: The “safe harbor” provision in the law means that when a bank takes title to a unit as a result of foreclosure, the bank is obligated to pay either 12 months of unpaid assessments or 1 percent of the original mortgage debt, whichever is less. For example, if a condominium’s annual assessments are $3600, and the unit has a $250,000 mortgage, the bank will pay to the association $2,500. The safe harbor provision has been in the law since 1992. Prior to 1992, a bank that took title to a unit through a foreclosure action paid the association ZERO in past due assessments.
Q: Do banks owe the association’s attorney’s fees and costs, in addition to the safe harbor amount?
A: No. There is no mention in the statute of other charges, such as attorney’s fees, becoming a bank liability after the foreclosure of the bank’s mortgage. The vast majority of attorneys who practice community association law interpret the law to mean that the bank does not owe any additional amounts above the safe harbor amount.
Q: How does HB 319 affect the safe harbor provisions?
A: HB 319 simply clarifies the law that has been in effect for 20 years so that it specifically states that the bank is responsible for 12 months past due assessments or 1% of the original mortgage debt, whichever is less, and does not have to pay unlimited attorney’s fees and costs above the safe harbor amount.
Q: Why is it necessary to clarify the safe harbor provisions? Why not leave the law as is?
A: There was never any uncertainty in the law until recently, when a cottage industry of collection agencies and collection lawyers, with no history of helping associations, came onto the scene and began to interpret the law differently. This cottage industry (some refer to them as collection mills) claim that their interpretation of the statute is merely “aggressive” and they are willing to take liberties with their demands against first mortgagees that take title to condominium units. So for example, if an association’s annual assessments total $3,600 and the amount of the loan was $250,000, rather than making a demand for $2,500, these firms and collection agencies have demanded outrageous sums of thousands of dollars, ten thousand dollars, fifteen thousand dollars and even more for routine mortgage foreclosure cases. It is easy to see why these collection mills do not want HB 319 to clarify the safe harbor amount and are misleading the public into thinking that HB 319 is anti-association and pro-bank.
Q: Why not leave the law as is and let these collection mills try to get as much money as they can from the banks?
A: Associations are being harmed, every day, by these predatory practices. For example, when a lender does foreclose and looks for a new buyer for the home the parties must ask the association for an “estoppel letter”, which is a legally binding request for the association to state how much must be paid for the issuance of a clear title. Although the bank has often already paid the safe harbor amount, the parties ready to close the deal (buyer, seller, lender, attorneys, realtors, and title companies) are all shocked to learn that demand is being made against them on behalf of an association for outrageous sums. We recently saw one case where the collection attorney was demanding some $14,000.00. When faced with a scenario like this, the choices are all bad. One option is to pay the money, and that is what many of the “aggressive” firms have counted on. Another option is to insist that the law be followed and go to court. This is usually not a good economic choice for the parties. Another alternative is to simply cancel the deal, which is happening more and more frequently. In other cases, the lenders will pay, and then file lawsuits for refunds.
Q: What other problems are being caused by the “aggressive” interpretation of the law by the collection mills?
A: Similar practices in Nevada led a subsidiary of Bank of America to file a class action lawsuit regarding collection practices in homeowners’ associations. According to recent news reports, a couple of hundred Nevada associations have also recently been named as defendants in a new wave of class action lawsuits. It is only a matter of time before a similar class action lawsuit is filed in Florida unless the Legislature acts to clarify the law.
Q: Why not change the law so that banks have to pay the attorneys fees and costs, in addition to the safe harbor?
A: We think the banks should be paying more, but if there is going to be a change in the law, it should be in the safe harbor amount (for example, 24 months or 2% instead of the current 12 months or 1%) so that we can be sure that the additional money paid by the banks is going to the associations and not to lawyers and collection agencies. In addition, if the law is changed to require the banks to pay attorneys fees and costs in addition to the safe harbor amount, it would ignore the purpose of the original safe harbor law, which was so that a bank lending money would know upfront how much it would have to pay to the association if the borrower stopped paying his or her mortgage and the bank had to foreclose. If the law was to be changed to say that the banks had to pay unlimited amounts of attorney’s fees and costs, the lending industry may decide to curtail borrowing in Florida or make it much more expensive to obtain a loan.
Q: What is the Legislature doing to help associations?
A: I believe that HB 319 helps associations by clarifying the safe harbor provision which will curtail the abuses explained in these Q&A’s. In addition, there are a couple of bills pending in the Legislature (HB 213 and SB 1890) which will give associations more control over speeding up stalled foreclosure cases. The greatest problem for associations is that the foreclosure actions drag on far too long. Associations need to have these units sold, and a new owner holding title, so that the new owner can begin to pay assessments to the association. Therefore, I would strongly urge you to contact your Legislator and ask them to support HB 319 and HB 213/SB 1890.