Question: We recently had a foreclosure sale of a home in our community. The bank took title at the sale and is now the owner. The bank has said they are not liable for any of the prior owner’s unpaid assessments. We have demanded the bank pay one year of assessments and they have refused. Is the bank right? M.D. (via e-mail)
Answer: It sounds like you may have what has come to be known as a “Coral Lakes issue”, which comes from a case that started in Lee County and worked its way through the appellate court system. The case is called Coral Lakes Community Association, Inc. v. Busey Bank, N.A., 30 So.2d 579 (Fla. 2d DCA 2010) and was decided in 2010. Many homeowners associations that were created prior to 2008, and who have not updated their governing documents, have had to deal with the fallout of this decision.
Section 720.3085 of the Florida Homeowners’ Association Act was amended in 2008 to basically copy the condominium statute. The 2008 amendments said that every owner was liable for the delinquency of his predecessor in title, with the exception of a foreclosing first mortgagee, who is only liable for 12 months of unpaid assessments or one percent of the original mortgage debt, whichever is less (this sum is often referred to as the “safe harbor amount”). The problem is that many (probably most) pre-2008 HOA governing documents (at least if they are still the developer’s boilerplate documents) say that a mortgage foreclosure cuts off all liability for past due assessments.
The court ruling in Coral Lakes was that the governing documents trumped the statute, and the association got nothing. Therefore, it is very important for homeowners’ associations to consider amending their documents to make sure their governing documents give them the same protections provided in the Homeowners’ Association Act. As mortgagees continue to foreclose on properties, this problem will repeat itself and could cost your association thousands or perhaps tens of thousands of dollars over time.