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Fourth District Court of Appeal Rules that Lender Cannot be Compelled to Pay Assessments Prior to Acquisition of Title.

Deutsche Bank National Trust v. Coral Key Condominium Association (at Carolina), Inc. and Luna, Opinion April 14, 2010.

An earlier post discussed the Third District's appellate ruling in the U.S. Bank National Ass'n v. Tadmore case which held that the Court cannot require a lender to pay condominium assessments before its completes its foreclosure case and obtains a Certificate of Title or otherwise acquires title to the unit.  The Fourth District ruled the same way in a case involving the Coral Key Condominium Association.  The ruling is hot off the press, so its not final yet.  If anything changes we will report it on this site.

Do these rulings mean the Association is powerless when a bank is foreclosing against a property within the community?  No - not at all.

The Motion to Compel filed in both cases asked the Court to require the lender to pay assessments immediately, reportedly since the mortgage foreclosure cases were taking so long.  The Associations supported their request for relief upon notions of equity and fairness.  Sure, it is unfair.  The Association has to insure the property, pay for common utilities, pay for maintenance and repair of the property, etc. all while the unit owner isn't paying assessments.  The lender derives a benefit from the Association's actions - its collateral is preserved and insured at the expense of all the paying unit owners. But, as my Dad used to say, life just isn't fair sometimes.

That doesn't mean Association's are without options when a bank is foreclosing against a property in the community, especially when there is a feeling that the bank is 'dragging its feet'.  The Florida Rules of Civil Procedure allow the Courts to establish deadlines or schedules for certain actions to take place.  Any party is entitled to request a case management conference at which the judge may (among other things):

• Set deadlines for service of motions, pleadings or other papers;
• Limit, schedule, order or expedite discovery;
• Require preliminary stipulations to narrow the issues; and
• Set a date for trial.

Any party to the case can advise the Court that the case is ready for trial.  Basically, once the pleadings are closed (all motions concerning the pleadings have been resolved or withdrawn or 20 days after the last pleading is served), the case is eligible for placement on the Court's trial calendar.   

The Court has the power to award sanctions against a party that fails to comply with its scheduling orders and our Firm has had success showing that the lack of action on the part of the bank (and/or its counsel) justified sanctions.  

That is not to imply that every bank in every case has done something wrong, even if the case takes what seems to be an extraordinarily long time. There are legitimate reasons that a foreclosure case can be on 'hold'  Owners/borrowers may be trying to modify their mortgages, there may be an offer for a short sale on the property, and/or a bankruptcy filing may prevent the bank from moving forward, etc.   You know, there is a pretty big load on the Courts right now as well.

Nonetheless, we have learned that some lenders deliberately allow some foreclosure cases to linger for various reasons.  Those are the cases that Associations should address - first with the lender (actually, lender's counsel) and then with the Court.  It is important to discuss your options in each of the cases involving property in your community with counsel.  The board can't be expected to make reasonable strategy decisions unless it is fully advised.

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Court Rules in Favor of Condominium Association After Lender Fails to Move Foreclosure Proceedings Along or Comply With Court Orders.   

On Feb. 8, 2007, the Bank of New York filed a mortgage foreclosure lawsuit against a unit owner, naming the Moorings at Edgewater Condominium Association, Inc. as an additional defendant in the case.  The defaulting unit owner filed for bankruptcy on May 1, 2007, which resulted in an automatic stay of the foreclosure lawsuit.  The unit owner surrendered the property and was discharged from bankruptcy several months later.  The lender waited almost a year from the bankruptcy discharge to file its Motion for Summary Judgment, but never set that Motion for hearing, leaving the association in limbo.

Becoming quite frustrated as a result of the delay, the association hired Attorney Scott Petersen of Becker & Poliakoff's Sarasota office, who filed a Motion to Compel as a result of the delay.  The Court granted the association's Motion and Ordered the bank to move its mortgage foreclosure case along on or before June 29, 2009.  Remember, the unit owner surrendered the property, did not reside in the unit and did not contest the mortgage foreclosure action. 

After Bank failed to obey the Court’s Order, Attorney Peterson scheduled a hearing on an Order to Show Cause for September 24, 2009.  The lender attempted to file a Notice of Voluntary Dismissal to avoid the Show Cause hearing.  The Court ultimately granted the Order to Show Cause, ruling that the bank must pay regular and special assessments as a result of the inordinate delay.

After two months of non-payment, Attorney Petersen filed a Motion for Contempt when the Bank's attorney did not respond to correspondence.  The Bank argued the following as justification for its delay:

1. Owner’s bankruptcy;
2. Difficulties in service of process;
3. Countrywide’s Consent Judgment - implying the parties (owner and lender) were engaged in the loss mitigation process;  and
4. the Court’s Order of May 29, 2009 was illegal pursuant to F.S. 718.116 and the U.S. Bank v. Tadmore case.

The association countered with the following arguments:

1. The Owner’s bankruptcy case was discharged in 2007 and did not cause a 3-year delay;
2. The Affidavits of Service showed that service was attempted during an 8-day stretch from March 1-8, 2007 and then again on April 23, 2007, all of which were unsuccessful. The next attempt at service was June 12, 2008, which was successful, but there was no explanation for the intervening delay;
3. Countrywide’s Consent Judgment was filed Nov. 10, 2008, more than a year after the property was surrendered in bankruptcy and didn't even apply since the borrower (unit owner) abandoned the property; and (among other things)
4. The facts of this case were so egregious that sanctions were appropriate.

This victory for the association shows community leaders cannot sit back and wait for the bank to foreclose.  Moreover, there are many steps that proactive leaders can take now to guard against future delinquencies and to improve the association's position.

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On August 17, 2009, the Task Force On Residential Mortgage Foreclosure, created by the Florida Supreme Court, issued its final report on the "foreclosure crisis" affecting condominium and homeowners' associations throughout the state.

The full report can be viewed at http://www.floridasupremecourt.org/pub_info/documents/Filed_08-17-2009_Foreclosure_Final_Report.pdf

The following quote, taken directly from the report, succinctly sums up what community associations are presently dealing with. Here is what the Task Force said:  

 

Picture this: the biggest road out of town. Now imagine it is rush hour. In a thunderstorm. Add that it also a hurricane evacuation. A lane is closed due to construction delayed by budget impacts. Imagine the traffic jam.

The clearest description of the impact of the foreclosure crisis and the following recession on Florida's courts can be summarized by that picture. Imagine every car a case. The General Jurisdiction Courts of our State have a certain amount of judicial infrastructure, just like there is a certain amount of room on the road. There is a certain capacity of judges, of court staff, of clerks, of filing space, of hearing time, or courtrooms, even of hours in the day. Year in, year out, that capacity flexes with the caseload traffic to afford reasonable, prompt, efficient and fair justice.

The enormous increase in foreclosure filings has overwhelmed those resources in many circuits and represents a traffic jam that the infrastructure cannot meet in a timely and efficient manner without support and traffic management.

I would add to the above quote that at a time when the evacuation route is jam-packed with cars, imagine further that more and more roads are continuing to be closed as the traffic jam gets worse. Unfortunately, that's the scenario facing our courts when the Legislature insists on cutting funding of the courts. The largest expense of the court system is in personnel, so in a time of burgeoning foreclosure caseloads, the courts are actually being forced to lay off staff. Too many foreclosure cases and not enough people to handle them. Indeed, we hear the daily mantra from frustrated clients asking what is taking so long with these cases? Well, truly, this is a "perfect storm." The storm has caused a huge backlog in the court system which significantly delays the time it takes to complete a foreclosure lawsuit.

All is not lost, however. Associations need not sit idle on the sidelines once a mortgage foreclosure action is filed and seems to stall. Directors need to monitor these cases and can often, with the assistance of counsel, file motions with the court to force banks to either foreclose or pay assessments, ask for case management conferences where the court can set some deadlines for action, or the association might even notice the case for trial, which will force the bank to move forward. In fact, this tactic is working. Several judges in districts throughout the state have entered Orders requiring banks to take some action with their foreclosure cases and in some instances, pay assessments to the association during the pendency of the foreclosure.

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