[mc4wp_form id="5389"]

Condo cannot collect safe harbor from mortgagee after foreclosure

Posted on

Share this article

Court explains “safe harbor” and says:

“individualized charges, such as interest, late fees, collection costs and attorney’s fees do not fit within the statutory or common sense understanding of “regular periodic assessments”

A little more than a year ago there was a huge debate over the interpretation of the “safe harbor” language in §718.116, Florida Statutes.  There were those who steadfastly maintained the position that the “safe harbor” did not prevent the association from tacking on late fees and miscellaneous charges to an estoppel certificate once a mortgagee foreclosed and acquired title.  On the other hand, many practitioners, including the author, believed that not only is the language of the statute clear, those involved in the legislative process in 1991 clearly agreed and understood the intent of the statute was to limit mortgagee liability to conform to federal lending guidelines for the purposes of retaining a condominium mortgage market.

Read here for more info:  https://floridacondoho.wpengine.com/2011/07/articles/assessment-collection/associations-facing-lawsuits-over-claimed-billing-errors/

The United States District Court for the Southern District of Florida joined a number of other Florida District and Circuit Courts by ruling that add-on charges such as late fees, collection fees, interest and attorney’s fees are simply not collectible from a first mortgagee that obtained title as a result of a foreclosure or deed-in-lieu thereof.

Perhaps it is worthwhile to go back and explain the context a little.  Condominium associations charge assessment fees for the maintenance, care and preservation of the condominium property.  That part is simple.  Fees are payable monthly or quarterly.  When someone doesn’t pay on a timely basis, the association charges a late fee to absorb some of the administrative costs forced upon it as a result of the owner’s delinquency.  The outstanding assessments accrue interest and then there are other expenses (primarily attorney’s fees) sought to be collected in the collection process because they wouldn’t have been incurred if the condominium owner paid on time.  All of this is permissible by the statutes.

When a condominium unit owner defaults on his or her mortgage, they generally stop paying the association.  In that case the assessment fees continue to accrue and so do the other charges against the account. If the property sells on the open market or by a short-sale, the condominium association is paid in full.

However, when a first mortgagee forecloses due to the non-payment, the bank or financial institution is entitled to a break.  That “break” is known as the “safe harbor”.

The law says a first mortgagee only has to pay the lesser of:

  1.  The unit’s unpaid common expenses and regular periodic assessments which accrued or came due during the 12 months immediately preceding the acquisition of title and for which payment in full has not been received by the association; or
  2.  One percent of the original mortgage debt.

In this particular case, there was both a condominium and a HOA that governed the individual properties that became the subject of the dispute.  The first mortgages on both units were backed by the Department of Housing and Urban Development (HUD).  When HUD became the owner of both of these properties, it asked for estoppel certificates so the properties could be sold to end-users.  The estoppel certificates asked for a lot of money.  Much more apparently than what should have been billed – reportedly over three hundred (300%) percent more.

The associations argued they were entitled to all the extra fees, costs and charges.  Here’s the kicker – if the associations revised their estoppels and just charged the “safe harbor” amounts, HUD was likely to pay and then go ahead and sell the properties to end users.  Instead, by arguing they were entitled to extra fees, costs and charges the case went to court.  The Federal District Court not only ruled that the extra fees, charges and costs were improper, it ruled that the language of the declaration precluded any payment at all! 

Remember theCoral Lakes case?


Well, this federal court ruled that the analysis applied in theCoralLakescase applied to the condominium association in this case, even though the Florida Statutes creating mortgagee liability were enacted in 1991.  The declaration in this case contained a mortgagee protection clause similar to that inCoralLakes.  It said (in relevant part):

NON-LIABILITY OF MORTGAGEE OF RECORD:  When the mortgagee of a first mortgage of record obtains title to a unit as a result of foreclosure of its first mortgage …. Such acquirer of title … shall not be liable for the share of common expenses or assessments by the Association pertaining to such unit, or chargeable to the former owner of the unit, which became due prior to the acquisition of title as a result of the foreclosure or the acceptance of such deed in lieu of foreclosure.

The court held that this language precludes the association from collecting anything from HUD for past due assessments.  Nothing…..  Nada….  Zip.  This was a bad loss for the association.  Instead of collecting the “safe harbor” amounts, it stuck to its laurels and wound up with nothing.  Nothing other than the likelihood of attorney fee bills and charges that is….

This ruling shows it is more important than ever to amend the governing documents to remove these types of impediments to collecting assessments against banks, homeowners, theU.S.government, investors, etc.   We have created a seminar on that exact topic to notify community leaders and CAMs what landmines may be contained in your declarations, articles, bylaws and rules.  Please check our website for upcoming presentations of “Critical Documents – A Primer on Governing Documents”, approved by the DBPR as course number 9627049.

Share this article

  • GC
    April 26, 2015

    If I buy a property through an HOA foreclosure in Florida and it has one or two mortages on it, will I get a clear tittle? Can the mortgage lenders come after the property or myself?

    • Lisa Magill
      May 4, 2015

      The HOA foreclosure only wipes out liens that are subordinate to the HOA lien. The mortgagee can foreclose against the property.