Who Pays Delinquent HOA Assessments After Foreclosure?
Florida Homeowner’s Associations have dealt with the issue of payment of delinquent assessments after foreclosure for some time. This issue is so prevalent in fact that Florida Statute address the issue in detail. Due to the substantial amounts involved in a prolonged foreclosure action, it is important for Associations to know what they may and may not recover. Furthermore, the recent filing of suits against Associations attempting to over reach in their recovery adds further weight to the need for awareness. This article will discuss the most common ways in which properties are transferred as a foreclosure proceeds and what can be recovered by the Homeowners Association. The Short Sale:
When a property is in foreclosure the owner may attempt to sell the property to an interested third party. However, with a foreclosure ongoing, it is necessary to first consult with the bank and obtain “short sale approval", with a specified price the bank is willing to accept. Upon conclusion of the short sale, the new owner of the home becomes responsible for the entirety of the delinquent assessments, interest, late fees, costs and attorneys fees incurred by the Association in pursuit of recovering its assessments. The reason for this is because of the language in Florida Statute 720.3085(2)(b). The statute states:
A parcel owner is jointly and severally liable with the previous parcel owner for all unpaid assessments that came due up to the time of transfer of title. This liability is without prejudice to any right the present parcel owner may have to recover any amounts paid by the present owner from the previous owner.
This paragraph simply means that the new owner steps into the shoes of the old owner and is responsible to the same degree as the previous owner. If the Association is not adequately paid off at the time of short sale, the Association can then seek to recover all amounts due from the new owner.
The Bank Takes Title: When the property concludes its foreclosure action and the foreclosure bank takes title at the foreclosure sale by outbidding all other bidders, the title transfers to the bank. This is one of the few situations where the Association’s usually superior interest in the property is undercut. The statutes specifically limits the recovery of Associations through a “safe harbor provision" in the statute. Florida Statute 720.3085(2)(c) states:
… the liability of a first mortgagee, or its successor or assignee as a subsequent holder of the first mortgage who acquires title to a parcel by foreclosure or by deed in lieu of foreclosure for the unpaid assessments that became due before the mortgagee’s acquisition of title, shall be the lesser of:
1. The parcel’s unpaid common expenses and regular periodic or special assessments that 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.
These limitations on recovery for the Association mean that even under the best conditions, the Association will only be able to recover 12 months or 1% of the delinquent assessment owed on the property, whichever is less. Furthermore, the Association may not recover costs, late fees, interest or attorney’s fees as they are wiped out by the bank. The bank may go beyond this statute and raise Appellate case law which, upon looking at the Association’s Governing Language, may reduce the amount the bank owes the Association to 0. These are very serious issues that should be discussed with your ** HOA Attorney** to determine what position the Association will take when a bank purchases at foreclosure sale.
Third Party Purchaser: Occasionally, a third party will throw their hat into the ring and purchase a property at the bank’s foreclosure sale. This is less frequent recently given the volume of foreclosure but still occurs every so often.
The third party purchaser find him or herself in the same unenviable position as the short sale purchaser. As the new owner of the property, the third party purchaser becomes responsible for the entirety of delinquent assessments, interest, late fees, costs and attorneys fees incurred by the Association.
This is often a surprise to the third party purchaser, especially if the Association has not secured its interest with a claim of lien. However, the Association need not be concerned regarding arguments as to a claim of lien as the Association’s interest in the property is secured by its governing documents.
Suffice to say, whenever there is a third party purchaser the Association should make every effort to collect all that is owed to it.
The most important thing to take away from this article and from any foreclosure sale is the same, as much delinquent assessments as legally allowed. A dedicated homeowner’s Association attorney can help do just that. C