Condo association laws need a Legislative fix

 

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Legislators are often criticized for failing to predict the manner by which market permutations might nullify a law’s intent. Such is now the case with an important aspect of the laws governing condominium and homeowner associations in Florida, and a significant legislative update is required in light of the recent Third District Court of Appeal opinion in the case of Aventura Management, LLC v. Spiaggia Ocean Condominium Association, Inc.

Traditionally, associations have avoided acquiring properties through their own foreclosure actions for the past-due fees, given that lenders typically moved quickly on their foreclosure actions and the associations’ ability to recover delinquent fees is limited under the law.

However, recently many associations began moving quickly to take ownership of the delinquent owners’ units prior to the banks’ foreclosures. RealtyTrac’s data shows that it takes an average of 2.5 years for banks to complete foreclosures in Florida. During that period associations can acquire title to the properties when the owners are also delinquent in their payments to the association, as is usually the case. Following their acquisition, associations can lease the residences to recover fees. When the lenders eventually complete their foreclosures, the associations have then been billing the new owners for the sums owed by the original delinquent owner. This tactic has become increasingly popular and was used by the association in the appellate case.

However, the Third DCA opinion will likely cause community associations to reconsider this approach — proven to be a significant boon for many associations — and may delay their struggles to regain financial stability. While the lower court’s ruling in the case found that the association was entitled to bill the new owner for the past-due fees owed to the association prior to its ownership of the unit resulting from its expedited foreclosure, the appellate court reversed the decision, finding Florida law provides that “the previous owner” is liable together with the new owner for unpaid assessments coming due up to the time of the transfer of title. The opinion concludes that there is no exception when the association becomes an intervening owner between the original delinquent owner and the owner acquiring title following a lender’s foreclosure. The majority held that the association became liable for the unpaid assessments owed to itself, and it could not then impose that liability on the new investor acquiring the property after the bank’s foreclosure.

Despite the appellate opinion, associations should be exempt from liability for the unpaid assessments that are owed to themselves in these situations given that the legislature did not envision associations as owners of these properties. Tellingly, the dissenting opinion recognizes that the law was created to assist associations to be made whole in collecting delinquent assessments from foreclosure property buyers, who are expected to accept responsibility for the past-due fees prior to acquiring a foreclosure property.

The Florida legislature can rectify the impact of this ruling during the 2013 legislative session by enacting laws establishing an exception for associations that become the intervening owners of properties resulting from their own foreclosures prior to the completion of lenders’ foreclosures. In such cases, the law should ascribe collective liability for unpaid association fees to the owner of the property prior to the association’s ownership and the new owner subsequent to the bank’s foreclosure action. Millions of Florida property owners in community associations would applaud such a measure as a necessary response to the market forces that have led to unanticipated circumstances invalidating the law’s original purpose.

Attorney Roberto C. Blanch is a partner with the Coral Gables-based law firm of Siegfried, Rivera, Lerner, De La Torre & Sobel, P.A., which focuses on community associations, construction law and real estate matters with offices in Miami-Dade, Broward and Palm Beach counties.

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