Wednesday, January 23, 2013

Just released 3rd DCA opinion could harm your already struggling association

A case decided today could mean financial hardship for already struggling Florida associations. The Third District Court of Appeal’s ruling in the case of Aventura Management, LLC v. Spiaggia Ocean Condominium Association, Inc., Case No. 3D11-2545, January 23, 2013, underscores the need to amend the statutes for condominiums, cooperatives and homeowners’ associations to clarify that when an association takes title to a unit via its own foreclosure, the association does not become jointly and several liable for past-owed assessments and further clarify that an association can collect the past due assessments from the previous owner up to the time a new owner (other than the association) takes title to the unit.
In the Spiaggia Ocean case, the condominium association took title to a unit via foreclosure of its lien for past due assessments and began renting out the unit.  Subsequently, the first mortgagee filed its foreclosure action and the investor group, Aventura Management, purchased the unit at the foreclosure sale.
The association attempted to collect from Aventura the past due assessments, late fees and interest that had accrued since the original owner defaulted.  The association maintained that as a third party purchaser, Aventura was responsible for all past due assessments up to the time it took title pursuant to Section 718.116(1)(a), Florida Statutes.  The trial court granted the association’s motion for summary judgment, and Aventura appealed.
The 3rd DCA overturned the trial court’s ruling and ruled that as an intervening owner, the association was also jointly and severally liable for the past due assessments when it was the owner. The majority decision opined that the Statute did not provide an exception to the joint and several liability conundrum for associations who take title to delinquent property.  As a result, the association could not collect the past due assessments, late fees and interest that had accrued since the original owner defaulted from the third party investor purchaser.
This opinion flies in the face of the conventional wisdom urging associations to pursue their own foreclosures and rent out the property rather than waiting months or years for the banks to turn over delinquent properties. It may still be the case that an association can recoup losses from such action rather than having to pursue a third party purchaser at the bank’s foreclosure sale but this decision will further delay or entirely prevent associations being made whole.
The dissenting opinion in Spiaggia Ocean really gets to the crux of the problem and addresses the overriding issue of the statutory intent- trying to assist associations and not savvy investors who pick up properties at foreclosure sales.  In his dissenting opinion, Justice J. Shepherd wrote:
Applying these rules to the case before us, it is apparent the fundamental purpose of the Legislature in promulgating section 718.116 was to assist condominium associations to be made whole in the collection of past due assessments, while at the same time not unduly impairing the value of collateral held by first mortgagees. In furtherance of this design, the Legislature has given condominium associations a statutory lien on each condominium unit over which it has jurisdiction, to secure payment of assessments without the necessity of filing a claim of lien in the public records, with the single exception of first mortgagees, where record notice is required. § 718.116(5)(a).  Thus, under the legislative scheme, third-party purchasers of condominium units, like Aventura Management, LLC, are subject to old-fashioned caveat emptor principles. Their  protection lies in satisfying themselves before purchase, whether by contract or judicial sale, of the status of past-due assessments on the unit.
I could not have stated the issue any more succinctly and agree wholeheartedly with Justice Shepherd’s analysis.  We will be working diligently this session to seek redress for this type of a ruling, and craft a legislative change that makes it clear that an association is not considered a previous owner, thereby denying it the right to seek past due assessments, late fees and interest from third party purchasers.

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