When is a first mortgagee not liable for any unpaid HOA assessments that came due prior to taking title?

Judging solely by the text of § 720.3085(2)(b), it would seem that a first mortgagee that takes title to property through foreclosure or deed in lieu would instantly become liable to the HOA for unpaid assessments that accrued prior to the transfer of title. But this is not always the case. The Florida Second and Fifth District Courts of Appeal have held that in certain circumstances § 720.3085(2)(b) cannot be applied to impose any liability for unpaid assessments that accrued before the mortgagee took title. Coral Lakes Community Ass’n v. Busey Bank, 30 So. 3d 579 (Fla. 2d DCA 2010); Ecoventure WGV, Ltd. v. Saint Johns Northwest Residential Ass’n, Inc., 56 So. 3d 126 (Fla. 5th DCA 2011). This is because the Florida Constitution prohibits the statute from being applied to impair pre-existing contractual rights arising from the contractual relationship formed by the declaration and the mortgage. Here are the basics for determining whether the statute cannot be applied.

First, the mortgage must have been recorded prior to July 1, 2007. Section 720.3085 became effective on that date.  Prior to that time, there was no statute imposing liability on a successor owner for unpaid HOA assessments.

Second, what does the declaration say about the priority of the HOA’s lien or a successor owner’s liability for unpaid assessments? The strongest case for the statute’s inapplicability is where the declaration expressly states both that the HOA’s lien is subordinate to the mortgage lien and that the mortgagee is not liable for unpaid assessments accruing prior to taking title. Probably either provision is sufficient. No court has addressed what happens when the declaration is silent as to these matters; however, the better argument is that impermissible impairment occurs even in that circumstance.

Lastly, even if the first two requirements are satisfied, the statute may still be applied if the declaration contains a clause that expressly incorporates future statutory changes. The law is not clear as to just how specific such a clause has to be in order to incorporate § 720.3085 in situations where the statute conflicts with pre-existing declaration language.

Of course, the impairment argument goes both ways.  Section 720.3085(2)(c), which was first effective July 1, 2008, limits a first mortgagee’s liability for unpaid assessments under the statute. If the declaration controls over the statute and would impose liability on the mortgagee, then the statutory limitation provision would not apply.