Rogers Towers: Defending Mortgage Lenders Against Attorney’s Fees Claims by Condominium Associations

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[authors: Douglas L. Waldorf, Sara Kannensohn White]

Lenders foreclosing mortgages in Florida frequently encounter claims by condominium associations for past due assessments. Increasingly, those entities are extending their claims in attempts to recover attorney’s fees and costs as well, often asking for amounts far in excess of the actual assessments. What obligation does a foreclosing lender have to pay these attorney’s fees and costs? Read on.

Florida law allows condominium associations to assess their members for various purposes including funding maintenance of common areas, providing reserve funds and paying for special projects benefiting the owners. These assessments, if unpaid, can provide the basis for the association filing a claim of lien against the owner’s unit. A foreclosing lender needs to be concerned with these unpaid assessments since Florida law, in many cases, provides that the lender is liable for those assessments if it takes title to the unit either by foreclosure or deed in lieu of foreclosure. For first mortgagees, their successors and assigns, the liability can be limited under Florida Statute Section 718.116(1)(b)(1) to the lesser of one percent of the original mortgage amount or twelve months of unpaid assessments. The mortgagee will generally request from the association or its counsel a payoff statement in order to assess its maximum liability. With increasing frequency, the response includes not only a statement of the actual amount of unpaid assessments, but also a claim for attorney’s fees and court costs which can far exceed the amount of the assessments. 

In our experience, the claim for fees is often made with the hope that the lender will choose to pay it rather than litigate the issue, especially in cases where there is a pending short sale and time is of the essence to the bank and its borrower. The question, though, is whether there is a legitimate claim for attorney’s fees and costs in these cases. 

Florida law provides generally that, in order to recover attorney’s fees and costs, there must either be a statutory or a contractual basis permitting such recovery. The statute governing the association’s right to recover past due assessments from the lender does not include language granting the association a right to attorney’s fees and costs. Some association attorneys argue that the right should be implied based upon the fact that another section of the statutes, 718.116(6)(a), allows an association to recover fees and costs if it is foreclosing its lien for unpaid assessments against the owner. This, of course, is a completely different case and one that is brought under an entirely different subsection of F.S. 718.116. 

It is indeed a stretch to argue that the legislature intended to include an attorney’s fee provision in one section of the statute simply because it did so in another section and we have not seen trial courts that were willing to accept that position. The statute does allow an association to recover attorney’s fees in cases where it is foreclosing its lien for unpaid assessments or suing the unit owner for a money judgment for the unpaid assessments. However, based upon wording in other sections of the statute, the first mortgagee would likely have priority over the lien claim and therefore should not be included as a defendant in those cases.

What, then, of the idea that there is a contractual basis for fees? We recently saw this argument raised in a state court case in which the association’s attorney pointed out that the mortgage being foreclosed contained a “prevailing party” attorney’s fee provision for disputes regarding the mortgage. The attorney went on to argue that the association should be deemed a third party beneficiary to the mortgage and, further, a “prevailing party” as it was statutorily entitled to recover the lesser of one percent of twelve months of past due assessments. Apparently a magistrate hearing the matter initially agreed with this creative argument and proposed an award of attorney’s fees in favor of the association. However, the circuit court judge disagreed and refused to enter the order, finding that the association was not, in fact, a third party beneficiary to the mortgage and, there being no other basis for fees, was not entitled to the award. 

In summary, we do not believe that there is any statutory or contractual basis for a condominium association to recover attorney’s fees and costs from a mortgagee taking title to property by deed in lieu of foreclosure or by actual foreclosure. Attorneys in the Rogers Towers Banking and Financial Services Practice Group are actively involved in working with our bank clients throughout the state of Florida to defend against these claims for attorney’s fees and costs.

Published In: Business Organization Updates, Civil Remedies Updates, General Business Updates, Finance & Banking Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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