The Florida Statutes provide that the subsequent owner of a condo unit or home subject to a homeowner’s association is liable for the assessments of the previous owner that remain unpaid at the time of taking title. Fortunately for lenders, the statutes carve out “safe harbors” for first mortgagees who take title through foreclosure or deed in lieu. The safe harbors limit the liability for unpaid assessments to the lesser of the unpaid assessments that came during the 12 months before taking title or 1% of the original mortgage debt.

As a threshold matter, the first mortgagee must name the association in the complaint to take advantage of the safe harbor, unless the association is dissolved or cannot be located. Naming the association is not the only requirement, however. The holder of the first mortgage must take title to the property. This is where some lenders go wrong.  It is not unusual for the foreclosing mortgagee to assign its bid to an REO entity prior to the foreclosure sale. The REO then bids at the foreclosure sale and, if it is the successful bidder, is issued the certificate of title in its name. If this happens, however, the safe-harbor provisions are lost, and the REO entity is liable for all of the unpaid assessments of the previous owner.

This is because the statutes require that the holder of the first mortgage take title to the property. Although the statutes state that a “successor or assignee” of the first mortgagee may take advantage of the safe-harbors, the statutes make clear that “successor or assignee” refers only to a “subsequent holder of the first mortgage.”

Therefore, if a foreclosing first mortgagee wishes to take advantage of the safe-harbor provisions of § 718.116(1) and § 720.3085(2), it is crucial that it either take title in its own name and then transfer the property to its REO entity, or assign its first mortgage to its REO entity prior to the foreclosure sale.