Editorial: Fla.'s 'Safe Harbor' Most Litigators Are Not Familiar With

by Bilzin Sumberg
Contact

 

This article is reprinted with permission from Law360.

First mortgage lenders acquiring title to collateral consisting of condominium units or homes in a homeowners community are afforded protection against assessment liability under both the Florida Condominium Act (Chapter 718 of Florida Statutes) and the Homeowners' Association Act (Chapter 720 of Florida Statutes).

This protection, in the form of a cap on delinquent assessment liability, is commonly referred to as the "safe harbor." Currently, both statutes limit a first mortgage lender's liability to the lesser of 12 months of unpaid assessments for the period immediately prior to the acquisition of title or 1 percent of the loan amount (718.116(1)(b)(1)(a) and 720.3085(2)(c)(1) of Florida Statutes).

Real estate lawyers are generally familiar with the safe harbor, but most litigators are not, which has, in many cases, caused the loss of the liability limitation the safe harbor provides. The discussion below summarizes the most likely ways the safe harbor may be lost and raises other issues relevant to lenders operating in the condominium or homeowners arena.

Failure to Join the Association

Both the Condominium Act and the HOA Act require that the association governing the project be named as a defendant in a first mortgage lender's foreclosure action. While normally an owner delinquent in mortgage payments will also be delinquent in payments due to the association, if the association has not filed a lien against the delinquent property, the title report showing the parties who have lien claims may not indicate the association.

In such case, the foreclosing attorney may fail to name the association. If the foreclosure action involves condominium assessment liens, then the omission may be corrected before the foreclosure judgment by adding the association as a defendant prior to completion of the action, otherwise the safe harbor will be lost. If the lien arises from nonpayment of HOA assessments, it does not appear there is any way to correct the omission of the association as a defendant in the initially filed complaint without the loss of safe harbor.

Failure to Pay Safe Harbor Amount

The Condominium Act provides that a first mortgage lender taking title to a unit through foreclosure must pay the safe harbor amount, typically the last 12 months' worth of assessments, within 30 days of taking title. It is likely that if the payment is not made within this 30-day period, the limitation of liability will be lost, although there are no reported cases on this issue.

Assignment of Foreclosure Judgment or Bid

Foreclosing lenders expecting to be acquiring title as a result of the foreclosure typically do not want to take title in their own names in order to shield themselves from property owner liability, such as environmental or negligence claims, which may be asserted against an owner. Instead, they typically form a wholly owned entity to take title.

Courts have narrowly construed the limitation on the availability of the safe harbor, which runs under the statutes to only "first mortgagees and their successors and assigns." They have concluded that any party taking the interest of the first mortgagee after a judgment has been rendered cannot be a "successor or assign" of a mortgagee since no mortgage exists after a foreclosure judgment.

The judgment has the effect of extinguishing the first mortgage. Therefore, once the mortgage has been extinguished by obtaining a foreclosure judgment, any party, even one wholly owned by the foreclosing lender, taking an assignment of the judgment or the bid at the foreclosure sale, is not entitled to the safe harbor upon their acquisition of title since they did not succeed to ownership of the mortgage. This reasoning makes it imperative that if the holder of the first mortgage intends to acquire title in a separate entity, the mortgage must be assigned to that entity before the foreclosure judgment is obtained.

Junior Mortgagees

The safe harbor is specifically limited to holders of a first mortgage on the property covered by either the Condominium Act or the HOA Act. Junior mortgagees are not entitled to any safe harbor and so would be liable for 100 percent of all delinquent assessments upon acquiring title.

Enhanced Safe Harbor

While the current Condominium Act and HOA Act both currently provide for a first mortgagees' liability of up to 12 months' worth of assessments, both statutes have changed over time. The Condominium Act, following 1992 until July 2010, obligated a first mortgagee for only six months' worth of assessments. Similarly, there was no obligation for assessments under the HOA Act until July 2008.

Drafters of condominium and homeowners documents reflected the law in effect at the time the documents became effective. If the association failed to amend its documents as the limits increased, they may reflect a lower limit on assessment liability for a first mortgagee, or, in the case of a homeowners' community, the absence of any liability.

In such cases, the courts have ruled that the association is bound by its governing documents and not the current state of the law. Counsel for the foreclosing first mortgagee should therefore make sure that any payment demanded by the association does not exceed the limitation contained in the governing documents.

Lenders hiring foreclosure counsel for property covered by the Condominium Act or the HOA Act should be cognizant that there are requirements that must be fulfilled in connection with the foreclosure to obtain the benefit of the safe harbor, and the condominium documents should be reviewed for possible additional benefits to the lender. Such lenders should make sure that such counsel are either versed in the requirements of these statutes and the association's governing documents or work with lawyers who are.

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.

© Bilzin Sumberg | Attorney Advertising

Written by:

Bilzin Sumberg
Contact
more
less

Bilzin Sumberg on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.