Two New District Court Of Appeal Cases – Third Party Purchaser Assessment Liability And Fining Notice Requirement

Rembaum's Association Roundup

If your homeowners’ association has not updated its declaration’s assessment collection provisions, then your association might be giving away its otherwise collectable assessment revenue!  The problematic declaration provisions are similar to the following: “The sale or transfer of any Lot pursuant to the foreclosure or deed in lieu of foreclosure shall extinguish the lien of such assessments as to all payments that came due prior to such sale or deed in lieu transfer.” To the dismay of association practitioners everywhere, the appellate courts have continually held that such a declaration provision even controls over Florida Statutes that would otherwise require the purchaser who acquires title as a result of the first mortgagee’s foreclosure (or acquires title by deed in lieu) to pay all back assessments due and owing.

On May 24, 2017, the Third District Court of Appeal of Florida, covering Miami-Dade and Monroe Counties, (“3^rd DCA”) issued another assessment decision harmful to Florida’s homeowners’ associations. The 3^rd DCA, in the case of Beacon Hill Homeowners Association, Inc., et. al., v. Colfin AH-Florida 7, LLC, decided in favor of the limited liability company who was a third party purchaser that acquired title to a lot as a result of a lender foreclosure. The 3^rd DCA determined that the company’s liability for past due assessments for the  property it purchased at a mortgage foreclosure sale was strictly based upon the language set out in the homeowners’ associations’ declarations (there were actually two homeowners’ associations involved in this case). Both declarations had provisions regarding subordination of the associations’ assessment lien to a first mortgage and provided that the sale of a lot pursuant to the foreclosure of a first mortgage extinguishes the assessment lien as to all payments to the associations which became due prior to the foreclosure sale. Based upon this language, the third party limited lability company purchaser argued that it did not owe any past due assessments accruing prior to its purchase of the property.

The associations primarily argued that the joint and several assessment liability provision as set out in section 720.3085(2)(b), Florida Statutes, enacted in 2008, was incorporated into the terms of their declarations. Nevertheless, the 3^rd DCA rejected their argument and instead followed the prior decisions of the “4^th DCA” (as defined below) in Pudlit 2 Joint Venture, LLP v. Westwood Gardens Homeowners Association, Inc., 169 So.3d 145 (Fla. 4th DCA 2015), holding that the joint and several liability of section 720.3085(2)(b), Florida Statutes, was NOT incorporated into the terms of the associations’ declarations, but rather, the text of the declaration controlled. Therefore, once again, the third party purchaser was fully excused for any past due assessments liability of the prior owner when it purchased the property at the mortgage foreclosure sale.

The best way to remedy this continual dilemma is amend the harmful text out of the association’s declaration and strictly require the third party purchaser who acquires title as a result of the lenders foreclosure to be fully liable for all past due assessments. Other remedies include incorporating the provisions of section 720.3085(2), Florida Statutes, into the declaration or to include a phrase that the declaration “is subject to Chapter 720, as it is amended from time to time” (a/k/a Kaufman language).

Also on May 24, 2017, the Fourth District Court of Appeal (“4^th DCA”) covering Palm Beach, Broward, St. Lucie, Martin, Indian River, and Okeechobee Counties decided in favor of an owner in the case of Dwork v. Executive Estates of Boynton Beach Homeowners Association, Inc., regarding the association’s attempt to collect fines from the owner. In this case, the owner continually failed to properly maintain his roof, driveway, and fence in good condition, despite the numerous written notices sent to the owner from the association and the association’s attorney. Due to the owner’s continued failure to comply with the association’s requests, the board of directors recommended the violations to the fining committee and provided the owner with 13-days’ notice of the hearing before the fining committee. The fining committee fined the owner $25 per day of the continuing violation for each of the three violations, which eventually totaled the maximum permitted by the association’s governing documents – $7,500. The owner failed to pay the fines, even after demand was sent to the owner from the association’s attorney for payment. The association eventually filed a lien against the owner’s property and filed a complaint against the owner for foreclosure of the lien and for money damages.

At the trial level, the association did NOT prevail on the foreclosure because it failed to provide the owner with the 14-day notice of a hearing before the fining committee as required by section 720.305(2), Florida Statutes, but did prevail on its claim for money damages. On the owner’s appeal of the award for money damages, the association argued that substantial compliance with the 14-day notice of a hearing before the fining committee as set out in section 720.305(2), Florida Statutes, was sufficient because the owner was not in any way harmed by the loss of a single day of notice.

While the 4^th DCA agreed that equity would side with the association given the owner’s continued failure to comply with the association’s governing documents and numerous requests, the 14-day notice requirement as set out in section 720.305(2), Florida Statutes, MUST BE STRICLY COMPLIED WITH because there are no exceptions provided in the statute which would permit the trial court to consider substantial compliance with the notice requirement or the lack of prejudice on the owner.

Often times, board members ask, “if the owner in violation does not elect to attend the fining committee hearing to take place with not less than 14 days’ notice, must the hearing be held?” In the event of the violating owner’s legal challenge, if the association wants to ensure success on appeal, then you bet the hearing should actually take place without regard to whether the violating owner elects to attend or not.

Jeffrey Rembaum, Esq. of Kaye, Bender, Rembaum attorneys at law, legal practice consists of representation of condominium, homeowner, commercial and mobile home park associations, as well as exclusive country club communities and the developers who build them. Mr. Rembaum is a Certified Specialist in Condominium and Planned Development Law. He is the creator of ‘Rembaum’s Association Roundup’, an e-magazine devoted to the education of community association board members, managers, developers and anyone involved with Florida’s community associations.  His column appears monthly in the Florida Community Association Journal. Every year since 2012, Mr. Rembaum has been selected to the Florida Super Lawyers list and was also named Legal Elite by Florida Trends Magazine. He can be reached at 561-241-4462.