Association Assessments: Caveat Emptor? Not Anymore!

Losing Money

One of the longest standing duties of Florida condominium and homeowners associations has been pursuance of delinquent assessments through the lien and foreclosure process.  With the downturn in the economy, the remedy of foreclosure has already been significantly diminished as foreclosed properties often have no equity due to overpriced mortgages, which means that investors rarely purchase properties at the association’s foreclosure sale and instead, title to the valueless property usually reverts to the association.  Since there is no equity in these foreclosed properties, associations have endeavored to rent the units to which they take title as their only means of extracting value out of these properties until such time as the lender finally forecloses on their mortgage.

In recent years, when the lender did finally complete its foreclose, if a third party investor purchased the property at the lender’s foreclosure sale it was always liable to the association for the unpaid delinquency that had previously accrued.  This is where the old adage of “buyer beware” came into play and investors had to consider the monetary obligations they would owe to the association as a factor in their determination whether or not to purchase the property at the lender’s foreclosure sale.

However, a recent court ruling in the case of Aventura Management, LLC v. Spiaggia Ocean Condominium Association, Inc. has essentially said: “Caveat Emptor? Not anymore!”

The court held that when associations foreclose on a property in advance of the lender, that because they became an intervening owner, they cannot later collect the unpaid debt that accrued on the property from a third party purchaser who later acquires ownership of the property at the lender’s foreclosure sale.  This ruling is problematic for board members because they now have to balance the duty of compliance with their governing documents and the applicable statutes, both of which encourage vigilance when its comes to delinquencies, with this brave new world in which pursuance of delinquencies may prove to be the wrong decision and result in an inability to collect pre-existing debt from future owners.

Bottom line: The court’s ruling has created a reality where condominium and homeowners associations are actually encouraged to sit on their rights because exercising their legal remedies may ultimately have a self-destructive effect–it needs to be overturned or the applicable statutes needs to be rewritten so that associations can confidently continue to pursue their delinquencies.  Until then, it is no longer “buyer beware” in these circumstances, but instead, at least for associations, it has become “seller beware”.

Daniel Wasserstein