For lenders, prior to taking a mortgage on property within a condominium or homeowners’ association community, it is important to review and understand the association’s governing documents (declaration, by-laws, and articles of incorporation) to determine the priority of an assessment lien and a mortgage.  Just because a mortgage was recorded prior to the assessment lien, does not mean the lender’s mortgage will take priority over the association’s assessment lien.  The language of the association’s governing documents is critical in determining the priority of these encumbrances.

In Florida, a condominium association or homeowners’ association has the ability to record liens in the public records when its constituents fail to pay assessments.   Chapter 718 and Chapter 720 of the Florida Statutes.  A lender may also have a mortgage on the same property on which the association has recorded its assessment lien.  Section 720.3085 of the Florida Statutes (homeowner associations) and section 718.116 of the Florida Statutes (condominium associations) govern first mortgagee’s rights.  If the lender’s mortgage is not a first mortgage or the first mortgage was recorded before a certain date, the question of priority of the competing liens becomes whether the association’s assessment lien relates back to the recording of the declaration or takes priority over the mortgage in the event of foreclosure.[1]

The Florida Supreme Court stated that in order for a claim of lien, recorded pursuant to a declaration to have priority over an intervening recorded mortgage, the declaration must contain “specific language indicating that the lien relates back to the date of the filing of the declaration or that it otherwise takes priority over intervening mortgages.”  Holly Lake Association v. Federal National Mortgage Association, 660 So.2d 266 (Fla. 1995).

In Holly Lake, the mortgage was recorded in 1983 and, in 1991, the homeowners’ association recorded a claim of lien for the property owner’s failure to pay assessments.  The association’s declaration was recorded in 1974.  The association was unsuccessful in its argument that the lien related back to the recordation of the declaration (in 1974), such that it trumped the mortgage.  The court noted that the language in the declaration simply granted the association the right to record a lien in the event of non-payment, but failed to put the lender on notice that the association was claiming a continuing lien on the property.  There was also nothing in the declaration indicating the assessment lien would relate back to the recordation of the declaration.  Therefore, the court found the mortgage had priority over the association’s assessment lien.

In contrast, there have been other Florida cases finding that an association’s assessment lien has priority over mortgages.  In one case, the association recorded its claim of lien for assessments in 1996, while a mortgage on the same property was recorded in November of 1989, with the association’s declaration being recorded in 1971.  Association of Poinciana Villages v. Avatar Properties, Inc., 724 So.2d 585 (Fla. 5th DCA 1995).

In Avatar, the declaration provided that the assessment was superior to any mortgage placed on any of the properties with some exceptions.  The association argued its assessment lien related back to the recordation of the declaration and, therefore, was superior to the lender’s mortgage.  The court agreed with the association, finding that even though the declaration did not expressly say that assessment liens related back to the recording of the declaration, it did provide for the lien’s priority over any mortgages placed on the property, with certain exceptions that did not apply.  The court noted there would be no need to put the priority language in the declaration if the assessment lien was not intended to trump certain mortgages.

At least one other Florida court has determined that an association’s assessment lien was superior to a lender’s mortgage lien, due to the specific language of the declaration.  New York Life Insurance and Annuity Corporation v. Hammocks Community Association, Inc., 622 So.2d 1369 (Fla. 3d DCA 1993).

The cases cited above demonstrate the importance of understanding the language of the association’s governing documents as to the priority of liens and mortgages on properties located within condominium and homeowner associations.  Lenders should take great care, prior to lending money and taking mortgages on property within these communities, to analyze the language of the declaration to determine the priority of any such mortgage.  Similarly, condominium and homeowner associations should understand, prior to filing assessment liens, the priority that the lien will enjoy given the language of the declaration.