As we have previously discussed , although section 720.3085(2)(b), Florida Statutes, generally makes a subsequent owner of real property liable for all unpaid homeowners’ association assessments that came due under the previous owner, first mortgagees who acquire title through foreclosure may take advantage of a “safe harbor” under section 720.3085(2)(c), Florida Statutes, which limits the first mortgagees’ liability for unpaid assessments to the lesser of the “unpaid common expenses and regular periodic or special assessments” that came due during the twelve months preceding acquisition of title or one percent of the original mortgage debt. Despite the safe harbor provision, homeowners’ associations sometimes seek to add additional fees and costs, such as interest, attorneys’ fees, late charges, court costs, and collection costs, when providing estoppel letters to a foreclosing lender. A recent opinion from the Third District Court of Appeal clarifies, however, that the liability of a first mortgagee for unpaid homeowners’ association assessments does not extend to such additional fees and costs.
In Catalina West Homeowners Association, Inc. v. Federal National Mortgage Association, the first mortgagee foreclosed its mortgage on property subject to an HOA. In the estoppel letter provided to the bank, the HOA sought interest, attorneys’ fees, late charges, court costs, collection costs and other charges it incurred in addition to the unpaid quarterly assessments. The bank filed an action for declaratory judgment and injunctive relief, arguing that under section 720.3085(2)(c), Florida Statutes, it could not be liable for these additional charges imposed by the HOA prior to its acquisition of title. The HOA countered that because section 720.3085(3)(b) provides that payments received by an HOA must be applied first to interest, then administrative late fees, then costs and attorneys’ fees, and finally the late assessments, it was entitled to recover those costs from the foreclosing first mortgagee.
The trial court granted summary judgment in favor of the bank. The Third DCA agreed, concluding that the plain language of section 720.3085(2)(c) limited the extent of the first mortgagee’s liability for “unpaid assessments” to the lesser of the two options described, either twelve months of “unpaid common expenses and regular periodic or special assessments” or one percent of the original mortgage debt. The court reasoned that if the Legislature intended to include attorneys’ fees, interest, or costs, it would have done so. The court further concluded that interest, late charges, attorneys’ fees, collection costs, and the like are individualized charges to induce compliance with assessment obligations, rather than “common expenses” or “regular periodic or special assessments,” which infer expenses shared among all the units of a homeowners’ association. In rejecting the HOA’s argument, the court reasoned that nothing in the safe harbor provision prevented the HOA from applying the monies received in the order specified by section 720.3085(3)(b), to the extent it was required to do so, but the HOA was simply not authorized under the safe harbor provision to payments for the additional cost items sought.
As this opinion demonstrates, when foreclosing on a first mortgage on property subject to an HOA, lenders should be sure to review estoppel letters carefully, to ensure only those amounts for which the lender is statutorily liable are included.