A significant opinion from the Florida Third District Court of Appeal further clarifies the extent of the Florida statutory homeowners association (HOA) “safe harbor.” In the end, entities that obtain title through judicial foreclosures are left satisfied while homeowners associations are left reeling from another nail in the safe harbor coffin.

The Florida safe harbor rule limits the liability of a first mortgagee or its successor or assignees who acquire title to a unit by foreclosure or by deed in lieu of foreclosure to the lesser of 12 months of assessments or one percent of the original mortgage value. Whether the mortgagee is also liable for the homeowners associations’ attorney’s fees, costs, interest, late fees and fines has remained unsettled until now.

In Catalina West HOA and Old Cutler Lakes by the Bay Community Association v. Federal National Mortgage Association, borrowers entered into a mortgage loan with JPMorgan Chase Bank, N.A. Federal National Mortgage Association (“Fannie Mae”) later purchased the borrowers’ loan and after the borrowers defaulted on their loan, Fannie Mae filed a judicial foreclosure action. On February 6, 2013, Fannie Mae obtained a Final Judgment of Foreclosure, and on April 2, 2013, Fannie Mae obtained a Certificate of Title. On December 19, 2013, the homeowners associations each provided estoppel letters to Fannie Mae that included violation charges, costs and attorney’s fees.

In response, Fannie Mae filed a declaratory action, alleging that the non-assessment, collateral charges violated the Florida safe harbor statute. The two defendant associations argued that they complied with §720.3085, which requires payments to be allocated first to late charges and interest, the costs and attorney’s fees incurred in collection, and finally assessments. The trial court granted summary judgment in favor of Fannie Mae and found that the safe harbor barred the associations from seeking recovery beyond the past 12 months of assessments before Fannie Mae obtained title to the property.

On appeal, the Florida Third District Court of Appeal focused on the plain language of the statute and emphasized that the text does not include attorney’s fees, costs and interest. According to the Court, the statute clearly references “unpaid common expenses and regular periodic of special assessments.” The Court reasoned that if the Florida Legislature had “intended to include attorney’s fees, costs, interest or other charges as a part of the first mortgage’s liability, it would have included any one or more of those items in the safe harbor provisions.”

HOAs often prefer to resolve disputes with mortgagees via settlement over these additional fees so as to avoid a definitive, unfavorable ruling on this unsettled statutory area of law. Uncertainty in the safe harbor statute allowed HOAs to recover additional fees and costs, which helped stem the flow of steep losses as a result of the economic crisis. Mortgagees typically acquiesced to avoid the time and expense of protracted litigation, but now as a result of the Catalina West ruling, mortgagees have cost certainty when foreclosing and taking title to a property subject to association-related fees. Given the substantial loss of revenue at stake, HOAs may not be ready to capitulate and may decide to prolong the battle by filing a motion for rehearing or appeal to the Florida Supreme Court.