The Third District Court of Appeal recently issued an opinion that is a game changer for third-party purchasers of condominium units at foreclosure sales.  The Third District’s opinion in Aventura Management, LLC v. Spiaggia Ocean Condominium Association, Inc., Case No. 3D11-2545 (Fla. 3d DCA 2013), absolves third-party purchasers of responsibility for a prior owner’s  past-due maintenance, assessments, and late fees in circumstances where a condominium association has previously foreclosed on a lien.

Condominium associations have suffered through the economic downturn due to lost revenue from unit owners who have defaulted on their obligations to pay regular maintenance and special assessments.  In order to try to recoup some of these losses, many associations have taken advantage of the provisions of Florida law that create a lien in favor of condominium associations for unpaid maintenance and assessments.  Florida law also allows associations to foreclose on their liens, subject, of course, to a bank’s mortgage on the property.  The functional result is that condominium associations regularly take possession of units and rent them out until the bank foreclosure process is completed.  This allows an association to collect rent from a defaulted unit for several months or years until the bank’s foreclosure sale is completed.

Until the Aventura Management decision, potential purchasers of condominium units had to account for significant uncertainty in the amount of money it would take to purchase a condominium property out of a bank foreclosure.  The great unknown was whether the third-party purchaser would be responsible for the past-due payments accrued by the former owner of the unit.

Section 718.116

Indeed, many condominium associations aggressively touted the provisions of Section 718.116(1)(a) of the Florida Statutes.  That provision provides in part that “a unit owner is jointly and severally liable with the previous owner for all unpaid assessments that came due up to the time of transfer of title.”  Condominium associations regularly argued that even though an association may have taken title to a property, it did so subject to a bank mortgage, and, therefore, third-party purchasers were jointly and severally liable with the previous owner for all unpaid assessments.  As a practical matter, since the previous owner (who defaulted on his or her mortgage and obligations to the association) could not meet his or her financial obligations to the association, the entirety of the unpaid sums fell on the third-party purchaser.

Third District Court of Appeal Decision

The Third District Court of Appeal resolved this uncertainly in favor of the third-party purchaser.   In Aventura Management, an owner of a condominium unit stopped paying maintenance assessments and the condominium association recorded a claim of lien against the unit.  The association proceeded to foreclose on its lien and rent the unit.  The bank mortgage-holder subsequently obtained a final judgment of foreclosure and the Appellant, Aventura Management, LLC, was the successful third-party bidder at the foreclosure sale and obtained title to the unit.

After obtaining title to the unit, the association attempted to collect from new owner the past due assessments, late fees, and interest that had accrued since the original owner defaulted.  The association asserted that pursuant to Section 718.116(1)(a), Florida Statutes, as a third-party purchaser, the new owner was responsible for all past due assessments, late fees, and interest up to the time it took title.  The new owner argued that it was liable only for assessments accruing after it took title to the unit.  The trial court agreed with the association and granted its motion for summary judgment.

On appeal, the Third District reversed the trial court’s decision and found that the new owner was not liable for past due assessments, late fees, and interest that had accrued since the original owner defaulted.  Specifically, the court found that the association, as an intervening owner of the unit, not the third-party purchaser, was jointly and severally liable for the past due assessments when it was the owner.  Contrary to the association’s argument, the court opined that the plain language of Section 718.116(1)(a), which provides that “a unit owner is jointly and severally liable with the previous owner for all unpaid assessments that came due up to the time of transfer of title,” does not “state or suggest an exception is to be made when the previous owner is the condominium association.”

In sum, Aventura Management paves the way for a third-party to achieve what could be a significant financial advantage should it be the winning bidder (under similar circumstances) at a foreclosure sale by side-stepping liability for any past due assessments tacked onto a condominium unit.  It also serves as a warning to condominium associations that foreclosing on a lien for unpaid maintenance and assessments will preclude it from collecting unpaid sums from a subsequent third-party purchaser.