On November 23, 2016, the Florida Fourth District Court of Appeals issued an opinion in a case concerning a foreclosing lender's obligation to pay homeowner association assessments in Federal National Mortgage Association v. Mirabella at Mirasol Homeowner's Association, Inc., Case No. 4015-4792. Fannie Mae obtained title to the property through a foreclosure. The homeowner association (hereafter the “Association”) was not named at the time the foreclosure complaint was filed. Four years after the foreclosure action was filed, the complaint was amended and the Association was added.

After Fannie Mae obtained title to the property, the Association filed suit against Fannie Mae to collect all outstanding assessments due to the Association. Fannie Mae argued that the applicable Florida statute, Section 720.3085(2)(c), only obligated Fannie Mae to pay the Association those assessments that accrued 12 months prior to Fannie Mae obtaining title to the property. The trial court, however, agreed with the Association, and held that Fannie Mae was responsible for paying all outstanding association assessments, even those that accrued more than 12 months prior to Fannie Mae obtaining title. Fannie Mae appealed.

Florida Statute Section 720.3085(2)(c), sometimes referred to as the “safe harbor” statute, provides that the liability of a mortgage holder, that acquires title through a foreclosure or deed in lieu, for unpaid assessments accruing prior to the mortgagee's acquisition of title shall be the lesser of:

(i) unpaid common expenses and regular or special assessments that accrued during the 12 months immediately preceding the acquisition of title; or

(ii) one percent of the original mortgage debt.

This subsection of the statute further provides that this limitation on the mortgagee's responsibility for unpaid assessments only applies if the first mortgagee initially joins the homeowner association as a defendant in the foreclosure action.

If the Association had initially been joined to the foreclosure action as a defendant, then Fannie Mae's liability for unpaid assessments would have been capped to those assessments accruing 12 months prior to Fannie Mae taking title or one percent of the mortgage debt. In this case, however, the Association was not joined until 4 years after the complaint was filed. In light of this, the Fourth DCA held that Fannie Mae was responsible for all unpaid assessments accruing prior to Fannie Mae taking title.

The Fourth DCA reasoned that the legislature intended to require foreclosing lenders to add homeowner associations at the very early stages of the foreclosure action so the association could monitor the action and attempt to facilitate its resolution to minimize its loss of assessment revenue. Since the foreclosing lender did not join the Association at the “inception of the suit”, the Fourth DCA is essentially adopting a strict compliance standard for the mortgage industry when it comes to joining homeowner associations to foreclosure actions. At least with respect to the Fourth District, if the mortgage lender fails to name the homeowner association as a defendant when the foreclosure action is filed, the lender will not sail into the safe harbor and the lender will be responsible for all unpaid assessments accruing prior to the foreclosure sale, even those assessments accruing more than 12 months prior to the date the lender takes title to the property.