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Condominium Associations Seek to Erode First Mortgagees’ Limits to Liability for Unpaid Assessments

By: Tracy M. Evans, Esq., Associate, Saxon, Gilmore, Carraway & Gibbons, P.A.

There are a number of common arguments being made by condominium associations (“associations”) to maximize their recovery of assessments from first mortgagees due to possible ambiguities in Chapter 718, Florida Statutes. The following is a summary of some of these arguments.

Tevans2-cropped-sUnder §718.116(1)(b)(1), Florida Statutes, the liability of a first mortgagee, who obtains title to a condominium unit by foreclosure or accepting a deed in lieu of foreclosure, is limited to the lesser of 12 months assessments or 1% of the original mortgage debt. Pursuant to the express language of the statute, the limited liability created by §718.116(1)(b)(1) only applies to a first mortgagee, its successor or assignees. “Successor or assignees” only includes subsequent holders of the first mortgage. The assignment of a foreclosure judgment does not necessarily carry with it an assignment of the underlying mortgage. Associations often pay close attention to any assignment of judgment or assignment of bidding rights to argue that the limited liability created by §718.116(1)(b)(1) does not apply because the underlying mortgage was not assigned.

Associations also sometimes argue that the limited liability of a first mortgagee under §718.116(1)(b)(1) does not extend to a buyer who purchases a foreclosed condominium unit from the first mortgagee. However, this argument seems to defeat the purpose of limiting the liability of a first mortgagee if it is not permitted to sell the property free and clear of all liens. In addition, §718.116(1)(a) specifically provides that a subsequent unit owner is only liable for the assessments owed by the owner immediately preceding it. Thus, it seems unlikely that a court would refuse to extend the protections of §718.116(1)(b)(1) to a buyer who purchases a property from a first mortgagee since this would directly contradict the language and purpose of the statute.

Associations are also increasingly attempting to hold a first mortgagee liable for interest, late fees, court costs, and attorneys’ fees incurred prior to the first mortgagee’s foreclosure. Associations argue that the limit to liability imposed by §718.116(1)(b)(1) does not preclude the recovery of these fees and costs. In support of this argument, associations look towards §718.116(1)(b)(2), which governs the liability of a foreclosing association to another association who holds a superior lien on the condominium unit. This subsection expressly limits the liability of a foreclosing association as to unpaid assessments, late fees, interest, and attorneys’ fees and costs. Associations argue that the exclusion of the language regarding late fees, interest and attorneys’ fees and costs from §718.116(1)(b)(1) is indicative of the legislature’s intent to allow for the recovery of these amounts from first mortgagees.

However, contrary to this argument is the plain language of §718.116(3) and §718.116(5)(b) which limit a first mortgagee’s liability for these fees and costs. Thus, it can be argued that the omission of the limit in liability under §718.116(1)(b)(1) for these fees and costs is purposeful because other subsections of the statute adequately address this issue.

Another argument made by associations is that the limit to the liability of a first mortgagee under §718.116(1)(b)(1) expires unless the association is paid within 30 days of the mortgagee taking title. This argument is based upon the language in §718.116(1)(c) which requires payment of the amount owed to the association within 30 days of obtaining title. However, the statute specifically provides that if the assessments are not paid within 30 days, the association may record a lien against the condominium unit and pursue the collection of the unpaid assessments. Based upon the statute’s direct statement as to the consequences of failing to pay within 30 days, it does not seem that the legislature intended any additional consequences beyond what was expressly provided in the statute.

There is a dearth of case law supporting either side of the arguments discussed above. Most of these disputes involve relatively small amounts of money, so the cost of pursing these arguments through litigation often outweighs the cost of settling the disputes outside of court. However, in determining whether to litigate these types matters, first mortgagees should be well-aware of their rights under Chapter 718 and the increasingly common arguments being made by associations to erode these rights.


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