Appellate Ruling Limits Viability of Blanket Receiverships
Lack of proper notice was central to the Third District Court of Appeal’s decision in Federal National Mortgage Association v. JKM Services, LLC, Case No. 3D17-370 (Fla. 3d DCA October 3, 2018) limiting a receiver’s ability to recover fees and costs incurred in his efforts to collect rent after having been appointed by a condominium association to recover rents from delinquent units.
Like many communities in recent years, Cedar Woods Homes Condominium Association, Inc., filed a petition requesting the Circuit Court to appoint a receiver to collect rents from leased units in foreclosure pursuant to Fla. Stat. §718.116(6)(c), which provides:
If the unit is rented or leased during the pendency of the foreclosure action, the association is entitled to the appointment of a receiver to collect the rent. The expenses of the receiver shall be paid by the party which does not prevail in the foreclosure action.
After filing its petition, the association never notified or joined the owner or lenders of any unit in the proceeding. The Circuit Court granted the petition and appointed the Receiver. Lenders of units subject to the Receiver were also not notified of the order. Nevertheless, the Receiver proceeded to incur fees and costs in collecting rents from the units subject to the receivership.
Thereafter, Federal National Mortgage Association (“FNMA”) foreclosed and acquired title to several of the units subject to the receivership. FNMA then sought estoppel certificates on those units. In response, the Receiver demanded past due assessments, Receiver fees, and attorney’s fees incurred by the Receiver. Unable to resolve the estoppel dispute, FNMA intervened in the receivership case to terminate the receivership and to determine its liability for pre-certificate of title assessments pursuant to Fla. Stat. 718.116. The Circuit Court ruled against FNMA. This appeal followed.
The Third District Court of Appeal overturned the Circuit Court’s decision ruling Fla. Stat. §718.116(6)(c) applies only when there is a pending association foreclosure and the unit is occupied by a tenant. The Court further held the statute is not triggered by a mortgage foreclosure so the receivership order was not valid against FNMA. Consequently, the Receiver recover its fees or attorney fees against FNMA because FNMA was not a party to the receivership proceeding.
This decision likely limits the viability of many rent receivership orders entered during the Great Recession. If your community still has an active rent receiver working to collect rents, a review of the receivership proceedings by the association’s and receiver’s legal counsel is advisable.