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… But I Have a Lien!?

The United States Bankruptcy Court Southern District’s decision in In re: Adams, Case No. 22-10140-MAM serves as a reminder that condominium associations cannot always rely on the current version of Chapter 718, Florida Statutes, when it comes to the operation of the condominium, including the collection of unpaid assessments.

Adams owned a condominium unit in Highland House of Palm Beach Condominium Association, Inc. (“Condominium”) in South Florida.  The Condominium is governed by Chapter 718, Florida Statutes; however, due to the age of the condominium the Condominium’s Declaration of Condominium (“Declaration”) did not match the 2022 version of the Chapter 718, Florida Statutes. Consequently, some of the newer provisions protecting the Condominium’s right to lien and collect unpaid assessments were not included in the Condominium’s declaration.

Adams fell behind in the payment of the assessments. The Condominium commenced an action to collect the unpaid assessments resulting in a judgment against Adams in the amount of $76,649. Adams then filed for Chapter 13 bankruptcy protection.

In the bankruptcy, the Condominium filed a proof of claim in the amount of $113,207 for unpaid assessments, interest, and fees, a portion of which included the previously obtained $76,649 judgment. Adams objected to the amount of the proof of claim disputing the Condominium’s inclusion of $36,558 in additional assessments and interest claimed not included in the $76,649 judgment. More specifically, Adams’ challenged the Condominium’s assertion it maintained a secured claim against the Adams’ unit under Section 718.116(5)(a), Florida Statutes.

In an oversimplification, a creditor’s secured claim in a bankruptcy action is one secured by property serving as collateral for the creditor’s lien. The current version of Section 718.116(5)(a) provides that a condominium has a lien on each unit to secure the payment of assessments, and such lien is effective from and relates back to the original recording of the declaration of condominium regardless of whether a claim of lien is recorded in the public records.  In light of the statutory lien right provided to condominiums in Section 718.116(5)(a) condominiums are often deemed secured creditors in unit owner bankruptcies.

However, in this case, Adams argued the language of the Declaration, which predated the implementation of Section 718.116(5)(a), controlled over the current provisions of the statute. The Condominium’s Declaration did not contain language establishing a lien like the more recent versions of the statute. Therefore, Adams argued any portion of the Condominium’s debt not included in the $76,649 judgment was unsecured.

The bankruptcy court agreed. Specifically, the court relied upon Kaufman v. Shere, 347 So.2d 627 (Fla. 3d DCA 1977) to determine if Condominium’s Declaration controlled over the current version of Section 718.116(5)(a). The Kaufman court found the inclusion of this precise language, that is, the Condominium Statutes as they might be amended “from time to time” to be dispositive and concluded that the then-current version of the Condominium Statutes applied.

As opposed to the declaration of condominium at issue in Kaufman, the Condominium’s Declaration specifically adopted and incorporated Chapter 718, Florida Statutes, as it existed on the date of recording of the Declaration, or 1987. The Condominium’s Declaration did not in any manner indicate an intent to incorporate later amendments to the Chapter 718, Florida Statutes.  At the time the Condominium’s Declaration was recorded in 1987, Chapter 718, Florida Statutes, required that a lien be recorded to become effective, and Condominium’s Declaration mirrored this language, but the Declaration was never changed or updated to reflect the statutory lien provided in Section 718.116(5)(a).

The bankruptcy court noted that the result would have been different if the Condominium had amended its Declaration to mirror the newer version of the statute or added the as “amended from time to time” language discussed in the Kaufman case. This is another example in a growing line of cases demonstrating condominiums cannot always rely on the current version of Chapter 718, unless their governing documents incorporate all future versions of the statute.

Posted in Assessment Collection, Condominium Association, Court Decisions of Importance, Foreclosure
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