For the past few years, trial courts have increasingly issued rulings limiting what charges were included in a “safe harbor” calculation of a bank’s post-foreclosure liability to community associations. However, aside from the federal case of United States v. Forest Hill Gardens East Cd’m. Ass’n., 990 Supp. 2d 1344 (S.D. Fla., 2014), no published opinion definitively addressed the issue leaving the matter somewhat unsettled.
The Florida safe harbor rule limits the liability of a first mortgagee or its successor or assignee who acquire title to a unit by foreclosure or by deed in lieu of foreclosure to the lesser of 12 months of assessments or one percent of the original mortgage value. The issue litigated by countless banks and community associations was whether delinquent interest, late fees, costs, attorney fees, and other charges could be included in the safe harbor calculation. Florida’s Third District Court of Appeal has finally weighed in.
In Catalina West HOA, Inc. v. Federal National Mortgage Ass’n., Case No.: 3-D 15 – 271 (FLW 3d DCA, March 30, 2016), a homeowner association appealed a trial court ruling in favor of Federal National Mortgage Association (“FNMA”) holding the estoppel letters issued by the homeowner association did not comply with Fla. Stat. §720.3085’s “safe harbor” protections because the letters included late charges, costs, attorney’s fees, and “violation charges.”
In the trial court, FNMA sought declaratory relief against two defendant homeowner associations arguing they were not entitled to attorney’s fees, costs, interest, or other charges that accrued prior to the certificate of title being issued. In response, the homeowner associations filed answers and affirmative defenses, each alleging that Fla. Stat. §720.3085 required them to apply any payments they received from FNMA first to interest, then late charges, and then to costs and attorney’s fees incurred in collection, and only then to assessments. Further, they alleged that they brought the sums necessary to bring the account current to the attention of FNMA, and informed them that they “would have to violate Florida Statutes [section] 720.3085 in order to provide the requested relief.” The trial court ruled in favor of FNMA holding safe harbor precluded the defendant associations from collecting interest, late charges, costs, attorney’s fees, or other charges.
On appeal, the Third District Court of Appeal emphasized the statute’s language that the “liability of a first mortgage”… shall be the lesser of … unpaid common expenses and regular periodic or special assessments….” The Court held the plain language of the statute evidenced an intent to limit liability to only assessments concluding:
if the legislature intended to include attorney’s fees, costs, interest or other charges as a part of the first mortgage’s liability, it would have included any one or more of those items in the safe harbor provisions.
While this ruling is yet another blow to community associations struggling to recover from the foreclosure crisis and attendant glut of assessment delinquencies, it does appear to put to rest an unsettled issue leading to unnecessary litigation between banks and community associations.