Florida’s Fifth District Court of Appeals (“5th DCA”) reversed a condominium association’s final judgment of foreclosure in the recent decision of Rajabi v. Villas at Lakeside Condominium Association, Inc., 45 Fla. L. Weekly D2543a (Fla. November 13, 2020) citing two fatal errors. First, the association misapplied the owner’s payments in breach of Fla. Stat. Section 718.116(3); and second, the association failed to properly serve the required statutory notice of intent to lien before recording a claim of lien pursuant to Fla. Stat. Section 718.121(4).
The 5th DCA applied the facts as follows: In April 2011 the association recorded its first claim of lien. The association then referred the account to its attorney and stopped crediting the owner’s payments to his account, but instead forwarded them to its attorney who deposited the checks into the attorney’s trust account. The owner’s account continued to accrue late fees and interest despite the payments. In July 2013, the Association filed a second claim of lien. The association did not provide a notice of intent to file a second claim of lien. The association provided the owner a notice of intent to foreclose on July 18, 2013, and filed a lien foreclosure. Thereafter, the trial court granted the association a final judgment of foreclosure and this appeal ensued.
The 5th DCA reversed finding that the association’s failure to serve a notice of intent to file a second lien violated Section 718.121(4). The Court rejected the association’s argument that the second lien supplemented the first lien noting Florida law does not contemplate a “supplemental” claim of lien supplementing a prior lien extinguished by the passage of time.
Citing to Ocean Two Cd’m. Ass’n. v. Kliger, 983 So. 2nd 739 (Fla 3d DCA 2008), the Court also reversed due to the misapplication of owner’s payments, which violated Section 718.116(3) Fla. Stat. and the declaration’s similar allocation provisions. In August 2013 the association’s attorney forwarded the owner a ledger showing the charges and payments on the account, but the ledger never showed reduction in the balance from those payments. The record was void of any evidence as to the application of payments and calculation of interest after payments were applied. According to the Court, this was tantamount to a rejection of the payments made.
With the expected flood of foreclosures coming once the pandemic moratoriums on foreclosures end, this decision reinforces that associations must commence an action to foreclose within one (1) year of recording a claim of lien. Amending the existing claim of lien does not extend the one (1) year requirement to commence an action to foreclose. Furthermore, the Association must keep an owner apprised of balances when partial payments are made. As a practical matter, practitioners and associations should have a policy on how to notify owners of application of payments and current balances owed. Payments may never be refused and must be applied to an owner’s account.
Lastly, this decision shows how important it is for associations to communicate regularly and have a good working relationship with their counsel to ensure collections are being handled properly.