In the case of Federal National Mtg. Ass’n. v. Mirabella at Mirasol HOA, Inc., Case No. 4D 15-4792 (Fla. 4th DCA, November 23, 2016), Florida’s Fourth District Court of Appeal relied on specific language in the Homeowner Association Act’s safe harbor section to rule in favor of a homeowner association over Federal National Mortgage Association (“FNMA”) in a dispute over FNMA’s liability for delinquent assessments after foreclosure. This decision changes the balance of power between lenders and homeowner associations and will have an impact on mortgage foreclosures moving forward.
In 2008, the Homeowners Association Act was amended to provide lenders safe harbor from assessment liability. §720.3085(2)(c) Fla. Stat. reads in pertinent part: “[t}he limitations on first mortgagee liability provided by this paragraph apply only if the first mortgagee filed suit against the parcel owner and initially joined the association as a defendant in the mortgagee foreclosure action.” (Emphasis added).
The issue in Mirabella at Mirasol HOA arose because FNMA failed to join the homeowner association at the inception of its foreclosure. Mirabella at Mirasol was not joined until four years into the foreclosure. After FNMA took title at the foreclosure sale, the association demanded all delinquent assessments arguing FNMA was not entitled to safe harbor because the association was not initially joined as a defendant in the mortgage foreclosure action.
Florida’s Fourth District Court of Appeal rested its ruling on what the word “initially,” as used in the Homeowners Association Act, modifies. About their decision, the court stated,
It takes no linguistic feat to determine that the adverb “initially” modifies “joined” and not “action.” If the legislature had intended the word to apply to “action,” it would have used the adjective “initial” instead of the adverb “initially” and placed it next to the phrase “mortgage foreclosure action.” Simply put, while the legislature could have provided that the safe harbor applied if the association were joined at any point in the initial mortgage foreclosure action, that is not what the legislature said.
The Court rejected FNMA’s argument that the association’s interpretation was absurd, explaining the legislature has many reasons for requiring the joinder of the association at the inception of the foreclosure, including the ability to monitor and advance the foreclosure to minimize assessment losses.
This decision has a significant impact on HOAs as it allows them to protect their interests by requiring banks to join the association in mortgage foreclosures at the inception lest they lose their safe harbor protections. Unfortunately, similar language is not contained in the Condominium Act. Consequently, this decision should give condominiums and HOAs the motivation to include similar language in their association covenants.
One final note, associations may see banks dismissing foreclosures and starting over where they failed to initially name a homeowner association. If your community has not pursued collection of an assessment account because the property was in foreclosure and your association was not joined as a defendant, you are well advised to discuss with your legal counsel how this case may affect that strategy.