It used to be a good thing when investors bought a foreclosed home, because associations could collect all of the assessments that were unpaid before the foreclosure. Now the tables have turned and the investors have found their silver bullet. Learn what you can do to protect your interests!
We in the industry have a love-hate relationship with the “Safe Harbor” provisions of Chapters 718 and 720 of Florida Statutes. On one hand, it’s nice to finally get some money when a home is foreclosed (whether it be 1% of the original mortgage or 12 months’ past due assessments), but on the other hand, since some of these homes have been delinquent for years, and the write-off could be substantial. Things actually got worse in 2010 with the case Coral Lakes Community Ass’n, Inc. v. Busey Bank, NA in which the court held that Safe Harbor does not apply if your declaration has language stating that a mortgage foreclosure cuts off any liability for assessments due prior to a foreclosure (which you most likely have). After Coral Lakes then, many associations were getting even less than the Safe Harbor amounts, they were getting $0 for pre-foreclosure assessments! The only silver lining was that all of this only applied if it was the bank that took title at foreclosure. But if a third party investor took title, Safe Harbor didn’t apply and neither did Coral Lakes. At least, that was the argument until 2015.
The case Pudlit 2 Joint Venture, LLP v. Westwood Gardens Homeowners Association, Inc. changed all of that. It used to be that when a third party investor won a foreclosure auction, we could demand payment in full of all pre-foreclosure assessments because Safe Harbor and Coral Lakes were only available to the banks. Unfortunately for us, Pudlit extended the protection of Coral Lakes to the investors as well, meaning that if your declaration contains Coral Lakes language, we can’t collect anything from the investors for the pre-foreclosure assessments. The investors and their attorneys are now quick to bring this case law up to limit their liability. They finally had a silver bullet in their arsenal.
So is there anything you can do about this? Probably not for existing mortgages, but we think there’s a way to dodge the bullet for future mortgages! We recommend that you obtain legal advice as to whether your declaration has Coral Lakes language, meaning whether it has language that cuts off a bank’s liability for assessments after a foreclosure. If you do, then you should consider amending your declaration to match Safe Harbor. That way after a foreclosure of any future mortgages, you can ensure that you’ll get at least the 1% or the 12 months.
Now, you may be wondering, if you are going through the hassle of amending your declaration, why stop at just parroting Coral Lakes? Why not amend it to say that all pre-foreclosure amounts can be recovered from either the bank or the investor? We believe that the effect of doing this, while seemingly good on paper, could prove devastating to your community. When reviewing loan applications, banks’ underwriting departments carefully review your community’s declaration. If you amend your declaration in a way that makes it riskier for the bank to approve a loan, you could be inadvertently limiting the chances of anyone being approved for a mortgage, which means your property values may plummet.
Please seek advice of your attorney as the case law, statute, and your governing documents can be antiquated or even inconsistent. Our team has done this for several communities and offers a simple flat rate for the entire process. Take steps today to protect your ability to collect after a foreclosure!