Article Courtesy of The Legal
By Jessica Karmasek
December 30, 2015
TAMPA - A full-service bank has filed a class action
lawsuit against a specialty financing company that buys delinquent
receivable accounts from condominium and homeowners associations,
alleging the company’s practices are illegal.
Plaintiff Wilmington Savings Fund Society, FSB, as trustee of the
Primestar-H Fund 1 Trust, sued Business Law Group PA, or BLG; LM Funding
LLC, or LMF; and Bruce Rodgers, who is set to become chairman of the
board and CEO of LM Funding America Inc. and will remain a substantial
stock owner after the company goes public.
Wilmington Savings filed its class action in a Florida circuit court
The bank, which does business in Hillsborough County and in the state of
Florida, purchases notes and mortgages securing residential properties
in the state. According to the bank’s lawsuit, it then improves and
sells the residential properties.
“Plaintiff is in the business of purchasing distressed assets, which
include the notes and mortgages on properties either in default or
currently in foreclosure,” the lawsuit states. “Plaintiff then receives
an assignment of the note and mortgage and prosecutes the foreclosure
LMF, which is based in Hillsborough County along with the other
defendants, buys delinquent receivable accounts from condominium and
A delinquent account occurs when an owner within an association fails to
pay the monthly assessments required for membership. In exchange for
funding each of its association clients, LMF receives an assignment of
the delinquent receivable, which includes rights to collect the
receivable and which is secured by a super priority lien against the
unit or parcel.
According to Wilmington Savings’ complaint, LMF earns most of its
revenue by collecting or recovering the interest, late charges and fees
on the outstanding assessments, rather than the outstanding assessments
In Florida, condominium and homeowners associations are governed by
state statutes, which grant particular protections to first mortgagees
and their successors and assignees who obtain a judgment of foreclosure
against an association member who defaulted on his or her mortgage and
Specifically, even though an association’s lien is generally superior to
a first mortgage, state statutes limit a first mortgagee’s or its
successors’ or assignees’ liability to an association to an amount known
as the “safe harbor.”
“Despite their knowledge of the ‘safe harbor’ limitation, Defendants, as
a matter of course and consistent with their business model, demand sums
in excess of the ‘safe harbor’ from first mortgagees and their
successors and assignees,” Wilmington Savings alleges in its 24-page
The defendants’ practice essentially holds first mortgagees and their
successors and assignees “hostage” because they cannot obtain clear
title and dispose of a property until they satisfy the association’s
lien, the bank contends.
“Defendants’ practice is ‘illegal’ and results in Defendants being
‘unjustly enriched’ at the expense of first mortgagees and their
successors and assignees,” Wilmington Savings alleges.
The proposed class is defined as follows:
“All first mortgagees and their successors or assignees who joined an
LMF Association client in a foreclosure action in Florida, obtained
title to the property at issue through a foreclosure judgment or deed in
lieu of foreclosure, and to whom BLG, on behalf an LMF Association
client, provided an estoppel certificate claiming entitlement to more
than the limit” provided by two sections of Florida statutes, on or
after Oct. 28, 2011.
Wilmington Savings, in its complaint, says the exact number of class
members is unknown at this time; however, there are “likely hundreds or
perhaps thousands” that fit the proposed definition of the class.
The proposed class seeks to enjoin the defendants’ practice and recover
damages sustained as a result.
Kenneth G. Turkel and Brad F. Barrios of Bajo Cuva Cohen Turkel in Tampa
and J. Daniel Clark of Clark & Martino PA, also in Tampa, are
representing Wilmington Savings.
Earlier this month, the defendants filed a notice of removal in the U.S.
District Court for the Middle District of Florida, Tampa Division.
In their seven-page notice, filed Dec. 10, they argue the federal court
is the more appropriate venue because: 1) the number of members of the
proposed plaintiff class is more than 100; 2) at least one member of the
proposed plaintiff class is a citizen of a state different from at least
one of the defendants; and 3) the matter in controversy exceeds the sum
or value of $5 million, exclusive of interest and costs.
Tampa-area law firm Trenam Kemker Scharf Barkin Frye O’Neill & Mullis PA
is representing the defendants.