Article Courtesy of Lexology
By Maurice Wutscher
Published
May 2, 2016
The Third District Court of Appeal of the State of
Florida recently affirmed final judgment in favor of a mortgagee that
took title to real property as a result of a foreclosure, and against
two homeowner associations, holding that the safe harbor provision of
subsection 720.3085(2)(c), Florida Statutes applied, and therefore that
the amounts recoverable by the homeowners associations were
substantially limited.
A copy of the opinion is available at:
Link
to Opinion.
Husband and wife borrowers obtained a mortgage loan in 2005, which was
assigned a little over one year later. The mortgagee filed a mortgage
foreclosure action in 2011, naming, in addition to the borrowers, two
homeowners associations (HOAs) as defendants. A foreclosure judgment was
entered in February 2013 and a certificate of title was issued to the
mortgagee in April 2013.
In December 2013, the HOAs provided estoppel letters to the mortgagee
reflecting unpaid assessments, late charges, “violation charges, costs
and attorney’s fees.”
The mortgagee filed a complaint seeking declaratory and injunctive
relief, asserting the HOAs’ estoppel letters violated the “safe harbor”
for first mortgagees contained in subsection 720.3085(2)(c), Florida
Statutes by seeking to recover attorney’s fees, costs and other charges
accruing before the mortgagee acquired title.
The HOAs raised as an affirmative defense “that section 720.3085
required them to apply any payments received from [the mortgagee] first
to late charges and interest, and then to costs and attorney’s fees
incurred in collection, and only then to assessments.”
The mortgagee moved for summary judgment, arguing that the HOAs were not
entitled to attorney’s fees and costs under subsection 720.3085(2)(c).
The trial court granted the motion and entered final judgment in favor
of the mortgagee, finding that “because the safe harbor protection of
section 720.3085(2)(c) applied, the Associations were not entitled to
interest, late fees, attorney’s fees, court costs, or other charges
incurred.”
The HOAs moved for rehearing, which the trial court denied, and the HOAs
appealed.
On appeal, the Third District Court of Appeal analyzed the two
subsections of section 720.3085 at issue, subsection (2)(c) and
subsection (3)(b).
In an earlier decision, the Court explained that the “safe harbor”
provision, subsection (2)(c), “provides a statutory cap on liability of
foreclosing mortgagees” of the lesser of one percent of the original
mortgage debt or the “unpaid common expenses and regular periodic or
special assessments that accrued or came due during the 12 months
immediately preceding the acquisition of title and for which payment in
full has not been received by the association.”
The Court then turned to the HOAs’ argument that the final judgment
should be vacated because it “improperly prohibits [the HOAs] from
complying with their statutory duty to apply payments as required by
section 720.3085(3)(b),” which requires that “[a]ny payment received by
an association and accepted shall be applied first to any interest
accrued, then to any administrative late fee, then to any costs and
reasonable attorney fees incurred in collection, and then to the
delinquent assessment.”
The Third District found that the plain language of subsection
720.3085(3)(b) made it clear that “‘unpaid common expenses and regular
periodic or special assessments’ does not include amounts for attorney’s
fees, costs, and interest. … Given the unambiguous language of the
statute, we must conclude that if the Legislature intended to include
attorney’s fees, costs, interest, or other charges as part of the first
mortgagee’s liability, it would have included any one or more of those
items in the safe harbor provision.”
The Court reasoned that the trial court’s construction of the safe
harbor provision was consistent with the analogous case of United States
v. Forest Hill Gardens East Condominium Ass’n, in which the U.S.
District Court for the Southern District of Florida “held that the terms
‘unpaid common expenses’ and ‘regular periodic or special assessments’
did not encompass interest, late fees, collection costs, and attorney’s
fees.”
The federal trial court in Forest Hill reasoned that “‘interest, late
fees, attorney’s fees, and collection costs’ are individualized charges
to induce compliance, rather than ‘common expenses’ or ‘regular periodic
or special assessments,’ terms which infer a shared expense among all
the units of a homeowners’ association.”
Finally, the Third District concluded that the final judgment did not
improperly prohibit the associations from applying payments as required
by section 720.3085(3)(b) because “[t]he final judgment determined the
amount due from [the mortgagee] to the Associations, in accordance with
the safe harbor provision set forth in section 720.3085(2)(c), and did
not address itself to how the Associations were to apply the payment
made.”
Because the HOAs were not entitled to any payments other than the
‘common expenses’ or ‘regular periodic or special assessments’
established by section 720.3085(2)(c), they were not entitled to apply
payments received in the order required by 720.3085(3)(b) to interest,
administrative fees, attorney’s fees and costs because of the safe
harbor provision.
The final judgment in favor of the mortgagee on its claims for
declaratory and injunctive relief was affirmed.
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