By Hans C. Wahl, Esquire
Florida’s Third District Court of Appeals has made it even harder for Florida’s associations to survive within this tough market environment. For decades, Florida law was interpreted as to always require the purchaser of a residential foreclosure to pay the past-due assessments owed to an association by the previous property owner. The Third District, however, has altered the interpretation of that law. In the case of Aventura Management, LLC v. Spiaggia, the Third DCA held that associations can now be considered jointly and severally liable for past-due assessments in certain situations. 105 So.3d 637 (Fla. 3d DCA 2013).
In 2008, Spiaggia Condominium Association (“Spiaggia”) initiated a lien foreclosure against a unit owner pursuant to its association lien for the owner’s unpaid assessments. At the foreclosure auction, Spiaggia placed the only bid and took title of the unit subject to the first mortgage held by the Bank of New York. Once in possession, Spiaggia began renting the unit. Id. at 637.
The Bank of New York had begun its own foreclosure proceeding due to the previous owner defaulting on the first mortgage. Aventura Management, LLC (“Aventura”) was the successful bidder at the bank’s foreclosure sale and obtained title to the unit. As a result, Spiaggia relinquished its ownership interest at that time. Id. at 638.
Once Aventura took title, Spiaggia began efforts to recover from Aventura the past-due assessments, late fees and interest that accrued since the original unit owner defaulted. Id. Spiaggia relied on Section 718.116(1)(a), Florida Statutes, which states, “a [subsequent] unit owner is jointly and severally liable with the previous owner for all unpaid assessments that came due up to the time of transfer of title.” Aventura disagreed and argued that because Spiaggia was an intervening owner (temporarily taking title to the unit after the original unit owner and prior to Aventura) that meant Spiaggia, and not Aventura, was the subsequent unit owner responsible for the assessments owed by the previous owner. Id.
Florida’s Third District Court of Appeals agreed with Aventura, explaining that the language of Section 718.116(1)(a), Florida Statutes, states that the following unit owner is jointly and severally liable with the previous owner and that the “plain language of the Statute does not state or suggest that an exception is to be made [for associations].” Id. Spiaggia even went so far as to argue that an exception should be read into the Statute for when an association becomes the subsequent owner of a lien-foreclosed property. Id. at 639. The Court rejected that argument basically stating that no one forces an association to purchase a foreclosed unit and if an association chooses to do so then they voluntarily become jointly and severally liable for past-due assessments under Florida law.
Consequently, Spiaggia was precluded from collecting from Aventura the past-due assessments, late fees and interest. In a footnote, however, the Court did acknowledge that although Aventura is not jointly and severally liable due to Spiaggia’s intervening ownership of the unit, nothing prevents Spiaggia from continuing collection efforts against the original unit owner for the past-due assessments. Id.
So what does this decision mean for Florida’s associations? Well, it immediately changes the strategy of associations that find themselves in this predicament. Previously, the strategy was fairly obvious—instead of waiting what could be years for a bank to eventually foreclose and a new owner to purchase and pay the past-due assessments, associations were inclined to take title to the property in order to maintain property values and mitigate losses through the collection of rent. That strategy used to be a wise approach as associations figured they would have the statutory ability to collect the unpaid assessments from the subsequent purchaser.
Florida’s associations now have one less method for mitigating losses, maintaining much-needed revenues and sustaining the property values within their communities. Because of the Third District’s ruling, Florida’s associations must implement a new strategy. Associations must now conduct extensive analysis prior to deciding on whether to bid on a foreclosed property and take title to it. If an association determines that what it can earn in rent revenue is more than what it is owed in delinquent assessments then it may be inclined to take title to the property. However, if the previous owner was also in default of the mortgage (as was the situation in Aventura v. Spiaggia) then an association may decide it’s not worth taking title to the property. That is because, if the bank forecloses its mortgage, the association may not own the property long enough for rent payments to cover its past-due assessment losses. And based on the Court’s ruling in Aventura v. Spiaggia, the association’s intervening ownership, possibly resulting in minimal rent payments, would preclude the association from collecting all of its past-due assessments from the subsequent property owner.