August 25, 2013
While the economy is slowly picking up, evidenced by an increasing supply of homes for sale, there are still many condominium and homeowner associations that continue to carry bad debt on their accounting books because of delinquent assessments.
Depending on the situation, the bad debt could be years’ worth of assessments, adding up to tens of thousands of dollars. Associations want to be made whole when the property is sold by collecting the entire past due assessments. Florida Statutes provide associations with the authority to collect past due assessments, because the new purchaser of the property is jointly and severally liable for all unpaid assessments that came due prior to the transfer of title. Although this is the general law, a specific exception for banks in the Florida Statutes limits their liability. The exception is known as “Safe Harbor,” and is applicable to both condominium and homeowner associations. Specifically Section 718.116(1)(b), Florida Statues and Section 720.3085(2)(c), Florida Statutes. Safe Harbor limits the liability of a bank to either the last 12 months of past due assessments or one percent of the original mortgage debt, whichever is less.
Even though Safe Harbor limits the banks liability if the necessary requirements are established, some associations continue to prepare estoppel certificates asking for more than what is set forth by Safe Harbor. These associations must be careful what they ask for. On August 14, 2013, Florida’s Third District Court of Appeal (Miami’s appellate court) in Ocean Bank v. Caribbean Towers Condominium Association, Inc. ruled that Ocean Bank, which had taken title to two condominium units, was entitled to attorney’s fees from Caribbean Towers Condominium Association because the Association failed to provide Ocean Bank with the Safe Harbor exception. In this case, the bank foreclosed on two delinquent units, and eventually completed its foreclosure actions and took title to both units at the foreclosure sales.
As is typical after acquiring title at foreclosure sale, Ocean Bank requested estoppel certificates for the delinquent amounts owed. Caribbean Towers Condominium Association did not prepare its estoppel certificates in accordance with Safe Harbor. One of the estoppel certificates was for $8,835.93, an amount almost nine times the statutory maximum, and the other was for $20,233.14, an amount over thirteen times the statutory maximum. Caribbean Towers’ repeated demands for payment in excess of Safe Harbor amounts forced Ocean Bank to delay closings on the units.
Seeking a resolution Ocean Bank took the association to court and initiated litigation requesting the application of Safe Harbor, and to cover the cost of their attorney’s fees. At the trial court level, the court ruled for Ocean Bank on the merits (meaning Safe Harbor was to be applied), and one judge even referred to the condo association’s position as “frivolous.” However, the trial court refused to award attorney’s fees to the bank, thus it appealed. The Third DCA ruled the Bank was entitled to an award of its attorney fees, since it owned both units and it was the prevailing party in its dispute with Caribbean Towers Condominium Association. Based on this decision, the association will only be getting limited Safe Harbor amounts from Ocean Bank, rather than the full delinquent assessments it requested. It will also have to pay its own attorney’s fees and the bank’s attorney’s fees.
Unfortunately, this case is an important reminder that associations must be careful what they ask for in their estoppel certificates. Even though many associations continue to carry bad debt and are not fond of banks right now because of the duration of time it takes to complete a foreclosure action and their limited liability provided by Safe Harbor, as long as the Safe Harbor exception is a part of the Florida Statutes it must be followed. This is why it is crucial that associations contact their counsel to discuss the applicability of Safe Harbor and its requirements.
If you do not have counsel, please contact me or any of the real estate attorneys at Ward, Damon, Posner, Pheterson & Bleau, P.L. so we can assist your association with all of its needs.