15th Jun 2015
Once again, the Florida appellate courts have left community associations out in the cold. Homeowners’ associations cannot rely on their remedies under Florida statutes in bank foreclosure cases if the statutes are in conflict with the governing documents, so said the Fourth District Court of Appeal in Pudlit 2 Joint Venture, LLP v. Westwood Gardens HOA, Inc., Case No. 4D14-1385 (Fla. 4th DCA May 27, 2015). This is latest in a long-line of troubling decisions by the Florida appellate courts, which seem to ignore both prior case law and reality in arriving at their decisions.
In a prior case, the Second District in Coral Lakes Comm. Ass’n. v. Busey Bank, N.A., 30 So. 3d 579 (Fla. 2nd DCA 2010) held that where the governing documents of a homeowner’s association provide that a holder of a first mortgage is not liable for assessments that came due before it takes title in foreclosure, even though the Florida legislature has since provided that first mortgagees are liable for past due assessments (limited to the lesser of 12 months past due assessments or 1% of the original mortgage) pursuant to §720.3085 Fla. Stat. (2013). In other words, the provisions of the governing documents in this instance will prevail over the contrary language of the statute. The Second District in Coral Lakes reasoned that to hold otherwise would impair the contract rights of first mortgagees who relied on the language of the governing documents that exempted them from liability for past due assessments. The Second District so held despite the facts that the banks were not parties to the Declaration, that the banks were well aware that the Declaration was subject to amendment and that the statute didn’t actually “impair” anything, since the statute was amended long before the bank actually took title.
The Fourth District in Pudlit 2 skipped blithely past the flaws in the Coral Lakes’ analysis and even took it another step further. Pudlit was a third-party purchaser of two parcels in Westwood Gardens at the foreclosure sale. The Association demanded all past due assessments. Pudlit paid “under protest.”
Westwood Gardens’ Declaration stated:
The lien of the assessments provided for herein shall be superior to all other liens save and except tax liens and mortgage liens, provided said mortgage liens are first liens against the property encumbered thereby (subject only to tax liens). Sale or transfer of any Lot which is subject to a mortgage as herein described, pursuant to a decree of foreclosure thereof, shall extinguish the lien of such assessments as to payments thereof which become due prior to such sale or transfer. No sale or transfer shall relieve such Lot from liability for any assessments thereafter becoming due or from the lien thereof.
* * *
The personal obligation of delinquent assessments shall not pass to his successors in title unless expressly assumed by them.
Pudlit sued the Association for its payment and declaratory judgment. The trial court granted the Association’s Motion for Summary Judgment, and denied Pudlit’s Motion for Summary Judgment.
Pudlit appealed. The Fourth District reversed the trial court, holding that §720.3085, could not impair a pre-existing declaration provision despite the fact that Pudlit was never a party to the contract (declaration) prior to purchase.
The Fourth District held that the purchaser had the right to rely on the language of the Declaration because “successors in interest,” were intended third party beneficiaries of the contract, just as first mortgagees were in Coral Lakes.
One might question whether that is in fact true. What the Fourth District is saying is that the purchaser at a foreclosure sale, who is not a member of the Association and is a stranger to the Declaration, is entitled to rely on the language of the Declaration to avoid the remedies provided to the HOA by a statute passed in 2008.
The Fourth District seems to bend over backwards in Pudlit to protect the purchaser but ignores the effect of their decision on the members of the association. After all, the association had to maintain the development while the property is in foreclosure to the benefit of both the lenders and subsequent purchases, while the association’s members have been paying higher assessments because the owner in foreclosure is delinquent. It is astounding that none of this seems to enter into the Fourth District’s calculus when arriving at its decision.
The answer for homeowners’ associations, of course, is to amend their documents. That is easier said than done in many cases, another fact ignored by the Fourth District. Based on this case and the clear trend from the Florida appellate courts, however, homeowners’ associations are well-advised to consult with their association attorney to start the amendment process. Neither the courts nor the Legislature show any appetite for addressing the very real harm to associations and their members in allowing banks and subsequent purchasers to avoid liability for past due assessments.