Consideration of a first mortgagee’s “safe harbor” request

Jason Davis

As Florida courts continue to work through the backlog of first mortgage foreclosures (referred to in that way due to their first or priority lien position on the property), it becomes increasingly important for associations to thoroughly review the first mortgagee’s entitlement to the “safe harbor” provisions of Florida Statutes when responding to estoppel requests. For Homeowners’ Associations, the relevant language is included in the Homeowners’ Association Act, Fla. Stat. §720.3085(2)(c), which provides that:

…the liability of a first mortgagee, or its successor or assignee as a subsequent holder of the first mortgage who acquires title to a parcel by foreclosure or by deed in lieu of foreclosure for the unpaid assessments that became due before the mortgagee’s acquisition of title, shall be the lesser of: 1. The parcel’s 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; or 2. One percent of the original mortgage debt.

Similar language is included for condominium associations in the Condominium Act, Fla. Stat. §718.116(1)(b)(1).

An important qualification is included in the Homeowners’ Association Act, providing that “[t]he limitations on first mortgagee liability provided by this paragraph apply only if the first mortgagee filed suit against the parcel owner and initially joined the association as a defendant in the mortgagee foreclosure action.” Fla. Stat. §720.3085(2)(c). Similarly the Condominium Act states that “[t]he provisions of this paragraph apply only if the first mortgagee joined the association as a defendant in the foreclosure action.” Fla. Stat. §718.116(1)(b)(1). Not at all uncommon is the situation when a foreclosing first mortgagee, through mistake or otherwise, fails to properly include an association in their foreclosure action or, specifically for Homeowners’ Associations, fails to initially join the association in its action and proceeds to sale, taking title to the property. A common remedy under Florida law is for the foreclosing lender to file an amended complaint or a separate lawsuit to re-foreclose the excluded party.  In this situation, the association would be in a substantially better position under current Florida law to attempt to avoid the limitations established by the “safe harbor” provisions and request treatment of the new owners as any other purchaser, subject to joint and several liability for the associations unpaid assessments.

This assumes the associations governing documents do not provide greater benefits to the first mortgagee than the mentioned statutory provisions. For an examination of why it is equally important to review the association’s governing documents, specifically regarding subordination clauses, in conjunction with current statutory provisions, please review our blog post by Kathleen Reres, Esq. on “What amending your governing documents can do to save your association money.”

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