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Florida Court Holds HOA Declaration Absolved Mortgagee from Liability for Pre-Acquisition Dues

The Appellate Division of the Circuit Court of the 15th Judicial Circuit in Palm Beach County, Fla. recently held that a first mortgagee who took title by foreclosure was not liable for homeowner’s association assessments coming due before it acquired title because the association’s declaration of restrictive covenants absolved a first mortgagee from liability for assessments coming due before it acquires title.

A copy of the opinion is available at:  Link to Opinion.

An individual purchased real property in a subdivision that was subject to a recorded declaration of covenants, restrictions, conditions and easements. The homeowner defaulted on her mortgage and the holder of the mortgage sued to foreclose, ultimately acquiring title at a foreclosure sale in July 2011.

The homeowner’s association demanded payment of more than $11,000 in delinquent assessments, interest, attorney’s fees and costs, which the mortgagee paid under protest. The mortgagee then sued to recover the payment, arguing that the declaration of covenants, restrictions, conditions and easements absolved the first mortgagee of any liability for assessments coming due before it acquired title. The association countered that this exemption applied only if it was joined as a party in the foreclosure action.

After a bench trial, the County Court held that the association breached its declaration of covenants by seeking payment of assessments coming due before the mortgagee acquired title, even if the association was not named in the foreclosure action. The association appealed.

The appellate division of the circuit court found that that declaration was a contract, and that it would apply the intention of the parties based on the contract’s plain language, ensuring that all of its provisions be read together.

Using this standard, the appellate division reasoned that even though “in order for a junior lien to be wiped out as a result of a senior lien foreclosure, the senior lien holder must join the junior lien holder as a defendant to the senior lien foreclosure action [and] a failure to do so leaves the junior lien intact,” this did not contradict the clear language of the declaration, under which the association relinquished “its right to collection unpaid assessments from entities such as [the bank that foreclosed its mortgage].”

The trial court’s decision was affirmed, the association’s motion for appellate attorney’s fees was denied, and the bank’s motion for attorney’s fees was granted, with the case remanded for the lower court to determine reasonable attorney’s fees.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

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