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Fla. App. Court (3rd DCA) Upholds Limits on Amounts Due by Mortgagees for HOA Charges

The Third District Court of Appeal of the State of Florida recently affirmed final judgment in favor of a mortgagee that took title to real property as a result of a foreclosure, and against two homeowner associations, holding that the safe harbor provision of subsection 720.3085(2)(c), Florida Statutes applied, and therefore that the amounts recoverable by the homeowners associations were substantially limited.

A copy of the opinion in Catalina West Homeowners Association, Inc., et al. v. Federal National Mortgage Association is available at:  Link to Opinion.

Husband and wife borrowers obtained a mortgage loan in 2005, which was assigned a little over one year later.  The mortgagee filed a mortgage foreclosure action in 2011, naming, in addition to the borrowers, two homeowners associations (HOAs) as defendants.  A foreclosure judgment was entered in February 2013 and a certificate of title was issued to the mortgagee in April 2013.

In December 2013, the HOAs provided estoppel letters to the mortgagee reflecting unpaid assessments, late charges, “violation charges, costs and attorney’s fees.”

The mortgagee filed a complaint seeking declaratory and injunctive relief, asserting the HOAs’ estoppel letters violated the “safe harbor” for first mortgagees contained in subsection 720.3085(2)(c), Florida Statutes by seeking to recover attorney’s fees, costs and other charges accruing before the mortgagee acquired title.

The HOAs raised as an affirmative defense “that section 720.3085 required them to apply any payments received from [the mortgagee] first to late charges and interest, and then to costs and attorney’s fees incurred in collection, and only then to assessments.”

The mortgagee moved for summary judgment, arguing that the HOAs were not entitled to attorney’s fees and costs under subsection 720.3085(2)(c). The trial court granted the motion and entered final judgment in favor of the mortgagee, finding that “because the safe harbor protection of section 720.3085(2)(c) applied, the Associations were not entitled to interest, late fees, attorney’s fees, court costs, or other charges incurred.”

The HOAs moved for rehearing, which the trial court denied, and the HOAs appealed.

On appeal, the Third District Court of Appeal analyzed the two subsections of section 720.3085 at issue, subsection (2)(c) and subsection (3)(b).

In an earlier decision, the Court explained that the “safe harbor” provision, subsection (2)(c), “provides a statutory cap on liability of foreclosing mortgagees” of the lesser of one percent of the original mortgage debt or the “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.”

The Court then turned to the HOAs’ argument that the final judgment should be vacated because it “improperly prohibits [the HOAs] from complying with their statutory duty to apply payments as required by section 720.3085(3)(b),” which requires that “[a]ny payment received by an association and accepted shall be applied first to any interest accrued, then to any administrative late fee, then to any costs and reasonable attorney fees incurred in collection, and then to the delinquent assessment.”

The Third District found that the plain language of subsection 720.3085(3)(b) made it clear that “‘unpaid common expenses and regular periodic or special assessments’ does not include amounts for attorney’s fees, costs, and interest. … Given the unambiguous language of the statute, we must conclude that if the Legislature intended to include attorney’s fees, costs, interest, or other charges as part of the first mortgagee’s liability, it would have included any one or more of those items in the safe harbor provision.”

The Court reasoned that the trial court’s construction of the safe harbor provision was consistent with the analogous case of United States v. Forest Hill Gardens East Condominium Ass’n, in which the U.S. District Court for the Southern District of Florida “held that the terms ‘unpaid common expenses’ and ‘regular periodic or special assessments’ did not encompass interest, late fees, collection costs, and attorney’s fees.”

The federal trial court in Forest Hill reasoned that “‘interest, late fees, attorney’s fees, and collection costs’ are individualized charges to induce compliance, rather than ‘common expenses’ or ‘regular periodic or special assessments,’ terms which infer a shared expense among all the units of a homeowners’ association.”

Finally, the Third District concluded that the final judgment did not improperly prohibit the associations from applying payments as required by section 720.3085(3)(b) because “[t]he final judgment determined the amount due from [the mortgagee] to the Associations, in accordance with the safe harbor provision set forth in section 720.3085(2)(c), and did not address itself to how the Associations were to apply the payment made.”

Because the HOAs were not entitled to any payments other than the ‘common expenses’ or ‘regular periodic or special assessments’ established by section 720.3085(2)(c), they were not entitled to apply payments received in the order required by 720.3085(3)(b) to interest, administrative fees, attorney’s fees and costs because of the safe harbor provision.

The final judgment in favor of the mortgagee on its claims for declaratory and injunctive relief was affirmed.

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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.