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Fla. App. Court (2nd DCA) Holds Non-Party HOA Not Subject to Foreclosure, HOA Lien Not Limited

The District Court of Appeal of the State of Florida, Second District, recently reversed a summary judgment in favor of a mortgagee in two consolidated actions for declaratory and injunctive relief regarding the extent of the mortgagee’s liability for unpaid homeowners association assessments, holding that the trial court erred because the homeowners association was not joined as a party, and therefore its liens remained unaffected by foreclosure of the mortgages.

The Court pointed out that the only remedies available to a purchaser such as the mortgagee was to move “to compel redemption or filing a de novo action to re-foreclose.”

A copy of opinion in Ballantrae Homeowners Association, Inc. v. Federal National Mortgage Association is available at:  Link to Opinion.

The servicers of mortgage loans on two properties subject to a recorded homeowners association’s declaration of covenants, conditions and restrictions sued to foreclose. The HOA, which had recorded liens for unpaid assessments against the subject properties, was not named as a party in either action.

Final judgments of foreclosure were entered and the first-lien mortgagee was the highest bidder at the foreclosure sales. It then requested an “estoppel letter” from the HOA setting forth the amount owed for unpaid assessments.

The mortgagee refused to pay the amount sought and filed two lawsuits seeking a declaration that its liability was limited to assessments coming due after it acquired title and an injunction compelling the HOA to provide a correct estoppel letter.

The HOA argued that because it was not joined as a party, its liens were not extinguished. In addition, the HOA argued, if it had been joined, it could have bid on the properties and shared in any surplus as a junior lienor.

The trial court rejected the HOA’s arguments and entered summary final judgment in the mortgagee’s favor, concluding that it was liable only for assessments coming due after it acquired title. The HOA appealed.

On appeal, the Second District Court of Appeal examined the language of the declaration, which provided that the association’s lien was subordinate to first mortgage liens as to assessments coming due prior to acquisition of title by foreclosure or deed in lieu.

The Court distinguished one of its prior decisions from 2010 and another from the Fifth District in 2011 relied upon by the trial court because in the case at bar, while the declaration subordinated the association’s lien to first mortgages, it did “not contain language specifically limiting or eliminating a subsequent owner’s liability for unpaid assessment[s].”

In addition, the Court reasoned that the two cases relied upon by the trial court “are distinguishable in that they do not address a subsequent owner’s liability for assessments following a foreclosure that failed to include the association.”  The Second District Court of Appeal reasoned that at common law, the foreclosure of a senior lien extinguished junior liens included in the judgment and “[i]t is well settled that when a junior lienor is omitted as a party to a foreclosure action brought by a senior mortgage holder, ‘the lien of the junior mortgagee is unaffected by the judgment.’”

The Court concluded that because the mortgagee’s servicers did not join the HOA as a party in the foreclosure actions, the HOA’s liens “have not been foreclosed and remain on the properties as if the foreclosures never happened.”

The Second District Court of Appeal pointed out that the only remedies available to a purchaser such as the mortgagee was to move “to compel redemption or filing a de novo action to re-foreclose.” It also stressed that the mortgagee chose the wrong remedies because neither actions for declaratory or injunctive relief are “a recognized remedy for removing the lien of an omitted junior lienor.”

The Court reversed and remanded, concluding that because the mortgagee failed to prove that its liability for assessments was limited by the declaration and that it was entitled to an estoppel letter for the reduced amount, the trial court erred in granting summary judgment in the mortgagee’s favor.

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Christopher P. Hahn practices in Maurice Wutscher’s Commercial Litigation, Consumer Credit Litigation and Insurance Recovery and Advisory groups. Prior to joining Maurice Wutscher LLP, he served under the General Counsel at the Florida Office of Financial Regulation. He also obtained extensive experience litigating property insurance claims through all phases of discovery, motion practice and other pre-trial activities. Christopher obtained his Bachelor of Science degree in Business Administration from the University of Southern California, followed by his Juris Doctorate degree from the University of Miami School of Law. He is also a graduate of the University of Miami’s Masters of Business Administration program, completing his degree with an emphasis on finance and mergers and acquisitions. For more information, see

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