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Bank Foreclosures and Unpaid Assessments

Bank Foreclosures and Unpaid Assessments

Increasingly, many condominium associations are forced to deal with the issue of unit owners who are being foreclosed upon by their lenders, and who are delinquent in the payment of  assessments to the association. 

In most cases, any lien that the association may have on the unit for unpaid assessments is subordinate to the mortgage.  If the bank has not already instituted its foreclosure action, the association may desire to go ahead and foreclose its lien and purchase the unit at the foreclosure sale.  It is unlikely that anyone other the association will bid on the unit, as the purchasers, whether the association or not, will take title subject to the mortgage.  Therefore, unless the purchaser pays off the loan balance, the bank will be entitled to subsequently foreclose.  This course of action may allow the association, if the governing documents permit, to take title and attempt to rent the unit and recover some of its losses until the bank foreclosure is complete.  

On the other hand, if a bank foreclosure is already underway, the association’s best course of action may be to simply wait until the property is sold at the foreclosure sale and then collect any unpaid assessments from the purchaser that is allowed under the Condominium Act.  Considering the state of the real estate market, it is very unlikely that the proceeds from the foreclosure sale will be sufficient to satisfy the association’s lien.

Section 718.116 of the Florida Statutes provides that a unit owner is jointly and severally liable with the previous owner for all unpaid assessments that came due up to the time of transfer of title.  However, the statute limits this liability in the case of a first mortgagee or its successor or assignees who acquire title to a unit by foreclosure or by deed in lieu of foreclosure.  When the bank purchases the unit at the foreclosure sales, or by acquires title by deed in lieu of foreclosure, the bank’s liability is limited to lesser of: 1) The unit’s unpaid common expenses and regular periodic assessments which accrued or came due during the six (6) months immediately preceding the acquisition of title and for which payment in full has not been received by the association; or 2) One percent (1%) of the original mortgage debt.  For example, if the unit owner has not paid assessments in eight (8) months, monthly assessments are $200, and the original mortgage on the property was $200,000, the association could collect $1200 from the bank.  This is because while there were unpaid assessments totaling $1600, the association is limited to the lesser of six (6) months ($1200) or 1% of the original $200,000 mortgage debt ($2,000).

It is important to note also that only regular periodic assessments and common expenses are recoverable.  Arguably any special assessments, charges or fees related to maintenance of the particular unit by the association during the pendency of the foreclosure, attorneys fees or other unit specific assessments or charges cannot be collected.

In the less common situation where the unit is acquired by a third party purchaser at the foreclosure sale, the association may recover all unpaid assessments that came due prior to the sale.