I recently explained how lucky the banks are when they foreclose on a unit or a home and take back ownership. The law protects them, and despite how much the unpaid condo or HOA assessments are, the bank is only responsible for the lesser of one year of assessments or 1% of the mortgage. Many of you are outraged over that and I’m with you.
The association always hopes that a 3rd party buys the property at the bank’s foreclosure sale instead of the foreclosing bank, because under the law, a 3rd party, unlike the bank, would owe all past due assessments to the association.
But even though the law requires some payments to the association, your condo or HOA may get zero because of a terrible provision that may be looming in your governing documents. Despite the fact that the law requires banks to pay the lesser of one year of assessments or 1% of the mortgage, and requires a 3rd party purchaser to pay all past due assessments, many of you have provisions in your governing documents that say the banks owe nothing when they take back ownership of a home or unit after a foreclosure and that a 3rd party purchaser owes nothing if they buy the property at a foreclosure sale. That’s right, not a penny is owed to the association. You are wiped out.
So what controls, the law or your governing documents? In May Florida’s Third District Court of Appeal ruled in Old Cutler Lakes by the Bay Community Association v. SRP SUB . A third party purchaser took title to a unit within the community via a bank mortgage foreclosure auction.
The governing documents contained the following provision:
“The sale or transfer of any Lot pursuant to the foreclosure or any proceeding in lieu thereof of a first mortgage meeting the above qualifications, shall extinguish the lien of such assessments as to payments which became due prior to such sale or transfer.”
The Third DCA concluded that the 3rd part purchaser at the sale is not liable for any of the past-due assessments, attorney’s fees and/or costs that accrued prior to its acquiring title.
So what do you do now? Check your governing documents. Make sure they don’t contain a similar provision. If they do, you certainly want to talk you’re your attorney about amending them properly so you at least get the crumbs owed to the association when a bank forecloses.