Condominium Foreclosures vs.  the Rights of Mortgage Holders

One of my condominium Presidents asked me to advise him and his Board about the process of foreclosing a condominium lien and how the rights of the Association relate to the rights of a mortgage holder.  For purposes of this article, a first mortgage holder will be referred to as a “Bank”, even though the first mortgage may be held by a bank, an individual, a mortgage company, pension fund, or other entity.

            Discussion –    The laws governing condominiums in Florida are set forth in Chapter 718 of Florida Statutes, The Condominium Act (hereafter the “Act”).  Section 718.116  sets forth a comprehensive scheme by which the Association is given power to assess its members for common expenses and collect such assessments through the Court when they are not paid by an owner.[1]   

            Even before the account is assigned to your attorney for collection, the Association should send a “Notice of Late Assessments”, or “NOLA”.  This simple form prescribed by statute must state the amount owed and that the owner has 30 days to pay.  If an association does not send this notice, an owner may pay the Association after the attorney gets involved without having to pay the attorney collection fees and costs.[2]

            The attorney’s collection process must begin with a notice sent to the owner at his last known address, according to the records of the Association.  This “Notice of Intent to Lien” must be sent by regular and certified mail and must give 45 days to pay the account.    If not paid within that time, the Association has the right to file a lien on the property.  Another notice called a Notice of Intent to Foreclose (“NIF”)[3] must also be sent to the owner by regular and certified mail and give 45 more days to pay the account.  It must advise the owner that a lien has been filed and that a foreclosure suit may be filed after 45 days if the account is not paid. 

            The Association may foreclose its lien in the same manner as a mortgage is foreclosed.  A suit to foreclose a lien is filed in the Court and if the Association proves that the owner did not pay the assessments properly adopted by the Association, and that the Association otherwise complied with the requirements for recording a valid lien, giving proper notice before suit, obtaining valid service of process and establishing the amount owed, the Court will enter a judgment of foreclosure.   The judgment amount will include all unpaid assessments unpaid, plus late fees (when permitted by the condominium’s documents), interest, court costs, and reasonable attorney fees as determined by the judge.  In a typical condominium foreclosure, it takes approximately 4-6 months from filing the suit to obtaining judgment, but this will vary based on the difficulty obtaining service of process on all defendants, and the defenses, if any, alleged by the Defendants.  The judgment states that if the amount owed is not paid by a certain date set by the Court, the property will be sold at auction by the Clerk to satisfy the Judgment.   The highest bidder will be awarded the title.   If there are no bidders other than the Association, the title will be awarded to the Association.    

            In most cases, there is one mortgage on the property, but sometimes there is more than one.    The “Act” gives the Association’s lien a priority over claims to the property except for a first mortgage, the real property taxes, and other limited exceptions that rarely apply.   To eliminate the interest of parties who do not have priority over the Association, the Association’s foreclosure suit must name such parties as a Defendant and serve them.  Such parties may include, for example, anyone with a recorded judgment against the owner, a second mortgage holder or holder of a equity line of credit, or a tenant in possession.    If these “subordinate” interest holders are served and the property goes to sale, their rights in the property are “foreclosed” (in essence, extinguished).   However, the rights of the bank holding a first mortgage on the property, being superior to the rights of the Association, are not affected by foreclosing the association’s lien.   Thus, if the title is awarded to the Association at the foreclosure sale, the mortgage is still there as a “lien” on the property and it can be foreclosed by the Bank.

            The Association who takes the title is not legally obligated to pay the first mortgage but if the mortgage is not paid, the Bank can foreclose it.   Often times, the Bank’s foreclosure suit is filed soon after the Association’s or even before it.    Since the Association’s lien rights are subordinate to the Bank’s, the Bank should name the Association as a Defendant.   This is why most mortgage foreclosure cases against a condominium unit include the condominium Association as a Defendant.  In addition, The Act provides that by joining the Association in the suit as a Defendant, the Bank may limit the amount of unpaid assessments it must pay the Association if it acquires the title.   The amount is generally limited to 12 months of unpaid assessments, or 1% of the Bank’s original mortgage amount, whichever is less.[4]   This “safe harbor” provision only applies to the holder of a first mortgage, or its successors or assignees, who joins the Association as a Defendant.  Thus, if the Bank does not join the Association, or if the title is awarded to anyone who did not hold the mortgage, the entire unpaid assessment balance may be collected by the Association from the new owner (unless the Declaration says otherwise and was never amended by the Association or by operation of a “future-amendments” clause).

            Once the title is awarded by the Clerk to the buyer, (10 days after the foreclosure sale if there is no objection to the Sale), the buyer is obligated to pay all assessments and other charges that become due thereafter.   The Association is entitled to collect from the buyer in the same manner as it may collect from any other unit owner.    A letter should be promptly sent to the buyer, demanding the money it owes to the Association.  If a buyer does not pay the assessments it owes within 30 days after the title is issued, the Association may  file a lien on the property and foreclose it in the same manner as it may against any other owner.

            Generally, the recipient of the Certificate of Title becomes the owner with the same rights as any other owner, including the right to sell or lease the unit.   Usually, when the Association is nearing a foreclosure judgment, if not much sooner, the mortgage is not being paid.  It is usually only a matter of time before the mortgage foreclosure suit is filed, if it is not filed even before the Association obtains its title. The dilemma for the Association occurs when the Bank files suit when the Association is not close to obtaining its own judgment.   If there will be only a short time between the Association’s foreclosure sale and the Bank’s, then there is little, if any, time for the Association to sell or lease the property in order to recover the Association’s money.    If there is a long time period, then there is a chance that the Association can recover its money.  The best option for the Association often depends on the value of the property compared to the balance of the mortgage.  Is there enough equity to acquire the title and quickly sell the property, pay the taxes, mortgage, all costs of sale, and still recover the unpaid assessments?  What is the likelihood if the association goes forward with the its  foreclosure sale that an outside buyer will pay more than the judgment amount and leave a surplus that the Association can claim? 

            Thus, it may be difficult for an Association to determine how to proceed in each particular case.   Much depends on unknown factors such as the strategy of the Bank and whether it pursues its case diligently or not.   What is the loan balance relative to the property’s fair market value?    Will the Bank allow a long-term payment plan with the owner to cure the default?   Will it modify the loan?   Will it appear to be pursuing the case diligently, but then postpone the sale, literally at the last minute?    Will the owner file for bankruptcy?  Does the Owner care about keeping the property and will he try to pay the Association?  Can the Association find a tenant on a month-to-month basis?   

            In 2014, the Florida Legislature amended the Condominium Act to help condominium associations collect assessments through the foreclosure process.   Before the change, “a unit owner was jointly and severally liable with the previous owner for all unpaid assessments that came due up to the time of transfer of title”. This liability was “without prejudice to any right the owner may have to recover from the previous owner the amounts paid by the owner”.   Thus, if a unit was acquired by a new owner immediately after it was owned by the Association, the new owner was jointly liable with the Association, but the new owner also had a right to recover the amounts he paid to the Association from “the previous owner”, which was also the association.  In other words, there was a “setoff” that produced equal liabilities so that the buyer had no debt to the Association.   Under the new law, the Association is not considered the “previous owner”.  The liability of the next owner (after the Association) for unpaid assessments was, however, limited to any unpaid assessments that accrued before the Association acquires the title.  The law became effective on July 1, 2014.

            Please remember that every owner is also personally liable to the Association for its share of assessments.   This means that even if a Bank forecloses the mortgage, the Association may obtain a money judgment against the owner.  A money judgment can be collected for twenty years.   In almost every foreclosure suit I file, I also include a count for a money judgment.  Occasionally, such as when the Bank forecloses, it will be best for the Association to elect that remedy.

            It is clear that every Association must pursue its collection rights from the owner diligently.   An account that is past due by two or three months should be assigned for collection.   In my view, waiting until the account is delinquent a longer time greatly reduces the chance of recovery.   Every association should know the actual residential address of its owners.   Not knowing where to send a demand letter, or where to serve a lawsuit on the owner, can delay your case by many, many months and make the difference between a successful collection and no collection at all!  

                                                                                    Michael E. Rehr

 Revised and Updated December 14, 2022 from prior versions.

[1]  Since the statute is quite lengthy and complex, this letter is only a summary of the significant provisions.   Reference should always be made to the statute in a particular case.   Citations to the section number are omitted in many instances for the sake of brevity.

[2] 718.121(5)  “An association may not require payment of attorney fees related to a past due assessment without first delivering a written notice of late assessment to the unit owner which specifies the amount owed the association and provides the unit owner an opportunity to pay the amount owed without the assessment of attorney fees….”

[3] This Notice is not necessary if the owner records a Notice of Contest of Lien, or if he has already been served in a mortgage foreclosure case that will affect the rights of the Association.

[4]  Old condominium documents state the lesser of 6 months or 1% and even older ones state that the buyer is not liable for any of the prior owner’s unpaid assessments.  Ask your attorney which controls when the documents and the statute conflict.