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Navigating Safe Harbors and HOAs


Editor's note: This story was originally featured in the January issue of DS Newsout now.

The Florida Fourth District Court of Appeals (Fourth DCA) recently affirmed the extension of safe harbor protection provided to homeowner’s associations under §720.3085(2)(c), Florida Statute, to a nonmortgagee/non-mortgage holder. The statute addresses property assessments imposed by Florida homeowners’ associations. Under the pertinent provisions of this statute, if the associations’ governing documents allow for assessments, a parcel owner is liable for all assessments that come due while it is the parcel owner. Additionally, if the parcel owner sells or transfers its ownership interest, it is “jointly and severally liable with the [new] parcel owner for all unpaid assessments that came due up to the time of transfer of title.”

The statute provides certain limitations on the amounts that can be assessed against an owner where the owner is “a first mortgagee or its successor or assignee” that acquired title to a parcel by foreclosure or by deed in lieu of foreclosure. Under this provision, the amount a mortgagee or mortgage holder owes to an association are limited to the lessor of 12 months of assessments that became due immediately preceding the acquisition of title or 1 percent of the original mortgage debt.

In Villas of Windmill Point, CitiMortgage held a first mortgage on real property that was subject to unpaid association assessments. CitiMortgage successfully foreclosed its mortgage and named the property owner’s association, Villas of Windmill Point II, in its foreclosure action. At the foreclosure sale, CitiMortgage placed the successful bid and became the title owner of the property. After taking title, CitiMortgage deeded the property to Fannie Mae. The Villas’ association and Fannie Mae disagreed on “whether Fannie Mae was entitled to the protection of the safe harbor provision … ” of the statute, to limit the amount of unpaid assessments. Fannie Mae’s servicer, Nationstar, sued the association on behalf of Fannie Mae to compel the association’s compliance with the safe harbor provision of section 720.3085(2)(c), Fla. Stat. The association argued Fannie Mae “was not a first mortgagee (or its successor or assignee) that acquired title to the parcel by foreclosure or by deed in lieu of foreclosure.”

The trial court ruled in favor of Nationstar and limited Fannie Mae’s liability to the association to 1 percent of the original mortgage, plus monthly assessments that accrued after CitiMortgage took title. The association appealed that ruling. The Fourth DCA agreed with the lower court, finding that Fannie Mae, although not a first mortgagee or a subsequent mortgage holder, still “indirectly” benefited from the safe harbor provision of § 720.3085(2)(c) because of the joint and several liability clause in that statute. The Fourth DCA pointed out that the association incorrectly read the statute “in isolation” and overlooked that Fannie Mae’s liability was “coextensive with that of CitiMortgage for all unpaid assessments that were due up to the time of the transfer of title.” The court noted the parties did not dispute the fact CitiMortgage was entitled to the safe harbor provision.

The court explained: “… CitiMortgage’s entitlement to the safe harbor protection of section 720.3085(2)(c) is relevant to determining the amount of Fannie Mae’s ‘joint and several liability’ with CitiMortgage.” The court concluded: “[W]hen Fannie Mae acquired title to the property from CitiMortgage, it became jointly and severally liable with CitiMortgage for all unpaid assessments owed by CitiMortgage at the time of transfer of title, that is, 1 percent of the original mortgage amount, or $1,036.00.”

The Fourth DCA’s holding in Villas of Windmill Point is well reasoned and should expedite the REO process on units that are subject to unpaid association assessments. Practitioners should be aware of the rationale applied by the court in evaluating the relationship between the GSEs and the servicing entities responsible for servicing GSE loans. To the extent association statutes extend protection to mortgagees, those protections should extend to the underlying investor.


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