Two HOAs may have spoiled hopes for HOAs to continue collecting extra-assessment charges—including late fees, fines, interest, attorney’s fees, and costs—from banks who take title to homes and condos in mortgage foreclosure. See Catalina West HOA and Old Cutler Lakes by the Bay Comunity Association v. Federal National Mortgage Association (opinion below). The ability to collect these extra fees has created a cottage industry in Florida for condo and HOA attorneys collecting on assessment debt. One of the best resources for HOA recovery has been banks that obtain title through their own foreclosures. However, Florida law determining the extent of these banks’ liability has been long in dispute. Known as the “safe harbor” rules, these Florida statutes limit bank liability to the lesser of 12 months assessments or 1% of the original mortgage value. Whether the bank is also liable for the HOAs’ attorney’s fees, costs, interest, late fees, and fines has remained unclear. Usually Florida HOAs and their attorneys leverage better settlements through this statutory grey area (a loophole). Most HOAs have avoided closing this loophole through an unfavorable appellate decision by settling particularly contentious cases and before Florida appellate courts become involved.

the Associations are not entitled to interest, late fees, attorney’s fees and costs from [Fannie Mae] because the safe harbor protection of section 720.3085(2)(c) applies.

However, two Miami HOAs took a bolder approach, sending the interpretation of the safe harbor rules to the Third District Court of Appeal. The HOAs argued that because Fla. Stat. s. 720.3085 required the HOAs to apply all payments to extraneous fees before assessments, the HOA accounts could never be brought current under the banks’ interpretation of “safe harbor” payment limits.

This week, the Third District Court of Appeal dealt a crushing blow to HOAs and their law firms, rejecting the HOAs’ interpretation and holding that banks need only pay the lesser of 12 months assessments or 1% mortgage value, free from any HOA claims for attorney’s fees, costs, late fees, interest, fines, or other extraneous charges. See the decision here:

Catalina West Appellate Opinion

Specifically, the Court held that the “plain language of [the statute at] paragraph (c) clearly limits the extent of a qualifying first mortgagee’s liability to the lesser of the two specific options that follow—either ‘unpaid common expenses and regular periodic or special assessments’ or one percent of the mortgage debt.’” The Court found that this statutory limit on bank liability is unambiguous and that the Legislature did not intend to include any other charges (i.e. the HOAs’ attorney’s fees, costs, interest, or other charges).

The Court also implied approval of other supporting appellate decisions that run contrary to Florida HOAs’ attempts to expand their collection efforts and recoveries, including the Bay Holdings and Forest Hill decisions. In concluding, the Court reiterated that “the Associations are not entitled to interest, late fees, attorney’s fees and costs from [Fannie Mae] because the safe harbor protection of section 720.3085(2)(c) applies.”

If this Catalina West decision becomes final upon disposition of any motions for rehearing, the HOAs now have a significant challenge to square their ledgers and attorney’s fees debts in a real estate market that only recently recovered and appears on the brink of a new bubble. More litigation is doubtless to come.

If you have questions about real estate litigation, condominium and HOA debt, or the interpretation of appellate decisions, please contact Bernhard Law Firm at www.bernhardlawfirm.com, abernhard@bernhardlawfirm.com, or 786-871-3349.