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Banks contributing to the delinquency of associations
by: Rob Samouce
04/04/2009
Under the current real estate economic client in Florida, many banks and other financial institutions holding first mortgages are contributing to the delinquency of condominium and homeowners’ associations’ assessment funds by stalling to initiate foreclosure actions and then by failing to timely complete their foreclosures once their cases have been filed.

These financial institutions holding first mortgages do not want to obtain title through foreclosure during a flat real estate market because then they will have to start paying assessments on units or homes that they may not be able to quickly sell.

What happens first is first mortgagees take their time filing a foreclosure action once an owner has become seriously delinquent. Then, once they file their action, they take their time completing the action to get title. During this whole process, units or homes are either being trashed or run down by the delinquent owner or tenant, or are sitting empty with the possibility of being turned into mold factories because of utilities not being paid.

In addition, no assessments are being paid by anyone on these units. This puts a financial strain on associations operating the condominium or homeowner association as most of the associations’ expenses are constant; meaning the remainder of the unit owners will be forced to pick up the assessment delinquency slack.

Even worse is trying to get these banks and financial institutions to consider or take reasonable short sale offers from ready, willing and able buyers. It appears banks have no experience in short sales or have no competent staff able to review short sales.

We have seen banks shoot themselves in the foot by refusing a decent short sale offer and then go through foreclose and get the unit. When they finally sell the unit after foreclosure, the price may be hundreds of thousands of dollars less than if they had taken the short sale. It is as if their work-out department belongs to a different company than their foreclosure department.

Under the currently applicable Florida laws, first mortgagees of condominium units, who acquire title to a unit by foreclosure or deed in lieu of foreclosure, are only liable for the assessments that came due six months immediately preceding the acquisition of title or 1 percent of the original mortgage debt, whichever is less.

First mortgagees of homes, governed by a homeowners’ association, are only liable for assessments that came due 12 months immediately preceding the acquisition of title or 1 percent of the mortgage debt, whichever is less.

As you can see, because the liability for assessments is very limited before the bank takes title, there is a lot of incentive for them to put off acquiring title until it looks like they may have a buyer. After they acquire title, banks holding the first mortgages are then liable for all of the assessments that come due while holding title.

There are various new bills being proposed in Tallahassee this legislative session to try to get banks to complete their foreclosures quickly.

One (SB 998) proposes that if they do not complete their foreclosure in a year after filing, banks will be responsible for all unpaid assessments. Another (HB 831 or SB 880) proposes that if banks do not pay the cap amounts (six or 12 months or 1 percent) within 30 days of taking title, they will be liable for all assessments that come due before they acquired title.

Banking industry lobbyists are strong, well paid and are opposing any of these proposed laws that will increase their exposure to paying more assessments than currently required.

There are a few association lobbyists, such as the Florida Legislative Alliance (FLA) of the Community Association Institute (CAI), to support these bills. However, they do not have the huge financial backing like the banking industry lobbyist.

Therefore, a grass roots effort is necessary by those in your community to contact your state legislature representatives and let them know that you support legislation to get banks in line and require them to pay their fair share of association assessments so that they do not continue to contribute to the delinquency of the funds necessary to properly run your community associations.

You can contact CAI at www.southgulfcoastchaptercai.com or your local state representatives at www.flsenate.gov/ or www.myfloridahouse.gov/.
Rob Samouce, a principal attorney in the Naples law firm of Samouce, Murrell, & Gal, P.A., concentrates his practice in the areas of community associations including condominium, cooperative and homeowners' associations, real estate transactions, closings and related mortgage law, general business law, estate planning, construction defect litigation and general civil litigation. This column is not based on specific legal advice to anyone and is based on principles subject to change from time to time. Those persons interested in specific legal advice on topics discussed in this column should consult competent legal counsel.