Many homeowners associations and condominium associations in Florida will be greatly impacted by a Florida appellate court decision that was issued in May of 2015. On May 27, 2015, the Fourth District Court of Appeal, in the case of Pudlit 2 Joint Venture, LLP v. Westwood Gardens Homeowners Association, Inc., No. 169 So. 3d 145 (Fla. 4th DCA 2015), interpreted the provisions of Section 720.3085, Florida Statutes, which allow a homeowner’s association to recover a portion of the past due amounts owed on an account in which title has been transferred through the issuance of a certificate of title (“COT”) in a mortgage foreclosure action, as being inapplicable where the association’s own declaration provides for a recovery which would be less than the recovery provided for under this section of the Florida Statutes.

While the Westwood Gardens case dealt with a third-party purchaser at a mortgage foreclosure sale rather than a situation involving the acquisition of title by a first mortgage holder, it appears the holding in that case would also apply in the case of a foreclosure sale in which the former first mortgage holder (or its assignee) becomes the owner.

Section 720.3085, Florida Statutes provides that in the event of the completion of a mortgage foreclosure action resulting in the issuance of a COT, the new owner will be liable for a portion of the past due balance that existed as of the date of the issuance of the COT. However, based upon the Westwood Gardens decision, this section will not apply unless the declaration for the association is silent, contains language which matches the language set forth in this section, or contains language which incorporates, by reference, the provisions in this section. The vast majority of homeowners’ association declarations I have reviewed over the past 25 years contain provisions similar to those that were found in the association’s declaration in Westwood Gardens.

While the association in Westwood Gardens was a homeowners association, it appears the holding in that case could also be extended to condominium associations.

As a result, all community associations should consider reviewing their declarations to determine if they contain provisions that deal with the right, if any, of the association to recover amounts that pre-dated the transfer of title, including a situation in which the transfer of title arises through the issuance of a COT from the purchaser at a mortgage foreclosure sale. The association should then consider whether to change that language (assuming the procedures for making an amendment can be satisfied), to allow for the recovery of amounts that pre-dated the transfer. The association could seek to change its declaration to provide for the same recovery as is available under Section 720.3085, Florida Statutes or Section 718.116, Florida Statutes, or it can seek to provide for recovery of amounts which exceed those available under the Florida Statutes.

Community Associations Have Standing to Assert Defenses to Mortgage Foreclosure Actions

When a community association acquires title to a property through the completion of a lien foreclosure action, it must then determine whether to oppose an attempt by a purported lender to foreclose superior mortgage on the property. Lenders have often argued, based upon certain Florida appellate decisions, that the association has no legal standing to assert defenses to a mortgage foreclosure action in situations in which the mortgage was executed by a predecessor owner. However, there now appears to be a recent appellate court case to support the position of a community association.

As far back as 2012, the Fifth District Court of Appeal, at least in dicta, stated that the issue of standing, as it relates to the right to challenge and/or defend against a purported lender’s claims in a mortgage foreclosure action, is not subject to a blanket rule and depends upon the relationship of the party challenging a mortgage to the subject property. Centerstate Bank Cent. Fla., N.A., v. Krause, 87 So.3d 25 (Fla. 5th DCA 2012).

In Centerstate, the court stated “Standing depends on whether a party has a sufficient stake in a justiciable controversy, with a legally cognizable interest that would be affected by the outcome of the litigation.”

The court in Centerstate further stated: “On the other hand, standing to contest the validity of a mortgage belongs to the mortgagor and to third persons whose rights or interests are adversely affected by the mortgage, such as junior mortgagees or creditors with an interest or lien in the underlying property.”

In the recent case of Tanner v. Bayview Loan Serving, LLC, 2015 Fla App. LEXIS 12027 (Fla. 5th DCA 2015), the Fifth District Court of Appeal, relying upon the principles of standing discussed in Centerstate, reversed the entry of a foreclosure judgment based upon arguments made by a junior lienholder, who asserted that the judgment was improper because the lender had failed to present evidence at a trial. The trial court had entered a judgment based upon a stipulation between the lender and the borrower/property owner.

In so doing, the Court recognized the right of a junior lien holder to challenge the enforcement of a first mortgage and to require that first mortgage holder establish its rights to enforce the mortgage and prove the right to recovery of amounts claimed to be due under the mortgage. The Court in Tanner (citing to Centersate) stated: “Third persons whose rights or interests are adversely affected by a mortgage, such as junior mortgages or creditors with an interest or lien in the underlying property, have standing to contest a foreclosure action brought by a party claiming a superior interest.”

Clearly, if a party holding a junior lien on property has standing to assert a defense to the enforcement of an allegedly superior mortgage, an owner of property, whether that person or entity was the owner when the mortgage was created or is a successor owner, would have that standing as well. An owner, even if that owner is a community association, clearly has an “interest” in the underlying property and would be adversely effected by a mortgage.