Mortgage Foreclosure

 

As you may be aware, the first mortgage holder’s lien (mortgage) is superior to that of the Association.  Therefore, in the event that a bank files for mortgage foreclosure, even if the Association had a lien in place, if a certificate of title is issued, the Association lien will be wiped out.  Here are some questions that we recommend that the Association consider before making the decision on how to proceed if a property is in mortgage foreclosure.

 

Does the owner live in the property?


This is important to consider because if the owner actually lives in the property they are more likely to try and work out a deal with the mortgage company.

 

Is the owner delinquent?


Under regular market conditions, we have always recommended that the Association file an answer to ensure that the Associations are under incredible financial pressure and hence if the owner is not delinquent, the risk to the Association for not filing an answer is significantly lower than if the owner was delinquent.

 

Should a lien be recorded?


If an owner is delinquent, we recommend that even if the Association decides not to proceed with lien foreclosure, that the Association should record a lien. By recording a lien, the Association ensures that if the owner does in fact come to an agreement with the mortgage company or if the owner refinances or the mortgage company pursues a short sale that the assessments due to the Association will be paid at the time of such agreement.

 

When should an Association proceed with lien foreclosure even if the property is in mortgage?


Given the current market condition, several banks are delaying their foreclosure process in order to avoid getting title to the property.  In such a case, if the Association has the right and the ability to rent out the home on a short term basis, we recommend that the Association will be able to recoup some of the funds that they would otherwise not be able to collect from the bank once they foreclose.

 

Per the latest version to Florida Statute, the Association also has the right to apply for the application of rents in the event that tenant is served in the Association’s foreclosure complaint.  Therefore, if there are known tenants in the property, we recommend that the Association proceed with the filing of the lawsuit and get the tenant served so that the Association can take advantage of the application for rents.

 

Once a bank forecloses, do they have to pay the previous owners assessments and fees?


Per the latest revision to Florida Statute 720, a bank that takes title to a property after July 1, 2008 will be responsible for lesser of 12 months of past due assessments or 1% of the original mortgage value.

 

What are the risks of not filing an answer to the mortgage foreclosure?


The major benefit of filing an answer to the mortgage foreclosure complaint is to ensure that the Association is not defaulted and hence precluded from objecting to any language included in any of the bank’s subsequent pleadings.  The statutory changes of 2007 and 2008 relating to foreclosures has prompted banks to attempt avoiding payment of back assessments and current assessments by adding language in their subsequent pleading that eliminates their responsibility.  If the Association does not file an answer, they will be precluded from objecting to such provisions and will be forced to abide by the language included in such pleadings.

 

If the first mortgage holder takes title, what happens to the delinquent Association assessments?


In the case of a Condominium, within 30 day of taking title, the bank is required to pay the Association the last 12 months of delinquent assessments OR 1% of the original mortgage amount, whichever is less.

 

The original version of the this Statute went into effect on April 1, 1992 and only required banks to pay the lower of 6 months or 1% of the original mortgage amount, whichever is less.

 

On July 1, 2010, the Statute was amended to change the 6 months to 12 months.

 

Arguably, a bank who foreclosed on a mortgage recorded prior to July 1, 2010 can claim they are only responsible for the lower of 6 months or 1% of the mortgage value based on the Statute in effect at the time the mortgage was recorded.

 

In case of a Homeowner Association, within 90 days of taking title, the bank is required to pay the last 12 months of assessments or 1% of the original mortgage amounts, whichever is less.

 

The original version of this Statute went into effect of July 1, 2007, and prior to that date banks had no legal liability to pay any back assessments to the Association.  The 12 months/1% limit on the bank’s liability did not exist.

 

On July 1, 2008, the Statute was amended to add the 12 months/1% restriction.

 

The Coral Lakes Decision was issued on February 19, 2010, which states that if an Association Declaration subordinated the Association’s lien to a first mortgage holder, the Association is not entitled to collect any past due assessments from a first mortgage that takes title to a property through its foreclosure sale on a mortgage recorded prior to July 1, 2007.

 

After the title is recorded, a bank is required to pay all future assessments, as would any homeowner.

 

What is the benefit of filing an answer to the mortgage foreclosure?


The major benefit of filing answers to a mortgage foreclosure complaint is to preserve the Association’s right to object to the actions of the bank within its foreclosure.

 

Is there anything that an Association can do to force a bank to complete the foreclosure?


Yes.  If a bank has started its foreclosure action, but not proceeded to get a judgment, the Association can file a Motion and Order to Compel to compel the bank to take the next step.  If a bank has already received its judgment, but keeps cancelling the sale, the Association can file a Motion and Order to Compel to compel the court to set a sale date.  Both of these services are available to our clients on a flat rate basis.

 

What is a short sale?


It is used to describe the sale of property where the bank agrees to take less than what is owed on the mortgage.  Short sales are great for Associations since they do not shield the bank, or the new buyer, from being jointly liable for the past due assessments on the property.