Investors of a foreclosed property often ask if they will be liable for delinquent HOA assessments that came due prior to their purchase of the property from the court. In 2007, the Florida Legislature chimed in on the issue by passing Florida Statute 720.3085, which states (among other things) that “a parcel owner is jointly and severally liable with the previous parcel owner for all unpaid assessments that came due up to the time of transfer of title.” The statute appears to state that a purchaser at a foreclosure sale is just as liable for any delinquent assessments as the foreclosed owner was – obviously not a satisfying result for the buyer! Some savvy investors, however, have noticed that many HOA governing documents state that the new owner of a parcel shall not be responsible for any assessments owed by the previous owner.
Predictably, HOAs have relied on the Florida Statute to argue that new owners are liable, while the new owners have relied on the governing documents to argue the opposite. How can the conflict between the Florida Statutes and the HOA documents be resolved? So far, trial courts have generally sided with HOAs and ruled that the Florida Statute controlled over any contrary provision in the association’s documents.
Enter the Fourth District Court of Appeals – the first appellate-level court to review the issue. In Pudlit 2 Joint Venture, LLV v. Westwood Gardens Homeowners Association, the court was faced with an entity who had purchased a parcel of property at foreclosure, and an HOA who demanded full payment of past-due assessments because it was “jointly and severally liable with the previous parcel owner.” The new owner pointed to a provision in the association’s Declaration of Covenants, Conditions and Restrictions which stated that “the personal obligation for delinquent assessments shall not pass to [an owner’s] successors in title unless expressly assumed by them.” The new owner argued that it had not expressly assumed the obligation for the assessments, and as a result, it had no responsibility for them. The court agreed with the new owner and held that the Florida Statutes could not contradict the prior-recorded association declarations, and decided that the new owner was not responsible for paying the delinquent assessments.
What are the practical take-aways from the court’s decision?
- Be aware of the general rule that the purchaser of a property at a foreclosure sale will be responsible for any HOA dues that had accrued prior to the foreclosure (first mortgagees get a partial pass from this rule, and are only responsible for a portion of the assessments owed).
- Be aware that many associations have documents which specifically change that general rule, and that these documents will prevail over the general rule, especially if they were recorded before 2007 (there may be a question if the association documents were enacted after the statute – the court did not address that issue).
- If you would like your HOA to bind subsequent purchasers of property to a prior owner’s delinquent assessments, you may need to review your governing documents to grant that ability.
In the end, purchasers at a foreclosure sale should know what risks they are undertaking, especially if they are purchasing a property that is part of an HOA. A seasoned real-estate professional can review the appropriate documents, and help you identify those risks. As always, should you have any questions regarding the foregoing we urge you to consult your local real estate attorney.
Berlin Patten Ebling, PLLC
Article Authored by Dan Guarnieri, Esq. firstname.lastname@example.org
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