A lot of condominium associations are now studying the issue on whether to foreclose on their delinquent home or unit owner in case the unit owner defaults on their mortgage responsibilities. This is because of the new ruling decided by the appellate court in the case of Aventura Management, LLC against the Spiaggia Ocean Condominium Association, Inc., in Florida.
On January 23, 2013, the appellate court decided that the subsequent unit owner does not owe the condominium association any delinquent assessments yet to be paid to the association once the condo association foreclose the property and obtain the title of the unit first before the first mortgage bank does the foreclosure for the unit.
The Previous Owner And Actual Unit Owner
The decision of the appellate court was based on Section 718.116(1) (a) of Florida Statues stating that a unit owner is jointly and severally liable with the previous owner for all unpaid assessments that came due up to the time of transfer of title. Because of this law, the term previous owner will then refer to the condominium association and not the actual previous owner or tenant of the property once the association foreclose on the unit and when a subsequent purchaser is involved.
Since the condominium association is the one that foreclosed the property instead of the bank, it gained the title to the involved property as well as the delinquent assessments left by the previous owner of the property or unit. Ironically, the condominium association could have not paid the delinquent assessments of the previous owner to itself so the future homebuyer of the involved property will then have joint and several claims against the condo association for the delinquent assessments it did not pay to itself.
The new owner or the subsequent purchaser does not owe the delinquent assessments to the previous owner, which is now the condominium association if the association was not able to collect the remaining payments that should have been paid by the actual owner or the occupant of the unit.
Foreclosing First: A Bad Move For Associations?
Because of the this court ruling, a lot of condominium associations as well as community associations are now having second thoughts on whether to foreclose on their delinquent unit owners before the mortgage bank does or to think of other better decisions to take to minimize losses on their part. Aside from the problem on the delinquent assessments, condo associations and its board will also have to think whether they can recover the total amount of the past due assessments through the rentals on the involved unit.
If they foreclose on a delinquent owner, the total cost they will need to recover will not only involve delinquent assessments by the previous original owner but the cost will also increase due to attorney’s fees and other services fees incurred from the foreclosure procedure. If they cannot recover the full amount, they still need to find ways to at least offset the losses they incurred from the 12 months of assessments or at least 1% of the mortgage.
With the decision of the appellate court, a lot of condo associations now realized that foreclosing on their unit owners before the banks may be harmful to them since they cannot get additional funds to offset the delinquent assessments and cost of foreclosure from the subsequent purchasers.