Additional Charges for Unpaid Assessments are not Collectible Under Florida’s Safe Harbor Provisions of the Condominium and Homeowners’ Association Acts.
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The U.S. District Court for the Southern District of Florida, on January 3, 2014, issued an opinion explaining what Florida associations can demand from first mortgagees who are protected by the Safe Harbor provisions of the Condominium and Homeowners’ Association Acts. In United States of America v. Forest Hill Gardens East Condominium Association, the court clarified what charges are included under the terms “common expenses” and “regular assessments” as found within the Florida Statutes. U.S. v. Forest Hill Gardens East Condo Ass’n, 2014 WL 28723 (S.D. Fla. Jan. 3, 2014). In short, the court determined that interest, late fees, collection costs and attorneys’ fees were not “common expenses” or “regular periodic assessments” for which first mortgagees were liable under Florida’s Safe Harbor provision. Id. at 1.
The facts of this case should be familiar to every association. The unit owners failed to pay their assessments to the association, while also failing to pay their mortgage. The first mortgagee then initiated a foreclosure action and subsequently took title to the property at the foreclosure sale. The first mortgagee, as the new unit owner, requested an estoppel certificate from the association for all past-due amounts owed under the Florida Statutes. A dispute then arose between the first mortgagee and the association as to what exactly was owed pursuant to the Florida Statutes. See Id.
Under both the Florida Condominium Act and the Florida Homeowners’ Association Act, there is protection afforded to a first mortgagee who takes title to association property through foreclosing on the prior property owner. See Fla. Stat. §718.116(1)(b)1; Fla. Stat. §720.3085(2)(c). Under that protection, known as the Safe Harbor, the first mortgagee is only liable for the lesser of either 1) the unit’s unpaid common expenses and regular periodic assessments during the prior 12 months, or 2) one percent of the original mortgage debt. Id. In this case, the lesser amount was the former, so the specific issue addressed by the court concerned the charges that the association could include under “common expenses” and “regular periodic assessments” for determining what the first mortgagee owed. Id. at 2.
The association argued the charges covered under the Safe Harbor should include interest, late fees, collection costs and attorneys’ fees associated with those past-due assessments over the prior 12 months. The first mortgagee argued that only the principal past-due assessment amount should be included in the Safe Harbor calculation and those additional charges and fees were to be excluded. Id. at 1. The court agreed with the first mortgagee, explaining that the plain language of the Florida Statutes required the Safe Harbor calculation to only include the principal past-due assessment amount. Id. at 3.
In coming to its decision, the court stated the well-known axiom that “the starting point for all statutory interpretation is the language of the statute itself.” Id. at 2. The court then recited the Florida Statutes’ definition of the term “common expenses,” which includes the costs “of the operation, maintenance, repair, replacement, or protection of the common elements.” Id. (quoting Fla. Stat. §718.115(1)(a)). The court also recited the statutory definition of “regular periodic assessments,” which is “a share of the funds which are required for the payment of common expenses, which from time to time is assessed against the unit owner.” Id. at 3 (quoting Fla. Stat. §718.103(1)).
After defining those terms, the court analyzed the charges in dispute (interest, late fees, collection costs and attorneys’ fees) and concluded that those are individualized charges, assessed against one, delinquent unit owner, and therefore those charges do not fall under the definition of common expenses, which apply to all unit owners equally. Id. at 2. Moreover, the court determined that because those additional charges were not mandatory but contingent upon unpaid assessments, they do not fall under the definition of “regular periodic assessments.” Id. at 3.
In performing its analysis, the court made an analogy between those additional charges for unpaid assessments and fines issued to unit owners for rules violations. Id. at 2. The court explained that fines are not common expenses, but rather individual charges designed to punish the offending unit owner or to induce him or her to cease the unapproved activity. Id. Similarly, those additional charges for unpaid assessments are individually charged and designed to punish the act of failing to pay assessments in a timely manner. Id. Thus, the court concluded that individualized charges are neither a common expense nor a regular periodic assessment according to the statutes.
In this case, the condominium association was part of a larger homeowners’ association. This gave the court the opportunity to explain that its decision applied to condominium associations and homeowners’ associations equally because the Safe Harbor provisions found in both Acts are nearly identical. Id. at 3. In conclusion, when a first mortgagee takes ownership of a property at a foreclosure sale and the lesser amount owed under the Safe Harbor protection is the prior 12 months of unpaid assessments, associations cannot charge the first mortgagee with any of the interest, late fees, collection costs and attorneys’ fees charged to the unit prior to the first mortgagee gaining title to the property. Id. However, the court made clear that once the first mortgagee is the owner of the property, it is then responsible for all of those additional charges incurred as a result of its failure to pay the assessments owed while owning the unit. Id.