By Aaron L. Gordon, Esq., Corporate General Counsel; LM Funding, Tampa, FL
With a recent ruling by Florida’s Fifth District Court of Appeals, Florida’s community associations scored a victory which will provide them with financial relief during the fragile real estate recovery.
It marks a turning point in associations’ battle against foreclosing lien holders who seek protection – as first mortgagees – from the Safe Harbor guidelines. In the event of a foreclosure, by the first mortgage holder, these associations are entitled to a minimal payment of delinquent assessments of just 12 months or 1 percent of the mortgage amount, whichever is less. Those days are gone.
Financial institutions have been wrongly claiming first mortgagee status, thereby preventing associations from collecting more than the minimum.
That’s what happened in Bermuda Dunes Private Residences vs. Bank of America. With a systematic process, BofA sold the loan to another mortgagee and after foreclosure claimed first mortgagee status, when its new role had been solely to service the loan. We can assume that other lenders use this strategy to limit payments to associations.
In its ruling, the court stated: “it is necessarily the entity having rights and obligations under the mortgage at the time of foreclosure, whether as a first mortgagee or as a successor assignee, that is the key factor.” Tampa-based Business Law Group made arguments that will provide millions of dollars to associations throughout Florida.
This ruling paves a path for associations in Florida to attack non-existent chains of mortgage ownership. Now, community associations won’t have to settle for the Safe Harbor payoffs because the onus of proving “first mortgagee” status is now on the financial institution, allowing associations to collect the full amount of delinquent assessments.
Aggressive associations can expect much greater payoffs.
Our legislators inserted Safe-Harbor language into our statutes years ago to incentivize lenders to make loans, which allow Floridians to become homeowners. There have been abuses, but the judiciary in Florida seems to have had enough and has taken an important step in assisting troubled associations.