As previously reported in Legal Morsels in June 2015, (at https://hjq.a4f.myftpupload.com/appellate-court-ruling-on-claims-of-third-party-purchasers-at-lender-foreclosures-likely-harmful-to-homeowner-associations/) a recent decision of the Fourth District Court of Appeals entitled Pudlit 2 Joint Venture, LLP v. Westwood Gardens Homeowners Association, Inc., has made the collection of assessments a larger challenge against parties that buy property at mortgage foreclosure sales. The Pudlit decision ruled that when the covenants of a homeowner’s association community contains a provision eliminating the obligation of a party who acquired property within the community at a lender’s foreclosure sale to pay past due assessments, then such homeowner is not responsible for any assessments that came due before they owned the property.
Previous to this decision, the position of the associations has been that the statutes made the new owner “jointly and severally” liable for past due assessments not paid by the previous owner, since the interest of the new owner did not occur until title was passed through the foreclosure sale. However, the Pudlit decision has eliminated that argument in many instances, at least for now. Although the Pudlit decision dealt only with homeowner’s associations, efforts are being made to extend this ruling to condominiums. The current trend has seen third party purchasers argue in court that Pudlit should be applied to condominium associations. In Palm Beach County, a small number of circuit court decisions have already applied the Pudlit principles to condominium associations. An oddity in the decision is that a third party purchaser at a lender sale will pay less to the association than the foreclosing lender, had the lender taken title at the sale.
The effects of the Pudlit decision can be severe to associations, as many third party purchasers are now demanding a reduction in the amounts owed to associations to comply with the Pudlit decision. Some third party purchasers are even initiating litigation against associations in order to have the court determine the amount of past due assessments, if any, that they are obligated to pay. Another strategy being employed is for the third party purchaser to pay in full, with a notation that the payment is “under protest” and then sometime later, a law suit is filed to recover the funds previously paid.
To avoid unnecessary and costly litigation, it is recommended to have an experienced association attorney review the current provisions of the governing documents for your community. Each declaration is different and while some are similar, the smallest change in a provision may have a strong effect on whether the Pudlit decision might be applied by the courts. Additionally, it is also recommended to have an experienced association attorney review the governing documents of the community to see whether an amendment approved by the owners would be beneficial. Amendments to the governing documents can help to maximize an ability of an association to collect past due assessments from any owner that acquires the property. By taking these protective steps, it may help to ensure that the association recovers the maximum amount of past due assessments possible, rather than only collecting little to no assessments on a property that has been past due for an extended period of time. The Firm of Kaye Bender Rembaum has assisted many residential homeowner and condominium associations with this type of document review and amendment process, and is available to assist on such issues and concerns.
