The new law allowing delinquent assessments in homeowners associations was great news for association boards but terrible news for real estate investors.
The law which went into effect July, 1st of 2007, makes a parcel owner jointly and severally liable with the previous parcel owner for all unpaid assessments that came due up to the time of transfer of title, regardless of how title was acquired. This applies to banks who take a property through foreclosure actions.
Before Florida Statute 720.3085 was passed, homeowners associations almost always had to “eat” the delinquent assessments when a member’s house went into foreclosure. This meant that all of the money the happless homeowner did not pay to the association, had to be divided up among the remaining homeowners able to pay the assessments or, more frequenlty perhaps, the association just did without a few mowings of the common area, had to forego purchase of some equipment for the community playground or cut back on some other amenities. The new law assures members of the association that each parcel will contribute their fair share to the budget; even if it takes awhile to collect the money, through a foreclosure sale for instance.
This is bad news for real estate investors who historically have picked up properties at sales, sometimes at bargain rates, only to “flip” the parcel to another buyer with almost no period of actual ownership. The investor will now have to factor into his profit/loss analysis any outstanding assessments on a parcel before making a bid on the courthouse steps.
This is not an iron-clad remedy by any means. Because this law is new, it remains untested in the courts. Associations should continue to protect their interests by filing a claim of lien whenever a member falls behind in payments. If a foreclosure action instituted by a bank or mortgage company names the association as a defendant, the association’s lawyer should file an answer to the complaint to insure that the interests of the HOA are protected in case a court decides that the association failed to give notice to prospective buyers by failing to file a claim of lien in a timely matter or to protect its interests in a foreclosure action.
