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Q: I just got elected to the Board of Directors of our condominium. We had an owner who was way behind in paying assessments. His unit went into foreclosure and now the bank owns it. The other directors tell me the bank does not have to pay all of the past due assessments. Can you explain?

A: Section 718.116 of Florida Statutes attempts to clarify liability for assessments. The first portion of the statute makes it clear that a unit owner, regardless of how his or her title has been acquired, is liable for all assessments which come due while he or she is the unit owner. In addition, 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. This includes purchasers at foreclosure sale, although there is an exception for a first mortgage holder acquiring title to a unit by foreclosure or by deed in lieu of foreclosure.

The owner’s liability for assessments is not eliminated by foreclosure. When a bank forecloses and title is taken from the owner, the owner’s liability for assessments through the date he lost title continues. In your condominium, that means the association could sue the former owner for unpaid assessments. Before filing suit, the association should consider whether a judgment for unpaid assessments against the former owner will be collectible (i.e. does the former owner have any other assets?).

By statute, there is a special rule for first mortgage holders. The rule does not apply to second mortgages (which are often equity line loans) or other inferior liens, but is intended to encourage lenders to make loans on condominium units by limiting their liability in event the owner fails to pay assessments.

A first mortgage holder or its successor and assigns, acquiring title through foreclosure or a deed in lieu of foreclosure, is only obligated to pay assessments accruing prior to acquiring title to the lesser of:

1. The unit’s unpaid common expenses and regular periodic assessments which accrued or came due during the six months immediately preceding the acquisition of title and for which payment in full has not been received by the association or;

2. One percent of the original mortgage debt.

This limitation only applies if the foreclosing lender joined the association as a defendant in the foreclosure action.

The statute is clear. If someone buys the unit at foreclosure sale other than the foreclosing lender, he is just like any other owner. He owes all of the back assessments and all of the assessments accruing while he is the owner. If the lender acquires title, the liability is limited.

No matter who ends up with title, that person is required to pay the amount due the association within 30 days after transfer of title. If timely payment is not made, the association may file a lien and proceed with foreclosure just as any other lien for unpaid assessments.

The statute has been amended many times. One of the more recent amendments made the association’s lien for unpaid assessments relate back to the date the declaration of condominium was recorded. That is intended to give the association’s lien priority over other liens against the property, except for the first mortgage.

If the first mortgage was recorded prior to April 1, 1992, the lender gets benefit of the previous version of the statute, which provided exemption from all unpaid assessments due prior to acquisition of title unless the declaration included language incorporating by reference future amendments to the Condominium Act.

Despite a relatively clear statute, certain cases can be complicated. In the case of Garcia v. Stuart, the Woodgate Condominium Association recorded a claim of lien against the Garcia’s unit for $1,170.20. After the lien was recorded, Rene Stuart, holder of a second mortgage, filed suit to foreclose her mortgage against Garcia. The suit joined the association as a defendant because of its lien. The association’s answer raised the defense that its lien was superior to Stuart’s mortgage. The final foreclosure judgment dismissed the association as a defendant ruling that its lien was superior to the Stuart mortgage.

The property went to foreclosure sale and was purchased by a third party. The amount paid by the third party was $18,000 more than that owed to Stuart. The Association filed a motion for payment of its lien from the surplus from the foreclosure sale while Garcia sought to have the excess proceeds of sale paid to him.

The Court ruled the association was not entitled to payment from the excess because the successful bidder at the junior lien foreclosure took title subject to the association’s lien. Because the association’s senior lien rights were unaffected by foreclosure, it had no right to share any surplus produced by the foreclosure sale. In contrast, the court noted that liens coming behind the foreclosed mortgage would be foreclosed and the interest of those liens transferred from the property to the fund standing in place of the property.

This result most certainly was disappointing to the association. However, the court pointed out that the purchaser at the foreclosure sale was jointly and severally liable with Garcia for all unpaid assessments that came due up to the time of transfer of title. The association retained the right to protect its interest by foreclosing its lien against the new owner. The association could also file suit against the former owner seeking amount of the unpaid assessments. The court indicated the association might have been able to claim the funds if it had pursued a money judgment against Garcia as part of the junior mortgage holder’s foreclosure action. But, the association did not plead any effort to collect from Garcia and was consequently dismissed from the lawsuit holding its lien.

The Garcia case shows what seems simple can be complex. I recommend you encourage your board to consult with an experienced attorney concerning your assessment situation before proceeding further.

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William G. Morris is a lawyer with offices at 247 N. Collier Blvd., Marco Island. The column is not intended to be legal advice for specific circumstances. General questions can be sent by e-mail to wgmorrislaw@earthlink.net or by fax to (239) 642-0722. Read other columns at http://www.wgmorris.com.