This article was originally published to our newsletter in Fall 2016 and is being re-posted here.
It’s autumn season, and the hot Florida sun has given way to cooler temperatures and shorter days. As you walk outside, you notice that things seem unusually quiet this evening. A few birds flutter overhead, but the crickets have stopped chirping, and for the first time, you realize that you’re alone. In a way it’s peaceful. You continue your walk, but you just can’t shake the feeling that something isn’t right. You start to quicken your pace. Wow, did you really walk that far? Nobody’s around, but you know you have to get home. And then you see it. It’s just standing there, decrepit and decaying. It’s nestled deep behind a thicket of unkempt grass and weeds. You think you must be crazy, but you swear it’s staring back at you.
It’s a zombie house, stuck in limbo of a drawn out mortgage foreclosure, years after the owners have abandoned it, and left to rot. It is an eyesore in your community and a hazard to any children that might play in the area. Your membership demands that you do something about it. But from a legal perspective, what can you do?
[W]e always advise that you inspect the property to the best of your ability to determine how much it might cost to bring the property into rentable condition
Unfortunately, a drawn out mortgage foreclosure can leave your association with very few legal options. Some recommend that the HOA or condominium try and foreclose its lien and take title and rent out the property until the bank finishes its foreclosure. But, a 2012 case, U.S. Bank National Ass’n v. Quadomain Condominium Ass’n, a Florida court actually held that if the bank has filed a mortgage foreclosure, then no one else can foreclose on the property until the bank is done. Fortunately, in a new case in 2016, Jallali v. Knightsbridge Village Homeowners Ass’n, the same Florida court essentially overturned the Quadomain Case and held that if the Declaration for your community was recorded before the mortgage, you can still foreclose your lien even if there’s a pending mortgage foreclosure. If you want to take this option, we always advise that you inspect the property to the best of your ability to determine how much it might cost to bring the property into rentable condition. Unfortunately, there might not be a cure for some zombie houses!
Other lawyers have advised their clients to file a counterclaim against the bank in their mortgage foreclosure to determine that the lien for assessments are superior to that of the mortgage. In U.S. Bank National Ass’n v. Farhood, the community’s lawyers argued that due to the bank’s “willful, deliberate” delays, that it would be equitable for the community’s lien to be superior to the mortgage. However, the appellate court decided that the lower court does not have the authority to grant the community first lien priority. That means that if you decide to take this option, you might just be out the legal fees.
Be wary of investors or other companies claiming to be able to bring quick relief to the community.
And just like in a zombie apocalypse, sometimes the zombies themselves aren’t the biggest threat at all! Many opportunistic and entrepreneurial investors scour the public records to keep up to date on not only mortgage foreclosures, but association lien foreclosures as well. Be wary of investors or other companies claiming to be able to bring quick relief to the community. Despite sweet words and slick presentations, many of the “deals” they offer turn out to contain many pitfalls and end up being very disadvantageous to the community in the long run. Many of these deals limit your community’s ability to collect and make itself whole. If you are introduced to one of these investors and are interested in utilizing their services, we strongly recommend that you retain an attorney to make sure your contract with them doesn’t contain the numerous pitfalls we’ve seen. If it sounds too good to be true, it probably is!
