In 2007, the Florida legislature amended the provisions of the Florida Homeowners’ Association Act (making them similar to provisions of the Florida Condominium Act) and indicated that banks were responsible for the payment of portions of delinquent maintenance fees which had accrued before those banks had acquired title to their lots. Banks, however, challenged this, saying that AFTER they gave their loans, their financial responsibility could not be altered. They claimed that such would be an unconstitutional “impairment” of their contract rights. Appellate Courts in other portions of the state, in the Coral Lakes and Ecoventure cases, found that, indeed, it would be unconstitutional to statutorily create obligations upon banks which did not exist before the bank gave the loan. However, if the association’s declaration had contained language indicating that new statute provisions would be incorporated into the declaration, then there would be no impairment of contract because all would be on notice of the possible applicability of new statute provisions to the declaration.
In April 2011, after the Ecoventure opinion was issued, I distributed an e-mail to my clients on this topic. In the e-mail, I made an important suggestion-that our association-clients review their governing document provisions (or have me review their document provisions) to determine whether or not their documents contained the special language which would allow the new statute provisions to be incorporated into their documents. If the language (commonly known as “Kaufman language”) was not present, I suggested that the association consider amending its documents to add the necessary language. The language would indicate that the (homeowners’) association is “governed by the provisions of Chapter 720 of the Florida Statutes, as the statute is amended from time-to-time”. I had a few clients contact me and go through the process for amendments, but not a great number because many believed that gaining the owner participation necessary for document changes was too difficult. Further, in practice, many banks and foreclosure sale purchasers did not pay attention to document provisions and only focused on the current statute provisions.
Fast-forwarding to last year, an appellate Court (in a case by the name of Pudlit) issued an opinion which became final in the second half of last year and reiterated the Coral Lakes and Ecoventure appellate opinions. Here, however, the case applied to investors and other third parties purchasing lots at bank foreclosure sales-not only the banks. The Court in Pudlit indicated that, for lack of a better way of putting it, any foreclosure sale purchaser is, basically, stepping into the position of a bank when purchasing a property at a bank foreclosure sale. There had been many trial courts which had NOT agreed with this position, and there was some thought that the case may be appealed further up-the-chain with a request for review by the Florida Supreme Court, but such a request was never made. Now, with the appellate decision becoming binding (at least in Broward and Palm Beach counties), it is something that trial courts, here, will have to follow.
This being the case, I would like to reiterate the importance of conducting a review of your association’s governing documents to determine whether an amendment to documents is necessary (or practical) considering the possibility of future disputes regarding the sums due your association following a bank’s foreclosure sale. To be sure, the Coral Lakes, Ecoventure, and Pudlit cases clearly apply with regard to homeowners’ associations, but I have already seen attempts to apply those cases to condominium associations and Chapter 718 of the Florida Statutes, as well. As such, condominium associations may wish to avoid a possible dispute and consider similar amendments to their governing documents. Again, though our firm has been successful distinguishing the language of Chapter 718 from Chapter 720 such that Courts have not applied these cases in a condominium setting, and though we have been successful in urging Courts to apply the provisions of Chapter 718 notwithstanding language to the contrary contained within a condominium association’s governing documents, condominium associations may wish to avoid the risks and expenses of a contest over this issue if an amendment can resolve the matter.
If you wish to discuss this issue further, or if you and the Board wish to review your document provisions regarding assessment responsibility following a bank foreclosure sale or the amendment process, please feel free to contact our office.