When a home or condominium owner stops paying the mortgage, the lender holding the mortgage will ultimately file a foreclosure action against the owner and property (and the association, if the foreclosure is properly filed). Afterward, many lenders appear to deliberately delay the process of their own foreclosure actions because the property is currently likely worth less than the outstanding mortgage. Additionally, the lenders already have a fairly substantial inventory of foreclosed property for sale. This delay of the mortgage foreclosure, which can, and quite often does take years if a bank chooses, becomes more prejudicial to a community association over time. Specifically, when borrowers stop paying the mortgage, they very often also stop paying their assessment obligations to their association. As long as the mortgage foreclosure languishes, the unpaid maintenance continues to accrue and the association suffers, since its operating expenses must continue to be paid.
So far in 2010, both the Third and Fourth Florida District Courts of Appeal have held that a lender cannot be compelled to pay maintenance assessments prior to the lender acquiring title to the property or be subject to financial sanctions for a slow foreclosure process. To accomplish the goal of expediting the lender foreclosure process, the option of a “Reverse Foreclosure” is a method that has been used in some instances as an alternative method for the trial court judge to complete the case.
In order to use a what has become known as a “Reverse Foreclosure”, the associations that have successfully used this procedure had already filed their own lien foreclosure action and received title as a result. The lenders for the property in question had a long-standing foreclosure action already in place. Generally, the association cannot sell the property due to the value of the property and the outstanding lien or mortgage of the lender. However, under this particular strategy, the association may formally “renounce” its title claim to the property and ask the court to grant title to the property to the lender on an expedited basis.
Typically, if the Reverse Foreclosure strategy is used, the relief given by the court is a Certificate of Title issued to the lender, which triggers the lender’s obligation to begin paying the association, starting with the statutory amount of the lesser of twelve (12) months of unpaid common expenses or one percent (1%) of the original mortgage. As with any foreclosure, the monthly maintenance assessments are also due, beginning from the date the Certificate of Title is issued. In such a situation, the court will not award the association its attorneys’ fees and costs from the lien foreclosure. However, an association may attempt to seek reimbursement of those fees and costs from the lender, in addition to the twelve (12) months of unpaid assessments or one percent (1%) of the mortgage, once the lender takes title.
The Reverse Foreclosure may be accomplished with a motion first being filed in the mortgage foreclosure action and having a hearing on that motion with the court. In the motion, the association will have to outline the lack of progress in the lender foreclosure case, identify the dilatory conduct of the lender in its foreclosure case, and the harmful result such delay is causing to the community. The court should consider the prejudicial effect that the stalled mortgage foreclosure is having upon the community and inquire as to the lender’s legal or equitable reasoning for such delay. If the lender has a sufficient legal basis for failing to advance its action, such as defenses related to insufficient service of process, lost payments or fraud, the court may defer ruling on the motion or deny the motion to allow the bank and the borrower more time to litigate the legal issues. If the lender aggressively disputes the relief sought by the association, the process may require additional attention and additional appearances before the court by the attorney for the association. As with most matters in court, there is no guaranty that a given set of facts will result in a successful ruling from the court. The judge has the discretion to do what he or she chooses in this type of matter.
Conservatively, preparation of the motion and attendance at the hearing should cost approximately $1,200.00 in fees and costs (although this will depend on the actions taken by the lender’s attorney, which may cause added expenses). Once the motion is filed, the most significant delay is usually encountered in coordinating with the bank’s counsel and the court for a hearing date. The court will not typically grant such a motion without coordinating with the bank’s counsel and having them appear and be heard.
As the Reverse Foreclosure is not a relief being awarded consistently by all judges as of this writing, there is some risk that the court will deny the motion. In such event, and depending on the status of the bank foreclosure, the association may ask the court to set the bank foreclosure for an expedited trial or schedule a Foreclosure Sale if a Final Judgment was previously entered in the cause of action.
The negative is simply that, as noted above, there is no guaranty that the court will award the relief requested as well as the time and expense incurred by the association in pursuing the Reverse Foreclosure. This type of relief is relatively new to the judges and there is no provision in the statutes or appellate case law that provides for it. It is entirely equitable in nature, which allows a great deal of discretion in the judge. The benefits of such a process, however, may outweigh the risks when the association owns a property that cannot be sold or leased and is not producing any income for the association.
