Florida Common Interest Community Successfully Sues Bank for Delaying Foreclosure

A Pompano Beach condominium in Florida successfully sued Wells Fargo, arguing that they purposely delayed foreclosure proceedings on a condominium unit for more than a year. As a result, the condominium was awarded title to the unit free and clear of the original mortgage amount. The unit in question was previously sold to the association at sheriff’s sale following the condominium’s own foreclosure. Despite the default on mortgage for over a year, Wells Fargo had yet to initiate foreclosure. Condominiums and homeowners associations across the country suffer financial losses caused by owners who, prior to vacating their property after being foreclosed upon, opted for a strategic default mortgage and stopped paying their HOA fees, monthly maintenance fees, special assessment fees, and/or any other condo fees for common elements. After the association’s foreclosure, the unit is owned by the common interest community, typically, following a sheriff’s sale, with that association often unable to sell the unit because it is usually worth much less than the original mortgage, which remains on the unit. Mortgage foreclosures are often taking over two (2) years because of court backlogs, lender inefficiencies and/or lender attempts to work deals with original mortgage owners in lieu of foreclosure. Despite association consternation, lenders contend that a prolonged foreclosure is due to the lender trying to help owners who find themselves in a financial bind due to the bad economy. The associations reject that contention with respect to units that have already been abandoned by the owners, as the lenders are not negotiating and/or settling with an owner(s) that vacated the unit and no longer has any practical interest in the property.

In the Pompano Beach case, the owner purchased the unit in January 2006 and executed a mortgage for $184,400. By April, 2009, the owner had fallen behind in the payment of 11 months worth of HOA fees, maintenance fees, special assessment fees, and other condo fees, owing about $5,500 in regular and special assessments. At that point, the association filed a foreclosure, taking title to the unit in January, 2010. By then the owner owed more than $9,000 in unpaid monthly maintenance fees. Had Wells Fargo filed a foreclosure against the original owner for the default mortgage and completed the process, about $5,800 of unpaid condo fees on the unit would have been owed to the association as required by state law. In Florida, lenders are liable for up to 12 months of unpaid maintenance fees or 1 percent of the original loan amount, whichever is less. Here, the value of the unit is about $32,500 – about $150,000 less than what is owed on the original mortgage. The association strategized that Wells Fargo would either foreclose on the loan and pay its share of unpaid monthly maintenance fees or, instead, agree to release its mortgage.

This approach is just another example of the need for associations to strategize and be creative when trying to ensure their financial health in the face of a troubled economy and real estate market.