Coastal Creek

Coastal Creek

A New Hope in the Latest Episode of the Assessment Wars

By Jonathan Goldstein / Published November 2019

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It is a period of uncertainty for Florida associations in their ongoing battle to collect joint and several liability for unpaid assessments from new owners. Associations have seen their right to collect these assessments undercut in recent years by various appellate decisions in the Third District Court of Appeal. However, associations have now won a significant appellate victory in the recent decision of Coastal Creek Condominium Association, Inc. v. FLA Trust Services LLC, 275 So. 3d 836 (Fla. 1st DCA 2019). Coastal Creek awarded an association the entirety of delinquent assessments owed by the various previous owners of a unit pursuant to Section 718.116(1)(a), Florida Statutes (2017). This interpretation differed from the 2013 opinion Aventura Management, LLC v. Spiaggia Ocean Condominium Association, 105 So. 3d 637 (Fla. 3d DCA 2013), and several other cases that followed its lead. The First District Court of Appeal certified this conflict between the Coastal Creek and Spiaggia decisions to the Florida Supreme Court, and a decision on whether the Florida Supreme Court will accept this jurisdiction remains pending.

     The dilemma begins when an owner owes a receivable to their association for a balance of outstanding condominium assessments (the “Original Owner”). Pursuant to Section 718.116, Fla. Stat. (1994-2019), “… 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 liability is without prejudice to any right the owner may have to recover from the previous owner the amounts paid by the owner…”  When a new owner takes title (the “interim owner”), that owner accordingly has joint and several liability.1  If a new owner (the “ultimate owner”) thereafter acquires title from the interim owner (frequently in the case of a mortgage foreclosure sale) without the original owner’s debt having been satisfied, there is an issue of whether the joint and several liability of the ultimate owner extends back to the original owner’s debt (as assumed by and passed through the interim owner). Put another way: since the interim owner’s total liability includes the original owner’s liability, shouldn’t the ultimate owner share that total liability if the two are jointly and severally liable? 

     Spiaggia addressed a complication in this scenario: the association that was owed the original owner’s debt acquired title as a result of the association’s foreclosure sale (“association ownership”), before then losing the unit to the ultimate owner, who was the winning bidder in a lender foreclosure. This scenario raises issues of whether the association is considered a previous owner and/or whether assessments are delinquent during association ownership, raising the fundamental question of whether the association’s acquisition of title as the interim owner cuts off ultimate owners from having to pay the delinquent assessments of the original owner. In Spiaggia, the ultimate owner refused to pay, arguing that the ultimate owner had no joint and several liability because the association acquired intervening title and the joint and several liability did not extend back to the original owner. The Third District Court of Appeal ruled in favor of the new unit owner, holding that the association’s brief ownership of the unit extinguished the prior unpaid assessment responsibility. In doing so, the appellate court interpreted the joint and several liability to stop at the most recent owner, i.e., the association.

     In 2014, the Florida Legislature amended the Condominium Act in response to the Spiaggia ruling. New language excluded the association from the definition of the term “previous owner” and limited the ultimate owner’s responsibility to the original owner’s unpaid assessments in cases where the association acquires title as the interim owner. Whether these statutory changes apply is dependent on the age of the association or whether the Declaration has Kaufman Language. However, the statutory change only indirectly addressed the Third District Court of Appeal’s general interpretation that the joint and several liability only extended to the interim owner and not the original owner.

     It was only a matter of time before investors and other new owners attempted to apply these rulings to distinct situations in which the interim owner was not an association. In Coastal Creek, an interim owner took title from the original owner at a lender’s foreclosure sale—only to then turn around and quit claim deed the property to the ultimate owner less than two months later. The ultimate owner then attempted to use the immediate transfer of title and the Spiaggia line of decisions as a shield against liability for the original owner’s assessments. The trial court found that the ultimate owner was only responsible for the assessments coming due during the interim owner’s brief period of ownership. However, this ruling was reversed on appeal.

     The Coastal Creek opinion disagreed with the Third District Court of Appeal and forced the ultimate owner to pay joint and several liability extending back to any and all previous owners with a remaining assessment balance, including both the interim owner and original owner. The Court interpreted the plain meaning of Section 718.116 (1)(a), Fla. Stat., to support this reading and found that the 2014 amendment further supported this interpretation.

     Associations are still governed by Spiaggia in those parts of Florida within the Third District Court of Appeal’s jurisdiction, such as Dade and Monroe Counties; however, they now have a new hope that the Florida Supreme Court will accept jurisdiction and embrace the First District Court of Appeal’s interpretation, differentiating or overruling Spiaggia. 2 It is important to note that in Coastal Creek, the transfer of ownership after a very small amount of time would have created an egregious and unfair loss for the association and a recipe for abuse. Associations faced with this new tactic can also consider pursuing a money judgment against the interim owner for the entire debt and attempting to challenge the transfer by the interim owner as a fraudulent transfer if the consideration exchanged was inadequate. Business considerations for certain associations might also warrant attempting to bid up a sufficient surplus in a lender foreclosure to cover the receivable balance and potentially acquire the unit in the lender’s foreclosure to protect the association’s collateral.

     Given these complexities, it is critical that associations consult with legal counsel and monitor ongoing developments in the Florida legislature and court system.

1 Subject to exceptions including the safe harbor for first mortgagees and their successors and assigns (whose liability is presently limited to 1 percent of the mortgage or 12 months of assessments, whichever is less, but only if the association was named in the mortgage foreclosure), or based upon the association’s age and declaration, including whether the declaration incorporates future amendments to the Condominium Act (through “Kaufman Language,” e.g., language providing that the condominium is governed by the Condominium Act “as amended from time to time”).

2 There is also a possibility that the Third District Court of Appeal will limit its Spiaggia line of cases to scenarios in which an association is the interim owner, or based upon the 2014 amendment.

Jonathan S. Goldstein

Partner, Haber Law

Jonathan S. Goldstein is a partner at Haber Law. His practice areas include condominium and homeowners association (HOA) law, commercial litigation, and construction litigation. Mr. Goldstein is Martindale Hubbell “AV” rated and is Florida Bar Board Certified in Condominium and Planned Development Law. He represents community associations in general representation, litigation, and collections, including but not limited to turnover and construction related disputes, covenant enforcement, amendment drafting, meeting attendance, arbitration before the Division of Florida Condominiums, Timeshares and Mobiles Homes, lien foreclosures, and corporate governance.