By Michael J. Gelfand, Esq./ Published Sept 2015
What we think is the law is not the “be-all and end-all.” Just when Florida community associations thought mortgage foreclosures could not get any worse, it did!
A Florida appellate court recently ruled, in Pudlit 2 Joint Venture v. Westwood Gardens Homeowners Association, 40 Fla. L. Weekly D 1248 (Fla. 4th DCA, May 27, 2015), that a third party purchaser (someone other than the foreclosing lender) at a foreclosure sale was not liable for any assessments that accrued before the date that the purchaser acquired title to the property. Pudlit purchased two parcels within a homeowners’ association at the clerk’s sale following the foreclosure of the mortgages. Pudlit paid all the assessments demanded by the association, which accrued before Pudlit acquired title. The payment was made “under protest and with full reservation of all rights and remedies.”
After the payment, Pudlit demanded a refund of the monies claiming that the community’s covenants did not allow the association’s claim. When the association refused, Pudlit sued the association seeking recovery of the monies, which it paid under protest. The trial court granted summary judgment for the association. Unfortunately for the association, it was a short-lived victory.
The Florida appellate court reversed and remanded for entry of judgment in favor of Pudlit. The court began its discussion with Section 720.3085, Fla. Stat. (2013), which provides: “A parcel owner is jointly and severally liable with the previous parcel owner for all unpaid assessments that came due up to the time of transfer of title.”
Next, the court looked at the association’s Declaration, which specifically provided that a subsequent owner of a property will not be liable for payment of any assessments owed by the prior owner. The Declaration stated that the “personal obligation for delinquent assessments shall not pass to his successors in title unless expressly assumed by them.”
The question addressed by the court was whether application of the statute unconstitutionally impaired Pudlit’s contractual rights under the association’s Declaration. The court noted that as does the United States Constitution, the Florida Constitution prohibits the impairment of contracts. In short, an impairment occurs when a contract is made worse. The court explained that third-party beneficiaries to a contract, such as the third-party purchaser in this case, have the same constitutional rights as the original parties to the contract.
The appellate court concluded that relying on Section 720.3085 instead of the provisions of the association’s Declaration violated Pudlit’s right against the impairment of contract. In other words, the third-party purchaser was not liable for any assessments that accrued prior to the purchaser’s acquisition of title.
The impact of this decision cannot be overstated for Florida homeowners associations. The safe harbor exclusion for third-party purchasers may not be enforceable for many associations. Associations should reexamine their governing documents to determine if the dispensation actually flows to the successor. Associations may want to consider amending their declarations to remove the dispensations, at least for new mortgage holders. Condominium associations will want to consult with counsel regarding the Condominium Act’s different provisions and how this decision affects them.
And for those of you who have had enough, now may be the time to contact your legislators to amend the laws, which subsidize the protection of mortgage holders’ security, the mortgaged property, by the association, which often maintains and insures the property at great expense without the lender paying anything. Most people would agree that lenders should not be subsidized by retirees and hardworking owners who pay their assessments. Maybe this decision will be just the thing that causes the outrage of owners to move mountains—or the Legislature!
ORAL AGREEMENTS: WATCH WHAT YOU PROMISE
“It was just oral, nothing was in writing” are words frequently said in defense. But, many oral statements can be enforceable contracts. This is a hard lesson for many Florida community associations to understand.
Perhaps the best, recent example of the manner in which oral statements can be enforceable contracts arose when two people who live together pooled their money to buy lottery tickets and one person wins lots of money. If the relationship has gone south, does the winner have to share the money? This provides everyone, associations and others, a valuable and memorable lesson on how meaningful are spoken words.
Michael J. Gelfand, Esq.
Senior Partner of Gelfand & Arpe, P.A.
Michael J. Gelfand, the Senior Partner of Gelfand & Arpe, P.A., emphasizes a community association law practice, counseling associations and owners how to set legitimate goals and how to effectively achieve those goals. Gelfand is a Florida Bar Board Certified Real Estate Lawyer, Certified Circuit and County Civil Court Mediator, Homeowners’ Association Mediator, an Arbitrator, and Parliamentarian. He is the Director of the Real Property Division of The Florida Bar’s Real Property, Probate & Trust Law Section, and a Fellow of the American College of Real Estate Lawyers. Contact him at Michael@flcaj.com or (561) 655-6224.
The lesson arose when The Florida Supreme Court recently held that an oral agreement to pool lottery winnings is enforceable even in the absence of a writing or an express agreement to continue the agreement for a period of time exceeding one year. In Browning v. Poirier, 40 Fla. L. Weekly S 304 (Fla., May 28, 2015), Browning and Poirier lived together and orally agreed to pool their money to purchase lottery tickets.
After Poirier purchased a winning ticket and collected $1 million, she refused to share the money with Browning. Therefore, Browning sued her for breach of contract and unjust enrichment. The trial court entered judgment for Poirier.
The Florida Supreme Court explained that regardless of the oral nature of the agreement, the agreement will be enforced unless the agreement cannot be performed within one year. In this case, the Court held that because the oral agreement could have been performed within one year, it falls outside the statute of frauds.
The moral of the story: Be careful what you promise! Oral promises may be enforceable agreements!