Super Priority Liens Wiping Out Bank Liens…Can It Really Happen In Florida?

Written by Mitchell Drimmer on . Posted in Uncategorized

Super Priority Lien Cases

In the last week my phone has been ringing off the hook and my e-mail inbox has been stuffed with questions about two recent cases coming out of a DC Court of Appeal and a Nevada Supreme Court decision.  In both of these cases it seems as if the courts have ruled that a community association with a superlien can wipe out a bank in a foreclosure action.

In Nevada http://www.ballardspahr.com/~/media/files/alerts/2014-09-18-nevada.pdf and in The District of Columbia http://www.dccourts.gov/internet/documents/13-CV-623plus.pdf  the rulings have been so favorable to the community associations that I would think that a lot of first mortgage holders are concerned and are working hard to “cut this off at the pass.”

seize-money-priority-lien

Everybody already knew that when an association forecloses on a unit and takes “intervening title” the property owner loses their rights to their property, but nobody ever suggested that it would wipe out a bank much like a tax deed sale would.  Apparently in Nevada and D.C. this may be the case.  Perhaps in Nevada and D.C. an association foreclosure is more than obtaining intervening title it’s actually taking ownership lock stock and barrel.

 Florida Priority Lien Status

The big question here is: Does the foreclosure action of a community association completely eviscerate the lenders rights to their collateral, or does the association have first dibs on the payment of the money recovered in a foreclosure?  The bigger question here in Florida is: We have superlien status so what about us?

Some have gone so far to say that HOAs refuse to provide the first mortgage holder an accounting of the amount of money owed. Some have even said that that may be a violation of the FDCPA to advise a bank regarding an amount owed by a consumer, but for years now I have been telling community associations to take advantage of condo and PUD riders and ask the banks for their delinquent maintenance fees. http://www.communitynewspapers.com/kendall-gazette/what-are-pud-condo-riders-and-how-are-they-best-used/

Section 3-116 of UCIOA UCIOA (Uniform Common Interest Ownership Act)  “makes clear that the association’s lien has true priority lien status of an otherwise first mortgage lender to the extent of the [superlien amount]. Thus, if the association conducts a foreclosure sale of its association lien and the otherwise first mortgagee does not act to redeem its interest by satisfying the association’s limited priority lien, the mortgagee’s lien would be extinguished.”  That is some very powerful language and deserves to be read again.

For community associations with an abundance of delinquencies, these developments may be a potent weapon for collecting delinquent maintenance fees.  For the lenders this could be a massive underwriting problem and I can see that purchasers in community associations may have to escrow maintenance fees if the banks are to make loans.  This is an operational nightmare but not any worse than what has happened to community associations in the last seven years.  I for one am very interested in seeing how this plays out in Florida.

Mitchell Drimmer

Mitch Drimmer and SNAP Collections by Association Financial Services have become synonymous with collections success for community associations. SNAP Collections by AFS has grown to be a national company offering its services nationally. Mitch is a licensed community association manager, real estate broker, and has three collection certifications from various industry organizations. Mitch is on the advisory board of Florida Community Association Professionals (FCAP), a content provider for the FCAP educational program, and frequently writes articles for various publications dealing with issues in community associations.