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A Miami-Dade Circuit Court judge has forced a bank to take title to a property from a homeowners association.

April 1, 2010
HSBC Bank USA v. Keys Gate Community Association, Inc., Case No. 2007-18411 CA 09 (Miami-Dade Circuit Court)

In the state of Florida's first reverse foreclosure, a Miami-Dade Circuit Court judge has forced a bank to take title to a property from a homeowners association. A reverse foreclosure is a new tool that can force banks to pay association maintenance fees when unit owners stop paying. Hence, associations can try to halt the decline that begins when owners quit paying maintenance fees, forcing a reduction in general maintenance, driving down property values even more, and leaving a community riddled with vacancies and vandalism. This is a growing problem in South Florida as revenue-started condominium and homeowners associations struggle to keep the taps running and the lawns mowed during the economic downturn. The Keys Gate Community Association, which represents 3,100 families, foreclosed on a four-bedroom home in April 2007 after its owner stopped paying monthly maintenance fees. The lender, HSBC Bank USA, filed its own notice to foreclose two months later but didn't follow through, sticking the association with an empty house and, ultimately, $5,320 in unpaid fees tallied over 2 ½ years. The association foreclosed on the home and obtained title, but it could not sell it because of HSBC's mortgage on the property which was significantly upside-down. Thus, Keys Gate was struck with a home and no one paying dues. Florida law says that banks are only required to pay up to 12 months in past-due homeowners association dues. With condos, the cap is the lesser of six months or 1% of the mortgage. Once the lender takes title, they have to pay the future HOA fees until the property is sold, and they are liable for attorney's fees and taxes. Lenders do not want to take on that additional liability with these upside-down mortgages on homes that may be difficult to sell. The lenders' stalling tactics are crippling homeowners associations, and when unpaid fees become an epidemic, associations sometimes have to charge "special assessments" to owners in good standing to make up for lost revenue and cover the costs of utilities, upkeep and insurance. In the instant case, Keys Gate came up with the reverse foreclosure gambit, in which the association filed for summary judgment against itself. Judge Gerald Bagley granted the motion, restoring title to HSBC on the same day and making the bank liable for association fees, legal fees, court costs and taxes. However, because of the cap, the association will only collect $1,501 in unpaid HOA fees. Keys Gate is now moving to reverse foreclose on 13 other delinquent homes. The ruling in Keys Gate is important for homeowners associations which are confronted by excessive unpaid HOA fees because banks refuse to complete foreclosures. There are also a number of new bills proposed in the Florida Legislature that could offer associations additional relief. One would turn the six-month cap on condo back-payments into a 12-month cap. Another would wipe out caps entirely. Reverse foreclosures may become a commonly used weapon in associations' fight to stay solvent.

Case Law Alert - 2nd Qtr 2010

Affiliated Attorney

Jonathan E. Kanov
Shareholder
(954) 847-4943
jekanov@mdwcg.com

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