||IN THE DISTRICT COURT OF APPEAL OF FLORIDA
||Case No. 2D08-5062
||February 19, 2010
||CORAL LAKES COMMUNITY ASSOCIATION,
BUSEY BANK, N.A.; SCOTT HALEY; RUTH HALEY; AND RIVERSIDE BANK OF THE
GULF COAST, APPELLEES.
||Appeal from the Circuit Court for Lee
County; Michael T. McHugh, Judge.
||Ashley D. Lupo and Christopher D. Donovan
of Roetzel & Andress, Lpa, Naples, for Appellant.
||Gordon R. Duncan of Duncan &
Associates, P.A., Fort Myers, for Appellee Busey Bank, N.A.
||No appearance for Appellees Scott Haley,
Ruth Haley, and Riverside Bank of the Gulf Coast.
||The opinion of the court was delivered by:
Casanueva, Chief Judge
||Coral Lakes Community Association, Inc.
(the "HOA"), appeals a final summary judgment of foreclosure
awarded to Busey Bank, N.A. (the "Bank"). The final judgment
determined that the Bank had no liability to the HOA for past due HOA
assessments that the HOA claimed pursuant to section 720.3085(2),
Florida Statutes (2008). The disposition of this case is determined by
the HOA's Declaration of Covenants and Restrictions vis-à-vis the
relevant regulatory statutes. As one would expect, these two competing
parties possess diametrically opposed legal positions regarding whether
the Bank should be liable for the mortgagors' unpaid HOA assessments
that will have accrued by the time title may be transferred to the Bank.
For the reasons explained below, we conclude the Bank is not required to
pay those delinquent assessments and affirm the summary judgment in
||The facts are undisputed. In May 2006,
appellees Scott and Ruth Haley ("the homeowners") executed a
note and mortgage in favor of the Bank for $252,255.80 to purchase
property located in the Coral Lakes community. The community's governing
document at this time, the Declaration of Covenants and Restrictions of
Coral Lakes, provided the following: xxx1
||9.1.6 Subordination of Lien. Where any
person obtains title to a LOT pursuant to the foreclosure of a first
mortgage of record, or where the holder of a first mortgage accepts a
deed to a LOT in lieu of foreclosure of the first mortgage of record of
such lender, such acquirer of title, its successors and assigns, shall
not be liable for any ASSESSMENTS or for other moneys owed to Coral
Lakes which are chargeable to the former OWNER of the LOT and which
became due prior to acquisition of title as a result of the foreclosure
or deed in lieu thereof, unless the payment of such funds is secured by
a claim of lien recorded prior to the recording of the foreclosed or
|| By January 2008, the homeowners were
in arrears on both their mortgage payments due the Bank and assessments
due the HOA. On June 3, 2008, the Bank instituted a foreclosure action
against the homeowners, adding the HOA as a party defendant because of
the accrued unpaid assessments.xxx2 On June
24, 2008, the HOA answered and claimed as its first affirmative defense
that pursuant to section 720.3085, Florida Statutes (2007),xxx3
the Bank's mortgage was subordinate to all of the mortgaged premises'
unpaid common expenses which accrued or came due during the time period
preceding the Bank's acquisition of title at foreclosure sale or by deed
in lieu of foreclosure.xxx4 As its second
affirmative defense, the HOA claimed that if a purchaser, including the
Bank and its successors or assigns, purchases the mortgaged premises,
including but not limited to, at a foreclosure sale, then this purchaser
shall be jointly and severally liable with the previous owner to pay
twelve months' assessments which accrued preceding transfer of title or
one percent of the original mortgage debt, whichever is less.
||The lawsuit proceeded quickly and as a
fairly routine foreclosure action. On July 23, 2008, the Bank filed a
motion for summary judgment of foreclosure, claiming the execution of
the note and mortgage was not disputed, the failure to timely pay the
note was not disputed, the priority of the note and mortgage was not
disputed, and the only matters of law to be argued were the general law
of notes, mortgages, and negotiable instruments and the Bank's
entitlement to attorney's fees and costs. The Bank also claimed that, as
a matter of law, the statutory changes to section 720.3085 xxx5
should not be applied retroactively to its note and mortgage that
predated the statutory change.
||At the hearing on the motion for summary
judgment, the only contentious issue was whether the Bank was excused
from paying the unpaid HOA assessments that had accrued. The Bank argued
that at the time of the execution of its note and mortgage in 2006, the
HOA's Declaration gave its lien a distinct and very advantageous
priority position over any HOA lien for unpaid assessments. Moreover,
the Bank, by virtue of being an intended third-party beneficiary of this
paragraph of the Declaration, could not have this benefit removed by
operation of the statute, which was not in existence at the time it
entered into its contract with the homeowners. Further, the Bank argued,
citing to City of Sanford v. McClelland, 163 So. 513 (Fla. 1935),
applying the new statutory language would impair the Bank's contractual
right, i.e., its vested lien priority. See id. at 514-15 ("A vested
right has been defined as 'an immediate, fixed right of present or
future enjoyment' and also as 'an immediate right of present enjoyment,
or a present, fixed right of future enjoyment.' " (quoting Pearsall
v. Great N. Ry. Co., 161 U.S. 646, 673 (1896))).
||The HOA countered that the issue was not
retroactive application of the amended statute because the Bank had not
yet taken title to the parcel; therefore, assuming that the Bank would
take title at a future foreclosure sale, it would be constrained to
follow the dictates of the amended 2008 version of the statute at that
time. Cf. LR5A-JV, LP v. Little House, LLC, 998 So. 2d 1173, 1175 (Fla.
5th DCA 2008) (holding section 720.3085(2), Florida Statutes (2007),
inapplicable because the appellant/mortgagee was not yet at the time of
the suit the subsequent parcel owner; however, in dictum, the court
stated that "[f]urthermore, there is nothing in the plain language
of section 720.3085 that can reasonably be construed to give the
Association's lien priority over [the lender's] mortgage").
||The trial court agreed with the Bank,
noting that City of Sanford would control to preclude impairment of
vested rights by a statutory change. On September 22, 2008, the trial
court entered a final judgment in foreclosure with the following
language specifically addressing the lien priority/unpaid assessments
||8. Upon filing the certificate of sale,
the purchaser at the sale shall be let into possession of the property
and the Defendants and all persons claiming under or against them since
the filing of the Notice of Lis Pendens shall be fore-closed of all
estate or claim in the property except that any purchaser other than
Plaintiff [the Bank] shall be liable for unpaid assessments due [the HOA]
pursuant to the provision of Section 720.3085, Florida Statutes.
||We conclude that because of the
Declaration's plain and unambiguous language subordinating any claim for
unpaid HOA assessments to a first mortgagee's claim upon foreclosure or
deed in lieu of foreclosure, it controls and absolves the Bank, as first
mortgagee, from liability for any assessments accruing before it
acquires the parcel. "Restrictions found within a Declaration are
afforded a strong presumption of validity, and a reasonable unambiguous
restriction will be enforced according to the intent of the parties as
expressed by the clear and ordinary meaning of its terms. . . ."
Shields v. Andros Isle Prop. Owners Ass'n, 872 So. 2d 1003, 1005-06
(Fla. 4th DCA 2004) (quoting Emerald Estates Cmty. Ass'n v. Gorodetzer,
819 So. 2d 190, 193 (Fla. 4th DCA 2002)). In this case, the restriction
in the Declaration disadvantages the HOA, which the drafter had every
right to do, and benefits all first mortgagees of homes in the
community. First mortgagees in this community, although not parties to
the Declaration that is the contract between the HOA and its members,
are clearly third-party beneficiaries of this contract. See Greenacre
Props., Inc. v. Rao, 933 So. 2d 19, 23 (Fla. 2d DCA 2006) (explaining
that to enforce rights under a contract like a declaration, "[a]
third party must establish that the contract either expressly creates
rights for them as a third party or that the provisions of the contract
primarily and directly benefit the third party or a class of persons of
which the third party is a member"). The HOA could have protected
itself if, in drafting its Declaration, it had included language that
its lien for unpaid assessments related back to the date the Declaration
was recorded or that it otherwise had lien superiority over intervening
mortgages. See LR5A-JV, 998 So. 2d at 1175 n.2. However, the HOA took
the opposite tack to entice lenders to finance purchases in its
community. The statutory change in section 720.3085 cannot disturb that
prior, established contractual relationship.
||To hold otherwise would implicate
constitutional concerns about impairment of vested contractual rights.
See art. I, § 10, Fla. Const. ("No bill of attainder, ex post
facto law or law impairing the obligation of contracts shall be
passed."). In this state, it is a "well-accepted principle
that virtually no degree of contract impairment is tolerable."
Pomponio v. Claridge of Pompano Condo., Inc., 378 So. 2d 774, 780 (Fla.
1979) (citing Yamaha Parts Distribs., Inc. v. Ehrman, 316 So. 2d 557
(Fla. 1975)). To avoid this longstanding principle, the HOA argues that
even if applying section 720.3085 to this case would impair the Bank's
contractual rights, such impairment is constitutionally reasonable or
minimal. We do not agree.
||The facts of this case are similar to
those in Sarasota County v. Andrews, 573 So. 2d 113 (Fla. 2d DCA 1991).
There, Sarasota County passed an ordinance declaring that a fine imposed
by the county on property, when recorded, becomes a lien against the
property that is superior to all other liens except a lien for taxes.
Pursuant to this ordinance, the county imposed a fine on a property for
operation of an illegal landfill and recorded it as a lien. The property
at issue in the case was subject to a prior mortgage in favor of Coast
Federal Savings & Loan Association. Sarasota County filed suit
against the property owner to foreclose its claim of lien, added the
mortgagee Coast Federal as a defendant, and sought a declaration that
Coast Federal's lien was inferior to the county's lien. The trial court
entered a final summary judgment finding Coast Federal's lien superior
because it found that the portion of the ordinance making the county's
lien superior to all nontax liens was unconstitutional, as applied. We
affirmed the summary judgment, saying:
||We think the priority provision of the
County's ordinance substantially impairs Coast Federal's prior mortgage
lien by subordinating it to the County's lien. If by operation of the
County's ordinance, Coast Federal's lien can be relegated to a secondary
position, it is obviously of less value than the first-priority lien for
which Coast Federal had contracted. Thus, the ordinance retrospectively
impairs Coast Federal's contractual position.
||Id. at 115.
||Much like the county's argument in
Sarasota County v. Andrews, the HOA here argues that any impairment is
permissible as minimal. We disagreed with this argument in Sarasota
County v. Andrews and disagree with it here:
||[T]he priority provision [of the
ordinance] has worked an immediate impairment on Coast Federal's
pre-existing mortgage lien. The nature of priority is such that Coast
Federal is automatically at a substantially greater risk of losing its
investment if it has only a second, as opposed to a first, priority
lien. Furthermore, mortgages held by commercial institutions are
frequently sold on the secondary market, and the subordination of Coast
Federal's lien impairs the marketability of its mortgage. This immediate
diminishment in the value of Coast Federal's contract is repugnant to
||More recently, this court reviewed an
impairment challenge in Lee County v. Brown, 929 So. 2d 1202 (Fla. 2d
DCA 2006). There, homebuilders challenged the validity of a local
ordinance imposing a school impact fee on those applying for a building
permit. This court recognized that Pomponio required the application of
a balancing test which "weighs the degree of impairment against the
source of authority under which the law is enacted and the 'evil' the
law is intended to remedy." 929 So. 2d at 1208 (citing Pomponio,
378 So. 2d at 780). However, the Pomponio balancing test is not required
under Sarasota County v. Andrews where the statutory enactment
"results in an immediate diminishment in the value of the
contract." 929 So. 2d at 1208-09 (citing Sarasota County v.
Andrews, 573 So. 2d at 115). Impairment, in this context has been
defined, in part, as "to make worse; to diminish in quantity,
value, excellency or strength[.]" Id. at 1208 (quoting Pomponio,
378 So. 2d at 781 n.41). If we were to apply the amended statute in this
instance, the economic value of the Bank's mortgage would be lessened as
well as the power of its priority position.
||Alternatively, were it appropriate to
apply the balancing test, the HOA's argument would still fail. While the
law may deal with the economic problem facing homeowners' associations
in general, its application here would place the economic burden not on
the homeowner, the root of the problem of the unpaid assessments, but on
the entity that previously made the construction or purchase of the home
possible. Moreover, the Declaration of Covenants and Restrictions was
never altered to place a lender on notice that its economic position
would be subordinate to the HOA's claims. When balanced in this factual
circumstance, the statute would operate to severely, permanently, and
immediately change the parties' economic relationship retroactively, a
circumstance not supportable under the law.
||The HOA yielded any right to claim it had
a superior lien position to the Bank's pre-existing mortgage by virtue
of the plain and unambiguous language of its Declaration,xxx6
which the Bank had every right to rely upon when deciding to finance the
homeowners' home in the Coral Lakes community. The trial court did not
err in finding the Bank's first mortgage lien superior to the HOA's
claim for unpaid assessments notwithstanding section 720.3085.
||DAVIS, J., Concurs.
||WALLACE, J., Concurs in result only.
This provision clearly favors potential first mortgage holders who
generally buy the properties upon which they foreclose. We make this
observation because the remaining, unquoted portion of this section does
not exclude other types of buyers of homes with delinquent fees from
payment of those fees. This section was likely added to the Declaration
to induce lenders to aid homeowners in purchasing property in the
community by awarding them priority over the HOA's claims for unpaid
Riverside Bank of the Gulf Coast is apparently the holder of another,
inferior lien but has not appeared in this appeal.
At the time of the filing of the foreclosure suit and the HOA's answer
and affirmative defenses, section 720.3085, Florida Statutes (2007),
provided in part:
(1) A parcel owner, regardless of how his or her title to property has
been acquired, including by purchase at a foreclosure sale or by deed in
lieu of foreclosure, is liable for all assessments that come due while
he or she is the parcel owner. The parcel owner's liability for
assessments may not be avoided by waiver or suspension of the use or
enjoyment of any common area or by abandonment of the parcel upon which
the assessments are made.
(2) 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. This liability is without prejudice to any right the
present parcel owner may have to recover any amounts paid by the present
owner from the previous owner.
This was the initial enactment of this section, effective July 1, 2007.
See ch. 2007-183, §§ 1-2, at 1603-05, Laws of Fla. On July 1, 2008,
after the foreclosure complaint and the answer and affirmative defenses
were filed, the newly amended version of the statute became effective. A
new subsection (1) was added (not at issue here); former subsection (1)
was renumbered subsection (2)(a); former subsection (2) was renumbered
subsection (2)(b); and new language was inserted, numbered subsection
(2)(c), as follows:
(c) Notwithstanding anything to the contrary contained in this section,
the liability of a first mortgagee, or its successor or assignee as a
subsequent holder of the first mortgage who acquires title to a parcel
by foreclosure or by deed in lieu of foreclosure for the unpaid
assessments that became due before the mortgagee's acquisition of title,
shall be the lesser of:
1. The parcel's unpaid common expenses and regular periodic or special
assessments that accrued or came due during the 12 months immediately
preceding the acquisition of title and for which payment in full has not
been received by the association; or
2. One percent of the original mortgage debt.
The limitations on first mortgagee liability provided by this paragraph
apply only if the first mortgagee filed suit against the parcel owner
and initially joined the association as a defendant in the mortgagee
foreclosure action. Joinder of the association is not required if, on
the date the complaint is filed, the association was dissolved or did
not maintain an office or agent for service of process at a location
that was known to or reasonably discoverable by the mortgagee.
Ch. 2008-175, § 1-2, at 2034-35, Laws of Fla.
Thus, instead of being jointly and severally responsible for all unpaid
assessments of a foreclosed homeowner, as of July 1, 2008, the first
mortgagee who holds title now has limited liability, either the prior
twelve months' worth of unpaid assessments or one percent of the
original mortgage debt, whichever is less.
We note that at the time the HOA filed its answer and affirmative
defenses, the homeowners were still the record titleholders of the
property as there had not yet been a judgment of foreclosure, a
foreclosure sale, or a certificate of sale filed. Subsequent to filing
the notice of appeal in this case, the Bank bought the home at the
foreclosure sale and its certificate of title was recorded on December
See footnote 2, above.
We make no comment on the HOA's argument that the Florida Legislature
effectively rewrote section 9.1.6 of its Declaration when it enacted or
amended section 720.3085 because that was not the basis of the trial
court's summary judgment.