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Florida Condominium Successfully Sues Bank for Delaying Foreclosure

By David J. Byrne

APompano Beach condominium successfully sued Wells Fargo, arguing that Wells Fargo purposely delayed foreclosure proceedings on a condominium unit for more than a year.  As a result, the condominium was awarded title to the unit free and clear of the original $184,400 mortgage.  The unit in question was previously sold to the condominium at sheriff's sale following the condominium's own foreclosure.  Despite the failure of anyone to pay the underlying mortgage for over a year, Wells Fargo had yet to initiate foreclosure.   Condominiums and homeowners associations across the country suffer financial losses caused by owners who stop paying their mortgages and maintenance fees and then vacate the property after being foreclosed upon by the association or bank.   After the association's foreclosure, the unit is owned by the association, typically, following a sheriff's sale, with that association often unable to sell the unit because it is usually worth much less than the original mortgage, which remains on the unit.  Mortgage foreclosures are often taking over two (2) years because of court backlogs, lender inefficiencies and/or lender attempts to work out a deal with the original mortgage owner in lieu of foreclosure.  Despite association consternation though, lenders contend that a prolonged foreclosure is due to the lender trying to help owners who find themselves in a financial bind due to the bad economy.  The associations though reject that contention with respect to units that have already been abandoned by the owners.  Obviously, the associations contend, the lender is not negotiating and/or settling with an owner(s) that vacated the unit and no longer has any practical interest in it. 
 

In the instant Florida case, the owner purchased the unit in January 2006 and executed a mortgage for $184,400.  By April, 2009, the owner had fallen behind in the payment of maintenance fees by 11 months, owing about $5,500 in regular and special assessments.  At that point, the association filed a foreclosure, taking title to the unit in January, 2010.  By then the owner owed more than $9,000 in unpaid maintenance fees.  Had Wells Fargo filed a foreclosure against the original owner and completed the process, it would have owed about $5,800 for its share of unpaid maintenance fees on the unit as required by state law.  In Florida, lenders are liable for up to 12 months of unpaid maintenance fees or 1 percent of the original loan amount, whichever is less.  Here, the value of the unit is about $32,500 - about $150,000 less than what is owed on the original mortgage.  The association strategized that Wells Fargo would either foreclose on the loan and pay its share of unpaid maintenance fees or, instead, agree to release its mortgage. 
 

This approach is just another example of the need for associations to strategize and be creative when trying to ensure their financial health in the face of a troubled economy and real estate market.

Full post as published by New Jersey Law Blog on October 12, 2010 (boomark / email).