BLG's Monthly Newsletter - February 2014

Association Collections and Tax Deed

by Candice Gundel, Esq.

Association collections are secured against the owner’s property by virtue of a Claim of Lien.   The property serves as collateral for the delinquency and the lien will follow the property.  For these reasons, the Claim of Lien is a strong enforcement tool for collections and puts Associations in an advantageous position to collect the delinquent amounts due and owing.  There are very few situations where another creditor may be superior to the Association lien, but one of them is the government collecting property taxes.

 Property taxes are typically escrowed in a property owner’s mortgage payment.  Therefore when they stop making mortgage payments they also stop making property tax payments.  Since the property taxes are superior to even the first mortgage, the financial institution holding the first mortgage will likely continue to pay the property taxes even when the loan is in default and foreclosure.  If a financial institution fails to make the mortgage payments, or if the owner did not have a mortgage on the property and stopped paying the property taxes, then the Clerk will issue a delinquent notice and tax certificate.   Tax certificates are auctioned for the amount of the delinquent taxes, plus interest, to investors and individuals.  A separate auction will be held and tax certificate issued for every year of delinquent taxes.

 The tax certificates may be redeemed by payment in full of the delinquent amount for each certificate.  If the tax certificates are not redeemed after two years the owner of the tax certificate may apply for a tax deed.  Once an application for tax deed has been made the Clerk will notify all creditors of the property, including the Association, that unless the certificate is redeemed the property will be auctioned to the highest bidder.  Typically the auction is held within ninety days of the notice to creditors.  This notice is crucial to Associations and their ability to collect assessments. 

A Florida court recently held that the purchaser at the tax deed auction will acquire the property via a “new, original and paramount title” and the lien on the property for all amounts that came due prior to the date of the new title are extinguished.    

 Despite the lien being extinguished all is not lost.  The Association may be able to recover some or all of the past due amounts by pursuing a claim for excess proceeds with the Clerk.  Typically the tax deed auction results in paying off the delinquent taxes and a surplus of funds remains.  As a secured creditor of the property the Association may submit a claim for these funds to satisfy the extinguished amounts.  If the claim for surplus funds does not satisfy the extinguished amounts then the Association may elect to pursue the prior owner for those amounts with a personal judgment.  

 The Association may also choose to participate in the tax deed auction and bid on the property.  When the Association or its counsel receives the notice to creditors of the upcoming tax deed auction, the Board should review the financial repercussions of the potential sale and determine whether it is advantageous to bid on the property.  In some cases the Association may utilize a funding company to assist with purchasing the property at the tax deed auction or redeeming the tax certificates to prevent the sale.