BLG's Monthly Newsletter - June, 2015

Case Law Update -- Pudlit 2 v. Westwood Garden Homeowners Association, Inc.

by Candice J. Gundel, Esq.

 

The Florida courts and Legislature continue to be busy with topics that affect community associations throughout Florida. Several new community association laws have been passed and will begin July 1, 2015. The next several newsletters will address those changing laws. This month we address another appellate court decision.

On May 27, 2015 the Second District Court of Appeals issued their opinion in Pudlit 2 Joint Venture LLP, v. Westwood Gardens Homeowners Association, Inc. This decision continued a common theme from the appellate courts several years ago, the Florida Legislature cannot change or impair contractual rights by amending Florida Statutes. The governing documents of a community association are a contract between the association and owners in the community. This contract may also extend to other entities such as lenders and future purchasers of property in the association.

In Pudlit the Court evaluated the governing documents of Westwood Gardens Homeowners Association, Inc. and determined that any purchaser at a mortgage foreclosure sale is entitled to reduced liability, commonly referred to as “safe harbor.” This ruling was based on the very specific language within the governing documents of Westwood Gardens:

                 “Sale of transfer of any Lot which is subject to a mortgage herein described, pursuant to a decree of foreclosure thereof, shall extinguish the lien of such assessments as to payments thereof which became due prior to such sale or transfer.”

 The specific language in the governing documents of Westwood Gardens actually goes one step further and provides that any purchaser at a mortgage foreclosure sale has $0 liability for amounts that came due prior to the sale. For Westwood Gardens and other community associations with similar specific language this is a significant impairment to an association’s ability to recover past due assessments.

As you are aware, Florida Statute Chapters 718,719 and 720 have been amended over the years to allow an association to collect a minimum amount of 12 months of past due assessments or 1% of the original mortgage from a foreclosing lender, subject to certain other criteria. The Pudlit Court held that these amended Statutes did not apply and they could not change or impair the language in the governing documents (i.e. contract of Westwood Gardens. In order to have the amended Statutes apply the governing documents of an association must specifically incorporate future amendments.

Associations should take action to ensure that their governing documents are kept up to date and drafted to allow the association to incorporate future statutory amendment and exercise all of the statutory and legal rights available to enforce the governing documents.