Playing The HOA – A Continuing Study in Audacity (Part IV)

Condo Conundrum: How to Outsmart Lenders Playing the Game

By Michael Jenner, MBA, as told to Mitchell Drimmer, CAM


In this case study, we examine a situation involving a condominium association in Florida and its dispute over the application of the “Safe Harbor” provision concerning super liens for unpaid assessments owed by a unit owner. Technically speaking, Florida is not a “Super Lien State,” but the Florida statutes do have a way for the association to avoid a total write-off…read on to uncover the path to assessment recovery when a lender is playing games with the HOA.

Parties Involved:

  1. Condominium Association: The Snowbird* Condominium Association, governed by Florida Statute 718, is responsible for managing the property and collecting assessments from unit owners to cover common expenses.
  2. First Mortgagee: Redacted* Funding Inc. is the original holder of the mortgage on a condo unit within the association. They initiated a foreclosure action against the unit owner for defaulting on their mortgage and obtained a final judgment of foreclosure.
  3. Assignee of Judgment: Redacted* REO, LLC is a subsidiary of Redacted Funding Inc. that was assigned Redacted Funding’s foreclosure judgment, along with their right to bid and obtain title to the condo unit after the foreclosure judgment was entered. It is important to note that Redacted REO, LLC is a separate corporation. Therefore, it cannot enjoy the same rights as the First Mortgagee even if they are a subsidiary.

Challenges Faced:

  1. Legal Framework: Florida Statute 718.116 outlines the “Safe Harbor” provision in the context of condominium associations. It limits the liability of a First Mortgagee or its successor or assignees for unpaid assessments upon acquiring title to a condo unit through foreclosure. The liability is capped at either 1% of the original mortgage debt or 12 months of back assessments, whichever is less. Also, the association must be included as a defendant in the foreclosure action for the Safe Harbor provision to apply.
  2. Florida is not a “Super Lien” State: Florida statutes provide that as to first mortgages of record, the association’s lien is effective after publicly recording a claim of lien. This effectively subordinates the association’s lien to the First Mortgagee of record. If the First Mortgagee complies with the rules of the Safe Harbor statutory cap allowance, they only have to pay the lesser of 12 months’ assessments or one percent of the original mortgage amount upon foreclosing and taking title.
  3. Lender Foreclosure: In many States, a lender foreclosure makes it more challenging for an association to collect past-due assessments. Florida is no exception. Florida statute provides Safe Harbor protection to a First Mortgagee or its successors or assigns that obtain title via foreclosure sale (assuming they named the association as a defendant in the foreclosure action – which was done in this case).


  1. Axela’s collection solution uncovers a technicality that saves the day: The association’s collection solution provided by Axela Technologies successfully argued their case, demonstrating that Redacted REO, LLC, as an assignee of the foreclosure judgment, did not meet the strict criteria of a First Mortgagee entitled to Safe Harbor protection. As a result, Redacted REO, LLC was not eligible for the limited liability provided by the Safe Harbor provision. 
  2. Failure to follow protocol costs the Lender: Although Florida is not a super lien state and the “Safe Harbor” provision for community associations is a legal construct hard coded into Florida statutes, the First Mortgagee needs to follow a very specific protocol to qualify for paying the limited Safe Habor amounts. In this case, the First Mortgagee did not follow the protocol, and the association is entitled to every cent owed.

The statute further defines “successor or assignee” with respect to a First Mortgagee to only include a subsequent holder of the first mortgage. There is a legal theory that once a foreclosure judgment is entered, the mortgage no longer exists since it merged into the judgment.

And because Redacted REO, LLC was not granted the final judgment in their favor (Redacted Funding, Inc. was), there is no way they could be considered a holder of the first mortgage… because the mortgage no longer existed post-judgment. Redacted REO, LLC was simply assigned the judgment, along with the right to bid and take title.

Here, the First Mortgagee was Redacted Funding Inc., and the original mortgage amount was $750,000. They conducted a foreclosure action and obtained a final judgment of foreclosure. However, when it came time for the public auction, instead of credit bidding against their judgment and taking title if there were no high bidders at the auction, they assigned their judgment, along with the right to bid and obtain title to one of their subsidiary companies Redacted REO, LLC (a different legal corporate entity not entitled to the same rights as the First Mortgagee). 

This procedural misstep morphed Redacted REO, LLC into a purchaser who is jointly and severally liable with the prior owner, Redacted Funding, Inc., for the delinquent assessments owed to the association. While we cannot speculate on the First Mortgagee’s intent by taking the actions they did, they were clearly trying to cheat the condominium. They should have known better, just like the other subjects in this ongoing study of audacity

  • The argument, theory, and position that won the day for the association: In Florida, unit owners, regardless of how the title is acquired, are jointly and severally liable for the amounts owed to the association. However, if a First Mortgagee forecloses on the property and takes title to the property via their own foreclosure sale, they only have to pay the association 1% of the original mortgage amount or 12 months of assessments, whichever is less. The lesser of 12 months or 1% is the Safe Harbor. This protection hinges on the proper protocol being followed precisely. In the case a misstep is made, Safe Harbor protections are wiped away, and joint and several liability kicks in. 

While Axela’s collection solution’s winning argument is a technicality, it is also the law, and the law is there to protect the association from lenders and owners from scamming the association. Click here to review the supporting case law that provides the precedent[DW1]  that the lender’s subsidiary was not entitled to Safe Harbor protections. Had the lender, Redacted Funding, Inc., taken title, they would have been entitled.

As a result, instead of a recovery of $7,500 for the association (the Safe Harbor amount based on 1% of the original mortgage amount of $750,000), Axela Technologies’ collection partners denied Safe Harbor and recovered $60,000 in past due assessments for the association.

Lessons Learned:

  1. Lender foreclosure is not the end: It is important to understand that a community association may be able to recover all its delinquent assessments from a First Mortgagee even though Florida statute provides Safe Harbor protection to a First Mortgagee or its successors or assigns that obtain title via foreclosure sale and they name the association as a defendant in the foreclosure action.
  2.  The association’s argument was rooted in a technical interpretation of the statute and legal principles surrounding the concept of mortgage merger upon judgment. They emphasized that the lender’s subsidiary, who was assigned the judgment, did not meet the definition of a “successor or assignee” as intended by the statute. This made them ineligible for Safe Harbor protection. 
  3.  If you are a management company or a board of directors in Florida, and you have written off money due to a mortgage foreclosure, it is possible that you may have been able to recover all of the association’s money if the collection attorney was doing their diligence defending the association against lender’s who do not comply with the rules and are in essence scamming the association by not paying them what they are legally entitled to receive. 
  4. This case underscores the importance of careful analysis and due diligence when dealing with complex lien and foreclosure matters. It also highlights the significance of understanding the nuances of assignee rights and mortgage merger principles in relation to the eligibility for Safe Harbor protection in condominium association cases. It’s crucial for the parties involved to have a clear understanding of their rights and obligations under applicable laws to ensure a fair resolution. The best way to obtain such operational excellence is by having a team that has aligned interests with the community association, such as the collection solutions that Axela Technologies partners with.


The Axela Technologies collection partners were able to deny Safe Harbor and recovered all the unpaid assessments owed by the unit owner. This outcome led to a recovery of $60,000 for the association, rather than the lesser amount of $7,500 that would have been protected under the Safe Harbor provision. Had the association not utilized the resources of the Axela Technologies collection partners, most likely, the attorney would have recovered $7,500 and perhaps the legal costs…perhaps. No matter how you view this case study, it is easy to see how a company such as Axela Technologies is superior to any other collection solution from a cash recovery perspective.

Click here to see documents and case law [DW2] to support the position that was taken to obtain a total recovery for the benefit of the community association. And, if you have collection challenges you need expert assistance with, contact us today and find out why Axela Technologies is the undisputed leader in collecting more while spending less. This is How the Future Collects

*The names of the parties have been changed and redacted from documents for privacy purposes, although this information is a matter of public records.

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