The concept of caveat emptor, “buyer beware,” is ever present at a foreclosure sale of property located within a condominium or homeowners association. But with so much misinformation in the Florida investor community, what exactly should a buyer be aware and wary of in these circumstances?

We’re here to dispel fact from myth regarding association purchases so that your latest winning bid doesn’t become your last.

MYTH 1: Purchasers at Foreclosure Will Only Owe 12 Months of Association Dues

This is false. This only applies to banks in 1^st position that take the property back via certificate of title, not us the 3^rd party bidders. The rest of us are on the hook for the entire association lien which includes attorney fees and collection cost to date.

I have often heard investors misquote the Safe Harbor provisions of Chapter 720 and Chapter 718 of the Florida Statutes in the belief that they will need to pay no more than a few thousand dollars of past-owed assessments. However, the Safe Harbor provisions are only available to first mortgagees who acquire title via their own foreclosure or by a deed in lieu of foreclosure.

Those first mortgagees (lenders) need to have joined and properly served the associations in the foreclosure to take advantage of the provision. Unless the association restrictions provide for a similar or more generous Safe Harbor provision in favor of any purchaser at foreclosure, a bidder at foreclosure will be jointly liable for all past-due assessments.

MYTH 2: Associations Cannot Foreclose on Homestead Property

No this is not true necessarily either. The association’s governing documents can provide ways for associations to just this. You need to get a copy of the association documents to your attorney for review to confirm this is not the case.

Article X, Section 4 of the Florida Constitution provides that homestead property shall be “exempt from forced sale and no judgment, decree, or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement, or repair thereof, or obligations contracted for house, field, or other labor performed on the realty.”

Condominium and homeowners associations are not listed as a party that may force a sale of homestead property. However, in Bessemer v. Gersten, the Florida Supreme Court found that homestead property may be foreclosed to satisfy a continuing lien on the property if the homeowner had either actual or constructive notice of the covenant which provided for said lien when the owner took title to the property.

Simply stated, if you acquire property at a foreclosure sale and the restrictions of the association that entitle the association to a lien for non-payment of assessments are already of record, then they can force a judicial sale to recover delinquent assessments even if you make the property your primary residence.

A bidder who buys at a foreclosure sale in an association whose restrictions state that a judicial sale extinguishes the joint and several liability for past-due assessments should not let the association bully them into paying past-due assessments. Always have your legal representative take over in these situations.

See Beacon Hill Homeowners Association, Inc v. Colfin Ah-Florida:

The association’s argument that the legislature’s enactment of section 720.3085 amended the declaration is without merit. A declaration can be amended according to the procedure outlined within the declaration, or according to statute, by two-thirds’ approval of the homeowners. See Grove Isle Ass’n, Inc. v. Grove Isle Assocs., LLLP., 137 So. 3d 1081, 1090 (Fla. 3d DCA 2014). Generally, “repeal or invalidation by implication [of restrictions and provisions in a declaration] is not favored and generally will not be presumed absent a clear legislative intent.” United States v. Forest Hill Gardens E. Condo. Ass’n., 990 F. Supp. 2d 1344, 1349 (S.D. Fla. 2014)…

The case before us is exactly on point with Pudlit. The joint and several liability of section 720.3085(2)(b) was not incorporated into the terms of the Associations’ Declarations. Accordingly, under the language adopted by the Associations in their Declarations, Colfin was not liable for any past due assessments, attorney’s fees, or costs of the prior owner when it purchased the property in question at the foreclosure sale, for the reasons set forth in Pudlit.

MYTH 3: Associations Cannot Interfere in the Sale of My Property

Oh yes they can. It is fairly common (especially in retirement communities in Florida) for associations to have a restriction of record which requires them to approve sales or grants them right of first refusal in the transfer of a property from one owner to another.

Recorded restrictions are considered a contract between the property owners and the association, and the courts interpret these like contractual provisions. Nevertheless, clauses in which an association may deny approval for any reason without any protection for the owner have been held unenforceable by the courts.

See Webster v. Ocean Reef Community Association Inc:

Florida public policy disfavors unreasonable restrictions on the free alienability of property. “[W]here a restraint on alienation, no matter how absolute and encompassing, is conditioned upon the restrainer’s obligation to purchase the property at the then fair market value, the restraint is valid.” Aquarian Found., Inc. v. Sholom House, Inc., 448 So. 2d 1166, 1168-69 (Fla. 3d DCA 1984) (reversing judgment for condominium association asserting a right under its governing documents to reject any unit owner’s prospective purchaser for any reason or no reason) (citations omitted). Conversely, where a restraint is absolute and may be exercised for any reason or no reason, but provides no such protection for an owner, the restriction may not be enforceable.

“Unreasonable” depends on the facts and circumstances of the particular events, and bidders should speak with a real estate attorney to determine if they have recourse against an association’s denial.

MYTH 4: Associations Cannot Interfere With the Tenants I Have in My Property

They sure can! Associations can place restrictions on who can lease a property. Condominium associations have greater discretion in denying tenants because of the nature of condominiums, the close proximity to neighboring units, and the more uniform composition of the community.

From Hidden Harbour Estates, Inc v. Norman:

…to promote the health, happiness, and peace of mind of the majority of the unit owners since they are living in such close proximity and using facilities in common, each unit owner must give up a certain degree of freedom of choice which he might otherwise enjoy in separate, privately owned property. Condominium unit owners comprise a little democratic sub society of necessity more restrictive as it pertains to use of condominium property than may be existent outside the condominium organization.

Accordingly, restrictions on a unit owner’s right to transfer his property are recognized as a valid means of ensuring the association’s ability to control the composition of the condominium as a whole. However, much like the restraints on the sale of the property, in order for provisions requiring association approval of a tenant to pass muster, denial must be met by the association providing a substitute recompense to the owner in the form of payment by the association or an alternative suitable tenant.

It is illegal for the associations to discriminate based upon race, religion, sex, national origin, color, creed, familial status, or handicap, and none of the above factors are valid reasons for an association to deny a tenant’s application.

Can the association deny approval of a tenant if there are delinquent dues? The 2020 Florida Statutes, section 718.116(4) (governing condominium associations) states: “If the association is authorized by the declaration or bylaws to approve or disapprove a proposed lease of a unit, the grounds for disapproval may include, but are not limited to, a unit owner being delinquent in the payment of an assessment at the time approval is sought.”

There is no similar statutory provision for homeowners associations. Any denials of tenants should be reviewed based upon the case law which prohibits unreasonable restraints on sales, transfers, and leases of property.

MYTH 5: Associations Cannot Stop Me from Making Improvements to My Property

You guessed it, of course they can! “Restrictive covenants contained within a deed which reserve the grantor’s right to approve plans for improving the land are valid and enforceable against the grantee unless that right or the exercise of it is arbitrary and unreasonable,” states Coral Gables Investments, Inc. v. Graham Companies.

In other words, if the association’s recorded restrictions explicitly state that they have the right to approve improvements, then they can withhold approval of an investor’s proposal so long as it is not arbitrarily or unreasonably withheld.

What is arbitrary or unreasonable is based on the facts and circumstances of that particular dispute with the association, but the burden is on the property owner to show it. This burden is not easy to overcome, and purchasers at foreclosure should familiarize themselves with the neighborhood prior to bidding to get an understanding of what they can and cannot do on an association flip.

Go Into Foreclosure Auctions With the Facts, Not Myths

With a better understanding of what condominium and homeowners associations are allowed to do — and to what extent — foreclosure bidders can reduce their risk and plan accordingly. They should carefully review the restrictions prior to bidding and determine if there will be restrictions on tenancies, sales, and improvements.

Bidders should also assume that if property is being foreclosed on, then there will be a delinquency in assessments, interest accrual for at least a year, attorneys fees owed in the thousands of dollars range, and corresponding restriction violations.

“I therefore claim to show, not how men think in myths, but how myths operate in men’s minds without their being aware of the fact.” — Claude Levi-Strauss