NEWS

New Decision: Receivers (FNMA v. JKM Services)
October 25, 2018

The Third District Court of Appeal addressed receivers, generally in the condominium context, and specifically applying §718.116(6)(c), Fla. Stat. (2009), the Condominium Act’s assessment provisions in Federal National Mortgage Association v. JKM Services, LLC, Case No. 3D17-370 (Fla. 3d DCA October 3, 2018).

  1. The Background.

The background set in the midst of the Great Recession, should be familiar. Assessments for 90% of The Cedar Woods Homes Condominium’s 165 units were delinquent. A majority of the delinquent units were in foreclosure. Doing the math, that equals at least 75 of the 165 units. You would not be surprised to read that the lenders were “slow to prosecute” the foreclosures.

being protected by the “Safe Harbor Statute”, § 718.116(1)(b) (2014).

  1. The Receivership Litigation.

In 2009 the Association initiated a new legal proceeding in circuit court, not part of a pending matter or foreclosure, by filing an emergency petition for a receiver “to preserve and protect the condominium property.” The Association alleged that the Association appeared to be insolvent, and utility services would soon be terminated. The basis for a receiver was the above quoted statute which provided:

If the unit is rented or leased during the pendency of the foreclosure action, the association is entitled to the appointment of a receiver to collect the rent. The expenses of the receiver shall be paid by the party which does not prevail in the foreclosure action.

§718.116(6)(c) Fla. Stat. (2009). Neither the owner nor the mortgagee of any effected unit was joined in the proceeding when filed, the only parties being the Association and the Receiver. The trial court 2010 order granting the appointment of a receiver did not attach property descriptions of the units in question or place lenders on notice of the receivership.

  1. The Dispute.

Four years later, in 2014 a dispute arose when FNMA sought estoppel certificates from the Condominium Association for amounts due for three units FNMA obtained title following foreclosures. The Receiver’s response did not state an amount consistent with the “Safe Harbor Statute: §718.116(1)(b) Fla. Stat. (2014). but instead, the Receiver sought for the Association multiple years of past due assessments, Receiver fees, and attorney’s fees for the receiver’s attorneys.

In 2016, after negotiations did not resolve the dispute, FNMA moved to intervene in the receivership case, to terminate the receivership, to determine amounts due pursuant to the Safe Harbor Statute, and to compel an accounting. The trial court denied the motion based on FNMA’s delay in seeking relief, that the units were subject to the receivership, that the FNMA accepted the benefits of the receiver’s work, and that the “receiver amounts” were payable by the FNMA in addition to assessments.

  1. Intervention.

The appellate court first held that FNMA was entitled to intervene pursuant to Fla.R.Civ.P. Rule 1.230. FNMA merely taking title by virtue of a foreclosure sale does not moot its motion to intervene. Intervention should have been granted because FNMA had a direct interest in the three units subject to the receivership, and the Receiver claimed assessments due and a lien against the units. The appellate court notes that intervention is not being sought in foreclosure litigation, perhaps distinguishing from other precedent.

  1. Receivership.

The appellate court then held that the receivership orders were not valid against FNMA. The court interpreting the Condominium Act’s assessment receiver statute, remarked that the statute is to be “… read in context….” The assessment receiver statute has at least two trigger conditions: First, when there is a pending foreclosure of the condominium association’s lien for assessments; and, Second, when the receiver is to collect rent from the tenant occupying the unit in foreclosure. §718.116(6)(c) Fla. Stat. (2009).

The appellate court held that the Condominium Act’s assessment receiver statute is not triggered by a mortgage foreclosure proceeding or in post receiver appointment proceedings.

  1. Receiver Claims.

The receiver’s claims for compensation attorneys’ fees and costs are not enforceable against FNMA as the foreclosing mortgage lender. Building the foundation for the priority for claims, priority is governed by §28.222 (recording register), §695.11 (recording sequences) and, §695.01 (recording requirements).

Applying this foundation, FNMA’s mortgage liens, recorded in 2006 before the filing of the emergency petition for receiver, had priority over the Association’s liens except for the Safe Harbor Statute amounts and amounts accruing after FNMA’s Certificate of Title. Pursuant to the assessment receiver statute, the receiver’s claims are payable by the non-prevailing party. FNMA was not a party to the receivership claim and did not have an obligation to pay the receiver.

In this regard, the court noted that FNMA’s assessment liability was “clear,” limited to the Safe Harbor amount: “FNMA’s entitlement to the limitation as a loan purchaser and assignee of a final judgment of foreclosure obtained by a servicer on FNMA’s behalf is equally well-settled.”

The appellate court, perhaps seeking to soften its holding, concluded that there may be third parties who are liable, perhaps presuming that would be the unit owners who being foreclosed upon are more likely than not to be judgment proof. Nevertheless, “Due proceed required notice to the foreclosing first mortgagees before they could be taxed, after the fact, with receivership expenses for services they never sought or authorized.”

While the Association’s receivership effort was framed as “innovative and responsive to a crisis”, a lawsuit with no defendant or respondent did not involve the “traditional adversarial array of parties”; “As a result, the Receiver essentially became little more than an officious intermeddler vis-à-vis the foreclosing mortgage lenders….” In essence, “the Receiver served as a court-authorized property manager for certain units and also acted as an eviction and collection agency for the Association.”

  1. Receivers.

The appellate court, recognizing that the receivership was sought and appointed only pursuant to the assessment receivership statute took the opportunity to identify that:

Florida common law provides substantial authority for the appointment of a receiver to take custody of real property and embroiled in litigation in order to preserve and protect the property as the rights of the parties are determined. ­See, e.g., Metro-Dade Invs. Co. v. Granada Lakes Villas Condo., Inc., 74 So 3d 593 (Fla. 2d DCA 2011) see also Fla. R. Civ. P. 1.620.

Thus, the trial court under common law could have appointed a receiver for the units apparently independently of the assessment receivership statute. Furthermore, in a common law receivership to protect and preserve property the trial court has “considerable discretion in determining who shall pay the costs and expenses of receiverships” allowing receivership fees to be taxed as costs though where there are no assets, a separate action may have to be instituted to recover the costs.

This decision likely brings to a close the short lived and discredited “blanket receiver” concept. See Saga Bay Gardens Cd’m Ass’n, Inc. v. For the Appointment of Blanket Receiver, 127 So. 3d 800 (Fla. 3d DCA 2013). The decision appears carefully crafted to avoid the impression that lien assessment foreclosure receivers are only theoretical. The appellate court noted the many ways in which the Cedar Woods receivership proceedings here did not comport with the assessment foreclosure statute upon which the Association’s petition was based. There is no limitation provided by the court on the assessment receiver statute’s use in a lien foreclosure proceeding where there is adversarial proceeding, and the unit owner which is party entitled to rent and may be liable for expenses, is a party.

Interestingly, but for the estoppel letter request seeking monies far in excess of the Safe Harbor, the receivership might not have been disturbed, at least by these proceedings. It is unclear from the opinion how the holding impacts the receiver’s past efforts, but would certainly appear to limit the receiver’s prospective efforts. Though not apparently an issue these proceedings and thus not necessary for the court to address is who pays the receiver.

Many thanks to Shawn Brown and Mark Grant for swiftly providing a copy of the decision to my attention. Best for the coming week.

Michael J. Gelfand

Past Chair

Real Property, Probate and Trust Law Section

of The Florida Bar

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Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section

© 2018 Michael J. Gelfand

Michael J. Gelfand

Florida Bar Board Certified:

Real Estate Attorney

Condominium & Planned Development Law

Florida Supreme Court Certified Mediator:

Civil Circuit Court & Civil County Court

Fellow, American College of Real Estate Attorneys

The only thing necessary for the triumph of evil is for good men to do nothing.

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