Condominium and homeowners associations now need to be wary of unit owners who make partial payments on outstanding amounts due. A recent Florida case brings into question when partial payments can be accepted without jeopardizing the association’s rights to the remaining amounts due.
Under Florida law, payments to associations must be applied first to interest, then to late fees, then to attorneys’ fees and costs, and last to delinquent assessments. That procedure is applicable “notwithstanding any restrictive endorsement, designation, or instruction placed on or accompanying a payment.” §§ 718.116(3) & 720.3085(3)(b), Fla. Stat. Previously, this was interpreted to allow associations to accept partial payments without jeopardizing their rights to recover unpaid amounts. Ocean Two Condominium Ass’n v. Kliger, 983 So. 2d 739, 740 (Fla. 3d DCA 2008).
A recent case, however, creates a potential trap for unwary associations. On August 8, 2014, the Second District Court of Appeal concluded that where a check was tendered with a restrictive endorsement that it was “in full and final satisfaction” of a disputed amount, the negotiation of the check constituted satisfaction of the claim. St. Croix Lane Trust v. St. Croix at Pelican Marsh Condominium Ass’n, Inc., --- So. 3d ---, 2014 WL 3882458 (Fla. 2d DCA, August 8, 2014).
In the St. Croix case, the Association was owed over $38,000 when it foreclosed on a unit. In Florida, a purchaser who takes title to a unit, except for a first mortgagee, is jointly and severally responsible to the association for unpaid assessments and costs, together with the prior owner. The St. Croix Trust obtained the unit for $100 at the foreclosure sale, but it disputed responsibility for the amount due to the association prior to the foreclosure. The Trust tendered a check for $840 that plainly stated it was in full and final satisfaction of the Association’s disputed claim, together with aletter to the same effect. The Association’s attorney responded, specifically noting his reliance on the statute and the Ocean Two case, advising that he had instructed his staff “to apply this as a partial payment once it’s received (despite the restrictive endorsement).” The check for $840 was then negotiated.
The Second DCA held that the $840 was full and final payment. It concluded that the statutory language applied only to the formula to be applied when accepting late payments, but it did not override Florida’s statute on “accord and satisfaction by use of instrument.” § 673.3111, Fla. Stat. That statute specifies that a claim is discharged if the instrument (i.e., check) or accompanying communication contains a conspicuous statement that the instrument is tendered in full satisfaction of the claim and the check is cashed. Therefore, the Association lost its claim to over $38,000 and was deemed to have settled for $840.
The Bottom Line: Associations and property managers should be wary and check with your association attorney before depositing a partial payment check that states it is in full payment or full satisfaction of any amount due.