Community Land Trust (CLT) homeownership is an affordable housing model in which a nonprofit organization permanently owns the land while the homeowner owns the structure under a long-term ground lease -- typically 99 years, renewable. This split-ownership model keeps purchase prices affordable by removing the land cost from the equation. Florida CLTs include the Community Land Trust of Palm Beach County, the Delray Beach Community Land Trust, and the Northwest Florida Community Land Trust.
But what happens when a CLT homeowner falls behind on their mortgage? The foreclosure process for a CLT leasehold is different from conventional foreclosure in several important ways. This guide explains how Florida's judicial foreclosure process applies to CLT homes, what the CLT's rights are, and what loss mitigation options are available.
How CLT Mortgages Work in Florida
When you buy a CLT home in Florida, you take out a mortgage on your leasehold interest -- your right to occupy the structure under the ground lease -- not on the land. The lender holds a lien on the leasehold, not on the underlying fee. This is called a leasehold mortgage.
Most Florida CLTs use a ground lease that conforms to Fannie Mae guidelines, including the Fannie Mae Community Land Trust Ground Lease Rider (Form 2100). This rider sets out the requirements lenders must follow when making leasehold loans on CLT properties, including the notice requirements to the CLT if the borrower defaults.
The ground lease typically requires the lender to notify the CLT of any default and give the CLT an opportunity to cure the default or exercise its right of first refusal before the lender proceeds to foreclosure. If you receive a lis pendens on a CLT property, your CLT should also be receiving notice -- but contact the CLT directly to make sure they are aware of your situation.
The CLT Right of First Refusal at Foreclosure
Perhaps the most important CLT-specific protection in a foreclosure is the right of first refusal (ROFR). Most CLT ground leases grant the CLT nonprofit the right to purchase the property at the outstanding loan balance if the lender moves to take title -- whether through a deed in lieu of foreclosure or as real estate owned (REO) after a failed auction.
The ROFR lets the CLT step in, buy the home at the lender's net recovery amount, and resell it to another income-qualified buyer. This preserves the CLT's affordability mission. If you are negotiating a deed in lieu of foreclosure on a CLT property, the servicer should be notifying the CLT simultaneously so the CLT can evaluate whether to exercise the ROFR.
Do Resale Restrictions Survive Florida Foreclosure?
CLT affordability is enforced through resale restrictions -- formulas that cap what you can sell the home for to keep it affordable for the next buyer. These restrictions are typically recorded as deed covenants or incorporated into the ground lease itself.
Under Florida lien priority rules, a foreclosure on the leasehold can extinguish recorded restrictions that are junior to the mortgage. The Fannie Mae CLT Ground Lease Rider addresses this by tying the resale restrictions to the ground lease rather than to the deed alone -- as long as the CLT's ground lease survives, the restrictions survive. This is one reason CLT ground leases are so carefully drafted and why the CLT ROFR is critical: if the CLT can purchase the property before or after the sale, it can reconvey it to a new buyer subject to the full affordability covenant chain.
Loss Mitigation for CLT Homeowners
CLT homeowners have access to the same loan modification and forbearance options as any other Fannie Mae or Freddie Mac borrower. Both agencies have CLT guidelines that recognize leasehold mortgages and permit servicers to offer standard loss mitigation.
When submitting a loss mitigation application on a CLT leasehold, document the ground lease clearly. The servicer needs to understand the split-ownership structure and the CLT's cure rights. A hardship letter for a CLT borrower should note that the property is subject to a CLT ground lease and that the CLT has been notified. If your CLT offers any gap assistance or subordinate financing, disclose that in the modification packet as well.
If you are struggling and your lender is unresponsive, consider applying for forbearance while you work with a HUD-approved housing counselor who has CLT experience.
What Happens to the Ground Lease at Foreclosure
The CLT's fee interest in the land cannot be foreclosed by your mortgage lender, because the lender does not hold a lien on the land -- only on your leasehold. The CLT retains ownership of the land in all foreclosure scenarios.
If the CLT does not exercise its ROFR and a third party purchases your leasehold at the auction, that buyer takes over your ground lease obligations -- including the monthly or annual ground rent and any use restrictions in the lease. The foreclosure auction bidder must understand that they are buying a leasehold, not fee simple ownership, and that the CLT's ground lease terms remain in effect. Informed bidders typically account for the leasehold nature of the title in their bid.
Short Sale and Deed in Lieu on CLT Properties
A short saleon a CLT leasehold is possible but requires coordination between the servicer, the buyer, and the CLT. The buyer must qualify under the CLT's income and resale restrictions, and the CLT's ROFR may give the CLT the ability to match any short sale offer before a third party can close.
A deed in lieu of foreclosure follows a similar path. The servicer takes back the leasehold, and the CLT typically has the ROFR to purchase from the servicer. Coordinate early with both parties to avoid delays.
Florida Homestead Exemption on CLT Homes
Florida's homestead exemption applies to leasehold interests as long as the homeowner uses the property as their primary residence. A CLT homeowner in Florida who occupies the home as their principal residence can claim the $25,000 assessed value reduction (and additional $25,000 for non-school taxes over $50,000) and the Save Our Homes cap on annual assessment increases.
The homestead exemption also provides creditor protections under Florida law, shielding the homestead from most unsecured creditor claims. A mortgage foreclosure is an exception -- a mortgage lender who holds a lien on the leasehold can still foreclose. See our guide on Florida homestead exemption and foreclosure for details on what the exemption does and does not protect.
Surplus Funds After a CLT Foreclosure Auction
If the foreclosure auction on a CLT leasehold produces a winning bid above the total judgment amount, the excess is surplus under Florida Statute 45.032. Because the CLT owns the land (not you), surplus funds belong to the leasehold owner of record -- typically the homeowner borrower. You would need to file a timely surplus funds claim within 60 days of the sale. The CLT, as the land owner, does not receive surplus funds from a leasehold foreclosure auction.
Barrett Henry: REMAX Collective, 23+ Years of Florida Experience
Barrett Henry is a Broker Associate at REMAX Collective with more than 23 years of experience helping Florida homeowners facing foreclosure. CLT homeownership involves unique legal and financial considerations that require careful coordination with the CLT nonprofit, your mortgage servicer, and a real estate professional who understands leasehold title. Barrett can help you understand your options and connect you with the right resources.
Tampa Bay homeowners receive direct service; homeowners across all 67 Florida counties receive referrals to qualified local professionals. Contact us today for a free, confidential consultation.
Related Resources
- Florida Foreclosure Process -- step-by-step guide to judicial foreclosure in Florida
- Loan Modification in Florida -- how to apply and what income documentation you need
- Forbearance in Florida -- temporarily pausing payments while you stabilize finances
- Short Sale in Florida -- selling for less than you owe as an alternative to foreclosure
- Deed in Lieu of Foreclosure -- voluntarily transferring the property to the lender
- Florida Foreclosure Surplus Funds -- how to claim money left over after the auction
- Florida Foreclosure Auction Bidder Registration Guide -- how to register and bid at online county auctions
- Florida Homestead Exemption and Foreclosure -- what homestead protects and what it does not
- Florida ADU and Foreclosure -- how accessory dwelling units affect mortgages and tenants
- Hardship Letter Template -- how to write a hardship letter for your servicer
