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Condo News Online Special Features Page

Rembaum's

Association

Chronicle

By Jeffrey A. Rembaum, Esq.

Last Updated 01/06/2012

The Community Association News 

That You Can Use!

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(12-28-11)

New Mediation Requirements to Usher in the New Year

In a few short days, the year 2012 will arrive. By now, our entire nation has felt the impact of the mortgage foreclosure crisis. We have learned that the situation was far more grave than we were initially led to believe. Meanwhile, the cost of living continues to rise, while long standing benefits and income levels decrease. Will 2012 be another doom and gloom year? I sure hope not!

While not making headline news yet, there may be reason for hope that the worst of the real estate crisis is over. Maybe, developers will begin construction for homes in new and existing community associations while shrewd investors continue bargain hunting. There sure are some great real estate bargains out there.

It would be great if December’s good will and cheer lasted all year. It always seems around the middle of January that the well runs dry. When it does, there are two changes to court ordered mandatory mediation that every association board member should know.

The first comes to us from a December 19, 2011 Order from the Florida Supreme Court and is limited to lender foreclosure litigation. By way of background, a statewide managed mediation program for residential mortgage foreclosure cases began in 2009. The program was created to help alleviate the overcrowded court dockets caused by the residential foreclosure crisis and the mortgage litigation that followed in its wake. The Court determined "it cannot justify continuation of the program." Nevertheless, cases already referred to the foreclosure mediation program remain subject to its requirements. No new cases will be referred. This foreclosure mediation program that was recently abolished should not be confused with the mediation that regularly occurs during litigation ... which brings us to the second change you should know about.

Effective January 1, 2012, the Florida Rules of Civil Procedure require all parties attending mediation to take the following action in writing at least 10 days prior to the date of the mediation: 1) identify who will appear on behalf of the association, and 2) those attending must certify they have actual settlement authority.

On January 1, Rule 1.720 of the Florida Rules of Civil Procedure, will provide, in relevant part, that "a ‘party representative having full authority to settle’ shall mean the final decision maker with respect to all issues presented by the case who has the legal capacity to execute a binding settlement agreement on behalf of the party. Nothing herein shall be deemed to require any party or party representative who appears at a mediation conference in compliance with this rule to enter into a settlement agreement ... unless otherwise stipulated by the parties, each party, 10 days prior to appearing at a mediation conference, shall file with the court and serve all parties a written notice identifying the person or persons who will be attending the mediation conference as a party representative or as an insurance carrier representative, and confirming that those persons have settlement authority."

In plain English, this means that the board must provide its representative(s) attending the mediation with settlement authority without the need for further ratification and approval at a subsequent board meeting. Depending upon how this modified rule of Florida Civil Procedure is implemented and interpreted, it could require a majority of the board to attend the mediation so that the settlement can be approved right then and there. Alternatively, since there is an obligation to settle, perhaps it will be sufficient for the association’s representative attending the mediation to have full settlement authority subject only to "certain limits not to exceed" as decided by the board in advance of the mediation.

May your new year be filled with happiness and prosperity.

 

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(12-14-11)

The Importance of a Word

In this week’s column we will examine two new court cases. The first case addresses an association’s obligation to enforce its own covenants. In the second case, we will revisit "blanket receiverships". See if you can find the common theme before you get to the end.

On December 7, in Heath v. Bear Island, the Fourth District Court of Appeal held that an association did not have a duty to take legal action to enforce its own declaration. However, it is extremely important to understand the rationale behind the court’s decision. In this case, a member sued their association claiming certain members made major changes and improvements to their unit that were made without first seeking the association’s approval, and that the association had a duty, but failed to act.

In finding that the association had no such duty, the court noted that the declaration provided that the association "...may, but shall not be required to seek enforcement of the declaration." In this instance, it was the plain language of the declaration that explicitly made enforcement, as the court stated "a purely discretionary decision on the part of the association." It would be interesting to see how the same court would rule in the absence of such language in the declaration.

Changing subjects, did you know that in the past there were two different types of courts: a "court of law" and a "court of equity." Now, the same court wears both hats. The court of law refers to the court that focuses its attention on the laws created by society. The court of equity is reserved for those instances where there is no law on point, and the court is within its discretion to apply principles of equity to right a wrong. In brief, a court is not free to apply principles of equity when there is a law on point.

On November 23, in Metro – Dade Investments v. Granada Lakes Villas, the Second District Court of Appeal reaffirmed the trial court’s equitable right to appoint a receiver. In this case, an owner of 55 of 248 condominium units sued the association seeking an appointment of a receiver to manage the affairs of the association.

Initially, the trial court ruled in favor of the defendant association and concluded that certain parts of the Condominium and Not For Profit Act, Chapters 718 and 617, Florida Statutes, respectively, prevented the trial court’s ability to appoint a receiver. However, and thankfully, the appellate court held that, while Chapters 718 and 617 provided for certain situations where a receiver may (there’s that permissive word again) be appointed, they are not the only situations. In other words, it does not mean that those situations described in Chapters 718 and 617 are the only situations where the trial court can appoint a receiver. This information can be extremely helpful, especially to an association seeking an appointment of a "blanket receiver."

The request of an association for the appointment of a "blanket receiver" is typically made when an association is experiencing significantly high association assessment delinquencies and where such units remain mostly vacant. With the appointment of the blanket receiver, the receiver can have court granted authority to lease those units in an effort to offset the association’s assessment shortfalls. It is good to know from the prior case that the trial court is well within its jurisdictional limits to permit the appointment of a blanket receiver.

The common theme is the power of the word "may." Always remember that "may" means that you might or might not. Comparatively, the word "shall" creates a duty and means that you "must."

 

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(11-30-11)

The Effect of The Issuance of a Tax Deed on Delinquent Assessments

What do community associations and local governments have in common? They can both foreclose your property for failure to pay assessments/taxes. Tax liens are a county’s best enforcement mechanism to collect delinquent property taxes. By way of background, once an owner becomes sufficiently delinquent in the payment of property taxes, the property becomes subject to a tax lien which may ultimately be foreclosed by applying for a tax deed. The county sells the liens to the lowest bidder who agrees to pay the back taxes that are due and who will charge the property owner the least amount of interest.

If taxes are not timely paid, then in the year following the year for which the taxes were due, tax lien certificates may be sold by the county tax collector of the county in which the real property is located. The tax certificates are sold to the person who will pay the outstanding taxes, interest, costs, and charges and will demand the lowest rate of interest from the owner of the property. Once the tax certificate is sold, the owner of the property has two years in which to pay the owner of the tax certificate the amounts due. If the property owner does not reimburse the owner of the tax certificate, then the owner of tax certificate can apply to convert it into an actual deed.

The application for a tax deed by the holder of the tax certificate cannot be made sooner than two years after the purchase and resulting issuance of the tax certificate. These two years are provided by law to allow the taxpayer the opportunity to redeem the tax certificate. Interestingly, once the tax lien certificate is acquired, its owner is prohibited from contacting the owner of the property for at least two years. You should note that even Florida homestead protection will not protect an owner from losing their property due to delinquent taxes. Most other liens get wiped out in the process.

Except as otherwise provided by Florida law, specifically Chapter 197, Florida Statutes, "no right, interest restriction, or other covenant shall survive" the issuance of a tax deed, except for the lien of record held by a municipal and county government unit special taxing district, or community development District shall survive. Even mortgages generally do not survive the issuance of a tax deed (of course, this does not mean that an individual’s liability for the "note" was extinguished). Importantly, community association liens are extinguished by issuance of the tax deed.

However, while the association’s lien maybe extinguished, the restrictions and covenants as set forth in the declaration still survive. Chapter 720, the Homeowners’ Association Act, provides that the declaration of covenants shall be enforceable after issuance of a tax deed. The issuance of a tax deed does not extinguish the association’s future ability to record liens against the property. The same holds true for condominium associations, too. Because an association can record future liens against the property, an interesting question arises as to whether an association may record a lien for assessments which became due prior to the issuance of a tax if the association had not recorded its lien prior to the issuance of the tax deed. While it is likely that all assessments that came due prior to the issuance of the tax deed will be extinguished by operation of law, there might be room to test the boundaries of the tax deed issuance. As is always the case, small facts can have a huge impact on legal analysis. Always consult with your association’s lawyer before taking action.

 

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(11-16-11)

The Florida Power of Attorney Act

Did you know that the Florida Power of Attorney Act, Chapter 709 Florida Statutes, underwent a major overhaul this year? While its obvious these changes are more likely to have an impact on your estate plan, they can also impact your community association.

For example, there are times that an association member will grant a power of attorney to a family member, friend, or even their lawyer to deal with their association matters. In determining whether the holder of the power of attorney acquired the necessary authority to act for the association member, the "powers" provision of the power of attorney instrument would have to be carefully reviewed to ensure the holder possesses the requisite authority to act for the member. As you are about to read, the power of attorney instrument must provide this specific power.

Primarily the new legislation applies to those powers of attorney created by an individual (not a company or other entity) and can include those already in effect as well as those created on or after the effective date of the legislation. In addition, these changes do not affect proxies used for voting.

The power of attorney instrument must specify the authority that the agent can exercise. No longer can an agent rely on general powers type language that provides broad nonspecific type authority to the agent. So, for example, language in a power of attorney instrument that grants full power and authority to the agent "to exercise or perform any act, power, duty, right or obligation whatsoever" would be largely ineffective. The revised legislation now requires extreme specificity as to which powers the agent can exercise on the grantor’s behalf (with two limited exceptions which pertain to investment transactions and banking matters).

With this in mind, let’s examine the situation where an unknown person shows up at the association’s annual meeting with the power of attorney and says that they are representing a member for purposes of the annual meeting. Unless the power of attorney specifically provides the right of the holder to attend the meeting and act on behalf of the member in that context, then the power of attorney is likely not valid for such purpose.

Execution of the power of attorney form itself is also of paramount importance. Both a durable power of attorney and a non-durable power of attorney that is used to convey real property requires two witnesses and a notary to be a valid instrument.

Your agent, the person who holds your power of attorney, now has certain mandatory duties, too. For example, your agent must not act in a manner contrary to your known desires and they have a duty to keep adequate records.

These changes to Florida’s Power of Attorney Act are the subject of all day seminars. Clearly there isn’t sufficient room in this column to explain all of the nuances regarding the new legislation. Thus, what you should glean from today’s column are:

1) The holder of the power of attorney that plans on attending an association meeting, must ensure the power of attorney instrument contains specific powers to attend the meeting and act for the member. A "general powers" clause is not sufficient.

2) If your estate plan includes a power of attorney instrument, you should seek consultation with your lawyer to discuss any implications that may result from these new laws.

 

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(11-2-11)

Yes, its true and no, your eyes do not deceive you. The name of this informative column has changed. Thank you to everyone who offered their suggestions, and most especially to Ms. Tiffany Jackson from Bristol Management Services whose suggestion was just perfect.

Recently, an inquiry from a reader asked whether condominium board meetings to discuss personnel matters are subject to the otherwise required board meeting notice requirements, and if minutes must be taken during the meeting? It was suggested that because the new laws that went into effect on July 1, 2011 provide that such meetings are "privileged meetings", meaning that only board members can attend, that the usual meeting notice and the taking of minutes were not required.

This new law is set out in section 718.112, Florida Statutes and provides, "Notwithstanding any other law, the requirement that board meetings and committee meetings be open to the unit owners does not apply to: a) Meetings between the board or a committee and the association’s attorney, with respect to proposed or pending litigation, if the meeting is held for the purpose of seeking or rendering legal advice; or b) Board meetings held for the purpose of discussing personnel matters (the underline part is the new text).

It is much too early to have any definitive case law to answer these inquires. Therefore, common sense shall prevail. There is no reason why such board meetings should not should be subject to the standard board meeting notice requirements. Had the drafters of the new laws desired to provide an exemption from posting the meeting notice or for the taking of minutes, then such information could have been included in the new laws. It wasn’t. Therefore, such meetings still require the posting of the meeting notice and agenda and thus include the date, time, place, of the meeting along with the agenda, too.

Like any other board meeting, the notice should be posted forty-eight hours in advance. In addition, until the law is amended or the courts tell us otherwise, the minutes should be taken, too. However, such minutes should remain sequestered with other privileged records of the association. Even if the taking of minutes was not so required, its always smart to keep a record to prove that the board exercised its reasonable business judgment. The same is true for homeowner associations, too.

If you have topics for future articles please email them to jeffrembaum@gmail.com

 

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(10-19-11)

Do Association Committee Meetings Require Notice?

The question of whether association committee meetings are subject to the same meeting notice requirements as board meetings comes up more often than you might expect. In large part, the answer depends on what is being discussed at the meeting. The answer is also slightly different for condominium associations as compared to homeowners associations.

As to condominium associations, meetings of a committee to take final action on behalf of the board or make recommendations to the board regarding the association’s budget are always subject to meeting notice and posting requirements and CANNOT be exempted. However, meetings of a condominium association committee that do not take final action on behalf of the board or make recommendations to the board regarding the association’s budget can be exempted from the mandatory notice requirements ONLY IF those meetings are exempted from the meeting notice requirements in the association’s bylaws. Before you ask, "No, having the exemption in the declaration of condominium or the articles of incorporation does not count!"

Homeowners’ association committees have slightly different committee meeting notice requirements. HOA meetings of any association committee or other similar body must adhere to the meeting notice and posting requirements when a final decision will be made regarding the expenditure of association funds. Also meetings of any homeowner association body vested with the power to approve or disapprove architectural decisions with respect to a specific parcel of residential property owned by a member of the community, must be similarly noticed.

With all of this great information as our backdrop, let’s turn our attention to the required meeting notices. In general, as to condominium associations, adequate notice is required for all board meetings and committee meetings and such notice is required to be posted in a conspicuous place in the community at least 48 hours in advance of the meeting, except in an emergency. However, written notice of any meeting at which non-emergency special assessments, or rules regarding unit use, will be considered must be mailed, delivered, or electronically transmitted to the unit owners and be posted in a conspicuous place on the condominium property at least 14 days before the meeting. Remember, that as to the latter, the person providing the notice must complete the "affidavit of mailing."

Again, there are subtle, but nevertheless important, distinctions for homeowner associations. HOA’s must post notice of all board meetings as well as for non-exempt committee meetings. In this instance, notice of all board meetings must be posted in a conspicuous place in the community at least 48 hours in advance, except in an emergency. Written notice of any meeting at which special assessments will be considered, or at which rules regarding parcel use will be considered must be mailed, delivered, or electronically transmitted to the members and parcel owners and be posted in a conspicuous place on the property at least 14 days before the meeting. Again remember, that as to the latter, the person providing the notice must complete the "affidavit of mailing."

Remember, too, that all items to be discussed at any meeting for which notice is required, must be identified in the posted notice.

 

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(10-5-11)

Marketable Record Title Act – 

Friend or Foe?

Kids look forward to being 18....they get more freedom and fewer restrictions. In a strange way, it’s a good analogy to explain the effect of Florida’s Marketable Record Title Act, Chapter 712, Florida Statutes, (a/k/a "MRTA"). Like the 18 year old teenager, land that is subjected to recorded restrictions and covenants recorded at least 30 years ago are free and clear of such restrictions and covenants except for those which are otherwise preserved by law. MRTA prevents property from being over burdened with restrictions.

MRTA was enacted by the Florida legislature in 1963. Its purpose is to terminate covenants and restrictions recorded against properties that are older than the "root of title," for example a deed that was recorded at least 30 years ago. If the covenant at issue was recorded prior to the "root of title," then unless the covenant is lawfully preserved or unless it fits neatly into a statutory exception, the covenant is no longer enforceable and like the teenager, the land is now free of restrictions. Explained even simpler, covenants recorded against properties that are older than the "root of title" are extinguished unless they meet an exception, are preserved, or after expiration, revived. Rather than MRTA, perhaps this Act should be called the "terminator."

Does MRTA mean a homeowners’ association declaration of covenants and restrictions can begin to expire, on a lot by lot basis, after 30 years from the recording of the declaration? You bet it does. But, this same logic does not apply to extinguish the covenants are a part of the declaration of condominium. Like vampires (it is October), the covenants in a declaration of condominium continue to live on. This is because one of the exceptions to MRTA includes the situation where a deed must reference the official record book and page of the declaration as recorded in the county’s records to describe the property. Think of it this way, a condo unit exists only by virtue of the declaration of condominium. Without a reference back to the declaration of condominium there is no way to legally describe the unit being sold. Therefore, because this scenario is one of the statutory exceptions to MRTA, its "terminating" effect has no relevance for those who own condo units.

However, homeowner associations and commercial associations are not so lucky as their covenants can and sometimes do expire (but no earlier than 30 years after the recording of the declaration). Here’s why: a deed for pretty much everything but a condominium unit legally describes the real estate being transferred as either a platted lot or by meets and bounds. A declaration of covenants is not needed to create the lot being sold because the lot exists independent of the recorded declaration. But to sell a unit in a condominium, you first have to create the unit through the recording of the declaration of condominium. It is that instrument that lawfully and magically converts air space into a transferable property interest that you think of as your "unit." The condominium unit only exists as a result of the prior recording of the declaration of condominium that caused the "unit" to spring into life. Without it, there is no condo and no condo unit to sell. Now you understand why the condo declaration is itself a title document, too. Right? Whew!

As to homeowner association, commercial association, and other non-condo association covenants, they can all begin to expire as early as 30 years after the date they are initially recorded. But, there IS a mechanism to preserve and prevent them from being extinguished, and it’s far simpler than trying to reinstate them after MRTA took hold and terminated them.

It is impossible to fully explain all of the nuances of MRTA in this short column, so just remember this: if your non-condominium declaration is 28 years old (within 2 years of being recorded 30 years ago), then start planning now to preserve the covenants. If your non-condominium covenants are 29 years old or older (and are thus within one year of being 30 years old), then you must call your attorney ... yesterday!

[Ahem, what are you waiting for?]

 

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(9-21-11)

Material Alterations

(No, this does not refer to hemming your slacks!)

Recently, several readers inquired about the legal concept referred to as a "material alteration" which was best defined in 1971 by the Fourth District Court of Appeals in the seminal case, Sterling Village v. Breitenbach. In this case, the court examined whether the installation of glass jealousy windows on a screened lanai constituted a material alteration of the common elements. The court provided an excellent, clear and concise definition, when it explained that "the term ‘material alteration or addition’ means to palpably or perceptively vary or change the form, shape, elements or specifications of a building from its original design or plan, or existing condition, in such a manner as to appreciably affect or influence its functions, use or appearance."

The Condominium Act requires the affirmative vote of 75% of the members to approve material alterations of the common elements absent specific language set out in the association’s declaration to the contrary. The purpose of these provisions requiring an affirmative vote of the members prior to making material alterations, is to protect the members from board action, where the unanticipated changes could dramatically affect the cost and/or enjoyment associated with home ownership within a community association.

A board should never try to clothe a material alteration as maintenance." In the past, courts have held that replacing a concrete tennis court with clay, changing roof products from cedar to terra-cotta, changing the color scheme of building, and redecorating a lobby, all constituted a material alteration of the common elements for which the requisite vote of the owners was required. Material alterations also include the removal of an existing amenity such as a gazebo, as compared to maintaining and replacing it at the conclusion of its useful life.

Nevertheless, at times the courts appear to support a board’s decision to make what might otherwise be considered a material alteration, without the necessary affirmative vote of the members where the material alteration is reasonably necessary to protect the common elements or safety of the owners. For example in 1984, the Second District Court of Appeal, in Cotrell v. Thorton, held that the board had the right to extend the height of the seawall because it was necessary to protect the common elements from erosion and storm damage. In another case, the Florida Division of Condominium held that where the board installed a security fence without the vote of the owners, such activity did not constitute a material alteration because the fence was shown to be necessary to protect the safety of the association’s members where the association had established a history of criminal activity.

Other cases where the courts seem to sometimes, but not always, support a board’s right to make material alterations without the vote of the owners, is where the board justifies its alteration by asserting the material alteration at issue is necessary due to existing construction comprised of sub-standard materials. For example, in 1998 the Florida Division of Condominiums held in Krietman v. Decoplage Condominium Association, that a board’s decision to replace acoustical ceiling tiles with drywall and replace ceramic floor tiles with marble was allowed where the drywall was shown to be more effective and durable, and the ceramic tiles were below present standards. In other cases, the result was contrary and a vote of the owners was required. When it comes to a board’s decision to make material alterations based on a better product, as yet there is no bright line test to determine whether the better product can be substituted without triggering a prior need for owner approval.

Each time a board makes material alterations to its common elements, careful consideration must be paid to whether a vote of the owners is required. In fact, the starting point for any board faced with such decisions should include that such changes are, in fact, material alterations. At a minimum, the board should seek competent legal advice so that it can exercise its reasonable business judgment to make an informed and well reasoned decision.

 

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(9-7-11)

Who Pays Association Attorney Fees Resulting From a First Mortgagee Foreclosure?

Are association attorneys’ fees incurred during a first mortgagee lender’s foreclosure action collectible from that lender after it acquires title to a unit as a result of its foreclosure lawsuit?

While probably not, it is likely you have heard at least once, about how a first mortgagee lender paid not only the "Safe Harbor", but the association’s attorney’s fees that it incurred, too. It is also likely that it is not for the reasons you might expect.

As to condominium associations, Section 716.116(6)(a), Florida Statutes, provides that:

"The association may bring an action in its name to foreclose a lien for assessments in the manner a mortgage of real property is foreclosed and may also bring an action to recover a money judgment for the unpaid assessments without waiving any claim of lien. The association is entitled to recover its reasonable attorney’s fees incurred in either a lien foreclosure action or an action to recover a money judgment for unpaid assessments."

From this language, the legislature made it very clear that the association can recover attorney fees incurred during the association’s assessment foreclosure action. Noticeably, similar language is missing from the law that describe a first mortgagee lender’s liability for assessments incurred prior to acquisition of title in favor of the lender which it obtained as a result of its own first mortgage foreclosure. In this regard, Section 718.116(1)(b), Florida Statutes, provides,

"The liability of a first mortgagee... who acquires title to a unit by foreclosure or by deed in lieu of foreclosure for the unpaid assessments that became due before the mortgagee’s acquisition of title is limited to the lesser of: (a) the unit’s unpaid common expenses and regular periodic assessments which accrued or came due during the [past] 12 months...; or (b) one percent of the original mortgage debt..."

(We refer to this as the "Safe Harbor".)

By way of the simplest of explanations, associations argue that since the law does not provide that the association is prohibited from collecting the attorney’s fees, it can. Bank lawyers argue that had the legislature wanted to provide that right to associations, it would have said so in the law. Since the law provides that an association can collect its attorney’s fees incurred when the association is foreclosing, but does not provide this clear right to associations when the first mortgagee lender is foreclosing, the first mortgagee banks argue that they are not responsible for the association’s attorney’s fees that were incurred during the bank’s foreclosure.

On January 4, 2010, in Brown Bark v. Torres, a federal decision from the Southern District of Florida where the first mortgagee lender foreclosed its mortgage against a unit owner in a condominium association, the court held that the provisions in the law that require the payment of attorney fees to the association apply "when an association itself brings a lien foreclosure action or an action to recover a money judgment for unpaid assessments."

So, why at times do lenders pay the association’s attorney’s fees when paying their "safe harbor" obligation? Perhaps, it is because some do not know better? Perhaps, it is because the amount of fees demanded are far less than the hourly rates of the lender’s attorney needed to contest the claim? Perhaps, it is because the Torres decision discusses some, but not all of the arguments that an association can assert in its efforts to collect their attorney’s fees?

What is clear is that if, by chance, a person of influence in our State’s legislature is reading this, they can remedy this situation by adding some language to existing law to clarify the successful first mortgagee lender’s "ancillary assessment obligations," after acquiring title to a unit as a result of its foreclosure.

A legislative remedy would be a benefit to everyone in the State. Remember, lawyers are advocates. If there is an opening or loophole we are liable to use it to our client’s advantage. Clarifying this law will lessen attorney’s fees for everyone. Lenders and associations alike will be able to quantify the monies owed by the first mortgagee lender’s who acquire title as a result of their mortgage foreclosure.

Oh, never mind, that would make too much sense.

 

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(8-24-11)

Lender Payment of Assessments During Foreclosure

Never underestimate the United States bankruptcy courts. As a much younger lawyer, I was amazed to learn that in a bankruptcy proceeding, rather than requiring a process server to serve the complaint upon the defendants, a debtor-plaintiff can actually serve their complaint upon the creditor-defendants by U.S. First Class Mail! Yes, the bankruptcy court is full of surprises. A bankruptcy court might even be able help fix the unfixable, unanswerable problem: How can an association require a first mortgagee lender to pay assessments during the lender’s own self-stalled foreclosure?

If you’re following recent developments in the foreclosure courts, you already know that many lenders have stopped their foreclosures cold because they have no confidence in their very own mortgage documents. Apparently, with the securitization of mortgage backed securities, "Wall Street" failed to keep track of the actual mortgage documents. For analogy, imagine the paperwork that evidences each residential mortgage as a stack of paper six inches high. Imagine how many six inch stacks of paper can fit into a semi-trailer. Now imagine each semi-trailer full to the brim with these six inch stacks. Remember, each six inch stack represents only one mortgage. Think of the loaded semi-trailer as the hard asset upon which each mortgage backed security was created; one semi-trailer for each mortgage backed security that was created. With that in mind, imagine that the semi-trailer representing only one of seemingly countless mortgage backed securities, is bought and sold multiple times each day to multiple investors from all over world…every day for several years. What happened to the semi-trailers? Where are all of those loan documents that together comprise the mortgage backed security?

Recently, "60 Minutes" suggested that hundreds of thousands of loan documents were re-created by companies outsourced by our Nation’s largest lending institutions. These re-created documents are nothing more than forgeries. Any lawyer who knowingly forecloses a debtor based on fraudulent documents commits a fraud on the court, not to mention exposing their client to significant liability. Meanwhile, associations, large and small, suffer from a continued lack of assessment revenue from these stalled foreclosures.

For a time, upon proper motion, the trial courts were ordering stalling lenders to either move their foreclosures along or pay assessments. On appeal, the appellate courts reversed. Primarily, they held that where a remedy at law exists, the trial courts could not create equitable relief for associations. With that in mind, how can the lender ever be responsible to pay assessments before it finally acquires title to the property?

The answer, pending the financial strength of your association, might be a bankruptcy to reorganize the debts of the association. In these situations, a Chapter 11 bankruptcy might just be what the doctor ordered. Not only does it provide the restructuring of existing debts, but it allows the federal bankruptcy court to do what the state courts cannot. Specifically, under Federal bankruptcy law, the court can order the secured creditor (in this case, the lender whose mortgage is secured by the property) to pay a "surcharge" during the reorganization.

As recently discussed in the very recent United States, Southern District Bankruptcy Court decision, In re the Spa at Sunset Isles Condominium Association, the Federal bankruptcy "surcharge" can be implemented to require a lienholder (the lender) to be charged with the reasonable costs and expenses incurred by the debtor (the association) to preserve or dispose of the lienholder’s collateral to the extent that the lienholder derives a benefit as a result.

The lender had argued that any order requiring it pay the "surcharge" was improper because state law had already prohibited requiring the lender to pay towards the upkeep of the property prior to the time it acquires title to the property as a result of its own foreclosure. The Bankruptcy Court looked to Article VI, of the United States Constitution, the Supremacy Clause, which provides that the laws of the United States "shall be the supreme law of the land and the judges in every state shall be bound thereby, anything in the Constitution or Laws of any state to the contrary notwithstanding." The Court required the lender to pay their pro rata share of preserving the association’s common elements.

Not every association is a candidate for a Chapter 11 bankruptcy. Pending the number of foreclosures in your community, the financial shortfall created by the debt, the association’s cash on hand, the ability of the association to pay its debts, etc., a Chapter 11 Bankruptcy may or may not be appropriate. Clearly, the necessary first step is consultation between the board and qualified bankruptcy counsel.

 

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(8-10-11)

Don’t Believe Everything You Read!

Every year, after the legislative session is concluded, it is always an adventure to see how various "bills" were tweaked along their way to becoming laws. Drafting legislation is a process in which the bill’s author must not maintain any pride of authorship whatsoever. For example, often a bill’s text is tweaked when Senate and House bills are combined, each needing to leave their unique mark. This year’s 2011 community association legislation is no exception, and as a result, both the Condominium and Homeowners Association Acts now provide that "an association, or its successor or assignee, that acquires title to a unit through the foreclosure of its lien for assessments is not liable for any unpaid assessments, late fees, interest, or reasonable attorney’s fees and costs that came due before the association’s acquisition of title in favor of any other association, as defined in s. 718.103(2) or s. 720.301(9), which holds a superior lien interest on the unit. This subparagraph is intended to clarify existing law."

Before we examine how this law can affect your association, let’s first take a peak at how the new law actually "clarifies existing law". Remember learning not to believe everything you read? Well, it’s true! There is no chance this new law is a clarification of existing law because there is no existing law addressing this subject matter in the first place!!! Nevertheless, let’s apply the new law to a hypothetical situation that will soon likely mirror real life events.

Let’s say Daniel Debtor lives in a sub-association community that has a master association, too, and that Daniel is behind in his assessment obligations to both the sub-association in the amount $3,000.00, and to the master association in the amount of $2,500.00. Both associations send Daniel Debtor the statutorily required notice of intent to record a lien and notice of intent to foreclose the lien. Not only was the master association’s declaration recorded before the sub-association, but the master association recorded its lien against Daniel’s property one month before the sub-association. As fate would have it, the sub-association decides to foreclose, acquires title to the home, and leases it out to Timmy Tenant for $500.00 per month. Shortly after the sub-association acquired ownership of the home, the lender begins its own foreclosure and as a result, around one year later, Betty Buyer purchases the home during the court ordered auction. What does Betty owe to the master association?

Betty Buyer will only have to pay assessments that remain due to the master association from the date the sub-association acquired the title. As a result of the new law, the master association’s prior assessment debt against this lot (through the date the sub-association acquired title) is wiped out because the sub-association along with its successors in title, no longer have liability to pay the master association’s assessment arrearage. Title to the home passes from the sub-association to Betty through a "clerk’s deed" because she was the successful bidder at the lender’s court ordered auction. Thus, Betty Buyer is a "successor" in title to the sub-association. Applying the new law, the master association’s prior lien that secured its assessments owed is completely wiped out through the date the sub-association acquired title. WHAT WAS THAT…HUH?

That’s right! Based on this new law, the association that first acquired title wipes out any other association’s assessment lien through the date of acquisition of title without regard to the actual lien priority. What was that you ask? You believe that this sparkling new law actually retroactively impairs existing contracting rights? Well, at its very core, every "declaration" is a contract between the community and each homeowner. In addition many declarations have language that provides that a recorded lien dates back to the day of recording of the declaration itself! There even already exist other statutes that address lien priority, too. Does this mean, similar to the application of the "safe harbor" statutes that define a lender’s assessment liability, that this new law only applies to declarations recorded after the effective date of the new law? Could be.

Remember, Timmy Tenant? During the year it owned the home, the sub-association leased it to him. Timmy is a tenant and not a "successor or assignee" to the sub-association’s acquisition of title. With that in mind, can the master association make demand upon the sub-association’s tenant to pay the rent to master association? A most excellent question indeed! Until the courts provide guidance or the legislature amends this new law, we’ll all be well advised to watch this one closely. Stay tuned…..

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(7-27-11)

CONTRACTS

a few gentle reminders for your consideration (pun intended)

There are times the ol’ adage, "you can pay me now or you can pay me more later" really rings true. When it comes to needing a lawyer’s assistance after the contract is executed by the parties all too often, it is true. Once the finger pointing starts, the manager is instructed to involve the lawyer. All to often, the lawyer then discovers their client entered into a contract that she or he did not even know about. To make matters worse, the contract has terms that clearly favor the other side. Here are a few tips to consider before your association executes its next contract.

In regard to a contract for construction type services, did the association engage an engineer or other requisite professional to prepare a bid package for the association to provide to multiple potential vendors? If not, it is difficult, if not impossible to compare apples to apples.

Did the vendor provide the contract they want to use or did the association provide the vendor their contract prepared by the lawyer? Take it from someone on the inside, it is typically less costly to have the lawyer provide a contract for the association to present to the vendor, than to have to re-draft and negotiate the vendor’s already preferred contract. Experience dictates that there is typically a reason why the vendor wantsto use "their" contract. Likely, that is the same reason the association might want to think twice before using it. Of course, there are times that the vendor’s version is the only contract that can be initially used such as cable and direct TV service contracts. But, remember, even these contracts can be negotiated to one degree or another.

Does the contract provide for a designated association and contractor representative to coordinate the association’s flow of instructions and communication to the vendor? Doing so, can serve to not only create meaningful relationships, but can importantly prevent cost over runs, conflicting instructions and overall job site confusion as to who is to do what and when.

Does the contract provide for proof of insurance and workers compensation coverage? Is a "performance bond" warranted under the circumstances? Should it be? A performance bond is a simple concept. In essence, insurance is purchased so that if certain circumstances prevent the selected contractor from completing their contractual obligations, the performance bond is activated to ensure the project is completed.

What is the term of the contract? Is it terminable "for cause" or "without cause"? If it is the former, then what does the term "for cause" actually mean? The last thing you want to see as the reviewing attorney, is a contract that is terminable "for cause" and no guidance within the four corners of the contract as what that means. Rest assured, that if a definition is not provided and the contract is terminated "for cause", the Trier of Fact, be it judge or jury, will have to likely determine whether such cause actually existed. Depending on the result, this might not be what you expected when "rolling the dice".

Does the contract provide for a singular term with two automatic renewals or a singular term with options to renew? Which is better depends on many factors not limited to the overall scope of the contract, and material costs. In the context of multi-year contracts, the ability of the association to remember, say in four years that if the association does not want the contract to renew automatically, it must actually take definitive steps to ensure it does not do so can be often overlooked until its too late and yet another renewal period is triggered. Four years can be a lot of time especially with the board changing each year. Add to that a change in management, and that contract the members wanted to terminate could easily be overlooked.

Did the entire board have the opportunity to review the contract prior to the board meeting? If not, why not? Any member of the board has the right to request that they receive the board meeting materials for review prior to the designated meeting time and place. How long in advance depends upon the complexity of the matters at hand and volume of materials that correlate to it. Does your association have a binder or word file that details each of its contracts, when they expire, and when and how they renew or terminate? If not, make one and look at it every quarter, if not each month.

Hopefully, after the contract is executed, everything happens according to the contract. In the event of a contract dispute and litigation follows, even if the association prevails, rarely is "happiness" the result. That said, the happier client will almost certainly be the one that consulted with their lawyer prior to execution. We end, where we began… with another adage of course: "an ounce of prevention is worth a pound of cure"; and it sure is less expensive, too!

 

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(7-13-11)

Treat Others as You Wish to be Treated

On November 16, 2010, in Alley v. Les Chateaux Condominium Association, Inc., the U.S. Federal Court for the Middle District of Florida denied the defendants’ motions to dismiss served in response to a unit owner’s lawsuit which she filed to protect her continued right to utilize her golf cart as a "reasonable accommodation" that is necessary to ensure an equal opportunity for a disabled person to use and enjoy their dwelling.

In 2003, while living in Ohio, Ms. Alley was diagnosed with a paralyzed diaphragm and a thyroid disorder. About a year later, Ms. Alley and her husband relocated to Florida at her doctor’s recommendation. The Alley’s purchased a condominium unit in Les Chateaux Condominiums which is in a large campus with facilities located at significant distances from each other and from Ms. Alley’s condominium unit. During her interview, the Board approved Ms. Alley’s request to use a golf cart on the premises on the basis it was needed as a reasonable accommodation for a recognized disability.

In October, 2008, Ms. Alley received a letter from the newly-elected President of the Board of Directors threatening to remove the golf cart if updated medical documentation was not received within 30 days. While Ms. Alley provided the Board with the updated medical report, she alleged the association did not re-approve her use of the golf cart.

On January 5, 2009, Ms. Alley filed a complaint with the Pinellas County Office of Human Rights, the local agency that investigates complaints of housing discrimination, alleging discrimination based on handicap or disability. They agreed and filed a Determination of Reasonable Cause and Charge of Discrimination against defendants, alleging a violation of the Federal Fair Housing Act.

As a part of her lawsuit, Ms. Alley asserted that the condominium association failed to respond to her request for the reasonable accommodation of a golf cart, thereby denying her request. In addition, Ms. Alley asserted that following the receipt of the demand for further medical documentation she became the victim of harassment and threats. Ultimately, she sued the condominium association, its management company, and the individual board members for: i) violation of the Florida and Federal Fair Housing Acts; ii) injunctive and declaratory relief for violation of both Fair Housing Acts; and iii) retaliation under both Fair Housing Acts. In response, the defendants filed motions to dismiss Ms. Alley’s claims for failure to state a claim upon which relief may be granted.

In ruling on the defendants’ motions to dismiss the court recognized that to prevail under the FHA, Ms. Alley must establish that i) she is disabled or handicapped within the meaning of the FHA, ii) that she requested a reasonable accommodation, iii) that such accommodation was necessary to afford her an opportunity to use and enjoy her dwelling, and iv) the defendants refused to make the requested accommodation." Remember, an individual is handicapped, for the purposes of the Fair Housing Act, if he or she i) has a physical or mental impairment which substantially limits one or more of such person’s major life activities, ii) has a record of such impairment, or iii) is regarded as having such an impairment. The Court noted that Ms. Alley had correctly pled the necessary elements to survive the motions to dismiss filed by the defendants and thus the case continued along. In considering the motion, the court looked to another case where the defendant allowed the plaintiff to use a ramp for 20 years and then refused to have it replaced when it was stolen which supported the allegation that the defendant acted intentionally to preclude the ultimate enjoyment of their dwelling in violation of the Fair Housing Act.

Had the defendants truly treated Ms. Alley the way any of us would similarly wish to be treated, it is doubtful that you would have just read this gentle reminder to do just that.

 

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(6-29-11)

The 2011 Legislative Update  & Some News for Homeowner Associations

Spoiler alert! On June 21, Governor Scott affixed his signature to House Bill 1195 and yet another new law was born (actually, it was a whole bunch of new laws.). As much as I would like to, within the constrained space of this column it is impossible to discuss the entire 2011 legislative update as it affects community associations. Of course as time permits, many of its subjects will be addressed in upcoming columns. Read below to learn how you can receive your own copy of "Rembaum’s Association Roundup, The 2011 Legislative Update." Since we last discussed HB 1195’s effect on condominium associations, let’s take a sneak peak at how, at least in a couple regards, these new laws affect homeowners associations.

Use Right Suspensions: Homeowner associations are now treated similar to condominium associations in that neither are required to provide 14 days hearing notice to appear in front of a committee for use right suspensions so long as the use right suspension is the result a member’s delinquency that is greater than 90 days past due. Therefore, without the need to appear before a committee and without the previously required 14 days notice, use right suspensions for failing to pay delinquent monetary obligations which are more than 90 days past due may be levied BY THE BOARD at a properly noticed meeting without a need for a committee hearing. Upon board approval, the use right suspension is not in effect until the association first mails or hand delivers notice of the suspension notice to the parcel owner, and if applicable its occupants, licensees and invitees. All use right suspensions and voting suspensions end by operation of law upon the Association’s receipt of the full payment due.

Without regard to language in the declaration, a homeowners association may suspend voting rights of a parcel owner or member for the nonpayment of any monetary obligation that is more than 90 days delinquent. A voting interest or consent right allocated to an owner or member which has been suspended by the association may not be counted towards the total number of voting interests necessary to constitute a quorum, the number of voting interests required to conduct an election, or the number of voting interests required to approve an action pursuant to the condominium act, the declaration, articles or bylaws. If the voting suspension is levied by the board for failing to pay a monetary obligation that is greater than 90 days past due, then 14 days notice and a hearing in front of a committee is not required. Notwithstanding, all voting suspensions must be approved by the board at a properly noticed board meeting and are not effective until the association provides notice by mail or hand delivery to the parcel’s owner, and if applicable the parcel’s occupant, licensee, or invitee

A person who is greater than 90 days delinquent in the payment of a monetary obligation to the association is not eligible for board membership. A person who has been convicted of a felony is not eligible for board membership if their civil rights have not been restored for at least five years prior as of the date the person seeks election to the board. Previous board action is not invalidated if it is later discovered that the person was ineligible to serve on the board.

In an effort to provide a substantive and far more complete review, "Rembaum’s Association Roundup, The 2011 Legislative Update" will soon be available. It explains many of this year’s new laws most likely to affect community associations. To download your complimentary copy, please send an email request to associationroundup@siegfriedlaw.com with only these following words in the subject line: "2011 update." It may be a couple of weeks before the link is active and before you receive your electronic copy, or it could be sooner. Before taking action on any of the new laws, remember to first discuss your intent with the association’s lawyer. Often, there are finer nuances of which you should be aware.

 

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(6-15-11)

Florida Friendly Landscaping

In a chat room conversation, two owners were debating whether Florida’s xeriscaping law applied to their association. One owner believed that since their HOA’s declaration was recorded prior to the effective date of the legislation, it did not apply; that owner was wrong. It applies without regard to when the declaration was recorded.

As we experience this season’s drought, all you need to do is canoe along the Loxahatchee River (or look out the car window in some places), to see its unusually shallow depth as roots once covered with water now lay bear. Lake Okeechobee is so low that it can no longer spill into the canals that feed some of our local reservoirs. Xeriscaping’s goals are to conserve water, protect the environment and still create a visually appealing yard. Albeit, beauty is in the eyes of the beholder. The term "Xeriscape" originated in Denver, Co., during a drought in the early 1980s. In our great State, we refer to is as "Florida-friendly landscaping" as governed by Chapter 373, Florida Statutes.

Florida-friendly landscaping is defined in Section 373.185, Florida Statutes, to mean "quality landscapes that conserve water, protect the environment, are adaptable to local conditions, and are drought tolerant. The principles of such landscaping include planting the right plant in the right place, efficient watering, appropriate fertilization, mulching, attraction of wildlife, responsible management of yard pests, recycling yard waste, reduction of stormwater runoff, and waterfront protection. Additional components include practices such as landscape planning and design, soil analysis, the appropriate use of solid waste compost, minimizing the use of irrigation, and proper maintenance."

As applied to all residential community associations, the law also provides that a "deed restriction or covenant may not prohibit or be enforced to prohibit any property owner from implementing Florida-friendly landscaping on his or her land…" Even local governments cannot interfere. Local government ordinances cannot prohibit, or be enforced to prohibit any property owner from implementing Florida-friendly landscaping on their land.

The reason why the homeowner above was incorrect is because of the text in the statute that makes the law retroactive. The law provides that conserving and protecting the state’s water resources is a "compelling public interest" and "that the participation of homeowners’ associations and local governments is essential to the state’s efforts in water conservation and water quality protection and restoration." When government relies on its "police powers" (a/k/a to protect the health, safety, and welfare of our citizens), then the law in question applies without regard to the otherwise necessary "impairment of existing contract" analysis. (Remember, The Grand Condominium v. Cohn from a few weeks back?) The competing interests of an association’s well-dratted architectural guidelines which provide for Florida friendly landscaping alternatives, as contrasted against an owners’ request to plant a beach front cactus garden should prove interesting.

On a completely different note, every now and then a case comes along too interesting not to share. As I was catching up on some reading this past weekend, I came across this gem from the Florida Division of Arbitration Division. In "Domaine Delray Condominium Association v. Koylan", a 2010 decision, the arbitrator held that the unit owner and his son must stop the following activities: i) littering on the common elements, ii) screaming in their unit, iii) yelling at board members, iv) allowing transients from staying in the unit, v) appearing nude in the common elements, vi) digging up sod on the common elements, vii) using the pool to wash their pots and pans, viii) leaving the association water running, ix) to cease maintaining unsanitary conditions in their unit, x) covering the windows with prohibited materials, xi) creating disturbances that required police and fire department to visit the condominium. Events like this remind me how lucky most of are, and how much I enjoy living in my quiet HOA.

 

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(6-1-11)

Parking Spaces, the ADA, and Reasonable Accommodations

Not too long ago, I was asked by one our readers whether their condominium association was required to exchange an owner’s long ago developer assigned parking space for a guest parking space that is regularly used by other disabled individuals where the parking space in question is located near the front entrance, and the requested exchange was based on the owner’s physical disability. Let’s assume for today’s discussion that there is no question whatsoever that the physical disability is, in fact, real, and that it is verified by physicians licensed to practice medicine in the State of Florida, etc. Notwithstanding, the previous developer assignment of the parking spaces, if there is a space available, then more than likely, the association would need to honor the request.

Not too long ago, the United States First Circuit Appellate Court, re-affirmed that the Puerto Rico condominium act does trump the Federal Fair Housing Act. In, Astralis Condominium Association v. Secretary, United States Department of Housing and Urban Development, on behalf of Carlos Garcia-Guillen, No. 09-2497, 09-2589, U.S. App. Ct., 1st Circuit, Sept. 16, 2010, this U.S. appeals court denied a condominium association’s request for judicial review of an order from HUD that granted handicapped parking spaces to disabled condominium owners and this affirmed the lower ruling.

The Astralis condominium association maintained a large number of unallocated parking spaces, including 10 handicapped spaces. Two of the handicapped spaces were located 45 feet from the entrance to the complainants’ unit. Under the condominium governing documents, the unallocated parking spaces are time-limited and are common elements to be used by residents and visitors on a first-come, first-served basis.

The complainant unit owners both suffered from a physical disability. In 2006, they requested that the association grant them the exclusive use of the two handicapped parking spaces nearest their unit. After several attempts to reach an agreement with the board, they began to occasionally use the nearby handicapped parking spaces without authorization and without regard to the time limits. Because their use violated the association’s parking policy, security guards cited them for the infractions. The unit owners filed a complaint with HUD. In 2008, HUD filed a charge of discrimination pursuant to the Fair Housing Amendments Act of 1988.

Following a hearing on the matter, the administrative law judge from HUD found that the association had violated federal law by refusing to grant a reasonable accommodation and by unlawfully retaliating against the complainants. The judge directed that the complainants receive exclusive use of the two handicapped parking spaces at issue in exchange for the originally assigned parking spaces they owned. In addition, money damages were awarded, and the association was enjoined from further interfering. The association petitioned for judicial review, and HUD cross-appealed for enforcement of the order. On behalf of the Unit Owner’s, HUD prevailed.

Federal law prohibits discriminatory housing practices based on a person’s handicap and is drafted to prevent: disparate treatment; disparate impact; and failure to make reasonable accommodation. To establish a prima facie case of failure to grant a reasonable accommodation under the "Act", a person must show that he is handicapped within the purview of the Americans with Disabilities Act and that the party charged knew or should have known of thier handicap. Next, they must show that they requested a particular accommodation that is both reasonable and necessary to allow them an equal opportunity to use and enjoy their home. Lastly, they must show that the party charged refused to make the requested accommodation.

The association argued that the administrative judge’s order was improper because sinmilar to Florida, Puerto Rico condominium law has specific prerequisites for the transfer of common elements in condominium developments. Under Puerto Rico’s condominium law, the transfer of common elements after construction of the property requires the unanimous consent of the condominium owners. The Appellate Court held that even though this provision could conceivably be construed to preclude compliance, the association was duty bound NOT to enforce a statutory provision if doing so would cause unlawful discrimination and thus upheld the prior ruling.

With that in mind, what if there were three guest spaces by the front doors and ten requests for transfer of those spaces? What if a disabled unit owner habitually parks in the guest space because the association refuses to transfer parking space? What if in that same scenario there are more requests than available parking spaces? What if it’s a mixed use condominium with both residential and commercial units and the requested exchange would result in the parking lot no longer complying with local zoning and land use ordinances? Well, welcome to my world…

Remember, to always be guided by doing what is right under the circumstances.

 

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(5-18-11)

2011 LEGISLATION

The 2011 legislative session has ended. While there are more than a few bills affecting community association’s that are waiting for the governor’s seal of approval or veto, the one with the most impact to community associations is House Bill 1195. It is to this legislation we turn our attention today and for the next several weeks. Many changes were made in this Bill to Chapters 718 (the Condominium Act), 719 (the Cooperative Act) and Chapter 720 (the Homeowner’s Association Act) that are more grammatical than substantive in nature. For example, where prior legislation provided that "nothing contained herein shall apply", it now reads "This paragraph does not apply to…" or the word "before" is used in place of "preceding." These changes evidence an attempt to provide more clarity. Only time will tell. In any event where such changes are made that do not effect, intent or application of the provision, then such changes will not be addressed herein. This is the first part of a multi-part series on the legislative 2011 changes IF and only if they actually become law.

633.0215 Fire Prevention Code

A condominium, cooperative, or other multifamily residential building that is less than four stories in height and has an exterior corridor for egress is exempt from the requirement to install a manual fire alarm system. Simply, this change adds a floor to the exemption. In the past the limit was two stories, now it’s three. Also, the new revised law now applies far more broadly than its predecessor that only applied to condominiums.

As To Condominium Associations

718.111 Bylaws

The Condominium Act now requires the Association to obtain facsimile numbers in addition to email addresses for those members who opt to receive electronic meeting notices. If a unit owner opts to receive electronic notices, then the email and fax number are subject to disclosure upon receipt of an official record request. Though the information still comprises a part of the official records but was not provided because the unit owner opted in to receive electronic notice, then the records are not subject to disclosure in response to another owner’s official record request. But, there is no penalty if the association inadvertently provides the information. Lest there be any doubt, this means accidental disclosure.

The attorney client privilege exception continues to include records prepared for litigation and is now broadened to include records prepared in "anticipation of litigation" as compared to the requirement that such litigation was "imminent civil or criminal" litigation.

Other records of the association that are not subject to disclosure as a result of an official records request include management company employee records and written agreements with an employee or management company, or budgets, or financial records that indicate the compensation paid to an employee. Clarification is provided to grant immunity to an association who inadvertently provides unit owner information so long as the owner voluntarily provided the information and it was not requested by the association.

718.112 Bylaws

Agenda meeting notices must "identify all" agenda items.

A candidate running for the board MUST be eligible to serve at the time of submitting their notice of intent to run. In effect, this means that board candidates must be current in their assessments 40 days prior to the annual meeting where the election will take place as that is the deadline by which a candidate must submit their intent to run form.

The requirement for board member certification within 90 days of election or appointment to the board by written certification that the board member read the association’s declaration, articles, bylaws and written polices, will work towards upholding such documents and policies to the best of their ability and that they will faithfully discharge their fiduciary duty to the association or by taking the Division of Condominium approved class, now includes that the division approved class can be taken up to one year in advance and that the class not be re-taken so long as the director remains in continuous board service.

718.113 Hurricane Protection

It is now codified that in addition to hurricane shutters, that upon approval of a majority of the voting interests of the association, impact glass or other code compliant windows can be installed and maintained by the association.

 

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(5-4-11)

NEW DEFENSE TO AN ASSOCIATION ASSESSMENT FORECLOSURE

For some time now an association assessment debtor was precluded from arguing that their failure to pay assessments which led to their association’s foreclosure of the debtor’s unit (or lot) was due to the association’s failure to maintain the common areas. In other words, an owners failure to pay assessments could not be justified on the basis of the association’s failure to perform its duties. In far simpler terms, the courts have held that the ol’ "tit for tat" argument was not sufficient to avoid paying assessments. In 1987, in the case of Abbey Park HOA v. Bowen, the 4th District Court of Appeal held just that.

In this seminal case, Bowen failed to pay her monthly assessments which resulted in Abbey Park HOA filing an action to foreclose its claim of lien against Bowen. In response, Bowen filed an answer, affirmative defense and counterclaim. The affirmative defense asserted that Bowen was not liable for the assessments because Abbey Park failed to maintain the common elements as per the declaration of covenants. The counterclaim sought a mandatory permanent injunction to compel Abbey Park to maintain the common elements and damages for Abbey Park’s alleged breach of the declaration. In reliance on an earlier 1980 4th DCA opinion, Sandles v. Sheridan Lakes, the 4th DCA held that the affirmative defense of failure to maintain the common elements "is inadequate as a matter of law." Since then, courts have routinely held that an associations failure to maintain common elements is not a viable excuse to avoid paying assessments.

Fast forward to a brand new decision, E. Qualcomm v. Global, issued April 27, 2011: In this very recent 4th DCA case where the Court’s opinion is still wet on the page and the parties still have time to appeal, the assessment debtors alleged as an affirmative defense that their association failed to maintain the common areas and that as a result the owner was entitled to a "set-off". The owner also raised a counter claim for the association’s alleged failure to maintain the common areas. You’re right if you think this sounds familiar to the Abbey Park case. So why did the 4th DCA reverse the trial court’s summary judgment ruling entered in favor of the plaintiff/association? Some might argue that this new case eviscerates Abbey Park. Whoaa… slow down!

The E. Qualcomm v. Global holding is not at all contrary to the long standing principal that a counter claim for failure to maintain common areas is not a viable defense to an association assessment foreclosure. In this recent case, while it is true the appellate court reversed the summary judgments that were granted by the trial court in favor of the Association as to 1) possible damages due to the defendant as a result of the counter claim and 2) the Association’s assessment foreclosure, the appellate court did not reverse the assessment foreclosure summary judgment because the association failed to maintain the common areas. Rather, it did so because the association had not properly refuted the set off counter claim used as an affirmative defense.

The Court did not even mention its own prior holding in the seminal case, Abbey Park. Perhaps the court didn’t do so because it wasn’t necessary. Here, the appellate court reversed the partial summary judgment of foreclosure in favor of the association because it found the association had not properly refuted them. Maybe if the Association had argued the rationale of Abbey Park during its summary judgment hearing, or if it did so, then if the trial court had included a detailed discussion of the effect of Abbey Park in its resulting Order, at least the partial summary judgment of foreclosure entered on behalf of the Association would have survived? In any event, during the appeal, the defendant paid its assessment deficiency. The debtor’s decision to pay the back assessments due and owing could also be the reason why the appellate court did not rely on its prior Abbey Park decision…. It did not have to as the issue was mooted by the debtor’s payment (or, could it be the result of the lawyer who initially lost the trial court portion of the Abbey Park case is now a sitting judge on the 4th DCA?). Sadly, this also means that we’ll never get the needed clarity and this case will, no doubt, be misconstrued to mean something contrary to what it actually does mean. Nevertheless, the decision does highlight yet another reason for the association to properly maintain the common areas/elements.

 

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(4-6-11)

You Spoke, the Legislature Listened!

THE GOOD NEWS: About two weeks ago, House Bill 5005 contained language that would have deregulated the licensure of community association managers and dismantled the "Arbitration Section" of the Division of Condominiums where so many disputes are affordably resolved. Association lawyers, lobbyists, managers, and boards asked their clients and members to contact their legislators to request that this objectionable language be removed. Your efforts paid off! I am pleased to report that while pending HB 5005 may become law and in so doing, a great many professions may no longer be regulated, the language regarding managers and the arbitration section was removed from the bill.

THE BAD NEWS: Also about two weeks ago, the Department of Justice’s recent amendment to the rules defining "service animals" under the ADA went into effect. The new definition is much narrower and eliminated almost all other pets from qualifying as "service animals," but for dogs. Most noteworthy, it excluded dogs requested for emotional support. If you attended one of my recent condominium board certification seminars, then you know the other permitted pet, albeit in certain circumstances, is a miniature horse (true, but don’t ask...).

On February 17, 2011, the U.S. Department of Housing and Urban Development issued a memo to its Office of Fair Housing and Equal Opportunity Regional Directors that the impact of this new Rule, is not applicable to the Fair Housing Act or to Section 504 of the Rehabilitation Act of 1974. The author of the memo noted that, "the preambles to the new rules state that emotional support animals do not qualify as service animals under the ADA but may ‘nevertheless qualify as permitted reasonable accommodations for persons with disabilities under the Fair Housing Act.’"

The new ADA definition only applies to state and local government services, public accommodations, and commercial facilities. Meanwhile, the broader Fair Housing Act, to which the new ADA definition does not apply, pertains to "housing" such as condominium and housing associations. To clarify, in this context, the requested emotional support animal is not limited to just dogs (or for that matter miniature horses, too).

Therefore, in order to qualify for a reasonable accommodation, the person requesting the right to a service animal must provide evidence of their disability defined generally as "a physical or mental impairment that substantially limits a major life activity." The service animal must be reasonably necessary to afford the disabled person an equal opportunity to use and enjoy a dwelling or to participate in their dwelling. Importantly, there must also be a relationship, or nexus, between the person’s disability and the assistance or service that the animal provides.

JUST THE NEWS: A recent case that affects community associations was published by the Florida Supreme Court, Cohn v. the Grand Condominium Association. This case deals with the application of new legislation on an already existing and recorded declaration of condominium. Do not be misled into believing that this new case means that all newly enacted legislation does not apply to your association. All that the Florida Supreme Court did was to re-confirm that there are certain sacrosanct rights that cannot be modified or extinguished through new legislation. In this important, but not at all ground breaking case, the Court held that "voting rights" could not be altered by later adopted legislation. That is consistent with the term with which you may already be familiar, "Kaufman language." More on this topic coming soon... Stay tuned....

 

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(3-23-11)

2011 Legislative Alert: In Peril

If passed into law, House Bill 5005 (HB 5005) will affect EVERY COMMUNITY ASSOCIATION in the State of Florida.

This proposed legislation will terminate the condominium arbitration program and deregulate licensed community association managers. HB 5005 repeals Part VIII of Chapter 468 of the Florida Statutes which governs the licensure and regulation of Community Association Managers and management firms as well as the Regulatory Council of Community Association Managers. The community association management licensure requirements ensure a level of competency in the profession of community association management. HB 5005 also deletes Section 718.1255 Florida Statutes which would terminate the Division of Condominium’s Arbitration Section. The Division of Condominium Arbitration Section provides a cost effective means of having certain disputes heard.

HB 5005 started out as the result of Governor Scott’s mandate to review all state regulations ostensibly in an effort to curtail legislative spending. In response, the Florida House of Representatives Business and Consumer Affairs Committee drafted Proposed Committee Bill BCAS 11-01 (now HB 5005) that deregulates the State’s ability to regulate a great number of professions, not just community association managers and the Division of Condominium Arbitration Section.

If the Arbitration Section is dismantled, it is not known at this time whether the "door tax" that each condominium association pays to the Division each year would continue to be assessed. The "door tax" is approximately $4.00 per unit and often leads to a surplus that is spent by the legislature on other budget items. Thus, legislation designed to save taxpayers money will do the opposite in so far as it relates to the Division of Condominium. If the "door tax" is eliminated, then the Proposed Committee Bill is even less thought out than initially imagined. If the "door tax" is not eliminated, and the Arbitration Section is dismantled, then where is the excess revenue being spent?

The Arbitration Section provides unit owners and associations with a far less expensive alternative to filing a lawsuit in circuit court. The Arbitration Section provides jurisdiction over improper meeting notices, the failure of a board to take or not take action when required to do so, official record inspection disputes, and condominium and homeowners association election and recall disputes. In an already over crowded court system, how is a community association or unit owner to obtain appropriate, and timely relief?

Licensed community association managers play a valuable role in the administration and operation of community associations. Ensuring that managers are licensed means that, at a minimum, your community benefits from the services of a manager who had been trained in the State of Florida’s community association regime ... with State statutes regulating a great many activities that take place within a community association. To name just a few: meeting notices, board member elections, official record requests, assessment calculations, material alteration issues, insurance special assessments, budgets, etc. If the State is going to continue to regulate community associations, then it has an obligation to ensure there are properly trained managers who can provide the day to day management services required by today’s community association regime.

It was reported that the Community Association Institute explained that deregulation of community association managers would eliminate the consumer protection of the 3.5 million Floridians living in community associations. Moreover, deregulation would jeopardize the protection of the estimated $2.5 billion of annual operating funds and the estimated $2 billion of investment accounts held for long-term maintenance and replacement for community associations in Florida.

To read HB 5005, which sailed though its committee hearings in less than a day and totals 318 pages, type this link into your browser:

http://www.flsenate.gov/Session/Bill/2011/5005/BillText/Filed/PDF.

 

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(3-9-11)

2011 Legislative Process

Ready or not, its time to start discussing the proposed legislation that will affect you condominium or homeowners association. At the moment, there are three "bills" you should know about: Senate Bill 530, Senate Bill 712, and Senate Bill 1516.

By far, Senate Bill 530 is the more comprehensive of the three. It provides the clear right of an association member to provide their consent to their association to give out the member’s email address and facsimile number. Condominium association board meetings held for the purpose of discussing personnel matters would not be open to the unit owners (similar to homeowners associations). Board members can be pre-certified to serve on their condominium board by taking the required certification course up to one year in advance, and once met, the board member certification remains valid during any time the board member continuously serves on the board. A provision is added in Section 718.116 that the association may charge any reasonable expenses for collection services incurred relating to a delinquent account. Partial terminations of the condominium are further addressed. All unit owner suspensions caused by delinquent monetary obligations must occur at a properly notice board meeting. Finally, Part VII of chapter 718 pertaining to bulk purchasers and bulk assignees will receive a much needed overhaul. As to both condominium and homeowner associations payments provided by a tenant to the association, made upon the demand from the association due the landlord/unit owner’s delinquency, shall be applied "the unit owner’s most delinquent monetary obligation."

Senate Bill 1516 provides that in addition to hurricane shutters, a condominium board can, upon a majority vote of the voting interests of the condominium, install impact glass or other code-compliant windows. This bill provides that if the condominium or homeowners association owns a unit as a result of an association foreclosure that the association is NOT jointly and severally liable with the prior owner. This is important to ensure that the subsequent owner remains responsible for the previous amounts due. Regarding homeowners associations, co-owners of a parcel cannot serve at the same time unless there are not enough eligible candidates, a person is more than 90 day delinquent in a monetary obligation would not be eligible to serve, and any convicted felon whose rights have not been restored for at least 5 years is not eligible to serve on the board.

Senate Bill 712 makes patently clear that condominium use right suspensions can include recreational facilities, pools, gyms, meeting rooms, cable television service, internet service, and valet service. Electric and water are added to the types of services that are not permitted to be suspended.

To learn more about each bill visit http://www.flsenate.gov.

 

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(2-23-11)

Accepting less assessments than the amount 

due to facilitate a short sale

Just last week, a unit owner living in a Pinellas County condominium sued his association, it’s board of directors, and the manager for failing to provide access to the association’s records within the statutory designated time frame and is seeking class action certification against them for breach of fiduciary duty. In short, the plaintiff-unit owner accused his board of breaching their fiduciary duty to the association by making decisions outside the context of a properly noticed board meeting which led to acceptance of less than the full amount of assessments that were due and owing in order to facilitate certain short-sales. As a result, the plaintiff alleges, all of the remaining unit owners have had to pay assessments to the association to make up for the board’s improperly made decisions.

It is noteworthy that while the plaintiff squarely alleged that the board failed to discuss the short-sale decisions during properly noticed board meetings, the plaintiff failed to allege whether, or not, the board had the lawful authority to accept anything less than the full amount of the back assessments due. The board’s failure to make these decisions during a properly noticed board meetings, while at issue, is not "THE ISSUE". The failure to render the short sale decisions during properly noticed board meetings can be remedied by ratifying the previously improperly made decisions during a properly noticed board meeting. In fact, doing so would likely lead to rendering this part of the plaintiff’s complaint as, "moot."

"THE ISSUE" not raised in the complaint is whether the condominium board has the lawful authority to accept an amount of assessments less than the full amount due to facilitate a short sale where the association is not a party to actual litigation at the time the decision is rendered. Compare and contrast the following two statutory provisions:

§718.116(9) "No unit owner may be excused from the payment of his or her share of the common expense of a condominium unless all unit owners are likewise proportionately excused from payment..."

§718.111(3) "...the association may ... settle ... actions or hearings in its name on behalf of all unit owners concerning matters of common interest to most or all unit owners..."

The issue not raised in the litigation is one worthy of further consideration. In any event, it is clear that, but for emergencies, all decisions of the board should be made during properly notice board meetings. As to the delicate balance between the two aforementioned statutory provisions, at a minimum, by making the short-sale decisions during properly noticed board meetings, a record, in the form of the minutes, will be created. The minutes will evidence that the decision was made in the correct forum, that the board considered the issues at hand, and exercised it’s reasonable business judgement in deciding to accept, or not accept, anything less than the full amount assessments due and owing. Remember, the condominium association board does not have be "right" as much as it needs to be in a position to evidence that it exercised its reasonable business judgement. Remember, it is far simpler, and less costly, to do things the right way, the first time, every time.

 

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(2-9-11)

Election Time — Let Your Voice Be Heard

Do you have questions that never seem to get answered; are you concerned about the property’s upkeep? There is a sure-fire remedy. Put your time where your mouth is and GET ELECTED TO THE BOARD OF DIRECTORS. (I did.)

Condominium association elections and homeowner association elections have as much in common as a television and a computer. They both let you see the final result, but the similarity ends there.

About condominium association elections: At least 60 days before the scheduled election, the association must provide its unit owners a first notice of the date of the election and the opportunity to run for the board. Any person desiring to be a candidate for the board must give written notice of their intent to be a candidate at least 40 days before the election. A one page letter size information sheet can be furnished by the candidate to the Association at least 35 days before the election. Then, at least 14 days prior to the election, the association must send out the annual meeting and second election notice which includes the agenda, the candidate information sheet(s), and the ballot that lists all candidates along with the inner and outer envelopes, limited proxy if for other meeting issues and a designated voter form. The election is decided by a plurality of the ballots cast. While there is no quorum requirement, at least 20% of the eligible voters must cast a ballot in order to have a valid election of the members of the board. No one can run from the floor. A unit owner may not permit any other person to vote his or her ballot, and any ballots improperly cast are invalid. A properly cast ballot is placed in an inner envelope and the inner envelope is then placed in an outer envelope. The outer envelope must be signed by the designated voter and provide the address and unit number of the designated voter. Proxies cannot be used for voting for a board member.

About homeowner’s association elections: A quorum of at least 30% of the members, in person or by proxy, must be attained to have a valid election. A member can vote by ballot if present at the meeting or by proxy if they cannot attend the annual election. The election requires a 14 day notice, but many such associations provide additional notices to encourage more member participation. Check your governing documents as there may be other requirements for elections set forth therein.

Is there anything in common? In both instances, an election is not required unless more candidates file notices of intent to run or are nominated than board vacancies exist. Also, methods are available to suspend delinquent members from voting.

A final reminder for Condominium Associations: Within 90 days after being elected or appointed to the board, each director must certify in writing to the secretary of the association that they have read the association’s declaration of condominium, articles of incorporation, bylaws, and current written policies; that they will work to uphold such documents and policies to the best of his or her ability; and that he or she will faithfully discharge his or her fiduciary responsibility to the association’s members. In lieu of this written certification, the new director may submit a certificate of satisfactory completion of the educational curriculum administered by a DBPR approved condominium education provider such as, well, this author (me). Please note that a director who fails to timely file the written certification or educational certificate is suspended from the board until he or she complies. The secretary shall cause the association to retain a director’s written certification or educational certificate for inspection by the members for 5 years after a director’s election.

 

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(1-26-11)

Reserves, Reserves, Reserves

It’s election season again and you know what that means, right? If you live in a condominium, then typically at your annual meeting, in addition to the election, the association’s opportunity to vote to waive or reduce reserves takes place, too. Here are a few helpful hints to keep in mind:

Condominium association budgets must include fully funded reserves in their annual budget for each item whose replacement costs are greater than $10,000.00. Each such item is required to have its own line item reserve in the budget, unless the association decides to "pool" their reserves. This means that there is one line item for all items within the "pooled" reserve. Reserves must only be used for their designated purpose unless the unit owners vote to use them for a different purpose. If the unit owners do not vote to waive or reduce the reserves, then, pursuant to state law, the fully funded reserves go into effect.

Reserves should be budgeted based on a straight line method. This means that if the cost to replace the roof is $100,000 and its life is 30 years, the association should include $3,333.33 per year for reserves (100,000 \ 30). If repairs are made that affect the remaining useful life, then the association can take that into account, too. Effective July 1, 2010, the requirement to have a reserve study was deleted from Chapter 718, Florida Statutes, the Condominium Act.

To waive or reduce condominium reserves requires an affirmative vote of the majority of the unit owners at a members’ meeting where a quorum was present. To use condominium reserves for a different purpose other than for which they were accrued or to begin "pooling" reserves, a majority of all unit owners must vote in favor of this change. The requirement that a developer controlled board cannot raise the budget by greater than 115% over the previous year does not, amongst a few other things, include the tabulation of the reserves in the budget calculation that determines whether the increase is greater than 115% over the prior year.

Homeowners’ association reserves are a bit different. There is no requirement that forces an HOA to include reserves in the budget unless the developer initially includes them, or the majority of the entire membership votes in favor of accumulating reserves. Therefore, if your HOA’s budget includes a line item called "reserves" but neither the members voted to accumulate them, nor did the developer initially vote to establish them, then the HOA’s reserves are more akin to a voluntary savings account.

Regardless of whether you live in an HOA or a condominium, it pays to be circumspect as to how your association board presents the choice to waive or reduce the reserves. More often than not, the limited proxy/ ballot provides the choice to fully waive or to reduce by either a certain percentage or by leaving it up to the discretion of the board. Providing more than one choice means that your association is less likely to accomplish either result, and the unintended, but very real result, is that the required votes to pass either option is diluted. If the Board is going to provide the option to waive or reduce, then consider presenting only one option.

Keep in mind that, reserves are forced savings accounts to replace items that have a limited life so that the money is accrued by the time you need to replace the reserved item. While waiving or reducing reserves may seem like it’s saving you money, consider the fairness of the following scenario: Mr. Jones lives in a condominium where reserves are waived year after year. After 20 years of enjoying his home, Mr. Jones moves. Six months later a new roof is required. The result is that Mr. Jones enjoyed the roof for those 20 years and never had to contribute towards the savings for a new roof. Meanwhile, the person that bought his unit is stuck with the special assessment bill!

 

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(1-12-11)

It's that time of year again ... It's Election Season!

It’s January and you know what that means - it’s election season. Let’s take a moment and review the 2010 legislation’s impact.

Remember that as of July 1, 2010, the mandatory condominium board member certification requirement shifted from a pre-election requirement to that of a post-election requirement. In other words, it’s only after you’re elected to the board that you need to comply with the certification requirement.

Once elected or appointed to a condominium board, each board member must, within 90 days of their election or appointment to the board, either i) satisfactorily complete a DBPR Division of Condominium approved board member education class, or ii) certify in writing to their association, via the secretary, that the new board member has read the governing documents and written policies, will work to uphold them, and will faithfully discharge their responsibilities as a member of the board. If the required education certification or certification to the board is not submitted to the association’s secretary within 90 days of the election or appointment, the new director is suspended from board service until they comply. The association is required to maintain the proof of certification for five years.

Regarding staggered terms of the condominium association board, if the bylaws permit staggered terms of not more than 2 years, and so long as they are approved by a majority of the unit owners, then, and only then, do two year staggered terms remain in effect.

In a condominium association of more than 10 units, co-owners of a unit may not serve on the board at the same time unless they own more than one unit or unless there are not sufficient eligible candidates to fill the vacancies on the board at the time of the election.

Condominium board member term limits are still in effect with this caveat: if there are more vacancies than candidates running for the board, then a unit owner who was otherwise term limited can still serve on the board.

As in days gone by, condominium board elections do not require a quorum of the unit owners to hold the election. Rather, at least twenty percent of all eligible voters must cast a ballot in order to have a valid election of the board. On the other hand, a homeowners’ association board election does require a quorum of at least thirty percent of the entire membership to be present in person or by proxy in order to have a valid election of the board, unless an even lower number is provided in the bylaws.

A homeowners’ association election can be held by secret ballot if the governing documents so provide, but voting must be conducted using the inner and outer envelope system similar to the well established condominium election regime. However, unlike condominium elections, a homeowners’ association must always allow owners to run from the floor. Any homeowners’ association board member who is appointed to fill an unexpired term remains in that position until the term expires (as compared to serving until the next annual meeting or election).

 

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(12-15-10)

How to keep your foreclosures on track and moving

Are you sick and tired of lenders who stall their foreclosures? How many lender foreclosures are taking place in your community and how long have they been going on? What are you doing about it? Don’t settle for the wait and see approach. There are some simple strategies your community can use to make sure the lender’s foreclosure leads to a timely sale of the foreclosed property (well more timely, anyway). Today’s article will explain a few strategies to consider.

Setting the lender’s foreclosure case for trial means that the lender will be forced to argue their "Motion for Summary Judgment" where almost all foreclosures are resolved, and where the reward for arguing the successful motion leads the way to the judicial sale. Simply stated, this motion, which must take place before the trial, is where the moving party argues that 1) there are no material facts in dispute, and 2) that the moving party is entitled to judgment as a matter of law. Now, an association can ask the court to set the judicial sale date, too.

Just last Friday, on December 10, 2010, in LR5A-JV, etc. v. Little House, LLC, et. al., the 5th District Court of Appeal held that the Matanzas Shores Owners’ Association, an association in the position of a junior lien holder, could request that the court set the sale date in a mortgage foreclosure case. The Court ruled that the successful senior lien holder does not possess the sole right to control when the judicial sale date is set.

On appeal, the senior lien holder argued that the association, as a junior lien holder, cannot demand that a foreclosure sale date be set, and that the trial court erred as a matter of law in setting the date for the judicial sale. The Association countered that the law vested in the trial court possessed the ultimate authority to order the judicial sale. The Court found in favor of the junior lien holder, which in this instance was an association. It remains to be seen whether the sale could be cancelled if requested by the senior lien holder.

Do not make the mistake of thinking that just because your association did not file an "Answer" to the lender’s foreclosure action that the association does not have the ability to petition the court for various forms of relief. The association can set the trial date once the case is "at issue", meaning once the motions to dismiss are resolved and the "Answers" are filed, it can set the hearing date for the lender’s motion for summary judgment - after a party files their motion; it can petition the court for a blanket receivership; it can also petition the court to appoint a receiver for the specific property being foreclosed; and now it can ask the court to set the sale (auction date) date, too.

I hope you are enjoying this festive holiday season.

 

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(12-1-10)

Christmas Trees, Menorahs, and Red Bows. 

OH MY!

Does your association display holiday symbols or are they religious symbols? Are Christmas trees, Menorahs, Nativity scenes, or the Kikombe cha Umoja (The Unity Cup displayed during Kwanza) religious symbols? Maybe still, the symbol is something totally different, like a big red bow. A few of the issues a Board should consider in displaying such symbols (and in no particular order) are: What are the costs? Is it in the budget? Is it a common expense authorized by the community’s governing documents? Will the display cause a material alteration for which a vote of the owners is required? Is the display a holiday or religious symbol? If the community displays religious symbols, then you’d best be prepared for having opened Pandora’s Box, too.

If the community allows a Christmas tree and Menorah, doesn’t the Board have to allow a Nativity scene and the Ten Commandments, too? Probably not. Luckily we have some guidance from the United States Supreme Court to help us differentiate between symbols. In 1989, in County of Allegheny v. American Civil Liberties Union, the Court held that the determination of whether decorations, including those used to commemorate holidays (which are or have been religious in nature, are religious, or not), turns on whether viewers would perceive the decoration(s) to be an endorsement or disapproval of their individual religious choices. The constitutionality of the object is judged according to the standard of a reasonable observer.

Thus, the Court found that a Christmas tree, by itself, is not a religious symbol; although Christmas trees once carried religious connotations, "Today they typify the secular celebration of Christmas" the Court said. The Court also noted that numerous Americans place Christmas trees in their homes without subscribing to Christian religious beliefs and that Christmas trees are widely viewed as the preeminent secular symbol of the Christmas holiday season.

In contrast, the Court stated that a menorah is a religious symbol that serves to commemorate the miracle of the oil as described in the Talmud. However, the Court continued that the menorah’s significance is not exclusively religious, as it is the primary visual symbol for a holiday that is both secular and religious. When placed next to a Christmas tree, the Court found that the overall effect of the display to recognize Christmas and Chanukah as part of the same winter holiday season, has attained secular status in our society.

As to the Ten Commandments, in a 1980 case, Stone v. Graham, the Supreme Court held that that the Ten Commandments are undeniably religious in nature and that no "recitation of a supposed secular purpose can blind us to that fact." The Court stated that the Commandments do not confine themselves to secular matters (such as honoring ones parents or prohibiting murder), but instead embrace the duties of religious observers.

If a member of your community wants to include their symbol in the association’s holiday display, remember to consider the types of symbols already being displayed by the association as compared to the member’s request. Once your community displays a religious symbol, then there is a good chance your community will need to allow other requested religious symbols to avoid a claim of religious discrimination. Use the guidance from the Supreme Court’s cases to differentiate between a secular symbol and a religious symbol. The rules of kindergarten work best: treat everyone fairly and treat them as you would want to be treated. To do all that is quite simple.

A conservative board would only allow the display of the Tree and Menorah. Even better, and as we do in my community association, we display an oversized, festive, gloriously secular, and quite lovely red bow on each of our entry gates. I look forward to seeing them each year, for then I know holiday cheer is so very near. I can only hope that the groups of us, who will congregate by those gates to share in a holiday brew, are not later accused of holding a religious service. I sure would miss those bows.

Happy Holidays!!!

 

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(11-17-10)

Can we still publish our membership directory?

 

Effective July 1, 2010, in the context of which documents are not subject to a member’s official record request both the Condo and HOA Acts provide that, "Notwithstanding the provisions of this paragraph the following records are not accessible to members or parcel owners: social security numbers, driver’s license numbers, credit card numbers, electronic mailing addresses, telephone numbers, emergency contact information, any addresses for a parcel owner other than as provided for association notice requirements, and other personal identifying information of any person, excluding the person’s name, parcel designation, mailing address, and property address." See 718.111(12) and 720.306 Florida Statutes.

The question is whether these prohibitions only apply to a member’s official record request or is the new provision meant to be interpreted more broadly in light of the phrase, "Notwithstanding the provisions of this paragraph" to mean the association cannot publish the phone numbers and email addresses of its members? If so, you’d best "STOP THE PRESS." Sadly, the answer is anything but clear. Thus, while the community can still publish the directory, to be on the safe side, the phone numbers and email addresses should not be included unless you have the consent of the member to do so.

If you want to publish the phone numbers and email addresses, the association will need to obtain the consent of each member whose phone and/or email address you intend to publish. Alternatively, the association could amend its governing documents to include a provision that membership in the community automatically means that the member consents to having their phone number and email address published. Of course, if the amendment is adopted, before you publish the directory, the association should provide each member the right to opt out. To protect the privacy of the members, the directory should include a disclaimer that it is not for release outside of the community or for solicitation purposes.

The remedy for a violation would most likely be in the nature of injunctive relief. This means the member asks the court to order the association to remove the name and email address. Of course there are prevailing party attorney fees, too. I will leave with this thought to ponder, what if the member’s phone number appears on the entrance gate system? Hmmmmm.

 

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(November 3, 2010)

You want another account statement, AGAIN?

How many times has your association lawyer asked for a unit owner’s revised account statement that shows the past due assessments? There are at least four occasions where a ledger is needed. It is needed to send the initial collection letter informing the owner that if they do not pay a lien, it will be recorded, it is needed when preparing the lien, it is needed when preparing the foreclosure complaint, and it is needed when preparing an estoppel. Often the lawyer is asked, "why do we need to send another one…nothing changed….?" It may be a moderate inconvenience, but it sure is a needed one.

In a 2009 association foreclosure case, the association foreclosed its assessment lien. The final judgment of foreclosure awarded the plaintiff association two special assessments that were not included (pled) in the association’s foreclosure complaint. The defendant appealed to have the two special assessments removed from the judgment and the Fourth District Court of Appeal agreed. The 4th DCA held that the association was not entitled to relief for the special assessments because the association’s lawyer did not include the assessments in its complaint. The failure to plead the two special assessments led to the outcome that the Association was not entitled to them in the court’s judgment of foreclosure. So, the next time your lawyer repeatedly asks for a revised account statement, you can begin to understand why. Remember, if you don’t include the sources of all money to the association, you are not entitled to it as a form of relief in the court’s award.

Has your association set the lenders’ first mortgagee foreclosure cases for trial? Did you even know that the association can do so? Well, once the case is "at issue" any party can set the matter on the court’s trial docket. The term "at issue" means the parties have been served and the defendants have either answered the allegations or a default is entered against them for failing to do so. In a Third District Court of Appeal case, a condominium association sought sanctions against a lender for its lack of diligence in prosecuting its own foreclosure action. As a result, the trial court ordered the lender to diligently proceed within 30 days or pay the unit’s monthly assessments. However, the 3d DCA reversed the trial court. The appellate court held, "Because there was no statutory basis for sanctions, the association’s relief could not be granted and also noted that the association could have set the case for trial but didn’t. The moral of the story is that if your association has units subject to a lender’s first mortgagee foreclosure lawsuit and the case has not yet been set for trial; discuss this with the association’s lawyer.

In May 2010, a condominium association filed a motion to compel a lender to proceed with its foreclosure or begin paying the monthly assessments. The trial court ruled in favor of the association and found that it was fair and equitable for the lender to pay assessments if there was not a good reason for its delay. The lender appealed and the Fourth District Court of Appeal in reversing the trial court ruling held that a first mortgagee is only responsible to pay assessments after acquiring title.

On a different note, the statutory protection in favor of a foreclosing lender that requires them to pay the lesser of 12 months back assessments or 1% of the initial mortgage, whichever is less, only applies to the first mortgagee. If anyone other than the first mortgagee acquires title to the property as the result of the foreclosure action, then such third-party is responsible for 100% of all back assessments due and owing. As a result of the foreclosure sale, if title to the foreclosed property is vested in the name of anyone other than the first mortgagee, then that party is responsible for 100% of all back assessments due and owing.


 

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(October 20, 2010)

Hollywood Comes to a Mortgage Foreclosure Lawsuit Near You

Did you know? A lender has 5 years past the maturity of its note, secured by a mortgage, to foreclose its lien. If a lender chooses not to foreclose its investment, that is its right (or is it)? Have you heard of the foreclosure lawsuit being strangely referred to as the "mortgage terminator"? In this very recent case, the borrower stopped paying its assessments and the association foreclosed its assessment lien while the lender slept. After the association obtained title to the home in its name, the association then filed a lawsuit against the lender and alleged, amongst other things, that the failure of the bank to foreclose was an "unreasonable restraint on alienation (transfer)" and the association won! But, did you know that the lender shared in the victory, too?

There must be a reasonable explanation for this illogical outcome where a lender walked away from its collateral. The home was initially mortgaged for more than its value, the association was the owner as a result of its own assessment foreclosure lawsuit and the home was in need of repair. Along came the "mortgage terminator" lawsuit and the bank simply released their mortgage and walked away. Being in Florida, and using the most technical legal term, the lender "cut bait." The result being, the initial borrower is off the hook, the lender is divested of a toxic asset which they already financially recouped when the Feds purchased over a trillion and a half dollars in mortgage backed securities. The association deservedly ended up owning the unit to fix up and sell or rent. The facts that led to this outcome were extremely unique- a perfect storm. They are not likely to be repeated often.

Have you heard that many lenders are stalling their foreclosure litigation due to their own ineptitude? How many times must community associations suffer the burden of the ailing housing crisis? Home prices continue to drop, interest rates are at an all time low, yet money is hard to find for most of us. Community associations are facing unprecedented financial challenges caused by ever increasing assessment delinquency rates. When a borrower fails to pay their mortgage, most likely they also will avoid paying their assessment obligation, too. Banks are in no hurry whatsoever to push their foreclosures along when weighed against the struggling economy, a continued assessment obligation, and no real ability to sell the property, let alone at any chance of a profit. To top it all off, and as you already now know, the lender already recouped its financial loss when the Feds purchased the mortgage backed securities in an effort to prop up our ailing economy, which was made ill by the effects of the deregulation of the banking system, which directly led to Wall Street’s bundling (bumbling?) and securitization of mortgages.

Should the borrower be entitled to escape their financial liability to the lender merely because in preparing for the mortgage litigation, the lender’s representative failed to take the time to actually review the loan documents? In addition, apparently, the Wall Street geniuses behind the furious sale of bundled mortgages lacked any evidence they understood the logistical requirements for tracking the paper mortgages backing their securities. Now that the bottom has dropped out of the housing market and the banks are foreclosing on properties whose mortgages were used as collateral for investments that went sour, for which the Feds already paid back to Wall Street, we learn of a new wrinkle. In many instances, the lender’s representative, whose job it is to attest and swear to the accuracy of the documents being presented in the foreclosure litigation failed to actually do so. As a result, and at a tremendous cost to community associations, many lenders have stalled their foreclosures to ensure the accuracy of their pleadings. Each lender should be financially responsible for the delay caused by their lack of oversight. As long as there is no reason to suspect actual fraud or wrongdoing in the foreclosure litigation, then the foreclosure should continue. Rarely do you hear of a defendant in a foreclosure action raise as a defense, "Hey, that’s not my mortgage."


 

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2010 Legislative Update

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PART IX: SENATE BILL 1196

(October 6, 2010)

THE IMPACT OF SB 1196

ON CHAPTER 617, THE "NOT-FOR-PROFIT-ACT"

This week’s column is the last part of the formal 2010 legislative update. In today’s column we will take a look at the impact of SB 1196 on Chapter 617, Florida Statutes, a/k/a the "not-for-profit act." All too often the application of this important Chapter is misunderstood. Can you imagine what would happen if a delinquent homeowner could resign their membership in the association to avoid an association assessment lien foreclosure or if a majority of the board could recall one or all the minority based members? Well, the not-for- profit act clearly allows such things to occur. So, it’s a good thing that there are limits on this very important Chapter as it is applied to community associations.

Condominium, homeowner, and cooperative associations are not only subject to their enabling legislation (for example Chapter 718 for condos, Chapter 720 for homeowners’ associations and Chapter 719 for cooperatives), but they are also subject to Chapter 617, Florida Statutes, Florida’s "not-for-profit act." It is the act of "incorporation" that forms a new corporate entity. The new entity is created through the filing of its articles of incorporation. The bylaws provide the organization with its much needed operational guidance. The difference between religious institutions, charities and even hospitals that use Chapter 617 as their enabling legislation and a community association, is that the community association takes the further step of declaration of covenants against the real property for which the not-for-profit community association was formed.

At times, conflict and confusion results from the differences between Chapter 617 and the community association Acts. A simple example is that a Chapter 617 proxy is valid for eleven (11) months while according to the community association Acts, a proxy is valid for ninety (90) days from the date of the meeting for which it was intended. To clear up some of the confusion, I participated in drafting legislation, passed in 2009, which provides that in the event of any conflict between the community association Acts and Chapter 617, then the provisions of the community association Acts have priority.

More specifically, Section 617.1703 Florida Statutes provides that, "In the event of any conflict between the provisions of ‘this chapter’ (referring to Chapter 617) and Chapter 718 regarding condominiums, Chapter 719 regarding cooperatives, Chapter 720 regarding homeowners’ associations, Chapter 721 regarding timeshares, or Chapter 723 regarding mobile home owners’ associations, the provisions of such other chapters shall apply." In addition, the provisions of Sections 617.0605-617.0608 which pertain to transfer of membership interests, resignation of members, termination, expulsion, suspension, and purchase of memberships do not apply to corporations regulated by any of the foregoing chapters or to any other corporation where membership in the corporation is required pursuant to a document recorded in the county property records.

Additional clarification was provided as a result of Senate Bill 1196 which provides that, 1) the provisions of Chapter 617, Florida Statutes, which apply to voting by members, do not apply to a corporation regulated by Chapter 718, 719 or 720, Florida Statutes, 2) the provisions of Chapter 617, Florida Statutes, which apply to removal of directors, do not apply to a corporation regulated by Chapter 718, 719 or 720, Florida Statutes, and 3) the provisions of Chapter 617, Florida Statutes, that apply to access to records do not apply to a corporation regulated by Chapter 718, 719 or 720, Florida Statutes.

Is the application of SB 1196 helping your association, is it is causing your association grief, is there a subject you’d like to see addressed in future columns, do you want to receive your free e-mail version of future articles? If so, please send an email to associaitonroundup@siegfriedlaw.com.

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PART VIII: SENATE BILL 1196

(September 22, 2010)

FINANCIAL REPORTING REQUIREMENTS, SPECIAL ASSESSMENTS AND RESERVES

This week we continue our series on the new laws brought about by Senate Bill 1196, which became effective on July 1, 2010. Today’s column addresses new multi-condominium reserve requirements, new opt-in procedures for accounting reports for condominiums with fewer than 75 units, new requirements to levy a homeowners’ association special assessment and directives to the Division of Condominiums in regard to reserves.

Do you live in a multi-condominium association? If you do, you should know that the Division of Condominiums is required by a mandate set forth in Senate Bill 1196, to adopt new rules setting forth uniform reporting requirements for multi-condominium associations. The new rules must include standards for presenting a summary of association reserves, including a good faith estimate disclosing the annual amount of reserve funds necessary to fully fund each reserve line item based on a straight line accounting method. The disclosure will not apply to reserves funded according to the pooling method.

Do you live in a condominium with fewer than 75 units? If you do, the unit owners can vote to prepare a report of cash receipts and expenditures in lieu of the normally required financial statement. Previously, this was limited to condominium association that governed fewer than 50 units.

A developer controlled homeowners association cannot levy a special assessment if the developer is guaranteeing the budget shortfall unless a majority of the parcel owners other than the developer have approved the special assessment by a majority vote at a duly called meeting of the membership where a quorum is present. What is a developer controlled association to do when during the developer guarantee period the developer fails to pay the association’s financial shortfall? For the time being, it looks like the members will either have to wrestle control of the association from the developer by filing a lawsuit or the developer controlled board will need to amend the budget. In the meantime, the developer controlled board should authorize the association’s lawyer to send a demand letter and commence the steps necessary to record a lien against the developer’s lots within the association.

If homeowners’ association reserve accounts have not been established by the developer or established by a majority vote of the unit owners, the funding of such reserve accounts is limited to the extent that the governing documents limit increases in assessments, including reserves.

If the budget for an existing homeowners’ association does not provide for reserves because such reserve accounts have not been established by the developer or voted upon by a majority of the members, the financial report for the association must include specific disclaimer language as set forth in Chapter 720, the Homeowners’ Association Act. The same is true if the homeowners’ association budget does not provide for funding for deferred expenditures not limited to capital expenditures and deferred maintenance, though the required disclaimer language differs in the case of the latter.

In the next issue of the Association Roundup we will begin wrapping up this multi-part series on the changes brought about by the Florida Legislature’s adoption of Senate Bill 1196. If you want to receive your free e-mail version of future articles please email your request to associationroundup@siegfriedlaw.com to begin receiving the iRoundup. You can opt out at any time.

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PART VII: SENATE BILL 1196

(September 8, 2010)

INSURANCE, FIRE SPRINKLER RETROFITTING AND ELEVATORS

Welcome to part VII of our continued discussion of Senate Bill 1196. As hurricane after hurricane are passing us by, let us take a look at some of the changes to the Condominium Act and their effect on insurance provisions, deductibles, fire sprinkler retrofitting, and elevator safety compliance.

Loss Assessment Coverage: Residential condominium unit owner insurance policies issued on or after July 1, 2010 must include at least $2,000.00 in property loss assessments coverage for all assessments made as a result of the same direct loss to the property. Every individual unit owner’s residential property policy must contain a provision stating that the coverage afforded by the policy is excess over the amount recoverable under any other policy covering the same property.

Force Placement: The law that previously provided the authority to a condominium association to "force place" insurance coverage on unit owners that did not purchase insurance on their unit has been eliminated. If the association wants to force the owner to purchase insurance coverage, then its remedy is to enforce the covenants though the filing of a lawsuit seeking an injunction to compel compliance.

Unit Owner Obligation to Insure Personal Property: Condominium association insurance policies issued on or after January 1, 2009 must exclude all personal property within the unit or limited common elements which are located within the boundaries of the unit and serve only that unit. Such property and any insurance thereupon is the responsibility of the unit owner.

Insurance Appraisal: Condominium association property insurance must be based on the replacement cost of the property to be insured as determined by an independent insurance appraisal, or update of a prior appraisal, and the replacement cost must be determined at least once every 36 months. The meeting notice where the Board will establish the amount of the deductibles, no longer has to include the amount of the proposed deductible, the available funds, the assessment authority relied upon by the Board, and estimate the potential assessment amount against each unit. However, the association should still include the discussion of the deductible as an agenda item.

Fire Sprinkler Retrofit: Unit owners may opt out of retrofitting association common areas with a fire sprinkler system by the affirmative vote of a majority of all voting interests. If an association does not opt out of the fire sprinkler retrofit, the deadline to comply with the otherwise required retrofit has been extended to the end of 2019. A condominium, cooperative or multifamily residential building that is less than four (4) stories in height and has a corridor providing an exterior means of egress is not required to install a manual fire alarm system under the Life Safety Code adopted in the Florida Fire Prevention Code.

Elevators: Elevators in condominiums and multi-family residential buildings with certificates of occupancy issued as of July 1, 2008 are exempt from updating to the Safety Code for Existing Elevators and Escalators, ASME A17.1 and A17.3 requiring modifications for Phase II Firefighters’ Service on existing elevators. The exemption applies for 5 years or until the elevator is replaced or requires major modifications, whichever occurs first. The exemption does not apply to buildings with certificates of occupancy issued after July 1, 2008. Condominiums and multi-family residential buildings may request variances before or after the expiration of the 5 year term.

If you would like to receive the electronic version of "Rembaum’s Association iRoundup" please send an email request to associationroudup@siegfriedlaw.com.

 

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PART VI: SENATE BILL 1196

(August 25, 2010)

TELECOM CONTRACTS & HOA OFFICIAL RECORD REQUESTS (Revisited)

There is a new term to explain the unintended consequences of recently enacted legislation. From now on, to alert you to these issues, the term "Glitch Alert" will be used. It is often said that the definition of a "political camel" is a horse that went through the political sub-committee process (the humps were caused by the political glitches that arose while traveling from sub-committee to sub-committee…just like our laws).

As a general rule, a condominium association can only assess its owners for those expenses authorized by its governing documents and as allowed by statute. This is due to the fact that a condominium exists by virtue of its enabling legislation (yup, you guessed it Chapter 718, Florida Statutes a/k/a the Condominium Act). Until July 1, 2010, the date when the changes from Senate Bill 1196 went into effect, if a condominium association entered into a bulk contract for internet and other telecom services, the association was required to ensure that the expense was permitted by the declaration of condominium as there was no support for the expense within the Condominium Act. This was disguisable from bulk cable expenses, where the expense is statutorily considered a "common expense" and therefore assessable against the unit owners. Good news, with a stroke of the pen the legislature ensured that internet services are also deemed a "common expense."

For those condo associations that want to bring their building into the 21st century, the Florida legislature has made things a bit easier. The cost of communications services as defined by Chapter 202, Florida Statutes, and which includes information services or internet services obtained pursuant to a bulk contract, are now considered "common expenses" of the condominium association. So, in plain English, this means the board has the power to enter into bulk telecom contracts. Remember, the requirements of bidding the project may remain applicable depending on the association’s budget and cost of the service.

GLITCH ALERT: Does the authority of the board to enter into a bulk telecom contract include the right to materially alter the common elements that is necessary to install the new equipment? Typically, unless the declaration of condominium provides otherwise, it takes a vote of 75% of the unit owners to make material alterations. It would only make sense that the right of the board to execute the bulk telecom contract impliedly includes the right to materially alter the common elements. But on the other hand, it can be argued that had the legislature intended this otherwise logical consequence it would have included it in the legislation. Time will tell….

GLITCH ALERT: Several weeks back we discussed a new requirement to Chapter 720, the Homeowners’ Association Act. This change requires a member requesting to inspect the homeowners’ association’s official records make their request via certified mail, return receipt requested in order to create a rebuttable presumption that if the association does not comply with the request within 10 days, that it willfully did so. If the failure to provide the inspection was willful, the association can easily be subjected to a financial penalty. However, a plain reading of the amended legislation clearly suggests that a member could make the written request to the association without sending it certified, return receipt requested. In that event, the association is still required to make the records available within the statutorily required ten days; however, if the association does not comply, it does not create the presumption that the failure to do so was "willful." The homeowners’ association could still have liability for failing to comply with a written request within 10 days, but it is a tougher burden for the requesting member to prove that the association willfully failed to provide the records. So, for the request to have any real teeth, the request should be delivered by certified mail, return receipt requested.

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PART V: SENATE BILL 1196

(August 11, 2010)

CONDOMINIUM ASSOCIATION LENDER LIABILITY FOR ASSESSMENTS and HOA AGREEMENTS

Welcome to part V of our continued discussion of Senate Bill 1196: In this week’s article we’ll address a lender’s revised financial liability for past due condominium assessments when taking title as a result of foreclosure and a homeowners’ association’s ability to enter into agreements to acquire leaseholds, memberships, country clubs, golf courses, marinas, parking areas, and other recreational facilities. The discussion regarding the "glitches" in Senate Bill 1196 must wait a bit longer… so stay on the look out.

Have you heard? What is all this excitement about the new condominium first mortgagee liability all about? I hate to be the bearer of bad news, but it is not the panacea that many believe it to be. In brief, the legislation, effective July 1, 2010 provides that the amount of past due maintenance fees that can be collected when a first mortgagee for a condominium loan acquires title to a unit as a result of its own foreclosure is increased to the lesser of 12 months of past due assessments (up from 6 months) or 1% of the initial mortgage amount. However, it is unlikely that any first mortgagee will be subject to the 12 months, rather than the existing 6 months liability, unless the mortgage was recorded after the effective date of the new legislation, July 1, 2010.

Both the United States of America and State of Florida Constitutions provide prohibitions on Congress’s ability to pass laws that impede existing contracts. Since the declaration is a contract, and the lender is a third party intended beneficiary of the existing contract, the lender has the continued right to rely on the terms of the contract, in this instance, the declaration, that were in existence at the time the lender made its loan. So, in short, most likely, this provision is more a future benefit then a present cash cow. In any event, when you do the math, it is more likely that 1% of the initial mortgage amount will be less than 12 months back assessments.

For those condominium associations that have "Kaufman language" in their declarations prior to the lender recording their mortgages, then you might be able to assert an argument that the new lender liability applies. If your declaration provides that the Declaration is subject to Chapter 718 "as amended" (yup, you guessed - "as amended" = Kaufman language) then the mortgagee (and everyone else in the world) is on notice that the declaration is subject to the legislative changes to Chapter 718. This concept is referred to as "Kaufman language." The term is derived from the name of the case that applied the concept. If your declaration does not contain such language, then the applicable law as applied to your declaration is the law that is in effect at the time the declaration was recorded. Of course, this is true for substantive changes only. Procedural changes apply to every declaration regardless of when the declaration was recorded and regardless of the inclusion of Kaufman language.

On a completely different note, a homeowners’ association may enter into an agreement to acquire leaseholds, memberships, country clubs, golf courses, marinas, parking areas, and other recreational facilities, regardless of whether or not such lands are contiguous to the association. If such agreements are not entered into with 12 months of the initial recording of the declaration, they may only be entered into if authorized by the association as a material alteration or substantial addition to the common areas or association property. If the declaration is silent on the subject, then any such agreement requires the approval of 75% of the total voting interests of the association.

 

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PART IV: SENATE BILL 1196

(July 28, 2010)

OFFICIAL RECORDS and HOA ELECTIONS

Welcome to part IV of our continued discussion of Senate Bill 1196: In prior articles we discussed the association’s right to suspend use of the common elements and common areas for failure of a unit owner or member to pay their assessments, a homeowner association’s right to foreclose fines in excess of $1,000.00, how to collect rent from a tenant whose landlord/ unit owner is not paying assessments, and how the new legislation affects boards of directors, officers and committee members. This week we will review the new official record requirements and, to a lesser degree, homeowner association elections, both of which were effective July 1, 2010.

Regarding condominium associations, a new addition to Chapter 718, the Condominium Act, provides that the association is not responsible for the use or misuse of the information provided in response to an official record request, unless the association has an affirmative duty not to disclose such information pursuant to Chapter 718, Florida Statutes.

A new requirement is added to Chapter 720, the Homeowners’ Association Act, that requires a member requesting to inspect the homeowner association’s official records make their request via certified mail, return receipt requested. So, no more email requests, or requests scribbled on a napkin!

Both condominium and homeowners’ association official records exempt from disclosure now include:

1) Any record protected by the lawyer-client privilege as described in Florida Statute Section 90.502 and any record protected by the work product privilege;

2) Information obtained in connection with the approval of a lease, sale or other transfer of a parcel/unit;

3) Personnel records of association employees, including disciplinary, payroll, health and insurance records;

4) Social security numbers, drivers license numbers, credit card numbers, electronic mailing addresses (a/k/a email addresses), emergency contact information, and any addresses of a parcel/unit owner other than as provided to fulfill the association’s notice requirements, and other personal identifying information of any person, excluding the person’s name, unit/parcel designation, mailing address and property address;

5) Any electronic security measure that is used by the association to safeguard data including passwords; and

6) The software and operating system used by the association which allows manipulation of data, even if the owner owns a copy of the same software used by the association. The data is part of the official record (and subject to inspection).

A few words to the wise: Remember that just because certain records are not subject to inspection, they still comprise a part of the "official records" of the association. Also, plan ahead. It is not a matter if your association will receive a request to review the official records, it’s a matter of "when." With that in mind, create a second folder for each unit/ parcel owner. Place into the new folder just the information that is subject to inspection.

Regarding homeowner associations’ elections and ballots, if the governing documents permit voting by secret ballot by the members not in attendance at a meeting for the election of directors, such ballots must be submitted in an inner and outer envelope in the same manner as a condominium election ballot.

Be sure to read the next issue of the Condo News when this column will re-address: 1) use right suspensions and answer "why can’t we suspend cable," or can we and 2) "can the rent collected from a delinquent unit owner’s tenant be applied to the unit owner’s past due arrearage or only to future monetary obligations, not yet due?" Stay tuned….

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PART III: SENATE BILL 1196

(July 14, 2010)

BOARD MEMBER COMPENSATION, VACANCIES, CERTIFICATION AND ABANDONMENT OF OFFICE.

Welcome to part III of our continued discussion of Senate Bill 1196: In our last two articles we discussed the association’s right to suspend use of the common elements and common areas for failure of a unit owner or member to pay their assessments, a homeowner association’s right to foreclose fines in excess of $1,000.00, how to collect rent from tenants whose landlord, unit owners are not paying their assessments, and an introduction as to how the new legislation affects boards of directors, officers and committee members. This week we continue discussing how the new legislation affects the association’s board, officers, and committees.

Homeowners’ association directors, officers or committee members may not be compensated from the association for the performance of their duties as a director, officer or committee member, and may not benefit financially from their service to the association. That said, this does not preclude reimbursement for out of pocket expenses, insurance proceeds, any fee or compensation authorized in the governing documents, or a developer’s representative from serving on the board and benefitting financially from service to the association.

In a homeowner’s association, unless provided otherwise in the bylaws, a vacancy occurring on the Board before the expiration of a term may be filled by the majority vote of the remaining directors, even if the remaining directors constitute less than a quorum, or if necessary, even by a sole director. Alternatively, the association may hold an election to fill the vacancy.

Regarding condominium associations, an association of more than 10 units, or in a condominium association that does not contain timeshare units or timeshare interests, co-owners of a unit may not serve on the Board at the same time, unless they own more than one unit or, and don’t miss this, there are not enough eligible candidates to fill the vacancies on the Board. That change is significant and is not to be overlooked.

Remember that ill thought of condominium election form that had to be signed in advance of running for the condominium board? You know, the form that acknowledged the prospective board member had read and understood the association’s governing documents? Well, the certification form is no longer required to be mailed to all unit owners with the first notice of annual meeting, and is no longer required to be signed by the candidates running for the board in advance of the election. As a result of the new legislation, the certification form, or a certificate of completion of an educational curriculum administered by a division approved education provider, must be submitted to the association within 90 days of being elected or appointed to the Board. Failure to do so shall result in that Board member being suspended (not permanently removed) from service on the board until he or she complies. The board may temporarily fill the vacancy during the suspension. The certificate or education certificate must be retained by the association for five (5) years.

As mentioned in the last article, a condominium director or officer who is more than 90 days delinquent in the payment of any monetary obligation due to the association shall be deemed to have abandoned the office, creating a vacancy in the office to be filled by law. Previously, only maintenance assessments counted towards the delinquency. Also, the legislation is drafted in such a way that the association has no discretion whatsoever as to whether or not to suspend the delinquent director or officer. Rather, the abandonment of occurs by operation of law commencing on the 91st day of the delinquency. Part IV of our continued discussion will address changes to official record requests, official records protected from disclosure and homeowner association elections.

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PART  II: SENATE BILL 1196

(June 30, 2010)

FLAGPOLES, COLLECTING RENT, & THE ATTORNEY CLIENT PRIVILEGE

Part II of our continued discussion of Senate Bill 1196: In the last edition we addressed the association’s right to suspend use of the common elements and common areas for failure of a unit owner or member to pay their assessments. We also discussed a homeowner association’s ability to foreclose fines in excess of $1,000.00.

Unintended Consequences. As with any legislation amending existing law, there can be unintended consequences. Senate Bill 1196 is no exception. With that in mind, please note that previously, if a homeowner association’s declaration provided for suspension of use rights, the member’s opportunity to be heard at the committee hearing was not required. However, with the application of the new legislation, even if the governing documents allow a suspension of use rights without the need for the hearing before the committee, the hearing process is still required. In today’s article we first address, in honor of Independence Day, flag poles, followed by how to collect rent from tenants whose landlord, unit owners are not paying their assessments and begin learning how the new legislation affects boards of directors, officers and committee members.

Flagpoles: Flagpoles erected by members of a homeowners’ association are now subject to the setback and location requirements that are in the declaration and remain subject to all local government building codes. Previously, the flagpole could be erected just about anywhere on the member’s lot.

Collecting Rent To Offset Delinquent Unit Owner/Member Assessments: A condominium association, upon proper written notice, may collect the rent from the tenant of a unit owner that is delinquent in the payment of assessments to the association. The association can even sue for eviction if the tenant does not remit the rent to the association. An amendment prohibiting unit owners from renting their units, or altering the duration of the rental term, or specifying or limiting the number of times unit owners are entitled to rent their units during a specified period, applies only to unit owners who consent to the amendment and unit owners who "acquire" title to their units after the effective date of the amendment. Previously, the word "purchase" was used in place of the word "acquire". Therefore, if title of a unit was transferred by means other than purchase, and at the time of transfer of title the unit was not subject to the leasing restriction because the previous owner did not vote in favor of them, then the new owner was grandfathered. Well, not anymore. As soon as the unit is acquired by anyone other than the owner who did not vote in favor of the new leasing restrictions, the new owner is subjected to them as if he or she voted in favor of their adoption.

As to homeowner associations, upon proper written notice, the association may collect the rent from the tenant of a unit owner that is delinquent in the payment of assessments to the association. The association can also sue the tenant for eviction if the tenant does not remit the rent to the association. While not specifically addressed in the legislation, it would appear to be a logical consequence to include the attorney fees and costs of the eviction litigation as an assessment against the parcel.

Attorney Client Privileged Meetings: Meetings between a homeowner’s association board or committee and the association’s attorney to discuss proposed or pending litigation, or to discuss personnel matters are not open to members. This clarifies that discussions regarding personnel matters do not have to be open to members so long as the attorney is present. However, do not make the mistake of believing that such meetings are not subject to the typical meeting notice requirements… they are!

Condominium Association Board Member Delinquencies: A condominium director or officer who is more than 90 days delinquent in the payment of any monetary obligation due to the association shall be deemed to have abandoned the office, creating a vacancy in the office to be filled by law. Previously, only "maintenance assessments" counted towards the delinquencies.

In the next issue, we will continue our discussion on the effects of the SB1196 on board members, officers, and committees.

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PART 1:  SENATE BILL 1196

(June 16, 2010)

INTRODUCTION TO SB 1196 AND SUSPENSION OF USE RIGHTS

 

The long wait is over. On June 1, 2010, Governor Crist signed Senate Bill 1196 into law. It is codified in Chapter 2010-174, of the “Laws of Florida” and becomes effective July 1, 2010.  Through the next 7 “Association Round Up” articles I will provide details on how this Bill will effect your association.  Thereafter, I will discuss the nuisances of the Bill, how to apply various provisions to your association, what to watch out for, what can get you into and out of hot water, and how this new legislation is being applied throughout the great state of Florida.  On July 1, 2010, the new laws should be merged into their respective statutory chapters and available to view on line at www.flsenate.gov. We now begin with Part I of this multi-part part series pertaining to the 2010 legislative session.

Some highlights of Senate Bill 1196 include: members who do not pay their assessments can be prohibited from using the amenities such as the club house and pool; when a unit owner is delinquent in their assessment obligation, upon notice to their tenant, the tenant is obligated to pay their rent directly to the association. If they do not, then the association may evict them; for homeowner associations, fines over $1,000.00 can become a lien against a member’s lot, which really means that HOA fines have significance again; for condominium associations, first mortgagees acquiring a unit as a result of foreclosure will be responsible for the lesser of 12 months (currently 6 months) back assessments or one percent of the initial mortgage.  While effective July 1, this last change will most likely not have any practical effect for some time to come. 

 Suspension of Use Rights: Let’s begin our discussion with the suspension of common element and common area use rights.  If a condominium unit owner is delinquent more than 90 days in the payment of a monetary obligation due to the association, the association may suspend the right of that owner and their guests from use of the common elements, common facilities or any other association property until the monetary obligation is paid.  This does not apply to limited common elements intended to be used by only that unit such as a balcony, utility services provided to the unit, parking spaces and elevators. The association must impose the reasonable suspension at a properly noticed board meeting, and after imposition of such suspension, the association must notify the unit owner and, if applicable, the unit’s occupant, licensee, or invitee by mail or hand delivery. If that owner is delinquent more than 90 days in the payment of a monetary obligation due to the association, the association may suspend the right of the owners to vote in association matters.  Lawyers currently disagree as to the type of notice, if any, that must be provided to the delinquent unit owner in advance of levying the fine.  More on that issue in future articles.

 As to delinquent homeowner association members, if a member is delinquent more than 90 days in the payment of a monetary obligation due to the association, the association may suspend the right of the member and their guest to use the common areas and facilities until the monetary obligation is paid.  This does not apply to the portion of the common areas that must be used to provide access to the parcel, or utility services provided to the parcel.  Unlike condominium associations where the use right suspension is levied at a board meeting and is effective after notice to the delinquent unit owner, as applied to homeowner associations, the suspension may not be imposed without at least 14 days notice and an opportunity to be heard before a committee comprised of members other than the board or their relatives.  Like condominium associations, after the suspension is imposed, the association must notify the unit owner and, if applicable, the unit’s occupant(s) by mail or hand delivery. 

 Once again, fines have real enforcement power similar to days gone by.  For homeowner association fines that are in excess of $1,000.00, the fine can become a lien against a parcel. This means that rather than have to sue the fined member to collect the fine, the Association can follow its usual collection procedures and use the foreclosure process.

 Next issue we’ll continue our discussion and learn the procedure to make a tenant pay their rent to the association when a delinquent owner fails to pay their assessments; and discuss new legislation concerning board members, officers, and committee members.  


 

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How to Save a Firefighter's Life; Save Taxes on Short Sales; and the 2010 Florida Legislative Session: an Enigma Wrapped in a Quagmire or Politics as Usual?

(June 2, 2010)

Is your condominium constructed with "light weight trusses"? If you don’t know, find out. A firefighter’s life may depend on it! The Aldridge-Benge Firefighter Safety Act became law on December 13, 2009. The law requires all commercial, industrial and multi-family unit residential buildings constructed with lightweight truss components to be marked with an approved emblem or symbol to alert the firefighters of the use of this type of construction. In response to seeing this warning, the firefighters can take necessary precautions when entering the building. The bright red reflective signage is to be permanently affixed, four to six feet from the from the floor. It is attached to the building within 24 inches to the left of the main entry door. Existing buildings were to comply by March 14, 2010. Do our firefighters and yourselves a favor: if you are unsure of compliance or need to but have not as yet complied, take immediate action. A firefighter’s life depends on it!

Ok, all you short sale buyers and sellers, come gather around and listen up: House Bill 109 provides that the documentary stamp tax presently due on the unpaid indebtedness is forgiven under certain circumstances. But, not until July 1, 2010. To save seventy cents per hundred dollars you will need to wait until July 1, 2010 to close on your short sale because that is when House Bill 109 becomes effective. In the meantime, read up on the Bill at "www.flsenate.gov".

As I write this week’s column, I had hoped to have real news regarding the 2010 Legislation Session and most especially Senate Bill 1196, the omnibus Bill that will both overhaul and clarify various parts of Chapters 718 and 720 Florida Statutes, the Condominium and Homeowners Acts, respectively. SB 1196 was presented to Governor Crist on May 17, 2010. He has a few more days to sign it into law or veto it. If he does nothing, then SB 1196 will be effective on July 1, 2010. We’ll know soon. Visit "www.flsenate.gov/data/civics/idea_to_law_chart.pdf" to learn how a Bill becomes law.

A little insight into the politics behind the politics: Last year, Governor Crist vetoed the 2009 version of SB 1196 because it contained an extension to the deadline for compliance with multi-family high rise fire safety provisions. Governor Crist explained that he would never approve the Bill with such language. Yet, the 2010 Bill still contains a similar, if not the exact same, exemption. So what’s the difference?

In 2009, Governor Crist was a Republican, and there was significant effort by conservative lobbyists to force the Governor’s veto. In 2010, Governor Crist is no longer a Republican. He declared himself an Independent in reaction and protest to the Republican party’s failure to support his run for the United States Senate. Whether this Bill will become law is anyone’s guess. Since he has not yet vetoed it, I predict it will become law.

On this Memorial Day weekend, I’ll wrap up this week’s column by saying thank you to those who previously and presently serve in our Armed Forces, and to those who selflessly gave their lives to ensure our freedoms. Take a private moment and reflect on our fallen sons and daughters, who are all, in a fashion, the descendants of immigrants who fled to this great nation. I remain forever grateful for your sacrifice.

NEWS FLASH:

This just in at press time Tuesday June 1, 2010: Governor Crist signed Senate Bill 1196. More to come in next week’s column when we will begin providing detailed information on the these new laws.

 

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Does your Condo Association have hazard insurance to protect your home?

(May 19, 2010)

Here it comes… another hurricane season. Is your condominium association ready? From changing the oil in generators, to emergency evacuation procedures, to making sure your insurance policies are in place, every detail is important. Failure to properly prepare for causalities is a disaster waiting to happen.

A few weeks ago a Lauderhill condominium building was destroyed by fire. The board, of this already cash strapped association, had decided to not purchase insurance to save money. Now, their financial consequence has gone from bad to downright miserable. The consequences for failure to buy insurance are horrific.

In this regard, Florida law, more specifically, Chapter 718 (known as the Condominium Act) provides the association no discretion whatsoever. Hazard insurance must be purchased! While the Board has discretion as to the amount of the deductible, the association is required to purchase the insurance. The association is required to use its "best efforts" to maintain adequate insurance. Dropping coverage for casualties such as windstorm, fire, and depending on the location of the building, flood coverage, is reckless behavior.

At what point will the law hold directors responsible for failure to purchase hazard insurance? The board’s duty is to act reasonably under the circumstances. It can make wrong decisions, so long as the decision was reasonable. The trend in the law has been to protect board members so long as they did not act in a self-serving manner. It is one thing if the board chose not to purchase insurance because the association had no funds. It is another thing if assessment collections were limited due to unit owner delinquencies and the pool was still kept open and the bulk cable bill was paid at the expense of the insurance policy. While I enjoy my cable as much as the next guy, insurance coverage is far more important.

If Senate Bill 1196 becomes law, there will be some interesting changes to insurance law as it affects condominiums. Rather than a requirement to purchase adequate "hazard" insurance, the association will need to purchase adequate "property" insurance. An association controlled by the unit owners must use its best efforts to obtain adequate property insurance. Obviously, I am bringing to light the difference between the words "hazard" and "property", the latter being far broader in scope.

The association is responsible to buy insurance for all portions of the condominium property as originally installed. The association’s coverage excludes personal property within a unit, floor, wall, and ceiling coverings, electrical fixtures, appliances, water heaters, built-in cabinets and countertops and window treatments, and limited common elements… which are located within a unit and serve only that unit. A limited common element is a subset of the common elements. All unit owners own an undivided interest in the common elements, but a unit owner can acquire an exclusive use right to the limited common element. Balconies and parking spaces are typical limited common elements.

Living in this great State has benefits. The warmth of the sun and the smell of the salt air are just two. But, did you know that over half of all floods occur outside of the nationally recognized flood zone. Given our elevation at sea level, is a board really doing the association a favor by avoiding the purchasing flood insurance?

Remember, it is not so much a matter of if your association needs insurance… it is a matter of when it will need to report a claim.

 

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2010 Legislative Update

(May 5, 2010)

Welcome to the first 2010 legislative update in our series. The following community association legislation has passed both the House and Senate. Whether the Governor uses his power to veto, signs the Bill(s) into law, or does nothing at all remains to be seen (if he does nothing, then the Bill(s) becomes law, too). In this ever changing, politically charged landscape, anything could happen.

Senate Bills 1196 and 1222, along with House Companion Bill 561, were combined and are generally referred to as Senate Bill 1196. Together, they contain the most legislation that has direct and significant impact on community associations. First we take a quick look at the Bill’s impact on condominium associations.

Insurance: The Bill clarifies the condominium meeting notice procedures for setting insurance deductibles; eliminates the mandatory requirements for individual unit owner policies; the provisions modify the eligibility requirements for board members, and it modifies the certification process for board members, requiring the certification after election.

Elevators: It authorizes a condominium association to waive, by majority a vote of the membership, the retrofit of an elevator to operate at times when power is not available to the building, and it provides for a delay in the retrofit of a special access key for elevators until the elevator is replaced or requires major modification; the provisions provide for bulk telecommunication services and expands the existing statutory language to include new technologies.

Bulk Purchasers: The provisions contain an initiative to provide for modified regulations as applied to a purchaser of condominium units in bulk, in circumstances where the condominium is in financial distress or is pending bankruptcy. It provides regulations for the protection of existing unit owners and clarified responsibilities and liabilities for the bulk purchaser.

Assessment Delinquency: The provisions provide new statutory procedures to allow a delinquent financial obligation due the association from a delinquent unit owner directly from the rental payments of a tenant occupying the unit. The bill also permit amendments allowing the Association to collect delinquent assessments directly from tenants when the unit owner/landlord is delinquent and provide for other sanctions against the delinquent owner; the provisions would permit the association to suspend the use of rights to common elements and recreational amenities of a unit owner or unit occupant when the unit owner is more than 90 days delinquent in a financial obligation due the association.

It will also permit the association to suspend the voting rights of a unit owner who is more than 90 days delinquent in financial obligations due the association. The legislation increases the responsibility of a mortgagee for delinquent condominium assessments from 6 months to 12 months or 1% of the original mortgage balance, whichever is less. The bill modifies the termination section of the Condominium Act to clarify the criteria for economic distress and the ability to recreate a condominium on the property.

The provisions would require a director to vacate the office when delinquent in the payment of any fee, assessment or special assessment due to the association for more than 90 days and would disqualify any unit owner from seeking election to the Board if the owner is more than 90 days delinquent in a financial obligation to the Association.

Fire Safety: The Bill extends the deadline for retrofitting fire sprinklers from 2014 to 2019, and it eliminates the restrictions on unit owners to waive the retrofit requirement by a majority vote. It also exempts buildings of less than four (4) stories with exterior corridors from installing a manual alarm system; the legislation clarifies the current policy of the Division of Condominiums requiring a separate accounting for escrow deposits in new condominium projects.

Homeowner Associations: The provisions modify the rights of unit owners to access records of the association to protect proprietary software, computer passwords and other personal information of unit owners and association employees; the provisions prohibit compensation for officers and board members of an association governed by the Homeowners Association Act, and the Bill clarifies election procedures when directors are elected by secret ballot. The legislation adds conforming changes to the Homeowner Association Act that authorize community associations to enter recreation and use agreements with membership approval in the same manner as condominium associations; it prohibits a developer from levying a special assessment prior to turnover.

Websites to track legislative process include www.flsenate.gov; www.myfloridahouse.com; and www.leg.state.fl.us.

 

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Not All "Coral" is Under the Sea

(April 21, 2010)

Why are the following two foreclosures different than any other? What do "coral," "foreclosures" and "declaration amendments" have in common? Read on, and find out as this week we review the impact of two recent foreclosure cases that greatly effect homeowners’ association collections throughout the great State of Florida.

Until recently, as a result of a first mortgagee stalling its foreclosure case to avoid its assessment obligations, lawyers for the association would petition the court seeking an order that the lender be required to pay assessments during its willful failure to diligently prosecute its foreclosure case. Well, no more. On April 14, in Deutsche Bank v. Coral Key Condominium, 35 Fla. L. Weekly D835b (Fla. 4th DCA 2010), the Fourth District Court of Appeals held that even though the lender failed to take any activity for seven months, the trial court’s order, which required the lender to pay assessments as a form of equitable punishment for causing the extended delay, was not enforceable. The appellate court held, that the law is clear: the first mortgagee is responsible to pay assessments only after it acquires title to the foreclosed property. Sadly, lenders who delay their cases are now further rewarded. What can you do when the lender stalls? At a minimum, discuss setting the bank’s case on the court’s trial docket with your community’s lawyer. Doing so will establish a trial date for the lender’s foreclosure action from which further delay will be granted only upon a showing of good cause.

Remember the good old days starting July 1, 2008 when the legislature amended Section 720.3085 of the Homeowners’ Association Act thereby requiring first mortgagees, upon acquiring title as a result of its foreclosure, to pay the lesser of 12 months back assessments or one percent of initial mortgage? Regardless of language in the associations’ declarations, first mortgagees were expected to pay their obligation pursuant to statute. Well, no more.

There is a long established notion in the law that government can not create laws that impact existing contractual obligations. In fact, the Florida Constitution provides, "No bill of attainder, ex post facto law or law impairing the obligation of contracts shall be passed." As a result, the first mortgagee lenders claimed that they were entitled to rely on the law in existence at the time their mortgage was created and therefore the requirements of Section 720.3085 did not apply to mortgages in existence prior to its enactment. On February 19, 2010 the Second District Court of Appeals in Coral Lakes Community v. Busey Bank, 2010 WL 567251 (Fla. 2d DCA 2010), agreed. This means that if your homeowners’ association declaration has terms, as many, many do, that, "The first mortgagee is not liable for past due assessments upon acquiring title as a result of a foreclosure," then the legislature’s creation of an obligation requiring them to pay back assessments as applied to existing mortgages is akin to a constitutional violation, at least as it relates to liens recorded prior to the 2008 statutory amendment.

Arguably, even if a mortgage and/or lien is recorded after the effective date of the 2008 amendment to Section 720.3085, if your homeowners’ association declaration still has language that does not require the lender to pay back assessments upon acquiring title to property as a result of a foreclosure, then the lender can argue that it still owes nothing for back assessments. The only way to cure this with certainty is to amend your declaration to conform to the legislation.

 

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Slapp Suits

(April 7, 2010)

What is a SLAPP SUIT and why should I care? "SLAPP" is an acronym for a Strategic Lawsuit Against Public Participation. SLAPP suits are lawsuits that are intended to censor, intimidate and silence critics of development. Our Legislature has ensured that SLAPP suits against condominium and homeowners associations are illegal.

For example, if a community association objects to a zoning amendment sponsored by a developer, then without the legislative prohibition against SLAPP suits, the Developer could otherwise impose substantial legal costs on the objecting association by filing a lawsuit against it. This would force the association to pay the costs of a legal defense until the association abandons their objections. Not only are SLAPP suits costly, but such lawsuits stifle our Constitutionally protected freedom of speech and expression. Our Florida Legislature’s point is simple. When local government is working in tandem with big business to create commercially viable, and in some instances even necessary, opportunities that could change the character of your community, you should not have to fear being sued as a result of expressing your opinion.

Did you know that on April 14, 2010 the Town of Palm Beach is holding its first of two statutorily required readings for two new ordinances that will drastically amend its Comprehensive Plan and is also modifying the Town’s zoning code provisions, all of which is to create a new overlay area within the "Commercial Town-Serving Zoning District?" The new overlay district’s boundaries will be between N. County Road and Bradley Place to Royal Poinciana Way and Park Ave. On April 28, 2010, the Town’s Architectural Commission will consider demolition of the existing Publix and construction of a new 50,870 sq. ft. building. On May 12, 2010 the Town Council is scheduled to hear Publix’s site plan review, special exception requests, and variance requests.

If you live in this area your world is about to change. Why? Ask Publix. It seeks to exceed to maximum height limitation from the allowed 20 feet to 37 feet; to have light poles higher than the allowed 15 feet to a new maximum of 23 feet; to exceed the maximum 150 feet building length to 245 feet; to exceed the two permitted roof top towers to a total of eight; to decrease set backs from 18 feet to 10 feet; and finally, to increase the maximum allowed 15,000 square foot building to an astounding 50,870 square feet.

Will the extra shelf space provide a shopping experience with more choices? Sure it will. But at what cost to the near-by residents? Semi-trucks are proposed to exit through the residential portion of Sunrise Ave. Light poles, even if uni-directional, will be a nuisance as the entire building is being moved to the east and thus nearer to existing residents. More vehicular and semi-truck traffic should be expected as should more noise (especially with 8 roof top towers).

To assemble the 4.36 acre site, many Town residents are now at risk of losing out on otherwise commercially available parking. Certainly, the Town of Palm Beach should consider ensuring, as a part of its approval process, that Publix be required to give back to the community by ensuring its residents can park their cars. To ignore the parking issue, is to ignore the real needs of citizens who live in the "to be created" overlay district. If the new one story building is going to be 37 feet high, why not build a two-story parking garage and double the available parking?

If you have an opinion, attend the hearings and let your voice be heard!!!

 

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Fiduciary Duty and Liability of Board Members, part 2

(March 24, 2010)

Today’s column is the second part of a two-part series regarding board member fiduciary duty and liability for failing to properly exercise that duty. Part one addressed protections afforded to board members by the "Business Judgment Rule." (See article below)

The "Business Judgment Rule" protects a corporation’s board of directors’ business judgment so long as the board acted in a "reasonable" manner. In general, absent actual wrongdoing in the form of fraud, self dealing, or unjust enrichment, corporate directors and officers cannot be held personally liable for corporate acts. The protection afforded by the Business Judgment Rule fades when the board member’s act crosses the line from "negligence" to "gross negligence." The term "gross negligence" means serious carelessness while the term "negligence" is the opposite of diligence, or being careful.

The Third District Court of Appeal in Perlow v. Goldberg, 700 So.2d 148 (Fla. 3d DCA 1997), held that the Business Judgment Rule extends itself to acts of simple negligence. The Court examined the Condominium Act, the Florida Business Corporation Act and the Florida Not For Profit Act, Sections 718,303(1)(d), 607.083(1) and 617.0834(1) Florida Statutes, respectively. The Court found that, "Each of these three sections requires more than simple negligence before personal liability for monetary damages attaches for the board member’s alleged wrongful act(s)."

The Business Judgment Rule, however, does not apply where a board member breaches his or her fiduciary duty. Under a tort theory, acts of gross negligence can expose the board member to liability. In B & J Holding Corporation v. Weiss, 353 S0.2d 141, S0.2d 141(Fla. 3d DCA 1978), the Third District Court of Appeal held that "where the acts constituting a breach of contract also amount to a cause of action in tort, there may be recovery of exemplary damages upon the proper allegations and proof of the intentional wrong, insult, abuse or gross negligence constituting an independent tort."

The Condominium Act provides in Section 718.111 (1)(d), that: "…An officer, director, or agent shall be liable for monetary damages as provided in Section 617.0834 if such officer, director, or agent breached or failed to perform his or her duties and the breach of, or failure to perform, his or her duties constitutes: 1) a violation of criminal law constitutes a transaction from which the officer or director derived an improper personal benefit, either directly or indirectly; or 2) constitutes recklessness or an act or omission that was in bad faith, with malicious purpose, or in a manner exhibiting wanton and willful disregard of human rights, safety, or property.

Section 617.0834 Florida Statutes establishes liability for Officers and Directors of a not-for profit corporation for their "recklessness". The statute provides,

"An officer or director of a nonprofit organization… is not personally liable for monetary damages to any person for any statement, vote, decision, or failure to take an action, regarding organizational management or policy by an officer or director, unless: 1) the officer or director breached or failed to perform his or her duties as an officer or director and 2) the officer’s or director’s breach of, or failure to perform, his or her duties constitutes recklessness or an act or omission that was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property. For the purposes of this section, the term "Recklessness" means the acting, or omission to act, in conscious disregard of a risk known, or so obvious that it should have been known, to the officer or director; and known to the officer or director, or so obvious that it should have been known, to be so great as to make it highly probable that harm would follow from such action or omission."

Absent fraud, criminal activity, self dealing or unjust enrichment, the Business Judgment Rule applies when determining if a member of the Board of directors of a condominium association is personally liable for breaching a fiduciary duty. Grossly negligent or reckless conduct pierces the protection of the Business Judgment Rule and may expose an association board member to liability.

 

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Fiduciary Duty and Liability of Board Members, part 1

(March 10, 2010)

This week, we begin a two-part series regarding board member fiduciary duty and liability for failing to properly exercise that duty. Part one addresses protections afforded to the board by the "Business Judgment Rule." Part Two addresses how the Businesses Judgment Rule will not protect a board member for breach of their fiduciary duty. After reading both parts of this series, you will better understand the fiduciary duty owed to your Association by your board members and hopefully understand that back-seat quarterbacking the reasonable decisions they make is not in anyone’s best interest. If you want to effectuate change, run for the board.

There are two terms with which you should be familiar: "negligence" and "gross negligence. In this context, "gross negligence" means serious carelessness while "negligence" is the opposite of "diligence", or being careful. The standard of ordinary negligence is the conduct one expects from the proverbial "reasonable man." By analogy, if somebody has been grossly negligent, that means they have fallen well below the ordinary standard of care one expects. Such actions warrant the label of being "gross."

The phone call the other day went like this: Ring! Ring! "Hello, Mr. Rembaum speaking." The caller responds, "My name is Mr. Neverhappy and my condo board is spending money we don’t have! The other day they signed a landscape contract and we are paying twice as much as our neighboring association for less service and then they bought a coffee machine and new computer for the office. They have to be stopped." Then, I explain, with due respect to Mr. Neverhappy, that his board does not have to be "right" and that they can make decisions that turn out to be costly or even wrong. So long as the board acted reasonably under the circumstances, chances are the Business Judgment Rule will protect their decisions.

In Florida, the Business Judgment Rule operates as a shield to protect association board members when exercising their reasonable judgment in the regular course of conducting association business. The courts have held that the "Business Judgment Rule" will protect a corporation’s board of directors’ business judgment as long as the board acted in a "reasonable" manner. P.S. Farrington v. Casa Solana Condominium Association, Inc., 517 So.2d 70 (Fla. 3d DCA 1987).

In Florida, corporate directors generally have wide discretion in the performance of their duties and a court of equity will not attempt to pass upon questions of the mere exercise of business judgment, which is vested by law in the governing body of the corporation. Lake Region Packing Association, Inc. v. Furze, 327 So.2d 211 (Fla. 1976) citing Orlando Orange Groves v. Hale, 119 Fla. 159, 161 So. 284 (1935). Just because the board’s decision turned out bad, does not mean the court will hold the board responsible for the damages arising out of their bad decisions. Courts refuse to supplement their judgment for that of the association’s board. Florida courts reject judicial intervention into management decisions where no impropriety is shown.

Generally, Board members can act negligently. The Fourth District Court of Appeal held in Munder v. Circle One Condominium, Inc., 596 So.2d 144 (Fla. 4th DCA 1992), that "in general, absent actual wrongdoing in the form of fraud, self dealing, or unjust enrichment, corporate directors and officers cannot be held personally liable for corporate acts."

The Condo Act provides in Section 718.111 (1)(d), that: "an officer, director, or agent shall discharge his or her duties in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner he or she reasonably believes to be in the interests of the association…" To see the rest of this statute, you will want to read Part-two. It will address how grossly negligent or reckless conduct may expose an association board member for liability for breach of their fiduciary duty.

 

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Blanket Receiverships

(February 24, 2010)

The 2010 Florida Legislature convenes on March 2. It could turn out to be one very long roller coaster ride. Did you know that there are currently more community association bills filed, than the number of eggs laid by a sea turtle (well almost)? Once the field starts to narrow a bit, the legislation will be the subject of future articles. In the meantime, you should be aware that the banking industry has sponsored legislation to remove foreclosures from the jurisdiction of the courts by converting Florida to a non-judicial foreclosure state. Astonishingly, 37 states already use this process. Under such a plan as it exists in some states, the foreclosure can take as little as 3 months and as long as a year. Supporters argue, the process is more efficient and will prevent future back logs in the courts. Perhaps, if the banking industry had better controls in place when it created the current crisis by lending too much money to those who had no business borrowing in the first place, the current crisis could have been avoided. As yet, the bill does not have a number or a sponsor. If the legislation were to pass, it would be like rewarding your child for picking a fight. It makes no sense. Let us turn our attention to a more positive subject.

In Florida, blanket receiverships (a/k/a equitable receiverships) have emerged to aid collections for associations. While I addressed this issue several months ago, given the number of inquires I have received, I am re-visiting the topic. The process to create the blanket receivership is simple and should not cost more than several hours of your lawyer’s time to create. In short, upon a motion by the association, and if granted, by order of court, a blanket receiver is appointed to collect rent from tenants whose landlord/unit owners are delinquent in their assessment obligation. David Ryder is a court-appointed receiver who manages blanket receiverships around the State. I share with my readers the results of our conversation below in hopes that this technique will help your association’s bottom line.

An blanket receivership is easy to understand: a court of equity (in this case, a Florida circuit court) appoints a receiver with specific powers to enforce the court’s order to pay to the receiver, as a de facto agent of the association, the rent otherwise due the landlord. Those powers usually deviate from or expand our existing laws to provide a better or more creative solution to the problem at hand. The association blanket receivership is an equitable receivership that replaces the plain-vanilla receiverships that are based strictly on Florida statutes. These concepts are recognized as "common law." Florida’s blanket receiverships for associations are now merging with equitable receivership concepts, giving the receiver increased and more flexible powers. The authority and purpose of association blanket receiverships will continue to evolve in the coming months as the courts encounter new, creative requests designed to keep associations solvent. Currently, there is a 50/50 chance as to whether the motion will be granted, which often depends on the judge.

In its most basic form, statutory association receiverships (as compared against the equitable blanket receiverships) allow a receiver to collect rent from tenants when units are in foreclosure. This law requires that the receiver be appointed in separate legal actions against each unit. The concept of the blanket receivership expands this idea to allow for one receiver to become the "blanket" receiver for all of the properties within the association where the unit owner has a renter and fails to timely meet their assessment obligation. This obviates the need for a separate motion for each singular receivership action which is limited to foreclosure situations, only. The latest equitable blanket receivership allows for the receiver to collect rent from tenants when the unit owner is delinquent to the association, and notably not yet in foreclosure, which is otherwise required by Florida law to enact the statutory based form of receivership.

With many unit owners upside-down and walking away from their properties, these new-fangled blanket receiverships could speed the process of getting needed money to associations.

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Flippers and Reverse Foreclosures ... what do they have in common?

Not much, but they are the subjects of today's column ...

(February 10, 2010)

Do you like "flippers"? No, not the mammal. I am re-ferring to the investors who buy a house today, only to sell it for what they hope is a profit, tomorrow. The Fair Housing Administration (the "FHA") is largest government insurer of mortgages in the world and discourages "flipping." In laymen’s terms, the FHA’s rules and regulations set forth that if the seller did not own the home for at least 90 days, then the buyer could not qualify for a FHA backed loan. Well, starting on February 1, 2010, the rule against "flipping" does not apply for one full year so long as the "flipper" does not make more than a 20% return on the quick flip, and in an effort to cut down on collusion, fraud, and unscrupulous behavior, the transaction is at "arms length." Arms length means that the flipper cannot convey the property for less than market value or convey the property to a family member, etc. in an effort to qualify the sale for the "flipper" exemption where the deal would not otherwise qualify. So long as the transition is at arms length and the seller does not make more than a 20% profit on the flip, the 90 day holding requirement does not apply, and the FHA will back the mortgage. Because the FHA will provide the lender insurance against the potential barometer default, the borrower is more likely to find a lender in this already very credit tight market. In light of the lender’s lowered risk, this should hopefully translate to a lower interest rate for the borrower, too! The FHA hopes that this will help reduce the surplus of inventory of homes on the market.

Have you heard of the term "reverse foreclosure?" It’s a term used to describe the situation where an association owns a unit as a result of its own association assessment foreclosure and forces the title to the property upon a lender who has stalled their foreclosure action against the same property. By way of background, there exists in the law the notion that one’s actions cannot cause as "unreasonable restraint on alienation" which means you cannot take action that would unreasonably restrain the transfer of real property. Recently, when a foreclosing lender failed to diligently prosecute its own foreclosure action, that was exactly what the association successfully argued to the Court. Why would a bank not want to complete its foreclosure? Because upon taking title to a unit in a condominium the lender/unit owner owes the association the lesser of 6 months back assessments (one year back assessments if the home is in a homeowner’s association) or one percent of the initial mortgage plus all assessments due on the unit from the day the lender/unit owner takes title in its name.

In the very recent Miami-Dade court case, where as a result of the association’s previous assessment foreclosure lawsuit, the association obtained ownership of a unit that was still subject to the first mortgage, the first mortgagee foreclosed its lien against the association. In a totally unprecedented turn of events, the association forced the lender to take title to the unit far sooner than if left to the devises of the already stalling foreclosing lender. The association argued to the Court that the lender failed to diligently prosecute its foreclosure and that its lack of effort along with the continued existence of the lender’s lien still recorded against the property, created an "unreasonable restraint on alienation." In support of its position, the association also waived its right to satisfy the previous owner’s loan. With that, the Court divested the association of its ownership of the unit and vested title in the name of the foreclosing lender. It remains to be seen whether the decision will be appealed and if so, the eventual outcome.

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New FHA Guidelines May Relieve Sagging Condo Sales

(January 27, 2010)

The Federal Housing Administration (FHA) is the largest government insurer of mortgages in the world. While borrowers must meet certain requirements established by FHA to qualify for the insurance, lenders bear less risk because the FHA will pay the lender if a homeowner defaults on their loan. If a condominium qualifies for FHA backed loans, then the lender is likely to accept a lower down payment. Without the FHA, borrowers could be expected to put down 20% or even 30% to qualify. Generally, no more than 15 percent of total units can be more than 30 days behind on condominium association assessments to qualify for FHA backed loans.

The FHA reports it has insured over 37 million home mortgages and 47,205 multifamily project mortgages since 1934. According to the FHA’s website, currently, the FHA has 5.2 million insured single-family mortgages and 13,000 insured multifamily projects, which includes condominiums, in its portfolio. According to HUD’s website, for FHA backed loans, HUD has approved only 15 condominium projects in West Palm Beach, 37 in Ft. Lauderdale, and 339 in Miami. The Palm Beach Post recently reported that there is only one new construction condominium in West Palm Beach that qualified for a loan backed by the FHA.

In early December 2009, the FHA adopted new guidelines in an effort to provide relief to sagging condo sales. New FHA guidelines on condominium financing include (1) allowing individual units to qualify rather than requiring an entire building to earn approval though February 10, (2) temporarily increasing from 30% to 50% the number of units in a building that can be financed with FHA loans, (3) requiring 50% of units to be owner-occupied while temporarily allowing vacant, bank-owned or rented units to be excluded from the calculation, (4) allowing for condo board approval of a buyer subject to the Fair Housing Act, and (5) removing the per sale legal certification requirement for condominium documents.

On January 20, 2010, the FHA announced several other changes it intends to implement. New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%. The FHA will reduce allowable seller concessions from 6% to 3%. Both changes are expected to go into effect in the early summer, 2010. In addition, in early spring the up-front mortgage insurance premium will increase by 50 basis points to 2.25%.

Recently, it was reported that the FHA could run out of funds as early as 2011, and that it may need another federal bailout. Add to that (1) the very real potential of a failing commercial loan market when, beginning in May 2010, many large commercial loans around the U.S. mature along with corporate downsizing leading to and resulting in the need for less overall rented square footage, (2) the ever looming maturity dates of residential ALT "A" loans where borrowers received loans based on credit scores rather than income where the value of such loans at least equals the previous subprime loans; (3) rising unemployment; (4) an oversupply of manufactured goods, and (5) a surplus of residential units on the market when the subprime foreclosures finally work their way through the courthouse. As a result, we could be in for a very bumpy ride in the third and fourth quarters of this year akin to a downward spiral of the world’s largest roller coaster. Let us hope not!

 

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Jeffrey A. Rembaum, Esq. is a community association lawyer whose law practice consists of representing condominium, homeowners, and cooperative associations, developers and unit owners. He can be reached at jeffrembaum@gmail.com or by calling 561-252-5876

 

 

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