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***
2010
Legislative Update
***
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.
***
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.
***
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….
***
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.
***
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.
***
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.
***
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.
***
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.
***
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.
***
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.
***
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!!!
***
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.
***
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.
***
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.
***
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.
***
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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