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Condo News Online Special Features Page

Rembaum's

Association

Roundup

By Jeffrey A. Rembaum, Esq.

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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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"When the Bough Breaks, the Cradle Will Fall"

(January 13, 2010)

Never before have community associations experienced such high accounts receivables and bad debt line items on their budgets. Such times call for legally innovative and creative solutions. Associations need their legal counsel to work with them in these hard times by agreeing to hold collection billings until certain events occur such as our firm, Siegfried, Rivera, Lerner, De La Torre & Sobel, P.A., does. Community Associations can benefit from lawyers who are creative in legal strategy. For example, has your collections lawyer offered your association the opportunity to set all first mortgagee foreclosure litigation on the court’s trial docket? Why not? The sooner the bank’s case is on the court’s trial docket, the less time they can stall their case to avoid your community’s assessment obligation. A great example of a lawyer who has demonstrated, over and over, that he thinks outside the typical legal strategy box for the betterment of our clients is our associate Guillermo M. Mancebo, Esq. who authored the text below and provided me the privilege of sharing it with you. Mr. Mancebo and I hope that it will assist your community association in these troubling times. Mr. Mancebo writes:

Outside forces such as greed and speculation have much to do with our nation’s current fiscal crisis. The combination of the two are significant contributing causes of the plague infecting our community associations. Principal players in community associations’ problem are those real estate investors who purchased multiple units with the hopes of flipping units for a profit. When the real estate bubble burst, they were left holding the bag and forcing them to turn to renting those units they once wished to sell. However, instead of using the rental income to maintain the mortgage and maintenance assessments current, many simply pocketed the rental income awaiting the inevitable – either a mortgage or association foreclosure – basically, robbing from "Peter" to pay themselves.

Notwithstanding the veritable chokehold that the foreclosure crisis has on our judiciaries’ limited resources, the judiciary is listening to community associations’ plight and the equities of the court are stepping forward. One of the single-most powerful remedies awarded in recent times is the ‘Blanket’ receivership, where the court appoints a single receiver to collect rents and apply those rents to the respective unit’s maintenance account.

While there are a number of different versions, through my actions for a particular client, we obtained a most aggressive version of the Blanket Receivership – not only where the Receiver is empowered to collect on rents from those units that are the subject of an association or mortgage foreclosure action, but the Receiver is also empowered to collect rents from those units that are delinquent and not subject to an association foreclosure or mortgage foreclosure. In this way, the Association is not crippled by time – the Receiver, being empowered to levy on rents the moment the unit is delinquent, saves the Association precious time.

Siegfried, Rivera, Lerner, who prides itself in providing "Personalized Professionalism and Innovative Strategies," took the concept a step further and has obtained orders where the Receiver can charge the "market value" for a unit where a tenant cannot provide a lease, and on one occasion has been successful in obtaining an order allowing the Receiver to "receive and preserve" abandoned units where the unit owner is more than sixty (60) days delinquent and rent and collect rent from those abandoned units as determined by the Receiver.

If your community is suffering from a high amount of delinquencies and there are units occupied by tenants, then a "Blanket" receivership may be the remedy to cure your ailment and prevent the bough from breaking.

— Guillermo M. Mancebo, Esq.

Future columns will address the new Fannie Mae regulations and the applicability of Division of Condominium arbitration decisions on your community. Thanks to my readers for their suggestions and inquiries- keep them coming.

 

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New Year's Message of Tolerance and Kindness

(December 30, 2009)

Very recently, a condominium unit owner required legal assistance in obtaining a retraining order against a fellow unit owner who verbally assaulted him and finally pushed him into a plate glass window. Events like this make me wonder whether the Condominium Act should be amended to include a "personality test" as a part of the application for residency requirement. It should be obvious that living in a condominium means tolerating neighbors with different points of view, let alone the smell of garlic when walking down the hallway.

As we begin the new year, I am reminded of the ever increasing relevance of the "Reflections of the Dalai Lama" and share them with you now as a new years gift to our readers.

"Take into account that great love and great achievements involve great risk; When you lose, don’t lose the lesson; Follow the three R’s: Respect for self. Respect for others and Responsibility for all of your actions; Remember that not getting what you want is sometimes a wonderful stroke of luck: Learn the rules; Don’t let a little dispute injure a great relationship; When you realize you’ve made a mistake, take immediate steps to correct it: Spend some time alone every day; Open your arms to change, but don’t give up your values; Remember that silence is sometimes the best answer; Live a good, honorable life, then when you get older and think back, you’ll be able to enjoy it a second time; A loving atmosphere in your house is the foundation for your life; In disagreements with loved ones, deal only with the current situation. Don’t bring up the past; Share your knowledge. It is a way to achieve immortality; Once a year, go some place you’ve never been before; Remember the best relationship is the one in which your love for each other exceeds your need for each other; Judge your success by what you had to give up in order to get it." — The Dalai Lama

Finally, if the Dali Lama had lived in a condominium I am sure he would have added, "Be tolerant of your neighbors and board members and be kind and respectful to them, especially when you disagree."

Have a healthy and happy new year.

 

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Foreclosures ... When Lenders Drag Their Feet

(December 16, 2009)

Is the lender of a foreclosed unit in your association refusing to advance their case to final judgment? For ex-ample, let’s say the association has not received its assessments from Joe and Alice Debtor for months. After several false promises and broken agreements to catch up the arrearage, Joe and Alice fail to make their mortgage payments, too. The board instructs the association’s lawyer to file an assessment foreclosure lawsuit. Several months later, the lender files its first mortgagee foreclosure lawsuit.

When both the association and lender have concurrent lawsuits filed against the same owner, if the association concludes its case and the unit is sold to the highest bidder, the new owner takes title to unit subject to the outcome of the lender’s lawsuit. As a result, many associations wait for the lender‘s foreclosure case to conclude. But, the lender knows that once it takes title as a result of its own foreclosure lawsuit, it will owe back assessments (6 months for condos, and 12 months for HOA’s) or 1% of the initial lawsuit whichever is less. In addition, the lender must pay all assessments due and owing from the day title is vested in its name. It should be of little surprise that the lender is in no hurry. It is has secured its investment by filing its lawsuit and at the same time avoid its assessment liability by not moving its lawsuit too quickly. If this is happening to your association, what can you do?

Many lawyers have advised their association clients to file a motion with the court seeking an order to compel the lender to move its case along or in the alternative to pay assessments for failing to do so. While there is no remedy in the law to require the lender to do so, several courageous judges, who were willing to think outside the box and let equity prevail, ordered the lender to pay assessments during its foreclosure lawsuit as a form of punishment for dragging its feet and causing the association additional financial harm. Sadly, no more.

On December 2, 2009, in U.S. Bank National v. Danny Tadmore, the 3d District Court of Appeals struck the trial court’s order requiring the lender to "diligently proceed with its pending foreclosure action … within 30 days or pay monthly assessments." In striking the trial court’s order, the appellate court found that the principal of equity could not be used as there was already a law directly on point. The appellate court held that "in applying the principals of equity, the legal rights of the parties cannot be trammeled. Court’s cannot issue orders it believes to be equitable and therefore in the best interest of social justice without regard to established law." Because the law already provides for the first mortgagee lender’s assessment liability, the trial court simply went too far by requiring the lender to pay sooner than the existing law provides. Nevertheless, take a deep breath. There is still hope.

The association still has some "tricks of the trade" it can use to hurry the foreclosing lender along. At the earliest available opportunity, the association should set the lender’s foreclosure case on the court’s trial docket. At least the end will be in sight. Also, if the lender has not taken any action for a year or more, the association can move to dismiss the lender’s case for failing to take any action during the previous twelve months. In addition, the association can always conclude its assessment foreclosure case that may be concurrent with the stalled lender’s case. Doing so, might result in an opportunity to rent the unit while the lender remains asleep at the switch. Remember, every situation is unique. As a result, there is no "one" solution.

 

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Surety  Bonds

(November 4, 2009) 

If you live in a recently constructed condominium building you will absolutely want to read this article. It explains how, under the right circumstance, to invoke the contractor’s "surety bond" to pay for repairing your condominium’s construction defects. Several days ago, on October 30, 2009, the First District Court of Appeal issued its ground breaking opinion in The Marseilles Condominium Owners Association, Inc., v. Travelers Casualty and Surety Company of America, 34 Fla. L. Weekly D2241b (Fla. 1st DCA 2009).

The Marseilles case could be of valuable assistance to associations who are stuck with partial completion of their condominium buildings or repairing construction defects left behind by troubled developers, or both. Say your developer was a single purpose entity, who, when the going got tough, not only got going, but dissolved its entity leaving the Association in a lurch. Piercing the corporate veil from the single purpose entity to the affiliate parent company is an up hill and extremely costly and risky approach. Now, under the right circumstances, there may be another remedy for your association: invoking the contractor’s surety bond as a successor to the developer. There is even a statutory prevailing party attorney fee provision.

By way of background, Wikipedia defines a surety bond as an instrument issued by an entity on behalf of a second party, guaranteeing that the second party will fulfill an obligation or series of obligations to a third party. In the event that the obligations are not met, the third party will recover its losses via the bond. In plain English and as applied to condominium construction, in exchange for a fee paid to the insurance company (the surety), the insurance company obligates itself to the developer to fund the completion and construction of the condominium and to repair defects in the event the contractor fails to do so.

In Marseilles, the Association filed a lawsuit against the Developer and the surety insurance company, Travelers. The complaint alleged that the condominium project suffered both incomplete and defective construction work and that the Association notified the Developer continuously throughout 2006 about construction defects in the condominium project which had not been remedied or repaired. The Association alleged a claim for breach of various warranties against the Developer and a claim under the performance bonds against Travelers.

The district court explained that the bonds, which guaranteed the performance of the general contractor expressly prohibited an action by any "entity other than the Owner or its heirs, executors, administrators or successors." The named "Owner" under the bonds was the developer of the condominium project, a single purpose entity. The court held that, "under the unique facts and circumstances of this case and the language of the contractual documents involved, the Association is a "successor" to the Developer under the bonds and, therefore, may bring an action on the bonds to cure the alleged defective and incomplete work of the contractor."

The court limited its decision in Marseilles to a unique set of facts. Therefore, to determine whether the holding of this case will be of benefit to your partially built condominium or your construction defect ridden condominium, a detailed analysis of the facts not limited to a review of the construction contracts and performance bond will absolutely be necessary. In Marseilles, the court noted that the surety bond included specific language upon which its decision was based, including:

1) The warranties are for the benefit of the Owner, and all unit owners and any owners’ association. The Construction Contract is incorporated herein by reference [into the terms of the surety bond].

2) The Surety is obligated without duplication for…the responsibilities of the Contractor for correction of defective work and completion of the Construction Contract.

3) The contractor warrants "that the Work will be free from defects not inherent in the quality required or permitted, and that the Work will conform with the requirements of Contract Documents."

Remember, that generally, and not applicable to any particular situation, to assert a Section 718.203 condominium warranty claim, if the defects are patent (readily observable) the defects must have occurred within three years of the building’s completion (usually evidenced by a certificate of occupancy) and the association’s lawsuit must be filed not greater than four years from turnover. If the defects are latent (hidden) and the association had no reason to know of the defects, then the defect itself must still have occurred within the first three years from the date of the building’s completion, and the association must file its lawsuit not later than four years from discovery of the defect. Lawsuits not filed within ten years from completion of the improvements will be time-barred. Finally, if the association files a lawsuit arguing that it is the successor to the condominium developer and as such is invoking the surety bond, the association will argue that the applicable statute of limitation to file its lawsuit against the surety is five years. No doubt, the surety will argue otherwise. Obviously, this is a very complicated subject matter.

Marseilles will surely have far ranging implications that could be of great benefit. How far its broad ranging implications will go is left to future court interpretation. If your board would like to discuss the significance that this case may have on your recently built condominium building or other important issues, please feel free to contact me to schedule a no fee consultation.

 

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(October 21, 2009)

 

Why did the Vampire subscribe to the Condo News? He heard it had great circulation. What kind of association streets do zombies like the best? Dead ends... Now that I have your ghoulish attention we can proceed with this week’s tale of horror…

Joe Candycorn, a unit owner in the Ghost and Goblin Condominium Association yelled at his board of directors after board member, Mr. Hollow Pumpkinhead, told him he cannot keep his bats and vampires on his balcony. Joe Candycorn yelled "You can’t enforce that rule or covenant against me! During the last ten years, the association has not enforced it against anyone, so too bad association, you lose!" Right? Nope, wrong. By following careful procedures, including discussing the situation with the association’s legal counsel, an association can breathe new life into governing document provisions that have been otherwise rendered moot for failure to enforce them over a significant period of time.

Before I tell you how to do it, you must remember this above all else: an association cannot breathe new life into a previously ignored rule or covenant and then retroactively enforce it. The revitalized rule or covenant is most likely enforceable only prospectively, not retroactively.

Say the association had this rule: no bats or vampires may remain on the balcony overnight. Over time, half of the unit owners leave their bats and vampires on their balconies. The association consults its lawyer. The lawyer explains because this is a rule that has been ignored for quite some time, just enforcing it would not be wise. A unit owner could claim the rule is "moot." The lawyer explains that to enforce the rule prospectively the Board should follow the procedures for rule adoption. Generally, this means providing fourteen days prior written notice to all unit owners of the board meeting where the rule will be considered for re-adoption. Pending the circumstances, it is typically a wiser practice to send to each owner a copy of the proposed rule text to be re-adopted and reasons why the board believes it important to do so. After proper board meeting notice and the board’s re-adoption of the previously ignored rule, notice should again be provided to the entire membership of the exact language of the re-adopted rule to put them on notice that the re-adopted rule will be enforced as of a particular date.

Sometimes, pending the genesis of the covenant to be re-adopted, recording the revitalized covenant in the county’s public records may be warranted, too. Generally speaking, giving new life to a previously ignored rule or covenant can be readily accomplished. But, it must be accomplished by adhering to a few safeguards, not limited to providing reasonable notice under the circumstances, following statutory and case law guidance, and enforcing the revitalized covenant or rule prospectively, not retroactively.

Association board members who read the Condo News are welcome to contact me to arrange a no-fee meeting to discuss community association issues that may be of ghostly or eerily importance to your community. In the event the association already has legal counsel, you are encouraged to contact them. The information in this column is generic and not specific to any particular situation. Remember, one small change in the facts can lead to a completely different interpretation of the law. Boo!

 

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Examples of Arbitration Decisions

(October 7, 2009)

 

Today’s column features a couple of arbitration decisions from the Florida Division of Condominiums, Time-shares and Mobile Homes that you might find interesting.

You want to hang "what" in MY unit? In Grand Cay Villas at Ponte Verda Condominium Association, Inc. v. Coppedge, Case No. 2006-01-2192, the Arbitrator held that "where it was necessary to upgrade the building’s fire alarm system, the Board’s decision to require one unit in each building to house the fire system panel was upheld, where it was shown that placement within a unit would contribute to the overall reliability and responsiveness of the fire safety system. Installation of the panel on the building’s exterior wall would have been more expensive and less reliable." As you can readily see, the Arbitrator justified the Division’s position based on reliability and safety. Nevertheless, I suspect the affected unit owners were not too happy with the outcome. Here is a reasonable inquiry: Should the Association be required to pay rent to the unit owner whose wall is adorned with the Association’s fire control panel?

Bark, Ruff, and Growl: Here is case for all of you pet owners. In Grand Key Condominium Association, Inc. v. Dellose, Case No. 2005-05-6837, the Arbitrator opined that "condominium owners live in close proximity to one another and owners must understand that even when the governing documents limit the amount of noise, noises from neighbors are expected to be heard to a certain degree. This, however, does not excuse behavior that rises to the level of a nuisance. Therefore, where the Association established that the unit owners’ dog excessively and unreasonably whined, barked and howled, the dog was found to be a nuisance." Suffice it to say, let that be a lesson to anyone with yapping dogs. If you are going to live in a condominium, you must be respectful of your fellow owners. You have a right to enjoy your unit right up until your actions interfere with your neighbor’s right to do the same. If you are going to live in a condominium and own a dog, you would save yourself a lot of aggravation if you choose a dog that does not have tendencies to bark at his or her own shadow. A great small dog for a living in close quarters is a "Havanese." They are cute, extremely intelligent, sweet, kind, and as lovable as the day is long. They bark only when there is a justifiable need. How do I know? Guess who owns one?

A special for readers and supporters of the Condo News: If your Board of Directors would like a free consultation to discuss any issue that may be troubling your Association from collections and foreclosures, material alterations, elections, and everything in between and beyond please feel free to call me at 561-868-6771 to arrange a mutually convenient time.

 

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Using Common Elements for Religious Services

(Sept. 23, 2009)

 

As we enter the holiday season it is an appropriate time to review whether the condominium’s common elements, such as the club or social room, can be used to hold religious services and whether a religious object, such as a mezuzah (a small object with a few of G-d's commandments written inside) can be placed on a unit owner’s door?

First, some vocabulary is in order. According to AskMoses.com, Rosh Hashanah is, on its simplest level, the start of the Jewish calendar year, and the judgment and anniversary day for all of creation. Yom Kippur commemorates the day when G-d forgave the Jewish people for the sin of the Golden Calf. Moses spent two forty-day stints on top of the mountain pleading with G-d for forgiveness, and it was finally granted. From that moment on, Jews around celebrate this Day of Atonement observed annually as a commemoration of their relationship with G-d, a relationship which is strong enough to survive any rocky bumps it might encounter. Sukkot commemorates the Jews’ 40 year journey in the desert and the final harvest of the year. It is a season of rejoicing. So, what does that have to do with condominium living?

Not too long ago, in a land not too far away, a religious group comprised, in part, of members of homeowners’ association sued their association, alleging that a rule barring religious services in the common areas was violation of Fair Housing Act and Florida Fair Housing Act (together, "FHA"). The name of the case was Savanna Club Worship Service, Inc. (the "Club") v. Savanna Club Homeowner’s Association, Inc. (the "Association"), a 2005 Federal decision from the Southern District of Florida. The Club, which included some Association members, had historically conducted its religious services in the Association’s club house. In response, the Association adopted a rule which disallowed anyone from conducting "religious services" in any of Association’s common areas (the "Rule"). The Club members alleged that the Rule discriminated against the Club based upon religion and, therefore, violated the FHA. The Court addressed whether the Association’s equally applied religious-based prohibition violated the FHA (42 U.S.C. 3604(b)), which provides, in pertinent part, that it is unlawful "[t]o discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of race, color, religion, sex, familial status, or national origin."

The Court, in upholding the validity of the Rule, entered its Final Order in favor of the Association. The Court held, "none of the Club’s members who are homeowners were denied access to Savanna’s common areas. Rather, they had been equally denied permission to use the common areas to conduct their religious services. It was clear that no other homeowner was permitted to conduct their religious services within Savanna’s common areas. The application of a Rule barring all religious services from a community’s common areas without impeding a homeowner’s right to practice his or her religion, and without denying access to the common areas for all other purposes is not sufficient to establish that the Club is being treated differently from persons of other religions." The key to the Court’s rational was that the Association applied its rule equally to all religious groups and did not otherwise deny access to the common areas.

The Club’s claim did not prevail because, in the end, it did not establish that it was denied access to use of facilities or common areas available to other homeowners. In other words, the Rule was applied equally against all religions. In addition, the Court found that the Association met its burden of setting forth a legitimate non-discriminatory basis for enacting the Rule.

Not addressed in the Savanna case is whether an association can prohibit religious services in a unit. Even if your declaration provides that units or homes may only be used for "residential purposes", the question then becomes whether practicing one’s religion in their own home is considered part of "residential purposes." At a minimum, it can be argued that enjoying one’s religion is a key component of a "residential purpose." To suggest otherwise means a clear definition of "residential purposes" must be set forth in the declaration. Say it is defined as eating, sleeping, and washing. What if those activities require a short religious service? Can an association prevent a unit owner from holding such a service? I would think not. Then again, what if instead a private service by the singular unit owner, numerous others attend on a regular basis? I think it best that community associations stay away from regulation of religion within one’s home unless it is patently clear that such actions are causing nuisance which deprive others the use and enjoyment of their own property.

Remember, according to Florida law, a condominium association may not refuse the request of a unit owner for a reasonable accommodation for the attachment on the mantel or frame of the door of the unit owner, a religious object not to exceed 3 inches wide, 6 inches high, and 1.5 inches deep. So, hang those mezuzah’s with pride and love.

Remember, always consult with your attorney before taking action as this column is NOT intended as specific legal advice to any particular situation.

L’shana Tova (happy new year).

 

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APPLYING THE 

FAIR DEBT COLLECTION PRACTICES ACT

(September 9, 2009)

 

Today’s column addresses a new wrinkle in the application of the Fair Debt Collection Practices Act (the "Act"). The issue that arises is whether an Association and its Management Company are considered "debt collectors" within the meaning of the Act. If so, then there are specific requirements that must be followed. They include, to name a few: identification of oneself as a debt collector, definitive times the debtor may be contacted, restrictions on where the debtor may be contacted, specific disclosures in the first written communication and what are referred to as the Act’s "Miranda" warnings. The Miranda warnings are straightforward. In the first communication with the debtor the debt collector must include "This is an attempt to collect a debt and any information obtained may be used for that purpose." In every subsequent communicaiton the debt collector must state, "This is a communication from a debt collector." Violations of the Act are very costly and damages awarded for violating the Act include attorney fees thereby further encouaging lawsuits against potential violators.

Associations can rest easy. The consumer’s creditor, the originators of the debt (e.g. the association) are not considered debt collectors. Is the management company? Well, that depends. Not too long ago, in 2008, the Federal Court for the Middle District of Florida in a case called Wright V. Ross explained a previous Florida Supreme Court decision, Bryan v. Clayton. In Bryan, the Florida Supreme Court held that the Fair Debt Collection Practices Act and the Florida Consumer Collection Practices Act definitions of the term "debt" excludes maintenance assessments owed to a homeowners association. However, the Wright court explained that if ruling today, the Supreme Court would disapprove of its decision in Bryan and hold that maintenance assessments do qualify as a debt under the Florida Consumer Collection Practices Act and the Fair Debt Collection Practices Act. The Wright court noted that the decisions upon which Bryan was based have been reversed or disapproved and held that the Florida Supreme Court, if ruling today, would conclude that maintenance assessments qualify as a "debt" under the Florida Consumer Collection Practices Act. (As an aside, both the Federal and State consumer protection acts are somewhat similar, but the Florida Act is far broader in its scope and application. It is the Florida Consumer Collection Practices Act that prohibits the publishing of a debtor list.) Based on the Wright case, it appeared it would only be a matter of time before a property management firm would find itself staring down the barrel of a lawsuit for violating the Act. Well, it happened. The result is not as bad as it could be. But, it does evidence a further step closer to an argument that a property management firm collecting assessments is a "debt collector" and if so, is subject to the Act.

On July 7, 2009, in Sanz v. Fernandez the Federal Court in the Southern District of Florida held that a property management company collecting rent from tenants violated the Act. The manager sent numerous correspondence to the tenant in an attempt to collect the rent. In determining whether the property management company was a debt collector, the main focus was whether the property management company was actively engaged in the debt collection activity on behalf of another. Now that I have your attention, there is a silver lining.

In Sanz, the property management company defending a claim that it was a "debt collector" relied on a previous Federal Court Middle District case Reynolds v. Gable Residential Services, Inc. In Reynolds, a property manager, pursuant to an agreement, collected monthly rent from tenants on behalf of the property owner. The Reynold’s court held that because the property manager had a fiduciary obligation to collect monthly rent on behalf of the property owner before the rent was in default, the property manager was not collecting rent as a debt collector. The Sanz court held that the Reynolds case was not applicable because Sanz did not allege that the property manager had a prior fiduciary duty and because the property manager was not retained until the tenant was already in default. And so what do we learn from all this?

We learn: 1) An association is not a debt collector and thus not required to follow the requirements of the Act. 2) A property management company that is retained to collect the debt of another after the debt is delinquent is considered a "debt collector" and is subject to the requirements of the Act. 3) Under the 2006 Reynolds case, a property management company that pursuant to an agreement to collect the monthly rent from tenants prior to the default is not a debt collector and not subject to the requirements of the Act. 4) But, based on the 2008 Wright case, the opportunity is ripe for an aggressive lawyer to challenge the Reynolds case and argue that a property management company collecting assessments in the due course of its business is a debt collector and is therefore required to follow the Act. Which side would prevail in such a lawsuit? Your guess is as good as mine. Being that is so easy to comply with the Act, why take the chance? Also, not discussed and worthy of mentioning is that most property management companies send association assessment demand for payment letters, not in their name, but rather in the name of the association and often still, on the association’s letterhead. Could that provide another layer of protection in favor of the property management company?

Always remember to consult with your attorney before taking any action as this column is NOT intended as specific legal advice to any particular situation.

 

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INSURANCE

Part 1 (July 29, 2009)

Just because your condominium is properly insured does not mean you will have coverage if your association makes a claim. While acting as a panelist in a two hour "Ask the Lawyer" session for the Gold Coast Chapter of the Community Association Institute one of the manager or board member attendees inquired about insurance. It did not take long for our conversation to address not only the need to insure the condominium with adequate coverage, but also how failure to fulfill maintenance obligations can lead to claim denial. This is the first part of a two-part article addressing condominium insurance.

If the board of directors has reason to believe that the common elements or even a unit, is in need of repair and the board chooses to look the other way, then in the event of a catastrophe the Association’s insurance claim could be denied. After a claim is made the insurer will ask for all maintenance records, board meeting transcripts, audio and video records if available, and even previous engineering reports and the like. With that information in hand, the insurer can determine whether the Association failed in its is duty to properly maintain the property including both common elements and enforcing unit owner maintenance obligations.

For example, let’s say the Sueme Condominium Association, Inc.’s declaration of condominium establishes that the sliding glass doors, inclusive of frames and other hardware, are a patently clear unit owner maintenance, repair, and replacement obligation. There are unit owner complaints of moisture and water intrusion assumedly caused by a common element failure. Needing more information the Board engages an engineer. The engineer opines not only was there a common element failure, but that the sliding glass doors are also a possible cause of water and moisture intrusion and due to age and wear and tear have failed. The Board decides to fix the common elements and not bother with forcing the owners to maintain or otherwise replace the sliding glass doors. A year or so later, the Sueme Condominium suffers significant damages as a result of a hurricane. The claim is filed and the insurance company investigates. It discovers the board abrogated its duty to enforce the covenants set forth in the declaration because the engineer recommended sliding glass door replacement and the Board failed to force the unit owners to comply with their maintenance and replacement obligations. What happens next is predictable. The insurance company has a strong argument to contest, or worse, deny the claim. The insurance company argues that the damage was caused by the blown out sliding glass doors that the board knew, as per the engineer report, should have been replaced.

There are 124 separate condominium association complaints filed with the State of Florida Department of Financial Services in regard to insurance companies claim issues. Take steps so that your Association does not have to file the 125th complaint. In the next column I will address the insurance coverage requirements provided in the Condominium Act. Be sure not to miss it!

Always remember to consult with your attorney before taking any action as this column is NOT intended as specific legal advice to any particular situation.

 

Part 2 (August 12, 2009)

In part 1, we discussed what can happen if your Board fails to fulfill its maintenance obligations in the event of a catastrophe. This week the subject is a bit drier, but of equal importance while we address the Condominium Act’s (the "Act") insurance requirements. The two questions I am asked most often in regard to condominium insurance obligations is 1) do we really have to require all units owners to provide a copy of their insurance policy and 2) whether the association must "force place" (a fancy insurance term that means to purchase for someone) a policy for a unit owner who fails to insure their unit or otherwise fails to provide a copy of their insurance policy to the Association. We’ll start there.

The association must require each owner to provide evidence of a currently effective policy of hazard and liability insurance upon request, but not more than once per year. However, it’s a requirement without any real consequences for failing to comply. That said, upon the failure of an owner to provide a certificate of insurance issued by an insurer approved to write such insurance in this state within 30 days after the date on which a written request is delivered, the association MAY purchase a policy of insurance on behalf of an owner. The cost of such a policy, together with reconstruction costs undertaken by the association but which are the responsibility of the unit owner, may be collected in the manner provided for the collection of assessments.

Next we’ll address deductibles. The Act provides that the insurance policies may include deductibles as determined by the board. The deductibles must be consistent with industry standards and prevailing practice for communities of similar size and age, and having similar construction and facilities in the locale where the condominium property is situated. Further, the deductibles may be based upon available funds, including reserve accounts, or predetermined assessment authority at the time the insurance is obtained. The board is required to establish the amount of deductibles based upon the level of available funds and predetermined assessment authority at a board meeting.

The board meeting where the deductible will be discussed must be open to all unit owners. At least 14 days prior to the meeting, the board must hand deliver to each unit owner, mail to each unit owner at the address last furnished to the association by the unit owner, or electronically transmit to the location furnished by the unit owner for that purpose a notice of such meeting. The notice of such meeting must state the proposed deductible and the available funds and the assessment authority relied upon by the board and estimate any potential assessment amount against each unit, if any. An officer or manager of the association, or other person providing notice of such meeting, must execute an affidavit evidencing compliance with such notice requirement. The affidavit must be filed among the official records of the association. The board meeting may be held in conjunction with a meeting to consider the proposed budget or an amendment thereto.

 

Part 3 (August 26, 2009)

We now turn our attention to what the association is required to insure as compared to the unit owner coverage requirements and the type of coverage required. The Act requires, in part, that adequate hazard insurance, regardless of any requirement in the declaration of condominium for coverage by the association for full insurable value, replacement cost, or similar coverage, must be based upon the replacement cost of the property to be insured as determined by an independent insurance appraisal or update of a prior appraisal. The full insurable value must be determined at least once every 36 months.

An association controlled by unit owners operating as a residential condominium must use its best efforts to obtain and maintain adequate insurance to protect the association, the association property, the common elements, and the condominium property that is required to be insured by the association pursuant to the Act.

The Act requires all improvements or additions to the condominium property that benefit fewer than all unit owners to be insured by the unit owner or owners having the use thereof, or may be insured by the association at the cost and expense of the unit owners having the use thereof.

The Act requires that every hazard insurance policy issued or renewed on or after January 1, 2009, for the purpose of protecting the condominium must provide primary coverage for all portions of the condominium property as originally installed or replacement of like kind and quality, in accordance with the original plans and specifications and all alterations or additions made to the condominium property or association property.

The association’s coverage must exclude all personal property within the unit and "limited common elements" (a fancy legal term meaning a common element where an owner has an exclusive use right), and floor, wall, and ceiling coverings, electrical fixtures, appliances, water heaters, water filters, built-in cabinets and counter tops, and window treatments, including curtains, drapes, blinds, hardware, and similar window treatment components, or replacements of any of the foregoing.

Finally, we turn our attention to cost allocation. Presently, I will only very briefly address the subject. Any portion of the condominium property required to be insured by the association against casualty loss which is damaged by casualty shall be reconstructed, repaired, or replaced as necessary by the association as a common expense. All hazard insurance deductibles, uninsured losses, and other damages in excess of hazard insurance coverage under the hazard insurance policies maintained by the association are a common expense of the condominium. However, an association may, upon the approval of a majority of the total voting interests in the association, opt out of the aforementioned provisions for the allocation of repair or reconstruction expenses and allocate repair or reconstruction expenses in the manner provided in the declaration as originally recorded or as amended. Such vote may be approved by the voting interests of the association without regard to any mortgagee consent requirements.

Always remember to consult with your attorney before taking any action as this column is NOT intended as specific legal advice to any particular situation.

 

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(July 15, 2009) 

Does your community have a swimming pool? If so, you must comply with the Virginia Graeme Baker Pool and Spa Safety Act (the "Act") and other applicable laws. The Act was passed in response to the significant safety threat posed by pool drain systems that have cause severe injury or death to numerous children. The Act is applicable to all community pools: this includes condominium, homeowner and cooperative associations. Pools that are open year-round, as is typical in South Florida, were to be in compliance by December 19, 2008.

Specifically, the Act mandates that each public swimming pool or spa must have certain safety equipment installed as of December 19, 2008, including special drain covers and devices or systems designed to prevent entrapment by pool or spa drains. There are reports of pool operators who claim that they are unable to bring their pools into compliance due to the unavailability of compliant drain covers. Despite unavailability of proper drain covers, even though it is a matter outside the control of associations, those charged with enforcing the Act have established there is no grace period! Is your Association doing everything it can to ensure compliance? If not, why not?

Associations must also be cognizant of that fact that their pools need to comply with the requirements of the Florida Administrative Code (the "Code"), too. The Code was recently amended to require that all pools built without a main drain collector tank must be fitted with a properly sized and piped collector tank to eliminate direct suction through the main drain. Moreover, the Code requires that existing pools with direct suction main drains must install a main drain cover/grate that meets the 1.5 feet per second water velocity requirement in addition to being in compliance with other standards. Lastly, the Code provides that if the pool cannot be refitted with the necessary equipment by the deadlines set forth in the Code, the pool must be closed!!!

Any modifications and improvements to a pool or spa should be performed only by licensed and insured contractors. To make the modifications, the pool owner must apply for a modification permit from the County Health Department or Regional Engineering Office by submitting the current modification forms with engineering documents and the requisite fee. After the drain cover is replaced and any other work effectuated, the contractor who performed the installation or the pool owner must submit a contractor-signed statement to the Health Department evidencing that they have replaced the cover to be in compliance the Act.

All associations who have not already brought their pools and spas into compliance should be mindful of its requirements and take the necessary steps to make needed modifications. Failure to comply with the Act and Code may not only subject the association to penalties, but puts the lives of swimmers at unnecessary risk. Moreover, should a swimmer drown due an association’s failure to comply, the power of assessment creates a sought after deep pocket.

In the last column, I note an error due to my own self editing. To clarify, both the Florida Condominium Act and Homeowner’s Association Act provide, in part, that if the unit owner or member remains in possession of the unit after a foreclosure judgment has been entered, the court, in its discretion, may require the unit owner or member to pay a reasonable rental for the unit. Most importantly, both Acts provide that if the unit is rented or leased during the pendency of the foreclosure action, the association is entitled to the appointment of a receiver to collect the rent.

A special thanks to Stephanie Chaissan, Esq. of our Coral Gables office who provided valuable research for today’s column.

 

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(July 1, 2009) 

This July 4th edition would not have been complete without a discussion regarding your right to display "Old Glory", the flag of the United States of America. Too many of our mothers, fathers, sisters, brothers, aunts, uncles, cousins and friends have unselfishly given their lives for our right to live in freedom. To many, the flag represents their sacrifice. While the signing of the Declaration of Independence began on July 4, 1776, it was not actually completed until that August. Nevertheless, the 4th of July is official anniversary of United States independence from Britain. On July 4,1777, the first Independence Day celebration took place.

On June 14, 1777, in order to establish an official flag for the new nation, the Continental Congress passed the first Flag Act: "Resolved, that the flag of the United States be made of thirteen stripes, alternate red and white; that the union be thirteen stars, white in a blue field, representing a new Constellation." As time marched on, restrictions were placed on the right to display the flag on private property. Often these restrictions were set forth in the recorded covenants of condominium and homeowner associations. It became clear that people wanted to display the flag regardless of these covenants. Both state and federal laws evidence this right.

The Homeowner’s Association Act provides a clear right to display your flag. "Any homeowner may display one portable, removable United States flag or official flag of the State of Florida in a respectful manner, and one portable, removable official flag, in a respectful manner, not larger than 4½ feet by 6 feet, which represents the United States Army, Navy, Air Force, Marine Corps, or Coast Guard, or a POW-MIA flag, regardless of any covenants, restrictions, bylaws, rules, or requirements of the association. Any homeowner may erect a freestanding flagpole no more than 20 feet high on any portion of the homeowner’s real property, regardless of any covenants, restrictions, bylaws, rules, or requirements of the association, if the flagpole does not obstruct sightlines at intersections and is not erected within or upon an easement. The homeowner may further display in a respectful manner from that flagpole, regardless of any covenants, restrictions, bylaws, rules, or requirements of the association, one official United States flag, not larger than 4½ feet by 6 feet, and may additionally display one official flag of the State of Florida or the United States Army, Navy, Air Force, Marines, or Coast Guard, or a POW-MIA flag. Such additional flag must be equal in size to or smaller than the United States flag.

The Condominium Act perfects a unit owners right to display the flag, too. It provides that "any unit owner may display one portable, removable United States flag in a respectful way and, on Armed Forces Day, Memorial Day, Flag Day, Independence Day, and Veterans Day, may display in a respectful way portable, removable official flags, not larger than 4½ feet by 6 feet, that represent the United States Army, Navy, Air Force, Marine Corps, or Coast Guard, regardless of any declaration rules or requirements dealing with flags or decorations."

On January 3, 2006, the One Hundred and Ninth Congress of the United States passed the "Freedom to Display the American Flag Act of 2005" (commonly known as "The Flag Act"). The Flag Act provides that "a condominium association, cooperative association, or residential real estate management association may not adopt or enforce any policy, or enter into any agreement, that would restrict or prevent a member of the association from displaying the flag of the United States on residential property within the association with respect to which such member has a separate ownership interest or a right to exclusive possession or use. Nothing in this Act shall be considered to permit any display or use that is inconsistent with …any reasonable restriction pertaining to the time, place, or manner of displaying the flag of the United States necessary to protect a substantial interest of the condominium association, cooperative association, or residential real estate management association."

According to the authors of "usa-flag-site.org", our present flag consists of thirteen horizontal stripes, seven red alternating with six white. The stripes represent the original 13 colonies, the stars represent the 50 states of the Union. The colors of the flag are symbolic as well: red symbolizes hardiness and valor, white symbolizes purity and innocence and blue represents vigilance, perseverance and justice.

Remember, always consult with your attorney before taking action as this column is NOT intended as specific legal advice to any particular situation. 

 

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(June 17, 2009) 

Previously, I addressed the ability of a condominium association to seek rent paid to a unit owner where the deadbeat unit owner fails to pay assessments to the association. As to homeowner associations, the Homeowner’s Association Act provides that if the property is rented during the pendency of a foreclosure action, the association is entitled to the appointment of a receiver to collect the rent. Of course, your attorney will need to petition the court for such relief. In these difficult times it is shameful that the Condominium Act does not have an equivalent provision.

As to condominiums, if you want to be in a position to collect rent from the tenant, the board should have the power to approve tenants as set forth in the declaration. If your declaration does not have this requirement, consider an amendment. Once you have such language, as a condition of tenancy, your association might consider requiring the tenant, unit owner, and the association to enter into a lease addendum whereby the all parties agree that if the unit owner is delinquent in their assessment obligation, the association has the right, upon proper notice to the parties, to have the tenant pay their rent directly to the association. You could also consider an amendment to your declaration that permits the association, upon proper notice, to collect the rent directly from a tenant whose unit owner is delinquent. Remember, as to condominium declaration amendments, leasing amendments are only enforceable against those who vote in favor for the amendment and for those who did not vote in favor, against that unit, only after sale to a new unit owner. As an aside, you can always ask the judge in a condominium foreclosure action to appoint a receiver to collect the rent. It never hurts to ask. Worst case, the judge says, "denied."

Regarding hurricane shutters, the Condominium Act gives us some great guidance. Each board must adopt hurricane shutter specifications for each building. This includes the color, style, and other factors deemed relevant by the board. All specifications adopted by the board must comply with the applicable building code. The board may, subject to the bidding requirements of the Condominium Act, and the approval of a majority of voting interests of the condominium, install hurricane shutters or hurricane protection that complies with or exceeds the applicable building code, or both, except that a vote of the owners is not required if the maintenance, repair, and replacement of hurricane shutters or other forms of hurricane protection are the responsibility of the association pursuant to your declaration. However, where hurricane protection or laminated glass or window film architecturally designed to function as hurricane protection which complies with or exceeds the current applicable building code has been previously installed, the board may not install hurricane shutters or other hurricane protection.

The association is responsible for the maintenance, repair, and replacement of the hurricane shutters or other hurricane protection if such hurricane shutters or other hurricane protection is the responsibility of the association pursuant to your declaration. If the hurricane shutters or other hurricane protection are the responsibility of the unit owners pursuant to the declaration, the responsibility for the maintenance, repair, and replacement of such items shall be the responsibility of the unit owner.

The board may operate shutters without permission of the unit owners only where such operation is necessary to preserve and protect the condominium property and association property. The installation, replacement, operation, repair, and maintenance of such shutters is generally not deemed a material alteration to the common elements or association property. Notwithstanding any provision to the contrary in the condominium documents, if approval is required by the governing documents, a board shall not refuse to approve the installation or replacement of hurricane shutters by a unit owner conforming to the specifications adopted by the board. Always remember to consult with your attorney before taking any action as this column is NOT intended as specific legal advice to any particular situation.

 

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(June 3, 2009) 

State of Florida trust funds and cable contracts, what do they have in common? Nothing. They are however the subjects of today’s column. In this instance, the term "trust fund" is a misnomer as our legislature re-appropriates the funds on a somewhat regular basis. (Regular readers of this column will appreciate the term "re-appropriates" is a fancy legal word for "raid").

Each condominium association is taxed $4.00 per unit owner and mobile home owners $5.00 per lot, annually, while time share owners are taxed $2.00 for each seven days. These funds are deposited into a trust fund for the benefit of association living. The monies are used to fund the ombudsman’s office, for training, for materials, and could be used to add additional arbitrators, provide better training, and to provide other ancillary services necessary or useful for communal living. Sadly, each year, the legislature raids trust funds to offset its budget deficit. This year the legislature raided SIX MILLION DOLLARS from the association’s trust fund to offset the State’s $6 billion dollar budget deficit.

There were about twenty-four trust funds raided this year. To make matters worse, the governor vetoed the legislature’s efforts to raid six million dollars from a fund that pays for concealed weapons applications. Given the often emotional episodes that can arise during emotionally charged board meetings, will managers, board members and lawyers need to wear Kevlar vests in addition to arming ourselves with the knowledge of the law? Could this be a sign that our governor is desirous of making friends with the ever powerful gun lobby for greater political ambitions. Representative Robaina, the Miami Republican who sponsored a major condo foreclosure reform bill that never gained traction, said lawmakers were raiding the association trust fund as soon as the money was going in. He also feared that the ombudsman, whose role is primarily to deal with the public, is in danger of being eliminated. He was quoted as saying, ‘’The ombudsman’s office is hanging by a thread without the trust fund money. It’s basically down to nothing.’’ Soon, notwithstanding an exclusivity provision in your condominium’s bulk cable contract, you might learn more about this by watching your favorite TV, cable, or internet news TV show in your own home.

Not so long ago the FCC ordered that exclusivity clauses written in agreements between cable companies and owners of multi unit developments (condos, homeowner associations, apartment building, etc.) had an anti-competitive effect on the cable market and banned such provisions. The FCC believed these deals which allow a cable provider to wire a building in exchange for the exclusive right to provide a cable service impairs the ability of competitors to deliver programming to consumers. Cable operates were forbidden from entering into new exclusivity contracts and could not enforce existing exclusivity clauses. As you can well imagine, cable and satellite providers challenged the FCC’s order.

On May 26, 2009 the 11th Judicial Circuit (a federal appellate court) upheld the FCC’s position. They went further and held "all such exclusivity clauses are null and void!" Certainly, it can be expected that the cable industry will appeal this decision to the United States Supreme Court. The wide ranging implications are significant. The days of "free wiring" during construction may be over. Associations may be free to contract with any video service provider regardless of existing exclusivity provisions. However, such decisions could come at a significant price. For example, merely because the community has a right to subscribe to additional providers does that mean that the association can avoid payment for services already rendered, such as the extreme cost in installation that is amortized over the many years of a long term cable service contract? For certain, we have not heard the last of this issue and may not for several years to come. The implications arising from this decision will be significant for which each community must seek legal counsel before taking any action. Likewise, always remember to consult with your attorney before taking any action as this column is NOT intended as specific legal advice to any particular situation.

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(May 20, 2009) 

Emails, emails, and more emails. In today’s busy world emails allow us to express our thoughts at any time, and with today’s mobile devices, anywhere. It is so convenient that often board members will discuss association business by email. Prevailing law is clear. Official records of condominium, homeowner and cooperative associations are subject to inspection with limited exception. The question I am often asked is whether emails constitute part of the association’s official records that are subject to inspection by the members.

Several categories of records, while still constituting a part of the official records, are not subject to inspection. For example, attorney client privileged correspondence, medical records, information obtained by an association in connection with the approval of the lease, sale, or other transfer of a unit, and social security numbers, to name a few. What about emails between board members and emails between the board and its manager?

On March 6 2002, the then Chief Assistant General Counsel of the Department of Business and Professional Regulation (DBPR) issued an opinion that provided, "emails between a board member and a manager constitute part of the official records subject to inspection by the requesting member. Where records deal with duties of the association they constitute part of the official records as do any records that pertain to the maintenance, management and operation of the association … while there are no records requiring the archiving of such emails if the email related to the operation of the association property, it is required to be maintained by the association."

On March 30, 2009 the Division of Condominiums, Timeshares, and Mobile Homes Division (an agency of the DBPR) issued an arbitration opinion that held, "emails on the personal computer of individual directors are not official records of the association … even if directors communicate among themselves by email strings or chains about the operation of the association, the status of the electronic communication on their personal computer would not change. Simply, an email to an individual director or to all directors as a group addressed only to their personal computers is not written communication to the association." The arbitrator then unbelievably wrote, "This must be so because there is no obligation to turn on the personal computer with any regularity, or to open emails and read emails before deleting them." Additionally, you should be aware that it has been previously held in another case that all email addresses in possession of the association are part of the official records subject to inspection.

It is very important to understand that the Division’s arbitration orders are specific to a particular set of facts and circumstances and do not broadly apply to other associations as would, say, an appellate decision. Nevertheless, in the real world, we know that communities often rely on the volume of these decisions for guidance. Why else would they be published?

It is important to clarify that while there is guidance in regard to whether emails constitute part of the association’s official records, none of the cases mentioned above dealt with the board meeting notice requirements. The Florida legislature has already secured the members absolute right to have notice prior to board meetings and board action so the members can be present to observe and listen, and in some instances participate. Allowing board members to communicate in secrecy, by means of email, means all decisions can be made in advance of a board meeting and all that need take place at the board meeting is the ratification of the decision previously reached via email. If the emails are not considered part of the association’s official records, then who could prove otherwise?

Practically speaking, if one was to rely on the cases cited herein, emails between board members, even a board majority, are not part of the official records, emails between the board and the manager are part of the official records, email lists of unit owners are part of the official records subject to inspection by other unit owners and, in this author’s opinion, the email communication that involves a board majority is still subject to the board meeting notice requirements already required by the Condominium Act. Remember, anytime the board majority discusses association business, minimally, a meeting notice and agenda must be posted in a conspicuous place in the community in at least 48 hours in advance. If assessments or proposed rules are to be considered then 14 days notice is usually required. Remember, always consult with your attorney before taking action as this column is NOT intended as specific legal advice to any particular situation.


Understanding House Bill 1397

This column will address the proposed 2009 community association legislation. If you have not taken the time to read House Bill 1397 sponsored by Representative Robaina (R- Miami), you should. I know, I know, it’s not law yet and you’ll worry about after, if, its passed. That attitude may come back to haunt you. The Bill is 190 pages and 5312 lines long. There is already a companion Bill filed in the Senate. Like most Bills, there is good and bad. There are numerous changes to the Condominium Act. The Cooperative Act is undergoing a major re-write where the legislature tries to reconcile it to the Condominium Act which is an effort, long overdue. There are few changes to the Homeowner Association Act that primarily pertain to new mortgagee liability for assessments. This article will focus your attention on the lobbying prohibitions that, if the Bill is passed into law, will apply to ALL community associations.

Bill 1397 provides that no association shall make any expenditure in order to retain a person or firm for the purpose of lobbying. The Association shall not make any contribution to a charitable organization, or political campaign, either. The word "lobbying" is not defined in the Bill. There are times your board needs to protect the best interests of the Association. For example, the city wants to create a new dog park across the street, or the local utility wants move overhead power lines too close, or a neighbor’s plans for building expansion will be too close. I was twice successfully retained to prevent a city from selling a local park to a developer so he could build a high rise condo next door. If this Bill becomes law, can your board hire legal counsel to protect the association? Can lawyers knowingly provide such representation? While I understand Representative Robaina (R-Miami) means well, in this instance, his efforts to further curtail the Board from acting in the best interests of the Association go much too far. To further scare you, directors of the association will be "jointly and severally" liable (a fancy legal term that means each person is equally responsible, however each person can be individually responsible) to reimburse the association for any violation of this new anti-lobbying provision.

The question, when undergoing such activities, is whether the lawyer is practicing law or lobbying? I maintain the lawyer is not lobbying, but rather providing legal services that are in the best interest of the Association. Often the lawyer will need to address the town council, county commission, or even the Florida legislature. As this Bill is currently drafted, I can guarantee others, especially the adverse party, will claim such activities are akin to "lobbying."

Is it fair for the legislature to tell you what issues the Association can and cannot address? While this may not be the intended result, this new provision, if passed into law, will certainly prevent associations from taking necessary precautionary measures to protect themselves, their property, and their property values. This column provides association boards, managers, and members useful information and tools necessary to exercise their reasonable business judgment to insure the smooth operation of their association.

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This Bill is massive in size and substance. In regard to condominium associations, if passed into law it addresses access to units, board meeting times and locations, lobbying and charitable contribution prohibitions, new board member liability (as if there is not enough already), staggered terms (again), bylaw amendment requirements, board member qualifications, new requirements for establishing lines of credit and borrowing money, provisions regarding impact glass, new first mortgagee liability requirements, new requirements for all foreclosing mortgagees regardless of priority, clarification of several insurance issues, new election and recall procedures, new division of condominium jurisdiction in regard a board’s failure to maintain common elements, and booklets of laws that must be prepared by the Division and read by all board members, to name a few. Over time, I will continue to address these issues.

In today’s column I will focus on the proposed foreclosure legislation. Currently, upon taking title to a foreclosed unit, the "first mortgagee" (a fancy legal term that means the lending institution that generally has priority against all others with a financial interest in the property) is responsible for the lesser of 6 months back assessments or 1% or the initial mortgage.

Under the proposed legislation, upon taking title in the name of the first mortgagee, it will be responsible for the lesser or 6 months back assessments or one-half of the unit’s common expenses and regular assessments which accrued or came due from the filing of the foreclosure action through the date of sale. To obtain the benefit of this protection a new requirement is added.

The new requirement provides that a mortgagee who files a foreclosure lawsuit on a mortgage secured by a condominium unit shall pay to the association, within 15 days after filing the action, all of the condominium unit’s then unpaid assessments which accrued or came due up to the date of the filing of the action. The payment is then "taxed" (another fancy legal term that means "added to") as a cost in the foreclosure action. The unit owner whose unit is being foreclosed remains liable to the foreclosing party (usually the first mortgagee/bank) for the value of the payment made to the association, plus interest.

Failure of the foreclosing party to make this payment permits the court to dismiss the action based on the association’s motion to dismiss at which time fees and costs are recoverable from the mortgagee who failed to comply with this new requirement. Of great interest is that not only does this apply to all mortgagees, but for a first mortgagee to receive the benefit of the assessment reduction they are accustomed to receiving they must first comply with this new requirement!

Remember, there is a way to go before this Bill becomes law. I predict there will be significant revisions. The question remains whether such requirements, if passed into law, will be applied to all mortgages or only to mortgages entered into after the effective date the Bill is passed into law? This author can argue both.

This column provides association boards, managers, and members useful information and tools necessary to exercise their reasonable business judgment to insure the smooth operation of their association.

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The 2009 legislation affecting community associations reminds me of the political definition of a "camel." A horse arrived in Tallahassee, visited a few legislative sub-committees and came out as a camel. This reminds me what has happened to the Condominium and Homeowners Association Acts. Senate Bill 714, which provides important changes to requirements imposed on community associations was approved by both the House and Senate. It will become effective upon becoming law. This means that after the Bill is presented to the Governor, he has 15 days to veto it. If not, it becomes law. Some of the highlights of this SB 714 include:

If the number of board members whose terms have expired exceeds the numbers of candidates running for those seats, each expired board member would now become eligible for reappointment to the board rather than having to run for re-election.

Co-owners of a unit would both be eligible to serve on the board only if they own more than one unit and are not co-occupants of any unit.

Adds fines, fees and special assessments to the list of items that render an owner ineligible to serve on the board if not paid for 90 days.

Removes the requirement to sign and send in a Candidate Certification form before an election and replaces it with the requirement that each newly elected director must certify in writing within 90 days after being elected that he or she has read the association’s declaration, articles of incorporation, bylaws and current written policies.

Newly elected directors must certify that they will uphold the governing documents to the best of their ability and will faithfully discharge their fiduciary duties. In lieu of this written certification, directors may also submit a certificate that they have satisfactorily completed an educational program administered by a Division approved educational provider. Failure to file either the certification or the educational course certificate will result in the director being unable to serve any longer on the board.

The deadline for residential high-rises to retrofit their common areas with sprinkler systems is extended from 2014 to 2025.

Residential buildings with at least one public elevator are no longer required to have an alternate power source such as a generator.

A condominium that is one or two stories in height and has an "exterior means of egress corridor" is exempt from having to install a manual fire alarm system as required in Section 9.6 of the Life Safety Code.

Removes the requirement that the association inquire as to each owner’s HO-6 coverage and removes the ability of the association to purchase or "force place" any missing unit owner policies.

Answers to selected questions received follow :

If an association is unable to amend its documents to allow rent to be collected from renters in place of the delinquent owner, what else can the association due? Perhaps the association, tenant, and owner can voluntarily agree in a lease addendum that if owner is delinquent, the tenant may pay the assessment obligation and such payment is offset against the rent.

If I pay the late real estate taxes would I get ownership of the unit? No. After three years of the delinquency a tax certificate is issued to the bidder who agrees to pay the tax and charge the owner the least amount of interest. If the owner does not settle up with the bidder, then after a set period of time the bidder can apply for a tax deed in his or her name.

Regarding foreclosure assistance, the Florida Bar has a program called "Florida Attorneys Saving Homes" which is administered by Florida Legal Services in Tallahassee. To learn more call 866-607-2187. Always consult with your attorney before taking action as this column is NOT intended as specific legal advice.

 


 

Mr. Rembaum is a partner with the law firm of Siegfried, Rivera, Lerner, De La Torre & Sobel, P.A., in downtown West Palm Beach, Florida whose practice solely consists of representation of condominium, homeowner and commercial associations and exclusive country club communities. If there are topics you would like to see addressed in future articles, please email them to Jeff Rembaum at jrembaum@siegfriedlaw.com

 

 

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