Florida Condo & HOA Legal Blog : Florida Condo Lawyer & Attorney : Becker & Poliakoff Law Firm : Condominium & HOA Law Blog

Investing the Association's Funds?  If so you should be familiar with the Prudent Investor Rule.

Does your association have a written policy with regard to investment of association funds? If so, does the board of directors monitor the investment to ensure compliance with the policy, and, is the policy reviewed and updated from time to time? If not, is the board of directors exposing itself to needless liability under both common law and statutory obligations of prudent management?

Whether your association is a condominium association governed primarily by Chapter 718, Florida Statutes, or a Homeowners association governed primarily by Chapter 720, Florida Statutes, it is imperative that the governing body of the association invest association funds in a reasonably prudent manner. In serving as directors and/or officers of these corporations, individuals expose themselves to liability for mismanagement and, in many cases non-management, of association funds. Officers and directors sit in a position of trust and confidence, requiring that their actions be exercised in good faith and in the best interests of all unit owners. For example, since all budgets must include reserves for capital expenditures and deferred maintenance, unless waived in accordance with Section 718.112(2)(f), Florida Statutes, a primary responsibility of the board is the protection of, and hopefully the enhancement of, the association's reserve funds.

Boards of directors are faced with the delicate task of balancing their financial goals, needs, and obligations. On the one hand, the association wants a strong return or yield on its investment, sufficient to meet the ever-increasing costs of repair or replacement of common areas. On the other hand, it is necessary to maintain sufficient liquidity in the event of an emergency. The security or safety of the investment is equally important. Therefore, boards of directors are faced with legitimate and substantial questions, such as: whether or not to hire a professional money manager, what type of investment policy should be adopted, and how best to monitor the portfolio, once a policy is implemented.

Community Associations Institute (CAI) recommends associations invest only in savings accounts, FDIC-insured certificates of deposit, U.S. Treasuries and government agency bonds. Board members need to consider the goals and objectives of the association as well as regular income and its existing capital. Risky investments are not appropriate.  However, in this day and age when interest in savings accounts is practically zero, what other types of investments will suffice?

Keep these maxims in mind:

• While a director can delegate investment authority to fellow directors or third parties, they must continue to supervise and monitor these activities.  You can delegate authority, but cannot delegate responsibility.
• Appointing an investment committee is not a bad idea, but that doesn't mean the other directors can ignore the association's financial position. If there are committees, make sure they meet and conduct the business they are charged with in compliance with the statutes. Final decisions should be made or ratified at a meeting of the board and there should be minutes of committee meetings or recommendations.
• Some governing documents contain language hindering a well-thought out investment plan. You may need to amend to implement a suitable investment policy.

Take the advice from Sergeant Phil Esterhaus from Hill Street Blues and be careful out there. ...

 

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The 2012 Florida Communities of Excellence
Conference & Awards Ceremony

Friday, March 30, 2012
9:30 a.m. – 7:30 p.m.
Seminole Hard Rock Hotel & Casino Conference Center
Hollywood, Florida
 
Join board members, managers and residents from hundreds of Florida communities for this annual celebration of community association excellence. Attend stimulating educational sessions and CEU classes, discover the latest solutions from top industry vendors, and network with industry professionals and community leaders from across the state.

Admission is free for Community Association board members, manager and residents.
 
Event Agenda
 9:30 a.m. – Event registration opens
10:00 a.m. – Exhibition area opens
10:00 a.m. – 12:00 noon – CAM classes
12:15 p.m. – 1:15 p.m. – “Managers of Excellence" Awards Luncheon
The "Managers of Excellence" designation is given to those individuals who manage communities that have received Florida Communities of Excellence Awards.
1:30 p.m. to 4:30 p.m. – Seminars and Panels
Hosted by Communities of Excellence Awards 2012 Diamond Level Sponsors: Associa, BB&T Bank, Continental Group and Envera Systems.
4:30 p.m. – Gala Reception
5:30 p.m. – 7:30 p.m. – Florida Communities of Excellence Awards ceremony

Register Now to attend the 2012 Florida Communities Excellence Awards!

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Attention HOA and other home owners, board members and CAMs:

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Last November I posted a blog ( Homeowners' Associations: New Ruling Supports Compensation for Construction Defects)  alerting readers to an important appellate decision holding that buyers and homeowners' associations are entitled to a common law implied warranty of fitness and merchantability with respect to the roadways, drainage systems, retention ponds and underground pipes in a residential subdivision.  Florida Condominium Law provides condominium purchasers with implied warranties of fitness and merchantability with respect to the roof and structural components of buildings as well as mechanical, electrical and plumbing systems serving the common elements, but homeowners' associations do not have the same protection.

The Lakeview Reserve Homeowners v. Marondo Homes, Inc., case is now pending before the Supreme Court of Florida.  Oral arguments took place on December 6.

This case is truly important - so important that advocacy groups filed amicus briefs in support of the appellate ruling.   So important that the Florida Home Builders Association (FHBA) and National Association of Home Builders (NAHB) also filed briefs in opposition to implied warranties.

FHBA and NAHB contend that since roads and drainage areas are owned by an association, not individual homeowners, defects in these structures generally have no direct effect on home habitability.  In my opinion that doesn't really make sense.  How can you live in a home without access to the home over a safe roadway?  The roadways, underground plumbing, retention ponds and drainage facilities are essential.  In fact, the residential dwellings probably couldn't qualify for a Certificate of Occupancy without these improvements.  

CALL submitted a brief on behalf of its 4,000 +/- member communities in the State of Florida since the issue of whether a developer of a residential subdivision provides common law implied warranties for the roadways, retention ponds, underground pipes, and drainage systems throughout that subdivision is one of great importance to hundreds of thousands, if not millions, of Florida residents living in homeowners’ associations. CAI likewise submitted a brief contending that developers owe a duty to the homeowners and their homeowners’ association to turn over common area structures that are fit for use and do not impair the habitability or merchantability of the homes. 

We will report on the outcome of this appeal when the Supreme Court publishes its decision.

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CALL recently notified its members of changes to HB 319 which is the community association bill filed by Rep. Moraitis.  The changes were considered and approved by the House Civil Justice Subcommittee on December 7th.  The five (5) amendments:

1. Clarify that condo election procedures do not apply to timeshare condominium associations.
2. Clarify that mortgagees only have to pay 12 months of base assessments that accrued prior to acquisition of title (or 1% of the original mortgagee, whichever is less), but also clarify that other purchasers bear responsibility for all debts owed by the prior owner including collection costs and attorney's fees;  
3. Require a majority of condominium unit owners to approve creating a "condo within a condo", giving those owners a voice in determining the future of their community;
4. Conform the laws governing cooperative associations to be more consistent with condo laws.  This portion of the bill would allow co-ops to hold closed board meetings to discuss personnel matters; impose a deadline for challenging elections; require board member education or self-certification and otherwise mirror portions of the condo laws; 
5. Clarify mortgagee financial obligations in homeowners’ associations.

Future amendments to the bill will hopefully speed-up foreclosures and give judge’s more power to impose sanctions for delays.  There are efforts to relieve associations from liability for payment of past due amounts when title to property is acquired as a result of lien foreclosure.  

Look for more legislative updates directly from Tallahassee as this is just one of the bills being tracked by CALL.
 

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How do you handle applications for sale or tenancy approval?  Who conducts the interview (if your community does interviews)?  Who notifies the applicant whether the board has approved or rejected the transaction? What information or criteria is evaluated and how does the board decide whether to approve or reject a transaction? 

Is the person that notifies the applicant exposed to liability for the Association's action?  A recent ruling in a case pending in the United States District Court for the Southern District of Florida reminds us that both Federal and State Fair Housing Laws apply not only to the Association as housing provider, but to individuals involved in the process if they committed or contributed to a discriminatory act.

The screening of prospective owners and renters is a complex and involved process. Although the authority to screen and approve is often granted to an association board in the governing documents, the language is typically vague and general, without specific guidelines instructing the board how to proceed. 

In the case mentioned above, the plaintiff applied to the association for approval of two (2) leases.  He intended to reside in one of the units and the other unit would house his elderly mother.  The condominium prohibited pets but his elderly mother had a doctor's prescription for an emotional support animal, so the plaintiff asked for a reasonable accommodation in the application itself.

The association rejected the application.  Its manager sent the applicant notice of denial.  The letter indicated that the association would be amenable to revisiting the application for the plaintiff, if it was not bundled with the application for tenancy approval for his mother.  The applicant's attorney demanded reconsideration in light of the Fair Housing issues.  Nonetheless, the manager informed the applicant, in writing, that the association "reconfirmed the decision to deny the rental", which prompted the lawsuit against the association and the manager, individually. 

The association filed a motion to dismiss the individual claim against the manager, after all he was only acting on behalf of the association which is a corporation.  The federal Judge denied that motion saying:

"[the manager] wrote the denial letter on behalf of [the association] and the letter reconfirming the denial, both with knowledge that a Fair Housing Act issue had been raised.  These allegations are sufficient under the Fair Housing Act case law and under [other cases] to deny the motion to dismiss"

This manager is now facing individual liability for communicating what may be determined to be a discriminatory act.  Makes you think twice, right?

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Ok - Florida's Government in the Sunshine Act does not apply to community associations, but community associations do have what is commonly referred to as 'sunshine' requirements.  Several years ago the Firm published a pamphlet outlining the 'dos' and 'don'ts' of noticing meetings.  We have recently updated this publication to incorporate changes to the statutes governing community associations and include more information for volunteer board members and CAMs.

 Check out our other informative publications.

 Download this informative pamphlet to learn about or refresh your knowledge of:

• Meeting Notice Requirements
• Owners' Rights at Board Meetings
• Keeping Minutes of Board Meetings
• Notice of Committee Meetings &
• Exceptions to the 'Sunshine' Law

We include a chart for your use as a at-a-glance guide as well. 

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It is very likely that your management company charges a fee to delinquent owners if they send collection letters or take other action to collect a delinquent assessment. After all, they are doing extra work that wouldn’t be necessary if the owner paid on time.

There is no mention of these management collection fees in the statutes governing Florida community associations. The association is entitled to collect interest on the delinquency by statute – interest is specifically addressed. It can charge late fees (if allowed by the governing documents) to the owner. Late fees are specifically authorized by the statutes. It can pass along the attorney fees and costs too, as those fees and costs are specifically mentioned in the statutes.

If the associations have to ask their management firms to collect assessments, why doesn’t the statute specifically allow associations to pass through those fees on to owners?

We have tried to do exactly that for many years. If you look at the legislative history for the 2010 legislative session, there were attempts to get these management or collection agency fees added to SB 1196. However, it was only added to the Cooperative Act (Chapter 719). The law for cooperatives said:

"The association has a lien on each cooperative parcel for any unpaid rents and assessments, plus interest, any authorized administrative late fees, and any reasonable costs for collection services for which the association has contracted against the unit owner of the cooperative parcel."

If that highlighted language was included in the Condominium Act (Chapter 718) and the Homeowners’ Associations Act (Chapter 720), then associations would specifically have the right to add management fees to their liens against owners. Isn’t that fair?

Well, since it said ‘reasonable costs’, some organizations claimed management companies and collection agencies would abuse this statute and charge outrageous amounts to unit owners. The term "reasonable costs" is broad. Arguably there is room for abuse. In fact, we see this all the time when it comes to estoppel fees. The statute says the charge for an estoppel certificate must be “reasonable”. Some places have a $100 fee, some have a $200 fee, some have a $400 fee – all of which are claimed to be “reasonable”. I heard of one company charging more than $500 as an estoppel fee. Obviously, there is a lot of room when you use the term “reasonable”.

So in light of those arguments, language limiting the collection fee to $150 was proposed to be added to the shared ownership statutes. CALL supported that effort. A number of management companies supported that effort. But there was still opposition, so Sen. Fasano came up with alternative language in his companion bill, SB 530, to provide as follows:

468.439 Collection services.-Collection services expenses that are reasonably related to the collection of a delinquent account rendered by a community association manager or management firm on behalf of a community association governed by chapter 617, 718, 719, 720, 721, or 723 may be secured by the filing of a claim of lien on behalf of the community association if the collection services expense is specified by amount in a written agreement with that community association manager or management firm and payable to the community association manager or management firm as a liquidated sum.

If you look at the CS 3 version of SB 530, you will see this language in the bill. However, the Legislature passed HB 1195, and not SB 530. CALL advocated for adding this language to HB 1195 (which is now the 2011 statutes). The position of some of the members of the Legislature was that this was an additional "fee" and they were opposed to any new fees. Since the ability to collect these fees wasn’t added to HB 1195, we still don’t have any specific authority in the laws to charge and collect these fees from owners.

So fast forward to 2012, and CALL is still advocating for some language that will allow associations to add collection costs to the lien. We have always supported that, but the opposition remains to any type of new fee. One of the suggestions that has been made to address this issue involves allowing associations to collect an increased late fee in order to recoup the costs that the management companies charge for the collection services. Currently, the law allows associations to collect a late fee of the greater of $25 or 5% of each installment for each delinquent installment, but only if authorized by the declaration or bylaws. If this amount was increased and if all associations were allowed to collect this amount, it would appear to be sufficient to recoup the costs of collection. This is the approach favored by some members of the Legislature, including the sponsor of HB 319, and CALL assisted in drafting the language.

So, long story short, the issue of management collection fees being added to the association's lien is still being debated. We are advocating for something to be done. Otherwise, there will continue to be no authority in the statutes for these fees and unscrupulous management firms and collection agencies will continue to charge unlimited amounts.

So I ask you, community leaders, don’t you want the Legislature to address this issue and allow associations to recoup the cost of collection, as long as the amount is limited to prevent abuse?

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Community Updates are published several times throughout the year.  This is our ninth issue produced in 2011.  Archives are available on the Firm's website.

In this Issue:
There are signs of improvement in the real estate market in certain areas. We know that limitations on FHA backed and other mortgage financing for condominium units is not helping sales from or between end-users (actual resident home owners). What brings about this increased activity and how can it impact your community? Our feature article "How Will the Recovery of the Real Estate Market Affect the Quality of Life in Your Community?" tackles this important issue.

How does your community handle access to the property by process servers? Do you require the process server to check or sign in? Do you notify the owner/resident like you would when a guest arrives? A 2011 legislative change reiterates how important it is to enable process servers in- make sure your policies comply by reading "How to 'Do' Process: Association's Obligations to Allow Access".

Which came first, the chicken or the egg? While we don't answer that universal question, the concluding article explains a case where the court agreed with an owner that a statute enacted after association rules were already in place controlled the board's enforcement action. Read about what happened in "Tahiti Beach Homeowners Association, Inc. v. Pfeffer".
 

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Everything You Wanted to Know about Being a Condominium Board Member… But Were Afraid to Ask!   Condominium Board Member Certification Approved by the Department of Business & Professional Regulation**
	Why Attend?
	Comply with State Law** (see below) Understand your legal responsibilities and obligations including your “fiduciary duty” Gain insights into governing through case studies and real situations Receive a Quick Reference Guide of checklists, statutory deadlines and charts to assist with elections, meetings and other Board responsibilities.
	Topics Covered:
	Operations • Records Maintenance • Dispute Resolution • Elections Budgets & Reserves • Financial Reporting • Insurance • Audits Broward Dates & Times Saturday, December 3, 2011 9:00 AM - 12:00 PM         Reserve your space by calling Steve Bahm at 954-364-6018 or sbahm@becker-poliakoff.com Becker & Poliakoff 3111 Stirling Road, Fort Lauderdale, FL 33312 [MAP]   Light refreshments will be served. There is no charge to attend but you must call to reserve your space. First come, first served. YOU WILL RECEIVE A CERTIFICATE OF COMPLETION SUITABLE FOR FRAMING

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The burden is on the association to show that all required steps for adoption of assessments are completed – and documented.

Section 718.112(2), Florida Statutes, sets forth a list of provisions that condominium association bylaws must contain and states that if the bylaws do not contain the listed provisions, they shall be deemed to include them. With regard to procedures for adoption of non emergency special assessments, the statutory requirements set forth in Section 718.112(2)(c), Florida Statutes, are:

• Written notice incorporating an identification of agenda items mailed, delivered, or electronically transmitted to the unit owners (if owners have consented to electronic transmission and the documents so allow) and posted conspicuously on the condominium property not less than 14 days prior to the meeting;
• Evidence of compliance with the 14-day notice by an affidavit executed by the person providing the notice and filed among the official records of the association;
• The notice shall specifically state that assessments will be considered and advise the nature, estimated cost, and description of the purposes for such assessments; and
• Written notice of any special assessment levied by the association must be delivered to each unit owner, including a statement of the specific purpose or purposes of the assessment. (See Section 718.116(10), Florida Statutes).

Notice of meetings at which a proposed annual budget (a non-special assessment) will be considered by the board of directors or unit owners must also be delivered to each unit owner, mailed to each unit owner at the address last furnished to the association by the unit owner, or electronically transmitted to the location furnished by the unit owner for that purpose, and evidence of compliance with these requirements must be documented by an affidavit of the person providing the notice, with the affidavit being filed among the association’s official records. (See Section 718.112(2)(e), Florida Statutes).

Failure to comply with notice requirements in connection with the adoption of a budget or a special assessment, or failure to document compliance, can result in loss of ability to obtain enforcement of the collection of an assessment from a defaulting unit owner.

Evidence of compliance with the requirement of posting and delivery to all unit owners of timely notice of meetings at which association budgets or special assessments will be considered is typically not a problem. While seemingly simple and perfunctory, failure to comply with, and document compliance with these statutory requirements, can cost the association its ability to collect an assessment. It can also result in the expense of having to go through the entire process again in order to correct the procedural deficiency.
 

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You may wonder why the distinction is important. There are different laws for each type of association. The rights and responsibilities of owners are different in each type of community and procedural operations are likewise different. Here are a few examples:
 

Election Procedures:

Proxy wars in condominiums led to substantial revisions of the Condominium Act - one of those revisions eliminated use of proxies for elections and created a balloting procedure requiring advance nominations (no nominations from the floor) and a 2 envelope system for casting election ballots. Once an election ballot is received by a condominium association, it cannot be revoked. Most HOAs use general proxies for most matters, including the election of directors. In an HOA nominations are allowed from the floor. The proxy holder would then consider the nominees and vote in the manner they believe is appropriate without consulting the voter (proxy giver). Proxies can be revoked and a later dated proxy will control, leading some HOA owners to solicit proxies multiple times if they want to control the outcome of an election.

Quorum Requirements:

A quorum is not necessary to hold a condo election. The Condominium Act only requires participation (ballots) by 20% of the members in order to hold a valid election. This provision ensures that the members (owners) have a say in association leadership even if the majority of the members don't care and don't vote. HOA owners do not enjoy that benefit as there must be a quorum to hold an election. Many owners do not participate in association affairs. They ignore mailings, do not attend meetings and do not send back proxies. That number rises when homes are abandoned, in some stage of foreclosure, bank owned and the like. The lack of participation can prevent an election from being held and the existing board members stay in office which leads to owner complaints from time to time.
 

Dispute Resolution:

The State’s mandatory, non-binding arbitration program has been in place since 1992. The Court system became overburdened with condominium cases and litigation is highly procedural, creating a substantial disadvantage to pro-se defendants (homeowners without legal counsel). The purpose of the statutorily-mandated arbitration procedure is to provide a more informal and cost-effective forum for resolution of condominium disputes. HOAs don't have access to the arbitration system with 2 exceptions: election and recall issues. Thus, a homeowner frustrated because the board ignores all requests for records has to file a lawsuit after he or she sends a statutory offer to participate in pre-suit mediation. That HOA owner does not have an enforcement agency to call to get help obtaining the records and doesn't have the option of filing a user-friendly petition for arbitration. 
 

There are many other differences between condominium and homeowners' association operations and some associations turn to the Division of Florida Condominiums, Timeshares and Mobile Homes for guidance.  We will discuss one recent declaratory statement that addressed leasing office space in a future post.

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