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

The statutes governing community associations require notice of meetings to encourage owner participation.

HOAleader recently published an article on this subject: HOA Meetings: Does Your State Have Rules for Your Meeting Agendas?

Here are some handy reminders - there are additional options in the statutes. This list is not intended to be all inclusive.

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By:  Tammy LoVecchio, Gulfshore Insurance (Naples & Ft. Myers) and Greg Marler, Becker & Poliakoff, P.A., (Naples)

We were pleased to present a one-hour flood insurance webinar on August 19th. 

Please feel free to view the webinar in its entirety.

We especially appreciate the interest shown and questions raised by the attendees. There were some recurring follow-up questions that warrant brief discussion.

Mortgagee Demands
First, it appears that several owners and associations have recently received demands from mortgage lenders to obtain flood insurance.  Some report being asked to increase the amount of current coverage above the maximum available through the National Flood Insurance Program (NFIP), that being $250,000 per home or unit, or in some cases, above the replacement cost of the property.  Some associations have even been threatened with force-placed insurance on the entire community.

As we discussed during the webinar, the most common source of the requirement to have flood insurance is the National Flood Insurance Reform Act of 1994, which requires most lenders to require flood insurance on any property located in a Special Flood Hazard Areas (SFHA).  But that Act, and all of the regulations and guidelines adopted by FEMA and government sponsored entities such as Fannie Mae, clearly only require flood insurance up to a maximum of $250,000 per home/unit.  It is not at all clear why these new demands are being made.  It is certainly within the authority of a lender to make risk management decisions and impose insurance requirements in excess of those imposed by the Act.  To determine if the lender can then force place insurance on you as a borrower, you must read your mortgage.  But there is no legal authority for a lender on a home or unit in a shared ownership community to force place flood insurance on an entire association.  Our advice is that you inquire directly with the demanding lender to determine its specific basis for making the request.

Homeowners’ Associations
Some questions seek clarification of flood insurance requirements for a homeowners’ association.  Because single family homes, and usually the lots on which they are built, are separately owned and freestanding, insurance on those homes must be obtained directly by the owner.  But what about an association’s clubhouse or other amenities?  Must the association carry flood insurance for those improvements?

Unlike condominiums, the law governing homeowners’ associations in Florida does not contain mandatory insurance coverage requirements.  But you should review your governing documents to determine if they contain insurance requirements.  Unless the association has a mortgage on its property, in which case it would be reasonable to expect there are insurance covenants, the only possible, remaining source of a flood insurance requirement on homeowners’ association-owned improvements is the fiduciary obligation of the board to protect and maintain the property against known or reasonably foreseeable risks.  We are not aware of any cases that have established that a homeowners’ association has a legal obligation to carry flood insurance.  But since the issue will likely arise only after a catastrophic flood loss when the stakes are high, there is some risk to simply dismissing the issue.

To add to the risk, directors and officers liability insurance policies typically exclude coverage for claims against the directors based upon the failure to obtain insurance.  It is true that the exclusion can be removed, but obtaining flood insurance is a condition of removing the exclusion.  This is akin to obtaining auto insurance on the condition that you agree never to own or drive a car.

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Florida Insurance Guaranty Association (FIGA) issued the following announcement:

Effective July 26, 2010, Coral Insurance Company (“CIC”) was ordered into receivership for the purposes of liquidation by the Second Judicial Circuit Court in Leon County, Florida.

With the entry of the liquidation order, the Florida Insurance Guaranty Association (“FIGA”) has been activated to help pay outstanding claims for property and casualty policies. The processing and payment of covered claims will be made by FIGA (subject to the lesser of policy limits or FIGA’s maximum cap). The maximum amount FIGA will cover is generally $300,000 per claim or $100,000 per unit for condominium and homeowner association claims. An additional $200,000 is available for structure and contents on homeowners’ claims.

FIGA is the state backed system that pays portions of claims against insolvent insurance companies.   Since FIGA is statutory, there is a shorter period of time to report and/or file an action with respect to a disputed claim.  Pursuant to Section 631.68, Florida Statutes, the deadline for settling a claim or filing suit against FIGA for damages from a loss formerly insured by Coral Insurance Company is July 25, 2012.

For more information on claim filing deadlines or refunds of unearned premiums, please visit Alex Sink's website: myfloridacfo.com.

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A housing conference is taking place today in Washington, D.C., where industry leaders and government officials are discussing the future (if any) of Fannie Mae, Freddie Mac and other Government Sponsored Enterprises (GSE) that offer mortgages.

These entities (Fannie, Freddie, etc.) are backed by the U.S. government.  Government backing lowers lending costs which translates to lower mortgage rates for consumers.  In theory, lowering mortgage rates and providing consumers with more access to capital encourages home ownership, increases home values and supports thousands of industries with hundreds of thousands of employees.  Both Fannie and Freddie have been in conservatorship since 2008 and supporting cash-flow needs with a credit line from the U.S. government.    Now the government (and many industry experts) wants the private sector to play more of a part in home financing.

What does this mean for community associations?  It could mean several things: 

• It could mean that future home purchasers will have to fund a larger down payment.  If home or unit owners have more at stake in the property they will be more likely to take care of the property and less likely to default. 
• It could mean that the historically low mortgage rates will go up - making homes or condominium units less affordable.  Higher interest rates may prolong sales of abandoned properties. 
• It may mean that Fannie, Freddie and other GSEs will be required to dispose of properties acquired as a result of failed mortgages even at a loss - resulting in better bargains.  

Fannie Mae recently auctioned close to 100 South Florida properties.  Those properties were only offered to owner-occupants (individuals and families who plan to live in the homes), not investors, in an effort to stabilize neighborhoods severely impacted by foreclosures.

There are some obvious benefits to GSE financing and some obvious detriments.  One benefit is flexibility - government backing allows Fannie Mae to offer hardship relief to home/unit owners.  For example, Fannie has the ability to offer loan forbearance to mortgagors plagued with chinese drywall.   Skipping six (6) months of principal payments may be all that is needed for homeowners to catch up with other financial obligations (such as community assessments).

Community association leaders and members can take strategic actions to stabilize their own communities.  Community associations have the power to regulate use and occupancy of the properties, the level of maintenance and care required, and can even establish guidelines regarding the financial responsibilities of new members.  With a little planning, advice of counsel and other professionals and effort by board members, committee members and other volunteers - you can make your community better positioned in the future.

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The Federal Fair Housing Act  (FHA) prohibits discrimination in any activities relating to the sale or rental of a dwelling because of race, color, religion, sex, handicap, familial status or national origin. The term "familial status" is defined as one or more individuals (who have not yet attained the age of 18 years) being domiciled with a parent or guardian or a designee of such parent. State statutes (Chapter 760, Florida Statutes) and local ordinances also regulate housing discrimination in regards to age, marital status, political affiliation, sexual orientation and other classifications.  Adding "familial status" to the list of protected classifications made former "adults only" communities either apply for an exemption or change their practices.

The most common exemption is known as the Housing for Older Persons Act (HOPA) exception that applies to communities operating as “55 or over” housing. To qualify for this exemption, the following criteria must be met:

• At least 80% of the occupied units must be occupied by at least one resident over the age of 55;
• The community must publish and adhere to policies and procedures demonstrating an intent by the housing provider (the Association) to provide housing for persons 55 years of age or older.
• The community must engage in adequate age verification procedures and routinely determine the occupancy of each unit to update the community census; and - here in Florida
• The community needs to register with the Florida Commission on Human Relations and keep that registration current.

If the community does not qualify for the Housing for Older Persons exemption, it must allow families with children.  It doesn't matter if there are no other children.  It doesn't matter if the community doesn't have facilities for children or a place for them to play.  A community in Orange City, Florida recently agreed to pay $415,000 in monetary damages and civil penalties after the court found that the defendants violated the FHA by engaging in a pattern or practice of discrimination against families with children.  The Department of Justice prosecuted the lawsuit against the housing provider.

The Fair Housing Center of the Greater Palm Beaches recently filed suit against a condominium association in Boca Raton, Florida for familial status discrimination.  The association first rejected a sale to a man with three children and later refused to approve a tenancy where two children were expected to live in the unit.  Both governmental agencies and private fair housing advocacy groups use "testers" in support of discrimination claims.

If you're not sure your community is in compliance with the requirements of the Housing for Older Persons Act, please consult with legal counsel.

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Is your Association Leaving Money on the Table?

Bank foreclosures continue to be an impediment to collection of unpaid assessments in many communities.  Sure, after the 2010 legislation became effective, community associations are entitled to collect either 1% of the original mortgage debt or 12 months worth of assessments from the mortgagee (whichever is less), but what about the rest of the balance?  Does it disappear into thin air?

Because a bank foreclosure will usually directly impact the ability to successfully lien and foreclose, communities must be aware of other alternatives to collect unpaid assessments.

Strategic Defaults - According to Wikipedia:

A strategic default is the decision by a borrower to stop making payments (i.e. default) on a debt despite having the financial ability to make the payments.

While many owners who lose their units in foreclosure cannot pay, it is important to remember that a unit owner is personally liable for all unpaid assessments that are left when a bank forecloses.  The Association may seek to collect the balance on the account from the former owner.  More and more, people who do have assets make choices to abandon properties because there is no equity.  If there is a possibility that an owner has assets to satisfy a judgment, a community should consider taking action against a former member to collect those unpaid assessments.

Many associations are thinking short-term instead of long-term when they decide to forgo pursuing a money judgment for the balance between what a lender pays if it takes title as a result of foreclosure and the outstanding obligations on the account. Yes, there are costs involved. If the association doesn't have a lawsuit pending, it needs to file a lawsuit. There are attorneys fees, filing fees, costs associated with service of process, etc. If the association already has its lawsuit pending, most of those costs have already been absorbed - so why not wait for the bank to foreclose (and pay its statutory obligation), then continue to pursue the balance against the former owner? A judgment is recorded in the county and with the State's registry; it is initially valid for 10 years and can be renewed for another 10 years. During that time if the debtor desires to buy another property, obtain financing for purchase of a vehicle, college, etc., the judgment will appear.

While the debtor/former owner may not have sufficient cash-flow right now, who knows what the future will bring? If the debtor has significant assets in another state, the association can even take the extra step of domesticating the judgment in another state and pursue collection efforts there.

Asset Searches Can Be Helpful in the Decision Making Process

An asset search may help discover assets. It is more difficult (sometimes almost impossible) to collect from a corporate unit owner or a foreign person.  Nonetheless, your community should consider its options after a bank foreclosure - you may be leaving money on the table.

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 Did you know you can potentially collect full policy limits from both your flood and property insurance policies?  Do you know how?

According to the National Flood Insurance Program, flood is the most common disaster in the United States.  On average flood claims stem from more than thirty thousand ($30,000) worth of damages.

Did you know that almost 25% of flood insurance claims come from moderate to low risk areas?

Floods do not discriminate.  They can and do happen all over the country.  Flood damages may be due to a heavy rainstorm or hurricane, melting snow, plumbing malfunctions, levee or dam failures and rising bodies of water.  Even new development can cause floods due to a change in the drainage patterns of adjacent properties.   

Becker & Poliakoff's Disaster Claims Recovery Team is in place to help you prepare for the consequences of a flood in your community. Answers to important questions will be provided in this live web event:

• What exactly does flood insurance cover?
• Who needs it?
• Are community associations required to carry it? 

Join moderator Ken Direktor, Esq. of Becker & Poliakoff ( Ft. Lauderdale ), and Greg Marler, Esq. of Becker & Poliakoff ( Naples ), who will present with guest speaker Tammy LoVecchio, AAI of Gulfshore Insurance for this Free Webinar Flood Insurance: What You Should Know to Protect Your Community.

Register below and you will receive a confirmation email with information on how to participate.

Live Webinar on Thursday, August 19, 2010
10:00 AM-11:00 AM EDT (9:00 AM-10:00 AM CDT)

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Condominium conversions became tremendously popular (because they were profitable) during the housing boom.  Many old tired apartment buildings were converted to condominium ownership, remodeled and then the units sold.  In some cases the developer substantially remodeled the building and improvements by updating plumbing and electrical systems, replacing the roof, replacing or modernizing elevators and "gutting" the interiors.  In other cases the developer merely installed tile where there was carpet, upgraded the kitchen with fancy cabinets, stainless steel appliances and granite counter tops then painted before selling the units. If the developer of the conversion project funded converter reserves, unit purchasers are left without statutory warranties.

When an apartment building is being converted to a condominium, Section 718.616, Florida Statutes requires the developer to provide each prospective buyer, as part of the Prospectus or Offering Circular, with certain inspection reports from professionals. These reports focus on the physical condition of various portions of the building and improvements. With respect to certain aspects of the building (such as the roof, structure, heating, plumbing and electrical systems), the owner must disclose the age of the component, the estimated remaining useful life of the component, the estimated current replacement cost, and the structural and functional soundness of the component. The specific purpose of the disclosure requirement is to protect the prospective purchaser by allowing them to make an informed decision whether to purchase a "new" unit in what may be an old building.

We are all guilty of not reading the "fine print" from time to time.  That was especially true when purchasers found what seemed to be an affordable price for a condominium unit in the hot real estate market.  Unfortunately for many of those buyers, some of those buildings needed substantial work.  Levying assessments to repair elevators, perform concrete work, repair damages from roof leaks and other expenses in a "new" condominium is stressful for the members of the board of directors and causes friction between the owners and the board. 

If the developer is out of the picture, bankrupt, no longer in business, etc. is there any recourse for the association and its members? 

There is, especially if the building disclosures weren't accurate. Florida Courts have found that the engineers and other professionals preparing these disclosures supplied expert information which was intended to and did guide and inform prospective purchasers on the condition of the building. Accordingly, if engineers or other professionals provide false information which reaches and is relied upon by people who are expected to receive and rely on the information, they may be held liable for expenses incurred by the association to repair or remedy the undisclosed defects.  There was an effort by the legislature this year to vitiate remedies against design professionals.  That bill was vetoed by Governor Crist.

This is not to say every statement of false information in an inspection report in a condominium conversion will lead to a potential claim. It will, however, open the door for those associations where purchasers were truly harmed by the misrepresentations of professionals who are supposed to be providing honest, objective evaluations of the condominium property.
 

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While the recall process is widely known, many community leaders are unaware of a process authorized by the Division of Florida Condominiums, Time Shares and Mobile Homes referred to as a "reverse recall".

A recall attempt may fail if the Board of Directors does not handle the recall effectively.  In many instances there is a member of the Board that is not well liked or otherwise is adversarial to the remaining members. While any individual may start a recall effort, the Board cannot legally “bend the rules” and certify a recall that should not be certified due to lack of proper votes or the use of an improper form of written agreement. Moreover, failing to call or hold a meeting does not, under all circumstances, automatically entitle the unit owners to certification of the recall attempt.

What does a recalled board member do when the Board certifies a recall that he or she knows should not have been certified? What does a recalled Board member do when it is discovered that he or she was recalled without being given the opportunity to address the board at a meeting called for the purpose of determining whether or not to certify the attempt? The recalled Board member may file a Petition for Arbitration with the Division of Florida Land Sales, Condominiums and Mobile Homes. Those Petitions are known as “reverse recalls”.

As described in Ringler v. Tower Forty One Association, Inc., Arb. Case No. 2005-04-1867, a reverse recall is a proceeding in which “the board member whose recall was certified initiates the proceeding, joined by any other unit owners who wish to be included as petitioners, arguing that the recall effort was certified in error and naming the association as a party”. The party filing for arbitration may challenge the board’s actions or in actions relating to the recall process and may challenge the recall procedure itself, such as the form of written agreement or vote at a meeting. In Ringler, the board received the written agreements for recall and failed to call a meeting. Mr. Ringler was notified that the recall was effective before he even knew that the board was served. The property manager accepted service of the written agreements and delivered them to another board member. That board member purportedly failed to notify anyone else (although that allegation was disputed).

Since service on the Association’s manager is effective service, the recall against Mr. Ringler was ultimately certified, but in Scariati v. The Villages of Emerald Lakes One Condominium Association, Inc., Arb. Case No. 2005-02-1485, the arbitrator reversed the recall as it was discovered that there weren’t enough written agreements signed by owners to effectuate a valid recall. In Scariati, the petitioner alleged she was not permitted to examine the recall written agreements before or even at the board meeting to determine whether or not to certify the effort. Once she had that opportunity, she discovered the improprieties. The recall was not certified, even though the board voted to certify, as a result of the board’s improper behavior and the fact that the recall was void ab initio.

There is a substantial difference between recall arbitrations and “reverse” recall arbitrations. There is no mechanism for recovery of prevailing party attorneys’ fees in the arbitration of a recall. However, since a “reverse” recall is a Petition filed by a unit owner (or owners), attorney’s fees are awardable to the prevailing party. Thus, it is important not to ignore procedural requirements in connection with a recall attempt as machinations on the part of the board may expose the Association to liability for the opposing side’s fees and costs.
 

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