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

A survey conducted by Community Association Leadership Lobby (CALL) confirms problems with community operations and lack of maintenance as a result of foreclosures.

Averaged out, over 100 people per day responded to the 2nd Annual Foreclosure Survey conducted by the Community Association Leadership Lobby (CALL). Over ninety (90%) percent of them say first mortgagees should pay more after they obtain title through foreclosures and more than half of them complain about the amount of vacant homes in their communities.

Foreclosures have a significant impact on association budgets. From the Community Association’s perspective, lenders are insulated from falling home prices while bills for insurance, property maintenance, management and other expenses must be paid. The leader of the Community Association Practice Group of Becker & Poliakoff, P.A. has been quoted saying lenders must pay for the maintenance and protection of the collateral. Associations need effective ways to secure this contribution and continuing to subsidize the administrative and physical needs of the property taxes some homeowners beyond their means.

The Federal Housing Finance Agency House Price Index (HPI) shows home values from the 3rd quarter of 2007 to the present time dropped by close to $3 trillion dollars. The agency’s director, James B. Lockhart, III, offered statistics at a presentation in Washington, D.C. on February 19, 2009. Fannie Mae, Freddie Mac and FHA loans represented just over thirty (30%) percent of those labeled “seriously delinquent” and private sector loans (which include jumbo and sub-prime mortgages) account for more than sixty (60%) percent of the seriously delinquent loans.

While the Homeowner Affordability and Stability Plan provides incentives to lenders to modify mortgages, relief cannot come soon enough for Florida’s community leaders. One respondent to the CALL survey lamented about community associations receiving “the short end of the stick” while elected officials “give in to the demands of the lobby groups of the banking industry”. It appears a mandate has been issued to the elected officials in Florida to create a legislative solution to this crisis.
 

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Today’s Fort Myers News-Press has an article about a new bill proposed by state Representative Gary Aubuchon.  The proposed bill will further regulate what steps owners must take to pursue claims for construction defects.

Florida already has Chapter 558 which is, per its own terms, an “alternative method to resolve construction disputes that would reduce the need for litigation as well as protect the rights of property owners.” Chapter 558, governs all properties which may be the subject of a construction defect claim: single family homes, condominium units, condominium associations and commercial properties. Over the last several years there have been changes to the statute. Representative Aubuchon’s bill appears to have more changes in store for Chapter 558.

As of this post I have not seen a copy of the bill, but based upon the article the bill provides:

            1. Requirements for the exchange of specific material for the claimed defects

            2. Deadline for the exchange of information, and attendant penalties

            3. Changes language about testing for defects

            4. Authorizes parties to agree to mediation

Section 558.004(15) creates a right for parties to demand “discoverable evidence relating to the construction defects” but failed to specify a time frame within which such materials should be provided. The section also references that penalties can be imposed by a court without specifying what the penalties are. However, any penalties for the failure to provide documents, or “discoverable evidence,” impede on the court’s rule-making authority. The courts determine the scope of discovery, as well as what is, and is not, evidence. There are significant issues of constitutionality raised here.

The language about testing for defects will be very important. As the law stands now, a contractor can already request to destructively test an allegedly defective building component subject to the statute’s restrictions.  What more or less will be required under the proposal?

Finally, parties in a civil dispute (whether in suit or not) have always had the opportunity to agree to mediation. You do not need a statute to agree to it.. Although it is unclear if such mediation would be made mandatory prior to filing suit. If so,  this would just be one more impediment to owners being able to pursue their claims and a further hoop to jump through for owners. It would take away from owners the right to gauge for themselves if mediation would be beneficial.

Stay tuned for further updates.

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There are several programs available to homeowners that will avoid the loss of their homes through foreclosure such as repayment plans, forbearance plans and loan modifications.  “Short Sales” have also become a popular solution to avoid foreclosure but “Short-Pay” solutions are emerging as the best option available to help families keep their homes, lower their mortgage payments, and avoid foreclosure even when the homeowner owes more than their homes are worth! 

What is a Short-Pay?
A Short-Pay, or also known as a short-refinance, is a transaction, where a current lender agrees to accept less than the full amount owed to them.  This process is similar to a short sale but, instead of selling the home to a third party, the homeowner keeps their home by refinancing with a new lender with a new loan based on the current market value of the home.  The Short-Pay allows the homeowner to keep their home, and avoids a foreclosure or possible bankruptcy.

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Is the economy influencing the Courts? 

It seems that the trend has shifted from rulings in favor of condominium developers to rulings in favor of  purchasers and more lawsuits on the behalf of buyers are being filed in Courts throughout Florida.  Attorneys have come up with creative arguments against developers in an attempt to cancel contracts and obtain return of initial deposits, or at least portions of those deposits. 

As reported in the Wall Street Journal and other news sources, just over six  (6) months ago the U.S. District Court in Miami dismissed several lawsuits brought against the developer of the Opera Tower Condominium, ruling that the buyers could not rely upon the marketing materials associated with the project.  However in the last two (2) months rulings have agreed with claims made by purchasers.  Just recently the Eleventh Circuit Court of Appeals upheld a ruling against the developer of the Lake Buena Vista Resort as a result of completing the project a mere five (5) days after the deadline promised in contracts with purchasers.  The buyers  were entitled to receive their deposits back, in spite of the developer's claim the delay was beyond its control.  Attorneys for buyers predict similar rulings in the future. 

In December,  2008, the Fourth District Court of Appeal upheld a ruling requiring the developer to return deposits on contracts concerning the 200 East Palmetto Park  building.  The Court found that the project did not qualify for exemptions to the Interstate Land Sales Full Disclosure Act (often referred to as "ILSA"), regardless of an advisory opinion from the Department of Housing and Urban Development (HUD) that was relied upon by the developer.

Unoccupied and unfinished condominium projects are likely to remain prevalent in Florida for the time being, creating opportunities for new investors and home buyers.  However, filing claims against the entire property and including lenders in these types of lawsuits complicates financing for potential purchasers and may impact continued operation and maintenance of the properties.  Please return to this site for periodic updates regarding these issues.

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This is a question I am asked seemingly on a daily basis. It has some variations in format; perhaps involving a burst pipe, toilet/shower leak, or air-conditioner drip pan overflow but the theme is always the same. That is, something involving the unexpected flow of water happens within a unit which causes damage to other units, typically the unit(s) located directly below the water event, and to the common elements. Who is responsible to repair the damage? Who is responsible to pay for the repairs? 

 Water intrusion events like these are usually considered casualties. A casualty is something that happens unexpectedly, through no fault of anybody. Hurricanes, tornadoes, strong storms and other Acts of God are easy examples of casualty events. A burst pipe within the ceiling, floor or wall is also, most often than not, a casualty because no one can accurately predict when a pipe will fail. Of course, this will change where, for example, a unit owner or the association is aware of an existing pipe leak and does nothing to fix it. Similarly, where a condominium association has a rule requiring owners to replace their hot water heaters at least once every 10 years, the 11 year-old hot water heater that bursts will probably not be a casualty event.

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Last week I wrote about Indemnification. Specifically about hiring contractors and ensuring that contract clauses were properly worded so that the Association was being indemnified and not providing the indemnity. At the end, I concluded by noting that indemnification in the absence of adequate insurance may be illusory. What does that mean?

Remember that the whole idea for indemnification is to have another party hold the Association free from liability for any negligent conduct. However, if the indemnitor does not have adequate funds then what good is the indemnification? 

For example, Happyland Condominium contracts with Acme Lawn Care for monthly maintenance services. Acme is a small shop with only a 10-year old truck and 2 riding lawn mowers as assets (total value $5,000) and no insurance. One month Acme is driving the truck from the front to the back of the property when the it runs into and kills a jogger. The Association and Acme are sued by the family for wrongful death, and millions of dollars in damages. The Association has put in the contract that Acme shall indemnify the Association from any claims made against the Association as a result of Acme’s conduct. The Association demands that Acme indemnify it against the wrongful death claim.

Despite the language of the contract, Acme does not have the wherewithal to defend the association or hold it harmless from liability. In such a case, the Association would be responsible to defend itself against any claim (ostensibly through its own insurance carriers) with no recourse against Acme for out-of-pocket expenses (such as the insurance deductible). Also, if the Association’s insurance is insufficient, or the claim denied, then the Association could itself be facing significant liability. If Acme had insurance, then the Association could be able to recoup against Acme’s carrier for anything not covered by the Association’s own carrier, and would also give the Association’s carrier the possible right to subrogate against Acme’s carrier.

Clearly, it is important that in addition to language about indemnification that all vendors/service providers also have adequate insurance. This would provide actual protection for the Association, not just the illusion of protection. Such requirements should be put into the contract, and verified at the start of any work as well as at periodic points during the life of the contract.

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Indemnification. A scary word and a confusing subject. However, almost all contracts for services contain requirements for one party to indemnify the other from damages. Often these clauses are in small type of allegedly “standard form” agreements. For purposes of today’s blog, let us discuss non-construction services. Indemnification for construction contracts is governed by section 725.06, Florida Statutes which is not applicable to non-construction contracts. Look at any contract you have with a service provider and inevitably the following language, or similar, will appear:

Party A agrees to the fullest extent permitted by law, to indemnify and hold harmless Party B, its officers, directors, members and employees from all liabilities, damages, losses and costs, including but not limited to reasonable attorney’s fees, to the extent caused by the negligence, recklessness or intentional wrongful conduct of Party A.

In layman’s terms, this means that one party (the indemnitor) has contractually obligated itself to protect a second party (the indemnitee) against damages which may result from the indemnitor’s conduct. These damages would include any foreseeable damages resulting from a negligent act or omission, including damages to person or property.  Sounds easy enough. However, who is indemnifying whom?

The language most often seen in these contracts is similar language to the form language above:

Association agrees to the fullest extent permitted by law, to indemnify and hold harmless contractor, its officers, directors, members and employees from all liabilities, damages, losses and costs, including but not limited to reasonable attorney’s fees, to the extent as a result of any work done at the Condominium by contractor.

The Association has agreed to indemnify the contractor for work done at the condominium by the contractor. It requires the Association, which does not control the project or those working on it, to protect the contractor. Why would the Association agree to this? Think about the fire alarm monitoring, elevator maintenance or other monthly service provider. Many of these companies perform services, which if done improperly, could result in damage to persons or property and ultimately claims against the Association. Courts will enforce such agreements to indemnify, even if it is a bad deal for one side.

All service contracts should require the contractor to indemnify the Association. If the contractor will not negotiate the term, then another contractor should be considered. These terms, like most contract terms, can be negotiated even if the contractor says such terms are “industry standard.” The Association should be protected from sloppy safety procedures, carelessness or negligence of the contractor. Finally, remember that indemnification in the absence of adequate insurance may be illusory, but that is a subject for another day.

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Much has been written about the insurance requirements for condominium associations and condominium owners. The Florida Condominium Act has been amended significantly over the years in this regard. Major changes resulted from the 2003 legislative session, by defining the terms “building”, “condominium property,” “insurable improvements,” and other terms contained in declarations of condominium when dictating the scope of property covered by the master policy. More recent amendments, some of which effective January 1, 2009, caused a whirlwind of controversy over unit owner coverage mandates and provisions allowing associations to “force place” coverage.

On the other hand, the Florida Statutes pertaining to Cooperative Associations have not received much attention, nor is there any statutory guidance for the scope of coverage required other than a reference in Section 719.104(3), Florida Statutes, to the obligation to procure “adequate insurance” to protect the association property. Consequently, the directors of a typical Cooperative Association containing multi-family buildings (whether high rise or low rise buildings) are often offered the same products that are available for Florida Condominium buildings and properties, regardless of whether the coverage is appropriate.

As a preliminary matter, there is a fundamental difference between a condominium and a cooperative property, even if the buildings are exactly identical. In a condominium, the unit owners (often referred to as “Members”) actually own a parcel of real estate subject to individual ownership - the condominium unit (as defined by the Declaration of Condominium). Those owners (Members) also own a share of the common elements. In a cooperative, the corporate entity (the Cooperative Association) is the usually the sole owner or lessee of the entire property, which includes the land and all buildings and improvements upon the land, including the individual units. The owners (often referred to as “Stockholders”, “Shareholders” or “Members”) own a share of the corporation and are assigned the exclusive use right to one unit. Thus, the “cooperative parcel” is defined as the share or other evidence of the ownership interest in the corporation (such as a membership certificate, stock certificate or the like) along with the Proprietary Lease, Occupancy Agreement or other muniment of title or possession to the unit itself.

The insurance products designed for condominium properties may not be “adequate” for cooperative properties, as the coverage required for a cooperative is dictated by the governing documents of the Cooperative Association. The Proprietary Lease (or Occupancy Agreement), Bylaws and other governing documents should clearly delineate the responsibilities associated with maintenance and insurance of the cooperative property, allocating certain portions of the property to the Association and others to the Shareholders. While the insurance industry appears to address the differences between various types of properties it is abundantly clear that many association leaders are not aware of the differences, nor able to ensure the policies they purchased are “adequate”, leaving themselves exposed to liability for damages in the event of uninsured losses.

Cooperative Association Boards are encouraged to undertake a comprehensive review of their insurance policies and the coverage afforded by each policy. Consult with counsel to determine whether amendments to the governing documents or changes in coverage are necessary or advisable under the circumstances. 

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