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Fourth District Court of Appeal Affirms Ruling Invalidating Amendments to Master Declaration of Covenants, Conditions and Restrictions Governing the Ironhorse Community. 

With the economy the way it is, country clubs are losing members while costs continue to rise.   The costs associated with maintaining and operating a golf course and related club facilities, including the clubhouse, restaurant, etc., as well as the staff salaries and administrative expenses are enormous.  Over the past several years country clubs have relied on homeowners in the community(ies) to fund these expenses. While all owners are automatically members of the homeowners association, typically membership in the county club was not mandatory. The Declarations of Covenants and Restrictions frequently made membership voluntary.  In order to capture new memberships (and additional sources of revenue) several communities amended their governing documents to require all homeowners to join the country club (with the attendant responsibility to pay dues, initiation fees, restaurant charges, etc.).  Others adopted amendments require all new purchasers to join the club.

Many of these amendments resulted in litigation.  The Hamlet community reportedly resolved several lawsuits by waiving membership requirements and fees for homeowners that participated in the lawsuit.  Similar settlements were reached in connection with a case against the Willoughby Golf Club after the trial court ruled that the amendments were invalid.

Appeals were pending in two other cases involving challenges to amendments creating mandatory memberships - that is until the court affirmed the ruling in the Ironhorse case this week. 

The trial court ruling in the Ironhorse case found that amendments imposing mandatory membership in the club, the levy of membership fees and dues were invalid and unenforceable. It said:

[Homeowners] who had once justifiably relied upon the recorded covenants and restrictions, were now required to obtain membership and pay more dues and fees in the form of common assessments to Association, originally set at $2,500.

The Court also found:

An amendment, or a covenant ... is unreasonable as a matter of law if it destroys or substantially impairs the scheme of the development.  Since this Court hereby finds that mandatory membership in the Club destroys and impairs the scheme of the Ironhorse community as originally intended by the developer and relied upon by the [homeowners], then no question need be reserved for the trier of fact.  While the developer may have has its best intentions in providing for amenities and recreational facilities, such considerations must not, and should not, trump an individual's right to rely on previously recorded documents and promises as was done here.

A Motion for Reconsideration and Rehearing of a Final Judgment entered against the Aberdeen Property Owners Association, Inc. is still pending.  In that case a sub-association (Bristol Lakes) challenged an amendment requiring new purchasers of homes to join the country club.  Aberdeen sought to disqualify the trial court judge after entry of the Final Judgment and recently obtained that relief from the appellate court.

The Ironhorse ruling creates questions about the enforceability of amendments adopted by other communities.  These amendments (and actions taken as a result of the amendments) may become a source of potential exposure to liability.  I encourage community leaders to undertake a comprehensive analysis of potential claims with Association counsel.  Perhaps a second opinion from 'fresh eyes' is worthwhile as well.

We will report on the Aberdeen case when more information becomes available - as well as any developments in the Ironhorse case.  Although the Fourth DCA issued its ruling, there are still opportunities for rehearing and/or other actions.

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Florida has distinct and separate laws regarding “homestead” or a “homestead exemption”.

One set of laws are the laws that protect homestead property from forced sale and from having a judgment or other liability result in a lien against the property.  This exemption is governed by Article 10, Section 4, of the Constitution of the State of Florida, which exempts a homestead from forced sale and provides that no judgment or execution shall be a lien thereon.

Another set of laws regarding homestead are the laws which reduce the taxable value of residential real property by up to $25,000 for qualified residents.  Pursuant to Section 196.031, Florida Statutes, everyone who qualifies for the initial homestead tax exemption is also entitled to an additional exemption of up to $25,000 on the assessed valuation greater than $50,000 for all levies other than school district levies.
 

In 1992 Florida voters approved the "Save Our Homes" Amendment to the Florida Constitution.  If a homestead property qualifies for "Save Our Homes" protection, the yearly assessed value will not increase by more than 3 percent of the prior year's assessment (or the percentage change in the Consumer Price Index, whichever is less).   While there are exceptions to the increases in valuation for new construction or improvements to the property, this protection results in thousands of dollars in savings for many Florida homeowners.

In order to qualify for the homestead tax exemption and "Save Our Homes" protection, there must be an actual intent to live permanently in a place, coupled with actual use and occupancy. Ultimately, all that is required to claim a homestead is that the person intends to reside on the property and in good faith makes the same his permanent home.  The property appraiser makes a factual determination whether the property qualifies as the applicant's "permanent residence" for homestead purposes.

Improper, or fraudulent, homestead filings cost counties millions of dollars.  Lori Parrish, the Broward County Property Appraiser, created a Fraud Unit, staffed with a combination of career law enforcement officers and knowledgeable appraisers in 2005 when she first took office. According to the Broward County Property Appraiser's website, as of mid-2008, the Fraud Unit investigated nearly 15,000 cases, which resulted in over $19 million in back tax liens and penalties.  It also added more than $3 billion dollars worth of property into the tax roll due to fraudulent and unlawful exemptions.  Investigators discovered many fraudulent exemptions as a result of reports from associations indicating which properties (units or homes) were leased or rented.  The Lee County Property Appraiser, Ken Wilkinson, supports a requirement for community associations to supply information regarding leased or rented units to the local property appraiser's office. 

How do you feel?  Should community leaders and managers have an obligation to rat out owners leasing their properties (while claiming homestead)? 

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Free Educational Forums for Board Members, Property Owners and Managers Announced at 15 Locations Around Florida. Conference will focus on Strategies for Communities to Deal with Economic Crisis.

Becker & Poliakoff announces its Annual Community Association Leadership Conferences beginning on January 15, 2010 where attendees will learn strategies to deal with the financial issues facing their Florida communities. Topics will include liability of owners versus subsequent purchasers, collecting rents in lieu of assessments, depositing rents into the court registry, extraordinary receiver appointments and extra-judicial remedies, among others.

A panel of Becker & Poliakoff’s attorneys from a variety of practice groups will answer questions during the third hour of the conference. You may submit questions in advance for the panel members by email to questions@beckerpoliakoff. com. Please indicate which event you are attending in the subject line of the email, so that the panelists can do their best to respond at the event you attend. See page 3 for Conference dates and locations.

Register today for this free conference at www.becker-poliakoff.com/events/ca/ for the event nearest you.

For dates, locations and registration information - continue reading (below)

Register today for this FREE conference at www.becker-poliakoff.com/events/ca/ for the event nearest you.

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Appellate Court Reverses Order Requiring Lender to Pay Assessments to Condominium Association.

In U.S. Bank National Association as Trustee for the Benefit of Harborview 2005-10 Trust Fund v. Tadmore, 2009 WL 4281301, 34 FLW D2505 (Fla. 3rd DCA 2009), the Third District Court of Appeal (Miami-Dade and Monroe Counties included) rejected the idea that equity and fairness supports rulings requiring lenders to pay association fees while a foreclosure case is still pending against the unit owner.

Lenders are required to pay up to 1% of the original mortgage debt or 6/12 months worth of assessments to an association after they acquire title to the unit via foreclosure or deed in lieu of foreclosure. Many believe lenders don't want title as they don't want to have the inventory on the books, do not want to absorb the costs of ownership (such as payment of maintenance fees, taxes, insurance, etc.) and do not want the administrative hassles of cleaning/restoring damaged units, marketing the units for sale, etc.  In this case, the unit owner reportedly owed the association close to $100,000 for outstanding maintenance fees and costs. 

In the best cases foreclosures are taking a year to 18 months, when in the past a simple foreclosure could be completed in approximately 9 months.  In some cases the lenders cancel the sale last minute, arguably to prolong the process. To combat these delays and to mitigate losses in revenue, Associations have been asking the Courts for extraordinary relief by filing Motions to Compel and other Motions asking the Court to force the lender to move forward within a certain time frame, failing which, requiring the lender to pay assessments (maintenance fees).  In this case, the condominium association filed its Motion to Compel after the foreclosure case was pending for about a year.  The trial Court granted the Association's motion, ordering the bank to diligently proceed within thirty (30) days or pay monthly maintenance fees.
 

The appellate Court treated the obligation to pay assessments as a sanction and criticized the association for failing to take more traditional means to address delay, such as filing Notices for Trial or to Show Cause, before asking the Court for extraordinary relief.  Finding no basis to require payment, the Court reversed the Order.

Associations still have options available to move mortgage foreclosure cases along though and cannot sit back and wait for lenders to do their part.   There are several legislative proposals filed for consideration in 2010 that address lender liability - we will include information about those proposals on this site in the near future. 

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