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HB 319 is the primary condominium bill this session. It is neither anti-association nor pro-bank as some of its critics have said. In fact, it is one of the most pro-association bills we have seen in recent years. It protects associations from predatory collection agencies which are trying to take advantage of an association’s wish to be repaid fully once the foreclosure process is complete.  

Ask yourself one simple question to determine if HB 319 is pro or anti association: if the Legislature is going to increase a bank’s liability to an association, should the increased funds go to pay legal fees or go to reimburse the community for unpaid assessments?  In our view, any additional payments by made by banks MUST go back to the association.

Collection agency attorneys should not be incentivized to aggressively go after banks if the associations could be left with a large debt payable to the attorneys. We recently saw such a case where the collection attorney was demanding almost $14,000.00 to finalize the sale of a foreclosed unit.  The purchaser was left without any good choices. One option is to pay the fees (which is what the “aggressive” firms have counted on).  Another option is to go to court which can also be costly.  Another alternative is to simply cancel the deal – defeating the whole purpose.

Let's address the real problem by making the banks foreclose more quickly and pay the assessments due to the association, not by creating more financial opportunities for collection mill attorneys.

I have structured a Q&A below with the hope that it will better explain the real purpose of the bill and the problems that the bill is trying to fix.

Q:  What is the “safe harbor” provision?

A:  The “safe harbor” provision in the law means that when a bank takes title to a unit as a result of foreclosure, the bank is obligated to pay either 12 months of unpaid assessments or 1 percent of the original mortgage debt, whichever is less.  For example, if a condominium’s annual assessments are $3600, and the unit has a $250,000 mortgage, the bank will pay to the association $2,500.  The safe harbor provision has been in the law since 1992. Prior to 1992, a bank that took title to a unit through a foreclosure action paid the association ZERO in past due assessments. 

Q:  Do banks owe the association’s attorney’s fees and costs, in addition to the safe harbor amount?

A:  No.  There is no mention in the statute of other charges, such as attorney’s fees, becoming a bank liability after the foreclosure of the bank’s mortgage.  The vast majority of attorneys who practice community association law interpret the law to mean that the bank does not owe any additional amounts above the safe harbor amount.

Q: How does HB 319 affect the safe harbor provisions?

A:  HB 319 simply clarifies the law that has been in effect for 20 years so that it specifically states that the bank is responsible for 12 months past due assessments or 1% of the original mortgage debt, whichever is less, and does not have to pay unlimited attorney’s fees and costs above the safe harbor amount. 
 
Q:  Why is it necessary to clarify the safe harbor provisions?  Why not leave the law as is?

A:  There was never any uncertainty in the law until recently, when a cottage industry of collection agencies and collection lawyers, with no history of helping associations, came onto the scene and began to interpret the law differently.  This cottage industry (some refer to them as collection mills) claim that their interpretation of the statute is merely “aggressive” and they are willing to take liberties with their demands against first mortgagees that take title to condominium units.  So for example, if an association’s annual assessments total $3,600 and the amount of the loan was $250,000, rather than making a demand for $2,500, these firms and collection agencies have demanded outrageous sums of thousands of dollars, ten thousand dollars, fifteen thousand dollars and even more for routine mortgage foreclosure cases.   It is easy to see why these collection mills do not want HB 319 to clarify the safe harbor amount and are misleading the public into thinking that HB 319 is anti-association and pro-bank.  
 
Q:  Why not leave the law as is and let these collection mills try to get as much money as they can from the banks?

A:  Associations are being harmed, every day, by these predatory practices.  For example, when a lender does foreclose and looks for a new buyer for the home the parties must ask the association for an “estoppel letter”, which is a legally binding request for the association to state how much must be paid for the issuance of a clear title.  Although the bank has often already paid the safe harbor amount, the parties ready to close the deal (buyer, seller, lender, attorneys, realtors, and title companies) are all shocked to learn that demand is being made against them on behalf of an association for outrageous sums.  We recently saw one case where the collection attorney was demanding some $14,000.00.  When faced with a scenario like this, the choices are all bad.  One option is to pay the money, and that is what many of the “aggressive” firms have counted on.  Another option is to insist that the law be followed and go to court.  This is usually not a good economic choice for the parties.  Another alternative is to simply cancel the deal, which is happening more and more frequently.  In other cases, the lenders will pay, and then file lawsuits for refunds. 

Q:  What other problems are being caused by the “aggressive” interpretation of the law by the collection mills?

A:  Similar practices in Nevada led a subsidiary of Bank of America to file a class action lawsuit regarding collection practices in homeowners’ associations.  According to recent news reports, a couple of hundred Nevada associations have also recently been named as defendants in a new wave of class action lawsuits.  It is only a matter of time before a similar class action lawsuit is filed in Florida unless the Legislature acts to clarify the law.

Q:  Why not change the law so that banks have to pay the attorneys fees and costs, in addition to the safe harbor?

A:  We think the banks should be paying more, but if there is going to be a change in the law, it should be in the safe harbor amount (for example, 24 months or 2% instead of the current 12 months or 1%) so that we can be sure that the additional money paid by the banks is going to the associations and not to lawyers and collection agencies.  In addition, if the law is changed to require the banks to pay attorneys fees and costs in addition to the safe harbor amount, it would ignore the purpose of the original safe harbor law, which was so that a bank lending money would know upfront how much it would have to pay to the association if the borrower stopped paying his or her mortgage and the bank had to foreclose.   If the law was to be changed to say that the banks had to pay unlimited amounts of attorney’s fees and costs, the lending industry may decide to curtail borrowing in Florida or make it much more expensive to obtain a loan.

Q:  What is the Legislature doing to help associations?

A:  I believe that HB 319 helps associations by clarifying the safe harbor provision which will curtail the abuses explained in these Q&A’s.  In addition, there are a couple of bills pending in the Legislature (HB 213 and SB 1890) which will give associations more control over speeding up stalled foreclosure cases.  The greatest problem for associations is that the foreclosure actions drag on far too long.  Associations need to have these units sold, and a new owner holding title, so that the new owner can begin to pay assessments to the association.  Therefore, I would strongly urge you to contact your Legislator and ask them to support HB 319 and HB 213/SB 1890.

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In January of this year we asked whether mandatory foreclosure mediation was "Worthwhile or a Waste of Time".   

In late September the Supreme Court of Florida asked a select group of Judges and a Court Administrator to figure out whether the program worked.  Did it reduce the backlog of foreclosure cases?  What can we learn from the program data?  Should it continue or wind down?

The Workgroup received comments about the statewide program from attorneys for borrowers and lenders, lenders, judges, program managers, mediators and the general public.  It reviewed the data and concluded that each circuit should decide whether to continued a managed program or not.   Mediation isn't appropriate in every case, in fact the Palm Beach Post reported that only 14 percent of all eligible borrowers participated, so why continue with a mandate?

Loan servicers were criticized in the Report for refusing to consider anything other than a "narrow range of settlement options" and failing to send representatives that had authority to settle the cases.  After all, loan servicers have an economic incentive not to settle, even though government programs compensated them for successful loan modifications.  The Workgroup made several recommendations including the following:

• allow borrowers to "opt in" to mediation when served with the foreclosure lawsuit (that way lenders/servicers don't have to track down the borrower that won't ultimately participate);
• improve the quality/substance of the financial information supplied by borrowers;
• require the letter to identify the right contact person;
• improve document exchange compliance (with periodic updates);
• consider sanctions for noncompliance (by either party);
• reduce the fees (especially fees to cash-strapped borrowers);
• shorten the time frame to mediate; and
• create better reporting procedures (to evaluate the effectiveness of a voluntary program going forward).

Comments from attorneys that represented borrowers were far more favorable than many others. 

The Report doesn't mention input from community association leaders or managers.  I know from experience that many community associations regularly participated in the foreclosure mediation.  Quite often the community associations reached a favorable settlement with the homeowner when he or she was serious about saving their home, even if a loan modification failed to materialize.  On the other hand, many community associations did not participate in these mediations to avoid the additional expense and time commitment.  

I'd be interested in hearing comments from community leaders that participated in the program.  

 

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Struggling with mortgage payments?  If so, look for information from Fannie Mae before giving up.  The Fannie Mae "Know Your Options" campaign uses TV spots to reach struggling borrowers, encouraging them to visit KnowYourOptions.com and call a toll-free phone number. Fannie Mae volunteers will use the information provided by callers to document and route their cases to Fannie's Mortgage Help Centers or other resources for assistance.

The site contains useful information for homeowners whether you want to stay in your home or not. The site explains options regarding:

1. Refinance
2. Repayment Plan
3. Forbearance
4. Modification
5. Deed-for-LeaseTM
6. Military Forbearance
    

Short sales are addressed.  Fannie explains that a Short Sale is also known as a pre-foreclosure sale.  Selling 'short' means selling your home for less than the balance remaining on the mortgage.  Users can learn whether they qualify for the Home Affordable Foreclosure Alternatives Program (HAFA) which offers short sale and DIL options or other government programs.  Short sales are generally beneficial to community associations.  Past due payments add to association coffers and new homeowners bring life back in to the community.

The site also warns distressed homeowners about possible scams.  HUD-approved housing counseling agencies are available to help you negotiate with your lender or loan servicer. They do NOT charge a fee.  Users are encouraged to call 1-888-995-HOPE (4673) for free housing counseling before signing any documents, diverting mortgage payments or paying for credit counseling services.
 

Community associations suffer when their homeowners are struggling financially.  Not only do assessments fall by the wayside, but there are other impacts. Properties are usually not maintained as well i.e. the lawns grow taller and develop weeds, shrubs and plantings grow out of control (in some cases reducing visibility at intersections and creating 'dark' spots) and roofs become black with mold, all of which decrease property values and home enjoyment.   Hopefully your homeowners can take advantage of some of the options available to improve their financial situation and then pay their assessments!

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With the collection rate being what it is and bank foreclosures taking forever, I understand that Boards do not want to wait any longer than necessary to take action to collect overdue assessments.  Many Boards give management and their attorneys "marching orders" to proceed as quickly and as forcefully as possible and I agree - that is prudent in light of the current economic climate. 

 However, the desire to do something fast should never replace or outweigh the desire to do something right.  Management, legal counsel and the board all need to work as a team.  They need to figure out the best way to handle each situation for the benefit of the community - not run to the courthouse to file a lawsuit in every single case.

Moreover, the team has to do its homework as a team.  You all have to communicate.  The left hand needs to know what's happening with the right hand, especially when it comes to financial matters such as the application of payments made by owners, charges on owners' accounts, levying fines, bankruptcy filings and suspending use rights.

Being quick on the trigger worked against the Wellesley at Lake Clarke Shores Homeowners' Association when the case came under review by the appellate court.  In this case management sent the homeowner a demand letter claiming a certain amount was owed.  The owner responded saying she had canceled checks reflecting payment for that period of time.  The account was turned over to legal counsel which issued another demand letter saying that the first quarter regular assessment and 4 months of special assessment payments were late.  Counsel demanded payment for these assessments, late fees, interest and attorney's fees.  Canceled checks reflecting payment for the first quarter and those specific special assessment installments didn't make the association take a step back and look at the situation.  Instead it filed a claim of lien and foreclosed. 

The owner continued to claim she paid these assessments.  She even paid additional amounts for late fees.  Why did she still owe all this money?  It didn't make sense to her.

In the end it didn't make sense to the Court either.  The trial court calculated the amounts the association claimed were past due.  There was $20,485.08 in total past due assessments.  The owner's records proved she paid the total sum of $20,561.76 to the association for the relevant time period.  The trial court's judgment against the homeowner also included close to $2,000 in interest and late fees in addition to a little over $10,000 in attorney's fees and costs.  After delving into the history of payments and credits deeper, the Court found that this homeowner owed less than $1,000 before the lien was filed and the association didn't even explain how the amounts claimed due on the account were calculated.

The Court almost scolded the association, its management team and counsel by saying:

...the association and its accounting methods were woefully inadequate to correctly ascertain and give notice of the amounts claimed to be due.  Because of this imperfect record keeping, the association did not make a proper claim of lien, nor did it give sufficient notice in its complaint of its claim.  Had it done so, in all likelihood this case would not have even been filed. ...

What can we learn from this case?  Well, of course you must keep accurate records and send accurate disclosures.  There is another very important lesson - if the board took a step back and compared the proof of payments with the assessments due, it would have realized there were simple mistakes made and not escalated the dispute into a full fledged lawsuit. It could have saved money and maintained a better relationship with the owner by working it out before filing.

This case also reminds us to accept partial payments on account.  A previous case held that associations (management company or legal counsel for that matter) cannot refuse payments tendered by unit owners and then continue legal proceedings or foreclosure for the full amount due.

The point is that owners make mistakes from time to time, banks make mistakes from time to time & associations make mistakes from time to time.  Take a step back and think about the association's goals - the goal is to get paid what is owed.  If you can achieve that goal without adversarial action, all the better. 

The decision in this case was just issued on September 7th.  It is therefore subject to rehearing or appeal.

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A case recently issued by the 3rd District Court of Appeal confirms unit owner obligations to pay validly adopted assessments. The Court in Coral Way Condominium Investments, Inc. v. 21/22 Condominium Association, Inc., recited two important statements, one of which was made by the Florida Supreme Court in 1994 in the Ocean Trail Unit Association, Inc. v. Mead, case. Unit owners must understand the following pronouncements:

Avoidance of the payment of a valid assessment, however, is not a remedy available to unit owners to cure unauthorized acts by officers or directors of an association.

A unit owner’s duty to pay assessments is conditional solely on whether the unit owner holds title to the condominium unit and whether the assessment conforms to the Declaration of Condominium and By-Laws of the Association, which are authorized by Chapter 718, Florida Statutes.

Coral Way owned several condominium units in the 21/22 Condominium. It challenged both the need and the validity of a special assessment levied by the Board of Directors. Coral Way claimed that it had evidence that the association paid for items that were not common expenses. It alleged that the association paid legal fees that were not incurred by the association. It also contended that the financial records did not reflect a lump sum payment made to the association in connection with a roof top lease. This unit owner took the position that a special assessment would not have been necessary and the association would have had the funds to accomplish the repairs identified if it accounted for the income associated with the rooftop lease or spent money for non-association expenses.

This issue comes up quite often. I mentioned in the Can Complaints about Association Operations Become a Defense Against Foreclosure post that owners often refuse to pay assessments when they feel the association neglects the property, manages ineffectively or wastes association funds. The case mentioned in that post concerned a set-off. While the facts that support a claim for set-off may be exactly the same as those in a claim for a Breach of Fiduciary Duty, the legal issues are quite different. The 4th District of Appeal made it perfectly clear that even if the Board of Directors breached their fiduciary duties, Coral Way still had to pay legally adopted assessments. Since the association followed the proper procedures and the assessment was to pay for a legitimate repair, Coral Way could not avoid its obligation to pay, even if it was later entitled to reimbursement as a result of wrongful use of association funds or accounting irregularities.

The bottom line result here is very important for unit owners to understand. The association’s obligation to maintain the property and otherwise fulfill its fiduciary duties is completely separate and independent of your obligation to pay validly adopted assessments (pursuant to a budget or a special assessment, as the case may be).
 

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YES - says the Fourth District Court of Appeal.

The housing market crisis that led to the massive wave of foreclosures forced thousands and thousands of people to find a new profession or line of work.  Real estate agents and mortgage brokers were out of work and many had to re-position themselves in the new economic reality.  Attorneys did so as well.  Many attorneys lost their real estate and bank related business and therefore turned to other areas of the law. 

It takes less than a second to find about 18,600,000 results for "foreclosure defense attorney" on Google.  Many of these attorneys are excellent - discovering the 'robo-signers', false or forged documentation and other illegal or just bad practices on the part of lenders, mortgage servicers and/or certain law firms.   However, more is not always better when it comes to handling lawsuits, especially in the eyes of the overburdened Judges.

The Fourth District Court of Appeal recently upheld an award of attorney's fees, costs and sanctions against a law firm in an amount over thirty-eight thousand ($38,000.00) dollars.  The Court found Section 57.105, Florida Statutes applied to attorneys representing borrowers in foreclosure cases if 1. actions taken in the lawsuit were shown to be for the primary purpose of delaying the case (allowing the borrower to stay in the home without paying) and 2. the attorney knew or should have known those actions were not supported by the material facts of the case.

Here's what happened in this case - the bank filed a foreclosure lawsuit against the borrowers.  The borrowers hired an attorney/law firm to represent them in the case.  The attorney filed documentation with the Court claiming that the bank violated certain aspects of the Federal Truth in Lending Act.  The bank responded with proof it did comply with the Federal Truth in Lending Act, demanding a retraction.   The Judge was not happy about this situation obviously and, after various hearings, issued an order requiring payment of the bank's attorney's fees, costs and sanctions for the delay.  The appellate Court affirmed the ruling.

While this case involved a bank, the same issues often arise in cases filed by condominium or homeowners associations.  The Courts are awarding sanctions in favor of community associations when lenders or debtors use the system to delay a case when they know their position doesn't have merit. 

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Community leaders struggle with budget shortfalls every day.  What if there was something you could do when owners fall behind in maintenance payments, mortgages and other expenses?  Do you agree that a six month reprieve from mortgage payments can enable homeowners to bring their account with the association current?  If so, you need to learn about the financial assistance available.

The state received close to a billion dollars in federal funds to help struggling homeowners fend off foreclosure.  The program, administered by the Florida Housing Finance Corp., is designed to provide homeowners with some "breathing room" by giving them a temporary break on mortgage payments.  By raising awareness of the program and offering assistance to qualified applicants, community leaders can help improve residents' financial situations while improving the association's financial condition at the same time.

Eligibility Criteria:  Applicants must be eligible to receive assistance.  Help is limited to those Floridians that are unemployed or under-employed, not those suffering financial hardships as a result of divorce, disability or death of one of the borrowers.  An applicant ...

• Must be a Florida resident;
• Must occupy property as primary residence (the property cannot be vacant, abandoned or rented);
• Borrower/co-borrower must be unemployed or underemployed through no fault of his/her own, which makes the first mortgage unaffordable;
• Must have documented total household income at or below 140% of the area median income (AMI), adjusted for household size;
• Must have an active checking/savings account that can be debited by the ACH method of funds transfer;
• May not have unencumbered assets of $5,000 or more, or three times the current monthly mortgage payment (whichever is greater);
• Cannot have a bankruptcy that has not been discharged or dismissed; and
• Cannot have been convicted of a mortgage-related felony in the last 10 years.

Click HERE for frequently asked questions and answers about the Hardest-Hit Fund.  TheFlorida Housing Finance Agency hopes to assist close to 40,000 people with this program - wouldn't you like your owners to take advantage of this opportunity, especially if that will help them catch up on delinquent assessments?

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One of the principles I learned when I first became a member of this Law Firm has now been called into question, at least somewhat, by a new ruling issued by the Fourth District Court of Appeal. 

I initially learned that the obligation of the association to maintain and care for the property is completely independent of and not contingent upon the obligation on the part of the owners to pay assessments.  I also learned that, conversely, the obligation to pay assessments (pursuant to a properly levied budget or properly levied special assessment) was likewise independent of and not contingent upon claims that the Association failed to maintain the property or otherwise failed to meet expectations.

Associations have become embroiled in litigation over the past several years.  Many times the response to a foreclosure lawsuit comes in the form of an attack against the board. Nonpaying owners have tried to justify their actions due to claims of neglect of the property, inefficient management or wasteful spending.  In the past those claims were not considered a proper defense in the foreclosure case.  The owner may, in fact, have a viable claim against the association (however, in many cases there is a non-actionable difference of opinion) and those claims would need separate consideration by the Court, but those allegations would not serve as an excuse for non-payment.

Recently the appellate court overturned a summary judgment ruling in favor of an association.  The ruling in E. Qualcom Corp. v. Global Commerce Center Association, Inc. is not final yet.  If the ruling becomes final then associations may have to jump through another hoop and avoid another obstacle to collect delinquent assessments.

Qualcom owned a unit in a commercial condominium and stopped paying assessments.  One of its defenses to the association's foreclosure included a claim for set-off.  The owner alleged that the association's failure to fix the roof led to damages to its property and loss of revenue.  The owner claimed it should be entitled to a reduction (or set-off) in the amount owed based on its losses.  How many times have you heard something similar?

The appellate court found it was improper to grant a summary judgment for the association in light of these unrefuted allegations.  The court said the association should have been required to refute these allegations or to show that the defense was legally insufficient.  What is odd is that prior case law found those types of defenses (the lobby isn't clean, the pool is shut down, there is water leaking into my unit) legally insufficient.

I'm sure community leaders and managers would agree that associations already face too many obstacles.  Let's hope this case does not create an additional one.

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Mediation is an effective way to resolve disputes. Florida Courts require the parties to a lawsuit to attempt to settle the dispute at mediation before the trial starts.  There are many benefits to mediation - it is private, the proceedings are confidential, if successful it reduces the costs to each side of the case and enables the parties to "think outside the box".  The mediator is a neutral third party (in Florida they must be licensed) that facilitates the discussion and helps the parties explore alternative ways of resolving their dispute.   In short, mediation has a lot of benefits and I highly recommend it for the vast majority of cases.

The Florida Supreme Court mandated mediation for all circuit court residential mortgage foreclosure cases involving homestead property.  The Florida Supreme Court initiated a task force review of foreclosure cases in 2009 and the findings were not surprising, at least not to community association board members dealing with delinquencies.  The task force recommended mediation to manage "the massive volume of residential mortgage foreclosure cases".   

Mediation increases costs for the mortgagee (at least $750 for the program plus attorney's fees), delays the process and may actually work against the borrower that participates in the program in the long run.

First, the program coordinator must contact the borrower.  The borrowers typically don't respond, so a second notice is sent and sometimes even a third notice is sent.  That all takes time.  Once contact is established the borrower must meet with an approved mortgage foreclosure counselor, that takes more time.  Then the borrower must assemble and provide certain financial information to the mediation program coordinator before mediation will be scheduled. 

"Pro-se" borrowers (borrowers without legal counsel) often are not aware they may request documents from the mortgagee, such as:

• Evidence it owns and holds the note and mortgage sued upon;
• An account history showing the application of all payments by the borrower during the life of the loan;
• The mortgagee's determination of present net value of the mortgage loan; and
• The most current appraisal of the property.

A reporter for the Palm Beach Post found foreclosure mediation only had a 6% success rate.  The article quotes a report indicating program coordinators established contact with less than half of the borrowers that qualified for the program.  Less than half of those borrowers actually participated in mediation.  All of this must take place before the Court will act on any notice for trial, motion for default final judgment, or motion for summary judgment filed in the case. 

Fannie Mae recently announced its plan for pre-litigation mediation in Florida.  Fannie Mae requires mortgage servicers to refer delinquent mortgage loans to one of its approved attorneys along with contact information for a primary liaison/team that can make decisions regarding loan modifications or other avenues for resolution of the delinquency.  If the circumstances meet Fannie Mae's mediation requirements, the servicer must offer mediation to the borrower.  It can fine servicers for failing to comply with the program.

Will pre-litigation mediation speed up the foreclosure process or produce even longer delays?  Its hard to predict, but borrowers that have encountered difficulties contacting anyone at the lender or mortgage servicer now at least have another chance to save their home or negotiate a solution.

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By Adam Cervera

Almost every association has been through it. A deadbeat unit owner has stopped paying their mortgage and the lender brings a foreclosure action against them to enforce the note and mortgage. Not surprisingly, this same owner stops paying his maintenance fees to the association and the association finds itself stuck between a rock and a hard place: bring its own foreclosure action and attempt to obtain title, knowing that ultimately the lender will recapture this title from association as a superior lien holder, or wait for the bank to finish its foreclosure action and hope the new owner begins to pay all future maintenance fees.

For those associations opting for the latter option, a great deal of frustration arises when they see just how long it takes for the average bank foreclosure lawsuit to reach its resolution. While under the Tadmore decision an association can no longer force a lender to pay monthly maintenance fees while its case is pending, since they are not the “legal” owner of the property, all hope is not lost.

Associations have rights when mortgagees foreclose. Don’t let these mortgage foreclosures drag on and on and on ….

Ask for a Case Management Conference. This gives the association’s attorney the opportunity to request hard deadlines in the case. Judges can enter Orders requiring summary judgment motions filed and hearings set within a short period of time, generally 30 days or less. Summary judgment is key because once this is granted, the case is essentially over and all that is left to be done is to sell the property.

With the order on the case management conference in hand, the association now has a powerful tool in its arsenal that can only lead to positive results. If the lender’s attorney complies with the order, the final judgment clears the way for the property to be sold. If not, the door is wide open for the association to seek and recover sanctions against the lender for the delay.

Bank attorneys are often unable (or possibly unwilling?) to comply with scheduling orders. Judges hate when parties do not follow their orders and are often very quick to sanction or fine those plaintiffs. Sanctions can range from a one-time lump sum payment all the way up to daily fines that accrue every day until they take action. In short, associations can finally have the upper hand when a bank drags its feet in violation of a court order.

In Miami-Dade County alone, Becker & Poliakoff has collected several thousands of dollars in sanctions for associations who have filed motions against dilatory lenders and their slow moving counsel.

This is crucial - if an association finds itself in a situation where a lender’s case is in a standstill, set a case management conference as soon as possible. It is important to authorize counsel to act fast once the initial case management conference order deadline expires. Judges around the state are becoming more sympathetic to associations that get caught in the middle of lender foreclosure cases that go on forever. 

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A Ruling in Favor of the Matanzas Shores Owners Association Will Help Your Community Push Mortgage Foreclosure Cases to Sale.  Do Not Allow the Lender to Stall the Sale in Order to Avoid Paying Assessments and Maintaining the Property.

LR5A-JV v. Little House LLC, Fifth District Court of Appeal, Case No. 5D09-3857

The lender named Matanzas Shores as a defendant in order to foreclose the Association's liens.  The Association's lien is subordinate to a first mortgage - with the exception of the 'safe harbor' payments required by the Condominium and Homeowners' Associations Acts (which is also referred to a the 'super-lien' provision).  The Court entered Final Judgment of foreclosure against the property in 2008. 

The Association didn't want to wait around for lender to act - so its counsel filed a Motion to Schedule the Sale.  The lender objected - claiming it was entitled to set the sale and if it wanted to wait that was its choice.  This is the issue that went up on appeal. 

The Association argued:

1. The Court has the authority to schedule the sale pursuant to §45.031, Florida Statutes;
2. Since foreclosure cases involve the equity jurisdiction of the Court, the Court should consider the interests of all of the parties to the case when setting the sale date; and
3. Since the Supreme Court's Task Force on Residential Foreclosures recognized that Associations suffer when foreclosures take longer than they should, the Court can and should facilitate prompt resolution of these cases when possible.

The Lender objected - still claiming it, as the plaintiff in the case, had control over the process.  The Lender also argued that even if the Court did have authority to schedule the sale, doing so at the Association's request was an abuse of discretion.  The Appellate Court completely rejected the lender's arguments.

The Task Force report prompted the Supreme Court of Florida to Issue New Foreclosure Rules.  One of those rules created a new procedure and form for use to change the sale date initially set by the clerk.  This new form is called the Motion to Cancel and Reschedule Foreclosure Sale.   Associations need the property to be sold to start collecting assessments from the new owner going forward.  This new form requires the lender to explain why it wants to cancel the sale.  It also directs the Court to set a new sale date, rather than keeping properties in an "extended limbo between final judgment and sale". [Quote from Task Force]

What Will the Lender Pay?

Counsel for the Association fears that the dispute between the lender and the Association is far from over.  The statutes require the lender to pay assessments upon acquisition of title.  Well, here the Court said that the sale should have taken place in 2008.  Should the Association be penalized for the gap between the initial sale date and the date the sale actually occurs?  Should the lender pay assessments for the two plus years it took to appeal?  We may hear more about this case in the future.

This ruling brings welcome relief to many Associations throughout the state.  If your community is waiting for the Court to re-schedule a sale or waiting for a lender to ask the Court to schedule a sale, wait no longer.  Speak to your counsel about filing a Motion to Set the Sale.  Along those lines, if your community is waiting for a lender to set its summary judgment hearing or re-schedule its summary judgment hearing - speak to counsel.  You have options to push these cases to conclusion - take advantage of them!

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Squatters Occupying Abandoned Homes May Have Claim Against Owners While Authorities Charge Adverse Possession Filers With Fraud.

A company called Helping Hands Properties, Inc. claimed 48 properties in Broward, including a $1 million house in Coral Springs.   Another, Saving Florida Homes, Inc. filed notice in official county records that it was taking possession of 100 homes in Broward and three in Palm Beach County - up to 10 properties were claimed in just one day.   The company owners say that taking possession of dilapidated properties improve the neighborhood.  Authorities say they are just trespassing and stealing.  Are these companies just manipulating the system for their own benefit or are they performing a public service?  What can you do if this happens in your neighborhood?

Adverse Possession - What is it?

Florida statutes address adverse possession - a process to obtain title without buying a property.  To acquire title by adverse possession, such possession must be adverse, hostile, open or notorious, exclusive and uninterrupted, for seven years.

There are two types of adverse possession. Adverse possession under "color of law" (§95.16, Florida Statutes) means the possessor’s ownership claim is based upon a written document in the county public records. Adverse possession without "color of law"(§95.18, Florida Statutes) means there is no recorded document purportedly creating ownership.

To claim adverse possession under color of law, the document (deed, etc.) does not have to be valid. However, the possessor must have accepted the instrument in the honest belief that it conveyed ownership. Possession means that the property has actually been used or enclosed. 

Adverse possession without color of law is not based on any recorded document, but mere use of the property is not enough to claim ownership or entitlement. The possessor must pay the property taxes and installments of all special improvement liens levied against the property by the state, county and city. The additional requirement of tax payments not only evidences the possessor claims ownership, but places the record owner on notice that property taxes are being paid by someone else. That gives the record owner an opportunity to investigate and take action.

Remember - possession must be open, notorious and hostile to claim adverse possession. Permissive use, like when you allow kids to play soccer, use motorbikes or camp on the property, means the possession is not adverse.  

In a New York Times article, one of the company owners explained he allowed tenants to fix up the property instead of paying rent.  Strategic defaults create plenty of opportunities to seize abandoned homes.  Letters sent to property owners and banks notifying them of the plan to take over the home were reportedly ignored.  He now faces up to 15 years in prison.

This tactic can pose problems for community associations.  More and more community associations have acquired title to homes as a result of foreclosures.  Those associations must monitor the use of the property and file eviction actions to remove unauthorized occupants to avoid claims of adverse possession.  The same is true for bank-owned properties.  A lender may not be aware of the actual use or condition of the home, especially if its not actively marketed for sale.  The association needs to remain cognizant of the actual use and take action to verify whether that use complies with the governing documents.  Ignoring use violations creates even further problems, especially when the association tries to take action much, much later.

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In nearly every case where a first mortgage of record exists on a property, the association's lien is subordinate or inferior to that mortgage. This means if an association elects to foreclose its lien and takes title to the property, it will take title subject to the right of the first mortgagee to foreclose its mortgage.  Associations in the past were reluctant to foreclose when the mortgagee already commenced its own foreclosure action or when the value of the property did not exceed the amount of debt secured by the first mortgage.  That's changing now.  
 
Associations are now making the decision to foreclose more often under these circumstances. The primary reason for this is serious delay in the prosecution of the mortgagee's foreclosure case. These delays are brought on by a variety of factors including the sheer volume of cases handled by the mortgagee's law firm, protracted efforts to work with the borrower either to short sale the property or modify the loan, problems associated with serving necessary parties with the foreclosure complaint or locating original documents that are to be filed with the court, back log in the courts and even strategic decisions by mortgagees to slow down the process.
 
In some cases, associations can obtain favorable results when foreclosing, even against properties that have fair market values below their mortgaged amount.  Sometimes the homeowner has the means to pay the association but  has elected to spend money on other concerns.  Because foreclosure results in the owner losing title to the property, if the owner has the means to pay and does not desire to walk away, they pay rather than lose title.  Foreclsoure can be a powerful deterrent for owners who have the means to pay but elect not to or to pay late because they hear others doing the same.  Another option is the association's right to rent the property once it takes title, if permitted by the association's governing documents.  For some associations, the rental market is favorable and significant income can be recovered before the mortgagee forecloses and takes title.   
 
Many times the owner cannot or will not pay and rental is not a viable option. However, associations still make the decision to foreclose for any number of reasons. Because so many mortgage foreclosures are being contested by owners raising defenses unique to the mortgage foreclosure action, and thus stalling the mortgage foreclosure case for months or even years, the association can effectively render those defenses moot as they relate to the mortgagee's foreclosure by foreclosing the association's lien.  When the owner is divested of title by the association, the owner will drop or lose the fight against the lender in the mortgage foreclosure action, thus paving the way for the lender to take title and begin paying assessments.  Another option for associations taking title is negotiating a short sale with the lender or tendering a deed in lieu of foreclosure to the lender.  I have also filed motions in mortgage foreclosure actions notifying the court that the association has taken title and does not contest the mortgagee's foreclosure, therefore, speeding up the lender's acquisition of title.  These associations understand the key is getting a paying owner into the property sooner rather than later.  That way, more in terms of future assessments are recovered rather than lost while a mortgage foreclosure lingers on for years and no one pays the assessments.
 
What every association should consider is each case is different and the association is well served if it carefully considers all of its options and selects a strategy that works best in any given case.  In this ever changing environment, there is no one size fits all approach.

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In the wake of Attorney General investigations, self-imposed lender moratoriums on foreclosures and a mounting back up of pending mortgage foreclosure cases, community associations are searching for alternatives to waiting out the storm. It was once the norm that associations would take a wait and see approach when an owner delinquent in the payment of assessments was also facing a mortgage foreclosure. Particularly, in this economy when the amount due on the mortgage exceeds the fair market value of the property. However, now it is too often that associations are left withering on the vine while the mortgage foreclosure action goes on for months or even years.

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You may have heard that several major lending institutions, including Bank of America, GMAC and JP Morgan Chase, are putting foreclosures on hold in Florida. Our Attorney General joined other states to investigate mortgage foreclosures throughout the country. We expect other lenders and mortgage servicing companies to make similar announcements in the near future.
 
Why? Well recent news reports that the people signing thousands of affidavits in court proceedings did so without verifying ownership of the loan and the amounts due. They reportedly did not review original documentation or have any personal knowledge of the facts alleged in the affidavits. Some representatives have reportedly signed 8,000 to 10,000 affidavits a month. The lenders and/or mortgage servicers need to review and assess whether these foreclosures and filings comply with state laws.
 
Although it is uncertain how much delay these current reviews will add to the foreclosure process, most experts believe it is only delaying the inevitable. We believe it will take thirty to sixty days for the companies to perform an internal review. This is not good news for Florida's community associations. Various research outlets currently list the average length of the foreclosure process in Florida between 14 and 17 months. Some foreclosures are taking much longer.
 
Community associations must recognize their rights as a party in these actions. Community leaders cannot sit back and wait for the banks to figure out what they are going to do next. The Florida Rules of Civil Procedure govern these cases in litigation - the banks (and bank attorneys) have to follow the rules and if they do not, they can be made to suffer the consequences. Courts have imposed significant sanctions against banks and their law firms for failing to abide by court orders regarding the prosecution of foreclosure cases.

Certainly, the overwhelming number of foreclosures filed in Florida is challenging the resources of the courts, but boards that wait and simply ride out the storm can lose out on valuable rights (and dollars) for their communities. There are alternatives to simply waiting out the bank foreclosure which, if successful, can help move the process along.  However, these alternatives must evaluated on a case by case basis and in consultation with your association's 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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A number of bills CALL tracked this session were sent to Governor Crist recently.  He has until June 1, 2010 to act (veto or sign) on the following bills:

• SB 1196, Relating to Community Associations
• HB 663, Relating to Building Safety
• HB 713, Relating to Department of Business and Professional Regulation
• HB 1035, Relating to Elevator Safety
• HB 1411, Relating to Timeshare Foreclosures

We've included bullet point summaries of SB 1196 on this blog, but refer you to the actual text of the bill for more complete information.  Community Update will outline the impact of important bills on community associations - Becker & Poliakoff''s association clients will receive the electronic version shortly.

The Governor's office is in the process of reviewing SB 1964.  We've included concerns about this bill before in Condos/HOAs Have a Lot to Lose if Design Professional Protection Bills Become Law.  In 1999, the Florida Supreme Court codified a long standing principle that design professionals should be held accountable for economic loss damages that they cause just like other professionals in Florida. Board certified construction law attorney Steve Lesser said the following:

[Design professionals] have an obligation to design to meet code and protect the health, life & safety concerns of consumers.  An error in design judgment can be devastating to a unit owner and homeowners that cause damages and in fact- economic damages.  An elevator that fails to operate at the appropriate speeds and breaks down results in loss of use which is an economic loss.  Imagine how this could impact elderly unit owners.  A parking garage that is not properly shored up based on engineering calculations can result in economic loss.  These consumers are largely lay persons that often sign agreements (presented by the professional) that contain limitation of liability clauses. 
 

Please contact the Governor's office to express your support or opposition to 2010 legislation.  Make your voices heard in Tallahassee. 

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Fourth District Court of Appeal Rules that Lender Cannot be Compelled to Pay Assessments Prior to Acquisition of Title.

Deutsche Bank National Trust v. Coral Key Condominium Association (at Carolina), Inc. and Luna, Opinion April 14, 2010.

An earlier post discussed the Third District's appellate ruling in the U.S. Bank National Ass'n v. Tadmore case which held that the Court cannot require a lender to pay condominium assessments before its completes its foreclosure case and obtains a Certificate of Title or otherwise acquires title to the unit.  The Fourth District ruled the same way in a case involving the Coral Key Condominium Association.  The ruling is hot off the press, so its not final yet.  If anything changes we will report it on this site.

Do these rulings mean the Association is powerless when a bank is foreclosing against a property within the community?  No - not at all.

The Motion to Compel filed in both cases asked the Court to require the lender to pay assessments immediately, reportedly since the mortgage foreclosure cases were taking so long.  The Associations supported their request for relief upon notions of equity and fairness.  Sure, it is unfair.  The Association has to insure the property, pay for common utilities, pay for maintenance and repair of the property, etc. all while the unit owner isn't paying assessments.  The lender derives a benefit from the Association's actions - its collateral is preserved and insured at the expense of all the paying unit owners. But, as my Dad used to say, life just isn't fair sometimes.

That doesn't mean Association's are without options when a bank is foreclosing against a property in the community, especially when there is a feeling that the bank is 'dragging its feet'.  The Florida Rules of Civil Procedure allow the Courts to establish deadlines or schedules for certain actions to take place.  Any party is entitled to request a case management conference at which the judge may (among other things):

• Set deadlines for service of motions, pleadings or other papers;
• Limit, schedule, order or expedite discovery;
• Require preliminary stipulations to narrow the issues; and
• Set a date for trial.

Any party to the case can advise the Court that the case is ready for trial.  Basically, once the pleadings are closed (all motions concerning the pleadings have been resolved or withdrawn or 20 days after the last pleading is served), the case is eligible for placement on the Court's trial calendar.   

The Court has the power to award sanctions against a party that fails to comply with its scheduling orders and our Firm has had success showing that the lack of action on the part of the bank (and/or its counsel) justified sanctions.  

That is not to imply that every bank in every case has done something wrong, even if the case takes what seems to be an extraordinarily long time. There are legitimate reasons that a foreclosure case can be on 'hold'  Owners/borrowers may be trying to modify their mortgages, there may be an offer for a short sale on the property, and/or a bankruptcy filing may prevent the bank from moving forward, etc.   You know, there is a pretty big load on the Courts right now as well.

Nonetheless, we have learned that some lenders deliberately allow some foreclosure cases to linger for various reasons.  Those are the cases that Associations should address - first with the lender (actually, lender's counsel) and then with the Court.  It is important to discuss your options in each of the cases involving property in your community with counsel.  The board can't be expected to make reasonable strategy decisions unless it is fully advised.

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Lenders Cannot Ignore Foreclosure Cases With Impunity. 

Becker & Poliakoff Attorney Scott Petersen obtains second court ruling requiring a lender and its attorneys to pay an association for failure to proceed with its foreclosure action and failure to obey Court Orders.

The Manatee Observer published an article yesterday notifying its readers that action on the part of a community association can achieve good results in bank foreclosure cases.  The Bank of New York was recently ordered to pay a condominium association over Thirteen Thousand ($13,000) Dollars in sanctions, representing assessments that accrued during the stalled foreclosure case.

In the most recent case, Mr. Petersen filed a Motion to Compel after six (6) months of little or no activity in a bank foreclosure case.  The Court granted the Motion and entered an Order requiring the bank to proceed.  Later on the Court found that the bank did not show 'good cause' why it disobeyed the earlier ruling.  The association incurred attorney's fees and costs for attendance at hearings, writing several letters demanding compliance and additional motions, including the Motion for Contempt - all sent without any response from the bank or its counsel.  It took almost four (4) months for the bank's attorney to acknowledge the motions, letters and rulings.  Another three (3) months went by before the bank filed any responses with the Court.

The responses were apparently too little too late.  The Court granted the association's Motion for Contempt and awarded attorney's fees to the association.

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Court Rules in Favor of Condominium Association After Lender Fails to Move Foreclosure Proceedings Along or Comply With Court Orders.   

On Feb. 8, 2007, the Bank of New York filed a mortgage foreclosure lawsuit against a unit owner, naming the Moorings at Edgewater Condominium Association, Inc. as an additional defendant in the case.  The defaulting unit owner filed for bankruptcy on May 1, 2007, which resulted in an automatic stay of the foreclosure lawsuit.  The unit owner surrendered the property and was discharged from bankruptcy several months later.  The lender waited almost a year from the bankruptcy discharge to file its Motion for Summary Judgment, but never set that Motion for hearing, leaving the association in limbo.

Becoming quite frustrated as a result of the delay, the association hired Attorney Scott Petersen of Becker & Poliakoff's Sarasota office, who filed a Motion to Compel as a result of the delay.  The Court granted the association's Motion and Ordered the bank to move its mortgage foreclosure case along on or before June 29, 2009.  Remember, the unit owner surrendered the property, did not reside in the unit and did not contest the mortgage foreclosure action. 

After Bank failed to obey the Court’s Order, Attorney Peterson scheduled a hearing on an Order to Show Cause for September 24, 2009.  The lender attempted to file a Notice of Voluntary Dismissal to avoid the Show Cause hearing.  The Court ultimately granted the Order to Show Cause, ruling that the bank must pay regular and special assessments as a result of the inordinate delay.

After two months of non-payment, Attorney Petersen filed a Motion for Contempt when the Bank's attorney did not respond to correspondence.  The Bank argued the following as justification for its delay:

1. Owner’s bankruptcy;
2. Difficulties in service of process;
3. Countrywide’s Consent Judgment - implying the parties (owner and lender) were engaged in the loss mitigation process;  and
4. the Court’s Order of May 29, 2009 was illegal pursuant to F.S. 718.116 and the U.S. Bank v. Tadmore case.

The association countered with the following arguments:

1. The Owner’s bankruptcy case was discharged in 2007 and did not cause a 3-year delay;
2. The Affidavits of Service showed that service was attempted during an 8-day stretch from March 1-8, 2007 and then again on April 23, 2007, all of which were unsuccessful. The next attempt at service was June 12, 2008, which was successful, but there was no explanation for the intervening delay;
3. Countrywide’s Consent Judgment was filed Nov. 10, 2008, more than a year after the property was surrendered in bankruptcy and didn't even apply since the borrower (unit owner) abandoned the property; and (among other things)
4. The facts of this case were so egregious that sanctions were appropriate.

This victory for the association shows community leaders cannot sit back and wait for the bank to foreclose.  Moreover, there are many steps that proactive leaders can take now to guard against future delinquencies and to improve the association's position.

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A reader recently posed the following inquiry:

I am interested in your thoughts about Fee Simple Communities foreclosing on properties and working with the banks to accept a short sale. As President of a small community (65 units) HOA, we have foreclosed on 3 units and soon to be 5. All but one have a mortgage and all 4 mortgages are above the value of the property. The banks are not accepting short sale offers without involvement from the mortgagor which in cases in close to impossible. Three of the banks are in foreclosure with the longest process exceeding 3 years. Motions to compel are denied and we are looking for creative ways to speed this process and begin to collect from a new homeowner or at least get my 1%/12.

This situation is becoming more and more prevalent throughout the State. Attorney Kevin Miller provides the following comments:

A motion for case management conference can be a useful tool on behalf of any association involved in a mortgage foreclosure action. In this motion, the association's counsel asks the court to establish reasonable deadlines to bring the case to conclusion, ultimately resulting in a foreclosure sale whereby either the mortgagee or another party will take title to the property. In instances where the association has already foreclosed and taken title to the property, and the mortgagee has filed its own foreclosure, the association may be able to simply consent and stipulate to a judgment and either bring about a sale or transfer of title much sooner. Particularly when the foreclosing party plaintiff is the mortgagee and the defendant owner is the association, and there are no other parties to the action. 
 

What about the 'short sale' option?  

The U.S. Treasury announced new federal guidelines that give lenders a 10-day limit in which to respond to short sale purchase offers. These rules may provide much needed relief, as the Sun-Sentinel reported approximately 40% of South Florida homeowners owe more than the property is worth.  The rules also provide financial incentives for both sellers and lenders.

Is the Association really entitled to any payment from a first mortgagee when the it forecloses its mortgage after the Association has foreclosed its claim of lien?

Remember, the statutes provide for joint and several liability with the previous owner (with the exception of the safe harbor provisions for first mortgagees).  Thus, once the Association takes title to a unit or home after completing a lien foreclosure case, it technically becomes liable for the debt of the previous owner and cannot necessarily seek to collect that debt from a subsequent owner, even if the subsequent owner is a mortgagee.  Any subsequent owner (mortgagee or otherwise) bears responsibility for payment of all assessments from and after the date title is acquired.

We will address additional options in further posts, including the benefits and detriments to renting the properties acquired as a result of foreclosure.  Stay tuned.
 

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Amendments to the Florida Rules of Civil Procedure Largely Derived From Recommendations of the Task Force on Residential Mortgage Foreclosure Cases.

Some of the changes are as follows:

Verification of Mortgage Foreclosure Complaints:  This requires the Plaintiff (lender) to attest to the truthfulness of the allegations in the complaint.  It is intended to minimize erroneous filings, conserve judicial resources by reducing the number of cases with "lost note" issues and provide the court with greater authority to sanction lenders that make false allegations.

Changes the Affidavit of Diligent Search:  When the defendants cannot be served personally, the law allows the foreclosure case to proceed after publication of a notice.  This new form requires the person that conducted the search to sign the Affidavit (instead of the lender) and to provide more information about the search.

New Form - Motion to Cancel and Reschedule Foreclosure Sale:  Associations wait and wait for a lender to foreclose and then wait for the sale to bill the new owner (whether lender or third party) for the appropriate amount.  More importantly, Associations need the property to be sold to start collecting assessments from the new owner going forward.  The number of sales canceled at the last minute seems to be on the rise.  This new form requires the lender to explain why they want to cancel the sale.  It also directs the Court to set a new sale date, rather than keeping properties in an "extended limbo between final judgment and sale". [Quote from Task Force]

There are some slight changes to the Final Judgment of Foreclosure that weren't published before so interested persons have sixty (60) days to comment before they become final.  All of the other changes are final and in effect.

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First, a quick note of introduction. As stated above, my name is Travis Moore and for the last number of years I have had the privilege of advocating for the interests of CALL members before Florida's policy makers. This includes the Governor's Office and Executive Branch Agencies such as the Department of Business and Regulation which is charged with condominium oversight and the state Legislature. While decisions are being made in Tallahassee and around the state, it is vitally important the voice of each CALL member is heard by those holding sway over the deliberations. I am pleased to be a part of your team by pointing your megaphone in the most effective direction and being your eyes and ears as the debate affecting our community takes place.

Probably THE hot button issue facing community associations in Florida is mortgage foreclosures and the statutory limit of lender liability for assessments. The association is left maintaining the asset  - the burden on the backs of the units not in foreclosure, but many sliding that way. This added burden is just buttering the slope.

Up until recently, the lending lobby has offered no workable solutions. Now, they are circulating draft legislation creating a non-judicial foreclosure process. To date, no bill has been filed but we suspect it will and CALL will quickly analyze it and get it circulated for your input. Already, we are reviewing the draft so be looking for a CALL Alert soon.

As in any proposal to address this true crisis for associations, there are certain criteria which we will insist on. Obviously it must address the associations' ability to have owners and lenders meet their financial obligations to the association. What is rightfully owed to the association for maintaining the real estate must be paid.  It must be paid as quickly as possible. One of the main issues currently being faced by associations is the length of time it is taking for the property to be foreclosed, while the hard cap of 6 months (COA) and 12 months (HOA) is keeping the lenders' liability unreasonably low. 

It is imperative that any foreclosure process, including a non-judicial one, not put the entire process and timetable under the control of the lender.  The lenders have the most to gain by delay...a cap and avoidance of paying full assessments upon taking title...while leaving associations even further at their "mercy."

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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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On August 17, 2009, the Task Force On Residential Mortgage Foreclosure, created by the Florida Supreme Court, issued its final report on the "foreclosure crisis" affecting condominium and homeowners' associations throughout the state.

The full report can be viewed at http://www.floridasupremecourt.org/pub_info/documents/Filed_08-17-2009_Foreclosure_Final_Report.pdf

The following quote, taken directly from the report, succinctly sums up what community associations are presently dealing with. Here is what the Task Force said:  

 

Picture this: the biggest road out of town. Now imagine it is rush hour. In a thunderstorm. Add that it also a hurricane evacuation. A lane is closed due to construction delayed by budget impacts. Imagine the traffic jam.

The clearest description of the impact of the foreclosure crisis and the following recession on Florida's courts can be summarized by that picture. Imagine every car a case. The General Jurisdiction Courts of our State have a certain amount of judicial infrastructure, just like there is a certain amount of room on the road. There is a certain capacity of judges, of court staff, of clerks, of filing space, of hearing time, or courtrooms, even of hours in the day. Year in, year out, that capacity flexes with the caseload traffic to afford reasonable, prompt, efficient and fair justice.

The enormous increase in foreclosure filings has overwhelmed those resources in many circuits and represents a traffic jam that the infrastructure cannot meet in a timely and efficient manner without support and traffic management.

I would add to the above quote that at a time when the evacuation route is jam-packed with cars, imagine further that more and more roads are continuing to be closed as the traffic jam gets worse. Unfortunately, that's the scenario facing our courts when the Legislature insists on cutting funding of the courts. The largest expense of the court system is in personnel, so in a time of burgeoning foreclosure caseloads, the courts are actually being forced to lay off staff. Too many foreclosure cases and not enough people to handle them. Indeed, we hear the daily mantra from frustrated clients asking what is taking so long with these cases? Well, truly, this is a "perfect storm." The storm has caused a huge backlog in the court system which significantly delays the time it takes to complete a foreclosure lawsuit.

All is not lost, however. Associations need not sit idle on the sidelines once a mortgage foreclosure action is filed and seems to stall. Directors need to monitor these cases and can often, with the assistance of counsel, file motions with the court to force banks to either foreclose or pay assessments, ask for case management conferences where the court can set some deadlines for action, or the association might even notice the case for trial, which will force the bank to move forward. In fact, this tactic is working. Several judges in districts throughout the state have entered Orders requiring banks to take some action with their foreclosure cases and in some instances, pay assessments to the association during the pendency of the foreclosure.

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Many readers have posted questions regarding the ability to collect rent from tenants.

It is important to remember that in all of the cases reported previously on this blog, the Court only appointed a blanket receiver to collect rent after the Association filed an action to foreclose its Claim of Lien.  Thus, the Association must pursue the collection procedures set forth in the Condominium Act (Chapter 718, Florida Statutes) or Homeowners' Association Act (Chapter 720, Florida Statutes).  It must send written notice of the delinquency to the Owner, file its Claim of Lien, notify the owner in writing of the intent to foreclose and then file its lawsuit, all before it can ask the Court to allow it to collect rental income. 

Here is an issue that comes up frequently:

  Assume the following:
- A bank has commenced foreclosure proceedings against a unit Owner but not taken possession of the unit
- The Condo association has liened the Owner for past due assessments
-The condo Owner has declared bankruptcy
-The Condo Owner has a renter in the unit & is collecting rent

Can the Condo association obtain a receiver to collect the rent to pay the association assessment?

A bankruptcy filing results in what is known as an "automatic stay".  This essentially stops all collection activity against the debtor. In Senate Report No. 95-989, the Judiciary noted:

The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors, stopping all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy.

Generally when there is a foreclosure pending against a debtor in bankruptcy, the Court will require payment of post-petition obligations (assessment fees or mortgage payments).  If the debtor files under Chapter 11 of the Bankruptcy Code (reorganization), creditors (including the Association and/or the Lender) are prohibited from taking any action to collect past-due amounts.  However, these creditors may file a Motion for Relief from Stay in the event the debtor fails to keep ongoing obligations current.  While the automatic stay is in effect, the Association cannot take further action to collect any past due assessments or charges.  It cannot collect rent directly from the tenant (even if the governing documents provide that type of relief) and any rent collected may be deemed to be property of the bankruptcy estate.  Violations of the automatic stay are not taken lightly by bankruptcy judges.

Some communities have amended their governing documents to include an automatic "assignment of rent" when an owner falls into delinquency status.  The communities that are most successful not only amend the governing documents, but likewise require (through amendment or as part of the approval procedures) a tri-party lease addendum that includes this assignment.  The tri-party lease addendum creates a contractual relationship between the owner, the tenant and the association which is helpful in the event assessment payments from the owner fall behind schedule.  This document generally gives additional rights to the Association in the event the owner fails to control the conduct of the tenant (or the tenant's guests) as well.

All of these actions must be considered in light of the existing governing documents and in conjunction with analysis of the laws governing debt collection (especially when bankruptcy is involved).

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Subscribers recently posed interesting questions concerning the information in Condo Receivers Help Collect Assessments  such as the following:

 Does the Blank receivership work for HOA's as well?

How would the association/manager/board find out if tenants live in a specific unit and the association docs does not include the screening approval procedure for renters?

The Condominium Act specifically permits the Association to ask the Court to appoint a receiver to collect rental income when the unit owner fails to pay assessments.  Section 718.116, Florida Statutes, provides, in relevant part, as follows:

If the unit owner remains in possession of the unit after a foreclosure judgment has been entered, the court, in its discretion, may require the unit owner to pay a reasonable rental for the unit. 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. The expenses of the receiver shall be paid by the party which does not prevail in the foreclosure action.

The Homeowners' Act and specifically Section 720.3085, Florida Statutes contains language identical to the above.  Thus, an Association with several tenant-occupied homes in foreclosure may petition the court for similar relief.

The receiver appointed in the cases mentioned, Seth Heller, advises he uses a number of different tactics to determine whether units/homes are occupied by tenants, including knocking on doors and requesting information at the guard gate.  Surprisingly, many tenants are willing to share information, especially if they have a better chance of avoiding being displaced from the foreclosure.

Another reader posted the following question & comment:

I'm not clear on whether the ruling allows associations
which are not in receivership (lacking a properly elected
BOD) to collect rents directly. Or am I misinterpreting
the term 'receiver'?

Thanks again for providing important information to
those of us who are interested enough to want to learn...
now if we could only find a way to educate those who don't.
 

The receivership explained in the previous post is not a full receivership contemplated by the Statutes in the event there not enough people willing to volunteer for the board.  This program is referred to as a 'mini-receivership' where the Order is specifically tailored to apply to units occupied by tenants, when the owners are facing foreclosure.  Thus, the Board of Directors retains complete control of Association operations and the receiver (often along with the help of management, staff or independent contractors) administers rental payments that would be paid to owners if the Order were not in place.  A 'blanket' order saves the Association thousands of dollars in attorneys fees, since the Association only has to file the Motion/Petition and attend the hearing once, instead of in every foreclosure case filed.  A Court Order is required, but the role of the receiver is limited.

Please let us know about your experiences (good or bad) with this program or other efforts employed to collect assessments.

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Court Rules in Favor of Use Blanket Receiver to Collect Rental Income When Investment Owners Fail to Satisfy Financial Obligations to Association.

The Miami Herald and Sun-Sentinel both reported that the Third District Court of Appeal denied a challenge to an Order appointing a 'blanket' receiver to collect rental income from tenants when the unit's owner failed to pay assessments.  The owner challenging the Order owns several units, most or all of which are in delinquency status.  The appellate Court denied a request for a Writ of Prohibition, allowing the Association to continue enforcement of the blanket order requiring rent to be paid to the receiver to satisfy outstanding assessments and other sums due.

This 'mini-receiver' program has been very successful in South Florida.  The Order entered in the Verabella Falls Condominium Association case specifically requires the receiver to collect all rents and monies from tenants due to unit owners when the unit's owner is subject to a foreclosure action for the failure to pay past due assessments.  It also permits the receiver to engage a property manager to offer unoccupied units for lease or rent when the unit's owner is a defendant in foreclosure proceedings filed by the Association. 

Seminars will be held throughout the State to explain the success of these programs to community leaders.   Please check this site for more information regarding those seminars and other educational events.

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The Florida Consumer Collection Practices Act Prohibits Associations From Posting Delinquency Lists and Taking Other Actions to Collect Assessments and Maintenance Fees.

 There have been a number of newspaper articles explaining actions taken by community association boards and managers to collect delinquent assessments.  The Miami Herald reported that some associations post lists of the names of the owners behind on their fees and others deny security access devices to tenants of delinquent owners.  

The Wall Street Journal reported that some associations were taking control of the unoccupied units and renting them on a short term basis until the bank foreclosed.  

While we are all familiar with the idiom "drastic times call for drastic measures",  community leaders and property managers should understand that Florida law prohibits unfair or abusive tactics with regard to debt collection, including the collection of assessments.   Although the prohibitions in the Federal Fair Debt Collection Practices Act do not apply to the person or entity owed the debt (the 'creditor', which in this case is the Association), both community associations and their managing agents are responsible for compliance with the Florida Laws.

Among other practices, Section 559.72, Florida Statutes, prohibits the following:

• Use of profane, obscene, vulgar, or willfully abusive language in communicating with a debtor or any member of his or her family;
   
• Communication with a debtor under the guise of an attorney by using the stationary of an attorney or forms or instruments which only attorneys are authorized to prepare;
   
• Orally communicating with a debtor in such a manner as to give the false impression or appearance that such person is associated with an attorney;
   
• Publishing or posting, threatening to publish or post, or causing to be published or posted before the general public individual names or any list of names of debtors, commonly know as a deadbeat list, for the purpose of enforcing or attempting to enforce collection of consumer debts;
   
• Mailing any communication to a debtor in an envelope or postcard with words typed, written, or printed n the outside of the envelope or postcard calculated to embarrass the debtor. An example of this would be an envelope addressed to “Deadbeat, Jane Doe” or “Deadbeat, John Doe”;
   
• Communicating with the debtor between the hours of 9 p.m. and 8 a.m. without the prior written consent of the debtor.

While every association must be diligent with its collection efforts, those efforts must be in compliance with legal and ethical standards.

On the other hand, the Florida Courts are cognizant of the problem and have allowed Associations to have receivers appointed for the purposes of collecting rent from tenants when the owners of those units are facing foreclosure as a result of non-payment of assessments.  Remember to check this site in the future for more information about proactive methods to collect assessments.

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Amendment to SB 880  approved by Community Affairs Committee intends to encourage purchase of remaining inventory by limiting liability.

Last week the Community Affairs Committee advanced SB 880 with a significant amendment entitled the “Distressed Condominium Relief Act”.

If the bill becomes law, new Section 718.702, Florida Statutes sets forth the legislative intent for the protections afforded to “bulk assignees” and “bulk buyers” of condominium units.

“Bulk assignees” are defined as purchasers of more than 7 units who receive an assignment of some or all of the rights of the developer of the project. “Bulk buyers” are also defined as purchasers of more than 7 units, but have not obtained an assignment (other than rights to conduct sales, leasing and marketing activities within the condominium).

Bulk assignees are not responsible for implied warranties, the obligation to fund converter reserves for units owned by others or honor conversion warranties. Bulk assignees will not have to provide the Association with a full transition audit and will not have to fund developer guarantees or assessment obligations, unless they receive an assignment of the right to guarantee assessment levels and therefore take on the obligation to fund budget deficits.

This section of the proposed bill provides for three distinct methods of assignment of development rights, to wit:

• By the Developer;
• By a previous Bulk Assignee; or
• By a Court.

While bulk assignees are required to deliver any of the documents identified in Section 718.301(4), Florida Statutes in their possession or control to the association upon transition, they are not liable for production or delivery of documents and other materials normally required as part of the transition process, if they cannot obtain them after a “good faith” effort.

Both bulk buyers and bulk assignees need to update the prospectus, the Frequently Asked Questions and Answers Sheet, the required form of escrow agreement (if applicable) and financial information pertaining to the Association.  Disclosure statements, identifying the rights assigned and warranty limitations, are also required.

The legislative history suggests these provisions are necessary to encourage the purchase of remaining inventory in failed projects. 

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As naïve as it sounds, foreclosure is business, not personal. There are some fundamental questions that need to be asked to curb the passion and focus the decisions on the economics of business.  In truth, the Association does not want the foreclosure but rather what results from it, the sale. So we need both the foreclosure and the sale for the Association to be able to get the money it is owed.

Let’s talk a bit about whether the Association should foreclose. Given the past history of property values the foreclosure decision was simple. The difference in the amount of the market value and mortgaged value left significant excess available to settle the assessments from the foreclosure action at the sale. In the current environment of depressed market values, significant portions of the properties in arrears on assessments also have significant mortgages, putting the Association in a disadvantaged position. The disadvantage is lack of equity to foreclose against; making recovery of assessments a bit more complicated and sometimes even fruitless.

The above has to be balanced against the fact that the assessments are the lifeblood of the community to maintain, beautify, and provide the amenities to the members.  All members are required to support the community through the payments of assessments. Non-paying members should not be allowed to draw down the community. Therefore, respect for the paying members must be maintained by utilizing the tools available to enforce payment of delinquent assessments from the non-paying members. 

The normal process of collections requires a demand letter, a notification of intent to lien, the lien letter and the lien itself. Once the lien is recorded a Condo has up to a year to foreclose, while the Home Owners Association has 5 years. This provides for a unique position for the Association to work with the Unit Owner and to consider owner payment plan options before spending more money which it may have difficulty recovering. If this fails then the only recourse left is to file a lawsuit to foreclose the lien and ultimately sell the property.

My next series of posts will go into greater detail regarding payment plans and the actual foreclosure process.

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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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