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

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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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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Over 40% of the Home Loans Issued in Two Major Florida Cities in February are Government-Insured FHA Loans. 

The marketability of the homes in your community is highly dependent upon the availability of mortgage financing.  We've included several posts on this site regarding purchase money financing issues over the past 2 years, including reporting on the changes to federal underwriting guidelines. Since mortgage financing (or lack thereof) severely impacts community association operations, Community Associations Institute (CAI) announced it is "stepping up its Congressional and federal regulatory advocacy on behalf of American homeowners, home buyers and common-interest communities."   CAI issued a statement on behalf of its 30,000 members that included the following quote:

"The stakes for homeowners, home buyers and communities are enormous,” says CAI Chief Executive Officer Thomas M. Skiba, CAE. “Rules being developed today may likely govern mortgages for the next several decades. If you live in an association or work in the community association industry, you need to understand the magnitude of these issues, keep abreast of the latest developments and weigh in when such opportunities are available.”  

You can learn more about CAI's new initiative at Mortgage Matters.

The mortgage crisis is also evident by comparing the percentages of FHA backed home loans.  FHA project approval has proven to be a significant factor in home sales. DataQuick Information Systems reports the following increases in Florida:

The future of GSE (Government Sponsored Enterprise) financing is also up-in-the air.  However, Fannie Mae announced an incentive program it says will help stabilize communities.  Purchasers of Fannie-Mae owned HomePath properties are eligible for financial assistance to help pay up to 3.5% of the closing costs.  Fannie Mae-owned HomePath properties are listed on HomePath.com and most listings include detailed property descriptions, photographs, information about local schools and more.

Proactive community leaders have taken steps to ensure their communities are approved for favorable purchase financing.  You may want to discuss project approval or certification with your community association attorney.

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• Can your association collect rent from tenants? 
• Can your association disable a key fob or entry device if an owner doesn't pay?
• High-rise building owners - are you familiar with changes to the fire sprinkler retrofit laws?
• Do your community documents give mortgagees a free ride after foreclosure?

We will answer these questions and more at Ironstone Bank on Tuesday, October 5, 2010 from 5:00 to 7:00 P.M. where I will discuss the 2010 Legislative Changes Impacting Condominium and Homeowners' Associations.

• Have you neglected major projects because of the economy?
• Do your common areas need updating?
• Would your residents enjoy new amenities?

 The presentation will also cover Capital Improvement Loans for Long Term Savings.  Interest rates have never been lower and many contractors are idle  - now just may be the perfect time to tackle that unsightly parking lot and entrance, update amenities and other projects.

The presentation is free and refreshments will be served.  To RSVP contact Rachael Chao at 954-771-6948 or rachael.chao@ironstone.com.

 Location:  Ironstone Bank, 6555 North Federal Highway, Fort Lauderdale

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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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Fannie Mae will Evaluate Whether Hundreds of Condominiums Throughout the State of Florida Qualify for Financing Despite Published Guidelines.

It has been harder and harder to obtain loans to purchase condominiums in the past two years.  Fannie Mae, Freddie Mac and FHA all published eligibility guidelines basically precluding borrowers from obtaining favorable loans to purchase condominiums if:

1. More than 15% of a condo project units are more than 30 days delinquent on HOA dues. This was an existing guideline that is now being applied to new condo projects.
2. Fidelity insurance, ensuring that homeowner association funds are protected, must be in place in adequate amounts. 
3. The  borrower didn't obtain a condo-owners insurance policy unless the master policy provides interior unit coverage; coverage may not be less than 20% of the assessed value. A condo-owners policy, known as an HO-6 policy, covers personal property, personal liability, and the physical unit from the studs and in. Many policies also include special assessment coverage or the option to include a special assessment coverage rider.
4. More than 10% of a project is owned by a single entity.
5. More than 20% of a project consists of non-residential space; or
6. The association didn't have at least 10% of its budgeted income designated for replacement reserves and adequate funds budgeted for the insurance deductible.

However, on January 7, 2010, Fannie Mae announced it has appointed a team of employees to determine whether hundreds of condominium projects in Florida are entitled to relief from these guidelines.

Want to learn more about this new development and what steps your community can take to improve mortgage options?  Then attend the CAI-SEFL Annual Day of Education and Exposition being held on January 30 at the Signature Grand in Davie, Florida where Fannie Mae's Senior Risk Manager, Joseph L. Minnich III, will deliver the keynote address.  For the past six months Mr. Minnich has been working with the Florida Project team to develop a program to provide stability and liquidity to Florida Condominium Projects.  He will explain the process and be available to answer questions.  Don't miss it.

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As promised in my last post, today we are continuing our discussion on borrowing money with a focus on things to look out for and the types of documents involved.

First, the Association should never pledge its real property as security for the loan. It should also not use its reserves to collateralize the loan. It can however secure the loan with the Association’s regular assessments and only in limited circumstances by special assessments. Again, limitations in the governing documents may apply such that involvement of the Association’s counsel is highly recommended to ensure all elements of the loan are within those guidelines.

Second, there are two primary documents involved in the borrowing of money by an Association, an Agreement and a Promissory Note. The Agreement provides the definitions which apply to the loan including language regarding assessments and collateral. It may also discuss:

• how the proceeds are to be used;
• provides insurance requirements;
• requires declarations regarding litigation (actual and/or threatened suits whether or not filed by the Association);
• sets forth requirements for the Association’s financial statements (these may differ from the Association’s applicable Statute or governing documents);
• sets forth whether a depository relationship is to be created/continued with the lender;
• sets forth requirements for inspection and access to Association records;
• sets limitations regarding the indebtedness of the Association;
• sets parameters and relief should the Association default on the loan; and
• addresses UCC-1 filings

The Promissory Note addresses issues of importance regarding guarantors and attorneys fees in addition to serving as the actual instrument from which the funds are borrowed.

To some degree terms within the Agreement and Promissory Note are negotiable. The key is to ensure that certain impermissible terms are not hidden within these documents which would inappropriately bind among other things, the Association’s reserves, assets, or lien rights.

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What does an Association do if it has an unexpected repair or improvement and does not have sufficient money in its budget to fund the work? What if the Association had the money to fund the repairs through its reserves but now needs to replenish the account.

There are two options available to the Association. The first option is a straight forward special assessment. The problem is there may be limitations in the governing documents as to the extent of a special assessment which can be approved by the Board versus one which must be placed before the membership for approval. Also, in this economy passing a special assessment does not necessarily mean the Association will receive those funds. Additionally, efforts to foreclose to recover the special assessments result in Associations taking title to properties which have no equity and are subject to a first mortgagee. This leads the Association to its second option, borrowing the money.

If the Association is successful in negotiating its loan, it would permit ready access to the funds needed. More importantly it could result in only a minimal increase to the regular assessments making the payments easier for owners to make. The key to ensuring a loan offers these benefits is to have the Association’s counsel involved in the process from the start.

Basic Steps to Obtaining a Loan
1. Confirm the Association has the authority to borrow money. This requires an analysis of both Florida Statutes and the governing documents of the Association.

2. During duly noticed Board meetings the Board must decide to borrow money, approve the loan terms and approve the loan documents.

Loan Types
There are three primary types of loans an Association can obtain:
1. Line of Credit - The Association borrows a specific amount of money but only draws on the funds as needed. As such, the Association only has to repay the amount used and interest is only determined based on the outstanding balance.

2. Term Loan - The entire loan amount is funded to the Association at the time of the loan closing. The Association is then required to pay the loan back over a specific period of time (a/k/a term).

3. Combination (line of credit + term loan)

Upcoming Post Preview
My next post will briefly discuss things to avoid and the types of documentation involved in a loan.

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Developers Often Use Community Development Districts (CDD) to Fund Community Infrastructure and Amenities.

Newspapers are filled with advertisements for homes in neighborhoods that have wonderful community amenities.  The streets are lined with sidewalks, beautiful trees tower above medians, there are neighborhood parks and tot-lots, lakes, maybe even a clubhouse with an exercise facility and meeting rooms.  At the sales office you learn that these facilities are solely for the use of the owners within the community.  It is not unreasonable to think that all of these features were built by the developer, at its expense, in order to justify the price of the homes and to encourage sales. 

Well, the latter may be true, but if the property is located within a Community Development District purchasing a home is likely to include a long-term obligation to fund the initial construction of those amenities.

Community Development Districts (CDD) are not new in Florida but use of this mechanism to fund infrastructure and recreational amenities has increased exponentially in recent times.  A CDD is a special-purpose unit created primarily for the purpose of financing and then operating and maintaining community-wide improvements in new communities.  A landowner (usually a developer) petitions the local government to create a CDD with broad powers that enables the CDD to generate revenue.  Bonds are typically issued and payable by the land-owners (purchasers of homes and other properties) in the district over a period of time - up to thirty (30) years.  Additional revenue is generated through special assessments and other fees paid by the property owners in the district.

It is not unusual for a developer, through the use of a CDD, to fund development and construction of the roads, the surface water management systems, parks, clubhouses and other community facilities such as entry features and the like with the initial lump-sum of revenue obtained from the issuance of bonds.  The CDD maintains, operates and administers the property and improvements subject to its control and establishes the fees or other financial obligations of the land owners.

Chapter 190, Florida Statutes became effective in 1980, but CDD's were not very popular in the early years.  Approximately 100 CDDs were created in Florida during the 1990s and then over 200 new CDDs came into existence between 2000 and 2005.  There are currently close to 600 CDDs active in Florida at the present time according to the website maintained by the Department of Community Affairs.

While the Board of Supervisors for each CDD is elected by the landowners, the exercise of the powers and duties of the district, as well as the use of revenue produced by the special assessments and fees, has often come into question.  The developer of the Cory Lake Isles community in Hillsborough County reportedly controlled CDD operations for 18 years.  Residents complained that the developer mismanaged the district's finances and spent CDD money on the developer's personal projects.  When CDD meetings became tumultuous, it hired off-duty police officers to keep the peace, as a CDD expense.   Residents in Cory Lakes have had to pay higher fees, but now have control of the District.

Defaults associated with CDDs have increased, presumably as a result of the downturn in the housing market.  An Orlando based Firm indicated that more than 10% of the CDDs in Florida did not fulfill their obligations.   Defaults may mean even more of the costs will be passed on to homeowners.

Home buyers need to read the 'fine print' before purchasing a home in a Community Development District.

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

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

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Fannie Mae recently announced several changes to its standards and reintroduced its Project Eligibility Review Service (PERS).

Link to PDF: https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/condogls/pdf/projectreviewsummaryfaq.pdf

PERS review is required for new and newly converted condominiums in Florida, while optional in projects located elsewhere throughout the United States. Fannie Mae likewise announced an intention to publish a list of ineligible projects, which are those projects failing the PERS process.

It will be much more difficult for purchasers to obtain mortgage financing if the mortgage cannot be sold on the secondary market to Fannie Mae and the like. Its requirements include the following:

• At least seventy (70%) percent of the units must be pre-sold in a new condominium or a newly converted condominium. Waivers are available on a case-by-case basis.
   
•  In existing projects, the Association must have evidence of fidelity bonds or insurance (which is required pursuant to §718.111(13), Florida Statutes for all persons who control or disburse funds for a Condominium Association).
   
• A single person or entity cannot own more than ten (10%) percent of the project, although exceptions are available on a case-by-case basis.
   
• No more than fifteen (15%) percent of the total units in the project may be thirty (30) days or more behind in payments to the Association.
   
• Borrowers must purchase additional hazard insurance (unit owner coverage), regardless of the Master Policy.
   
• The project must budget for “adequate” reserves (generally defined as 10% of the annual budget but determined on a case-by-case basis).
   
• The lender cannot bear responsibility for payment of more than six (6) months’ of unpaid dues or charges.

Thus, changing §718.111(11), Florida Statutes to eliminate mandatory unit owner insurance coverage may not necessarily change the fact that more condominium unit owners (in Florida and elsewhere) will purchase said coverage. Lenders that want to offer financing compliant with Fannie Mae standards will require new purchasers to provide evidence of personal coverage (contents coverage, generally a HO-6 policy), much like the requirement for borrowers purchasing single family homes.

Moreover, efforts to change lender responsibility for condominium assessments and dues after mortgage foreclosure are likely to fail if those changes would preclude lenders from offering the attractive rates and down payments available for Fannie Mae backed mortgages.

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