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It is very likely that your management company charges a fee to delinquent owners if they send collection letters or take other action to collect a delinquent assessment. After all, they are doing extra work that wouldn’t be necessary if the owner paid on time.

There is no mention of these management collection fees in the statutes governing Florida community associations. The association is entitled to collect interest on the delinquency by statute – interest is specifically addressed. It can charge late fees (if allowed by the governing documents) to the owner. Late fees are specifically authorized by the statutes. It can pass along the attorney fees and costs too, as those fees and costs are specifically mentioned in the statutes.

If the associations have to ask their management firms to collect assessments, why doesn’t the statute specifically allow associations to pass through those fees on to owners?

We have tried to do exactly that for many years. If you look at the legislative history for the 2010 legislative session, there were attempts to get these management or collection agency fees added to SB 1196. However, it was only added to the Cooperative Act (Chapter 719). The law for cooperatives said:

"The association has a lien on each cooperative parcel for any unpaid rents and assessments, plus interest, any authorized administrative late fees, and any reasonable costs for collection services for which the association has contracted against the unit owner of the cooperative parcel."

If that highlighted language was included in the Condominium Act (Chapter 718) and the Homeowners’ Associations Act (Chapter 720), then associations would specifically have the right to add management fees to their liens against owners. Isn’t that fair?

Well, since it said ‘reasonable costs’, some organizations claimed management companies and collection agencies would abuse this statute and charge outrageous amounts to unit owners. The term "reasonable costs" is broad. Arguably there is room for abuse. In fact, we see this all the time when it comes to estoppel fees. The statute says the charge for an estoppel certificate must be “reasonable”. Some places have a $100 fee, some have a $200 fee, some have a $400 fee – all of which are claimed to be “reasonable”. I heard of one company charging more than $500 as an estoppel fee. Obviously, there is a lot of room when you use the term “reasonable”.

So in light of those arguments, language limiting the collection fee to $150 was proposed to be added to the shared ownership statutes. CALL supported that effort. A number of management companies supported that effort. But there was still opposition, so Sen. Fasano came up with alternative language in his companion bill, SB 530, to provide as follows:

468.439 Collection services.-Collection services expenses that are reasonably related to the collection of a delinquent account rendered by a community association manager or management firm on behalf of a community association governed by chapter 617, 718, 719, 720, 721, or 723 may be secured by the filing of a claim of lien on behalf of the community association if the collection services expense is specified by amount in a written agreement with that community association manager or management firm and payable to the community association manager or management firm as a liquidated sum.

If you look at the CS 3 version of SB 530, you will see this language in the bill. However, the Legislature passed HB 1195, and not SB 530. CALL advocated for adding this language to HB 1195 (which is now the 2011 statutes). The position of some of the members of the Legislature was that this was an additional "fee" and they were opposed to any new fees. Since the ability to collect these fees wasn’t added to HB 1195, we still don’t have any specific authority in the laws to charge and collect these fees from owners.

So fast forward to 2012, and CALL is still advocating for some language that will allow associations to add collection costs to the lien. We have always supported that, but the opposition remains to any type of new fee. One of the suggestions that has been made to address this issue involves allowing associations to collect an increased late fee in order to recoup the costs that the management companies charge for the collection services. Currently, the law allows associations to collect a late fee of the greater of $25 or 5% of each installment for each delinquent installment, but only if authorized by the declaration or bylaws. If this amount was increased and if all associations were allowed to collect this amount, it would appear to be sufficient to recoup the costs of collection. This is the approach favored by some members of the Legislature, including the sponsor of HB 319, and CALL assisted in drafting the language.

So, long story short, the issue of management collection fees being added to the association's lien is still being debated. We are advocating for something to be done. Otherwise, there will continue to be no authority in the statutes for these fees and unscrupulous management firms and collection agencies will continue to charge unlimited amounts.

So I ask you, community leaders, don’t you want the Legislature to address this issue and allow associations to recoup the cost of collection, as long as the amount is limited to prevent abuse?

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The burden is on the association to show that all required steps for adoption of assessments are completed – and documented.

Section 718.112(2), Florida Statutes, sets forth a list of provisions that condominium association bylaws must contain and states that if the bylaws do not contain the listed provisions, they shall be deemed to include them. With regard to procedures for adoption of non emergency special assessments, the statutory requirements set forth in Section 718.112(2)(c), Florida Statutes, are:

• Written notice incorporating an identification of agenda items mailed, delivered, or electronically transmitted to the unit owners (if owners have consented to electronic transmission and the documents so allow) and posted conspicuously on the condominium property not less than 14 days prior to the meeting;
• Evidence of compliance with the 14-day notice by an affidavit executed by the person providing the notice and filed among the official records of the association;
• The notice shall specifically state that assessments will be considered and advise the nature, estimated cost, and description of the purposes for such assessments; and
• Written notice of any special assessment levied by the association must be delivered to each unit owner, including a statement of the specific purpose or purposes of the assessment. (See Section 718.116(10), Florida Statutes).

Notice of meetings at which a proposed annual budget (a non-special assessment) will be considered by the board of directors or unit owners must also be delivered to each unit owner, mailed to each unit owner at the address last furnished to the association by the unit owner, or electronically transmitted to the location furnished by the unit owner for that purpose, and evidence of compliance with these requirements must be documented by an affidavit of the person providing the notice, with the affidavit being filed among the association’s official records. (See Section 718.112(2)(e), Florida Statutes).

Failure to comply with notice requirements in connection with the adoption of a budget or a special assessment, or failure to document compliance, can result in loss of ability to obtain enforcement of the collection of an assessment from a defaulting unit owner.

Evidence of compliance with the requirement of posting and delivery to all unit owners of timely notice of meetings at which association budgets or special assessments will be considered is typically not a problem. While seemingly simple and perfunctory, failure to comply with, and document compliance with these statutory requirements, can cost the association its ability to collect an assessment. It can also result in the expense of having to go through the entire process again in order to correct the procedural deficiency.
 

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One of the Federal housing programs benefiting low-income renters is commonly referred to as "Section 8" which is rental subsidy, limiting the monthly rent payment for the person qualifying for the program.   If someone qualifies for the program, the federal government pays for a portion of the rent and the tenant pays the rest.  The program coordinator evaluates whether the rental payment sought by the owner of the property is appropriate (fair market).  In most cases the bulk of the payment is made by the government entity (usually administered by a local housing authority) directly to the owner of the leased property.  Many types of properties house tenants that participate in the Section 8 program - condominiums and houses within homeowners associations are no exception. 

The Florida community association laws allow the association to demand rent paid by a tenant if the owner fails to pay assessments.  What if the actual tenant only pays a nominal sum since he or she participates in this rental subsidy program?  Does that mean the association can only collect a hundred dollars (+/-) when the rent may be closer to a thousand dollars?  Does the housing authority continue to pay the bulk of the rent to the delinquent owner? 

A homeowners association in Palm Beach County did not accept the nominal payment from the actual tenant at face value.  It obtained a Court Order directing the housing authority to divert the Section 8 rent subsidy payments from the owner to the association. Wptv (news channel 5) featured a story on this issue (below):

The owner of a property used in connection with a rental subsidy signs a contract with the local housing authority.  That Housing Assistance Payments Contract (HAP) imposes conditions on the owner - one of which is to maintain the property.  The housing authority is entitled to cancel or terminate the contract upon breach by the owner.  

Questions remain whether forcing the housing authority to divert rental payments to an association will result in termination of the contract.  However, this association certainly benefits from the immediate payments. Perhaps its time for HUD to modify the HAP and/or to promulgate rules allowing the housing authority to comply with the Florida community association laws, especially considering the fact that the tenant hasn't violated the terms or conditions of the program. 

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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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I promised an update on the Master Association Blocks Owners from Pool and Recreational Facilities post when a result became known.   A Palm Beach County Circuit Court Judge ruled yesterday that the Master Association governing the Quail Run community was not entitled to suspend use of the recreational facilities by all of the owners in one of the condominiums within the community.  The Court found that Section 718.303, Florida Statutes did not allow the Master Association to suspend the use rights of the compliant, paying owners, due to delinquencies on the part of a few.  Part of the Order says:

"The statute requires that each delinquent member be treated singularly as the Court finds that the statute does not provide that a member who is current in his or her obligations be penalized for payment failure of another member who is delinquent."

Since this is an interim Order in a Circuit Court case, it does not have precedential value, meaning it does not rule over other cases.  However, the ruling reflects one Judge's interpretation of the law.  Thus, community leaders are encouraged to discuss the authority to suspend use rights for an entire subdivision as well as the possible consequences of that action with counsel.

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Appellate Court Allows Owner to Seek Injunctive Relief and Reverses Award of Attorney's Fees and Costs.

In Mitchell v. Beach Club of Hallandale Condominium Association, Inc., 17 So.3d 1265 (Fla. 4th DCA 2009), the Fourth District Court of Appeal ruled that a condominium owner has the right to proceed with a lawsuit aimed at preventing the association from collecting a special assessment.

The association levied an assessment for close to $1.3 million and sought to collect $4,194 from each unit owner.  One of the unit owners objected to the process and filed a lawsuit to prevent the association from collecting the assessment.  The association's attorney filed a motion to dismiss the case and ultimately convinced the trial court to rule in its favor.  The trial court later awarded the association attorney's fees and costs as the 'prevailing party' in the lawsuit.

The appellate court totally disagreed and reversed the trial court ruling.  It found:

1. Mandatory non-binding arbitration pursuant to Section 718.1255, Florida Statutes was not necessary, as the statute itself excludes any disputes relating to the imposition or collection of an assessment;
2. The Court had jurisdiction to address the claim even though the amount of the assessment against this particular owner was less than $5,000, since the owner sought injunctive relief, not any monetary relief; and
3. Injunctive relief was appropriate to prevent or to challenge a violation of the Condominium Act pursuant to Section 718.303, Florida Statutes.

The complaint filed by the owner alleged that the association failed to give proper notice of the meeting, failed to obtain a quorum and it used expired proxies.  Since the special assessment would be invalid if those claims were true, the complaint was sufficient "to warrant a permanent injunction".

This case shows that every association needs to maintain the records necessary to prove it adopted assessments (whether special or annual) properly.  Otherwise it may lose the ability to collect those assessments and create expensive, time consuming and acrimonious legal disputes if some owners pay and others do not.  Thus, records indicating which and how many owners participated in a meeting (in person or by proxy) are important, as is a verifiable registration procedure.  All voting documents, ballots, proxies and sign-in sheets must be retained for at least one (1) year and notices, affidavits or proof of mailing and the minutes of those meetings retained for seven (7) years. 

Please contact us if your association needs assistance creating a records retention policy or procedures governing unit owner inspection and photocopying of official records.

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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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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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