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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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