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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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We continue to receive questions regarding HB 1195, the comprehensive community association bill that passed during the 2011 Legislative Session and became effective on July 1, 2011.  Therefore, I wanted to take an opportunity to answer some of the questions. 

QUESTION:  It appears to me that there is a conflict between a provision that was amended by HB 1195 and an existing Florida Statute. Specifically, HB 1195 amended Section 720.303(2)(b) regarding members’ rights to speak at board meetings. Doesn’t this conflict with Section 720.306, also dealing with the right of members to speak at meetings?

ANSWER:  The provision that was amended by HB 1195 is Section 720.303(2)(b), Florida Statutes, which deals with board of directors meetings.  Specifically, HB 1195 deleted the requirement that members must petition the board in order to speak at board meetings.  It further provided members with the right to speak at board meetings with reference to all designated items.  As you noted in your question, Section 720.306(6), Florida Statutes was not amended.  That section of the statute deals with owners’ meetings (for example, annual meetings of the owners and special meetings of the owners).  In order to speak at an owners’ meeting, an owner must submit a written request to speak prior to the meeting.  It does not require a “petition” like the old version of Section 720.303(2)(b).  Therefore, I do not believe there is a direct conflict between the two sections, although the procedures are a bit different if you want to speak at a board meeting versus at an owner’s meeting.

QUESTION:  Can a condominium association suspend the right to use common elements and/or suspend voting rights, if an owner is not paying his assessments to the condominium association, but is paying assessments to the master association? 

ANSWER:   If an owner is paying the master association assessments, but not the condominium association assessments, the condominium association can suspend the right of an owner to use the common elements of the condominium association, but cannot suspend the owner’s right to use the common areas of the master association. For example, if the pool is on master association common area property, the condominium association cannot suspend the owner’s right to use the common area pool. However, if the pool is located on the common elements of the condominium association, then the condominium association can suspend the owner’s right to use the pool. Likewise, the condominium association can suspend the owner’s voting rights, but such suspension would apply to meetings of the condominium association, not to meetings of the master association. Note that the suspension of use rights and voting rights only applies if an owner is more than ninety days delinquent in the payment of a monetary obligation due to the association. The association must impose the suspensions at a duly noticed board meeting and after provide written notice of such suspensions to the unit owner, and if applicable, the unit owner’s occupant, licensee, or invitee by mail or hand delivery.

QUESTION:  Can we send a letter to the owners telling them that if they do not want their phone numbers listed in the directory, they must let us know? Also, is a “members’ list” on the association’s website the same as a published directory?

ANSWER:   Regarding your first question, the answer is no. You cannot take the lack of response by an owner as an approval to include that owner’s contact information in a directory. In other words, you must obtain something in writing from the owners stating that they are consenting to their contact information being included in a directory. You cannot assume that they have consented based on their failure to respond to an association request. 

Regarding your second question, there is no prohibition in listing members’ names on a website.  The statutes do not prohibit the listing of names. Rather, it prohibits the disclosure of personal identifying information (i.e., telephone numbers, facsimile numbers, e-mail addresses, other mailing addresses, etc.). Therefore, a list of the members without any contact information included is permissible.

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A local community activist recently asked several industry professionals to answer questions submitted to her by community association board members.  You can check this site over the next several days to see my answers to some of the questions:

Question Regarding Authority of the Manager and Competitive Bids: We are in a community where we were just billed a great deal of money for electrical work and were told "the Management's electrician did the work".  We are wondering why it is not under the maintenance provided under our contract? Why is the electrician not handled like every other vendor then-where [we get bids for] the work?

Answer:  Your first task is to review the contract with the management company. Many management contracts give the manager the authority to effectuate repairs for certain items without advance board approval. In the vast majority of cases, the manager’s authority is restricted to a specific dollar amount (i.e. $500, %1,000 or higher in emergency situations). If you don’t have this limitation, make sure your board includes one in the next renewal or simply address this issue with the manager now (by board resolution) so everyone is on the same page when it comes to association expenditures. The manager needs direction from the board when it comes to repairs – some boards want the manager to “simply take care of problems”, while other boards want to be more involved and formally approve the scope of the work in addition to selecting the contractor to perform the work.

Second, you need assurances that any work was done by licensed and insured professionals and that the work was properly permitted, if a permit was required for the work. The management company should have no problem with providing you with verification of license and insurance.

Note:  We have included information on this site about building permits and contractor licensing requirements.  Please see Protecting the Association Against Unlicensed Contractors and Does the Association Need a Building Permit?  for more information.

Condo and HOA laws require bids generally if the work to be performed will cost more than 5% (condo) or 10% (hoa) of the annual budget. There are exceptions for specific types of professional services and most boards will obtain competitive bids for any project expected to cost more than a couple thousand dollars (sometimes less), to make sure the cost of the work is not out of the ordinary.
 

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QUESTION:   Last year our condo association members voted to "waive" the annual CPA Review. Must the question be presented to the membership for a vote each year, or can the board have the review done unless specifically requested to place the question before the membership?

RESPONSE:   The board must have financial statements prepared in compliance with the statute and administrative rules, unless the members vote to reduce the level of review necessary for that fiscal year. Thus, the members must vote each time the association desires to reduce the level of year-end review. The administrative rules require the vote to take place in the fiscal year concerned (in other words, if you want to waive the audit of the 2010 financial statements, then take the vote in 2010). Administrative rules also require the minutes to include the number of votes cast by the membership and the review/report prepared instead of those contemplated by law. However, condo associations CANNOT waive the reporting requirements for more than 3 consecutive years.

QUESTION:   What is or was the rational behind 1196 restricted owner information such as phone numbers and email addresses from being included in an owner roster. Is it possible for the association to produce a roster of these items if the owners agree to include the information?

RESPONSE:   Owners around the state attended meetings held by various committees. Distribution of "private" information was one of the prevalent complaints. Many associations have abandoned directories as a result of the new law, while others have collected individual waivers from the unit owners. Your association should consult with counsel before preparing or distributing any directory.

QUESTION:   I purchased a condo at the court online auction. It seems that the association foreclosed for non payment of ass. fees. And now I am told that I am responsible for the first and second mortgage on the condo unit? is this true , and if so what can I do?

RESPONSE:   The buyer bears responsibility for any mortgages or other obligations that haven't been foreclosed out by the association's lien foreclosure case. In most cases the association will foreclose against both the owner and any junior lien holders (including second mortgagees or owners of lines of credit).

I hear this last question or variations on this question quite often now that many circuits implemented an on-line auction system. Buyers of condo units or homes in communities governed by homeowners’ associations are jointly and severally liable for all assessment obligations of the previous owner. First mortgagees are exempt from this rule and have limited responsibility, other buyers are not. Buyers also bear responsibility for maintenance of the property, correcting any code violations and compliance with the rules and regulations. Do your homework, that ‘great’ deal may not be as great as it appears.
 

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We receive a number of reader inquiries on a weekly basis.  In most cases a response to the inquiry is included in the comment field itself, after the relevant blog post.  Here are a few of the inquiries received in the last week, with our responses:

QUESTION: How can I learn if my townhouse is FHA certified?

RESPONSE: Go to this website to look up your community: https://entp.hud.gov/idapp/html/condlook.cfm

QUESTION: Do Florida Statutes address a CPA audit report that is anything other than a unqualified report? For example: The Board of Directors declines to present a statement of cash flows and a qualified report is issued by the CPA.

RESPONSE: The association's members can vote to waive an audit for three (3) consecutive years and during that time merely produce a report of cash receipts and expenditures. The Association must engage an accountant to prepare an audit in the fourth year if the revenue exceeds $400,000.

QUESTION: We are an 11 unit condominium. Must we send a 60 day first notice of our Annual condominium meeting? Do current Florida condominium statutes and bylaws govern our procedures?

RESPONSE: Section 718.112(2)(d), Florida Statutes allows an association of 10 or fewer units to vote for different election and voting procedures. Generally statutes relating to remedies or procedure will override conflicting governing documents. Condominium elections must be held in compliance with the statutes and yes, the first notice must be furnished to the members at least sixty (60) days in advance.

QUESTION: We need the legal ability to remove a owner who fails to follow condo laws, rules and regulations - not abiding by the 55 and older rule - having a grandson live there. Any help would be greatly appreciated.

RESPONSE: If the community qualifies as Housing for Older Persons (HOPA), then the association can proceed by filing a lawsuit (if in the jurisdiction of the 4th DCA) or file a Petition for Arbitration with the Division of Florida Condominiums, Time Shares and Mobile Homes.
The governing documents must clearly define the occupancy restrictions. Our Firm has successfully handled several cases involving violations of age restrictions.

QUESTION: I am a property manager and hear of associations with rules and guidelines that are not equal. I have found a condo association that allows owners to have pet but renters can not. Can they do this? Would this fall under a discrimination to renters?

RESPONSE: An analysis must be done to determine whether rules and regulations are valid and enforceable in any particular case. I am aware of at least one arbitration decision that upheld a rule prohibiting tenants to bring pets on to the property.

Remember, the information on this site is general in nature and not intended as legal advice.  We try to point you in the right direction, but encourage you to discuss the specific facts and circumstances of issues impacting your association with counsel. 

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Congratulations to B&P for being named one of U.S.News - Best Lawyers "Best Law Firms"!   
 

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Thank you everyone for the thoughtful questions and comments regarding SB 1196.  I have literally received hundreds of questions and comments over the past week - either through this site or by email.  Since many of the questions relate to the same issues, I'd like to share some of the responses. 

QUESTION:  Rumor has it that the Governor has a bill before him that would raise the voting approval to 75% for apparently new Condo and/or HOA amenities. True or false?

RESPONSE: You may be referring to the new section 720.31, Florida Statutes. It says that HOAs can acquire leased property, memberships and other interests in lands or facilities (including country clubs, marinas, golf courses, etc.) more than a year after recording the Declaration if the governing documents contain that authority or if 75% of the members agree.

QUESTION:  Are cable TV services considered a utility? Our HOA pays approx. $50 per month per unit for basic services. Comcast has refused to cut the services for those people who have stopped paying their maintenance fees, even if we pay the monthly dues and pay for the service to shut off the service. Without cable TVs service, it might give those people who have refused to pay their maintenance fees, an incentive to do so.

RESPONSE: You hit the $64,000 question. Maybe Comcast will change its policy as a result of the new law. I understand Comcast (and perhaps some other providers) believed that suspending service to individuals constituted a violation of the telecommunications act and federal regulations. Check back in a few weeks - we will be sure to post something related to suspending cable/television programming and are planning a webinar devoted to telecommunication issues in light of SB 1196. 

(P.S.  If your community is paying $50 per month for basic bulk services it should attempt to renegotiate that deal.)

QUESTION: Please inform me if there is a new requirement for board members to take a class or an exam to run for the board otherwise the association will be null and void.
Is this something new? please let me know

RESPONSE: The new law (effective July 1) requires board members to provide the association with a certification or evidence of completion of an approved course within 90 days of being elected or appointed.

QUESTION: Does SB1196 say anything about the requirement of installing hard wired smoke detectors in condominium buildings that are less than 3 stories in height? Is it still a requirement in these buildings?

RESPONSE: SB 1196 contains a provision that allows buildings of less than 4 stories with outside access (catwalks) to avoid installing manual fire alarms.

QUESTION: The new law stipulates that upon foreclosure the lender must now pay up to 12 months of back hoa dues or 1% of loan balance vs 6 months. Is that effect immediately once the bill goes into effect regardless of when the loan was placed on the property?

RESPONSE: While it is hard to predict how the lenders will interpret the bill, many community association attorneys believe that the new law will apply to acquisitions of title by lenders that take place July 1, 2010 forward, if the original mortgage was recorded after April 1992 (the effective date of the "safe harbor").

Remember, this information doesn't constitute legal advice & these responses are general in nature. Please consult with counsel to determine how the new laws will impact your operations.

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Readers have submitted quite a few questions in the last few weeks regarding insurance for condominium property and responsibility for repair of damages.  Section 718.111(11), Florida Statutes, requires every condominium association to maintain insurance coverage for:

• All portions of the condominium property as originally constructed (including replacements of like kind); and
• All alterations or additions to the common elements or association property made in compliance with Section 718.113(2), Florida Statutes, but excludes:
• Floor, wall or ceiling coverings, electrical fixtures, water heaters, water filters, cabinets, countertops, appliances, window treatments and personal property within the units.

Every unit owner is required to carry coverage for their unit and any improvements or modifications made to their unit (or limited common elements).  Unit Owner coverage must:

• Be excess to the association's coverage;
• Contain at least $2,000 of loss assessment coverage; and
• Name the association as an additional insured and loss payee on the casualty portion of the policy.

 As for specific questions by readers:

 What is the new law concerning condo air-conditioners? Is there a new law?

The association's insurance policy must include coverage for the HVAC system - the air conditioning units, compressors, thermostats, duct work, etc., when in the past air conditioners serving the unit were insured by the individual unit owner.  Community leaders and managers make sure these items are included in the current appraisal so there is enough coverage in the event of a loss.

I have heard from someone that this LAW (just the other day) has been overturned ..can you verify this?

 

The Florida legislature passed a bill that would have eliminated the Unit Owner coverage mandate, but that bill was vetoed by the Governor.  Consequently, every Unit Owner is required to purchase insurance coverage and provide evidence of the coverage to the association when asked.  If the Unit Owner fails to comply, the association actually has the option of buying coverage for the unit and charging the owner for the expense.   The charges can be included in a lien against the unit and the association can foreclose if the owner still refuses to reimburse it for the insurance expense.

For more information regarding the vetoed bill, please refer to an earlier post by clicking HERE.

What happens when there are damages from a roof leak, a burst pipe, a toilet that overflows?  More reader questions regarding damages later this week....

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The Maison Grande and other bankruptcy filings by community associations have spurred interest in reorganization of debt.  Is bankruptcy an option for your cash strapped community?  What issues do you need to consider?   Bankruptcy Attorney Aleida Martinez Molina answers the following questions for community associations struggling with bills and bad debt.

CAN CONDOMINIUM OR HOMEOWNERS ASSOCIATIONS FILE FOR BANKRUPTCY?  Yes. Under certain circumstances, condominium associations have successfully reorganized under Chapter 11 of title 11 of the United States Code, 11 U.S.C. sections 101, et seq. (“Chapter 11” and “the Code,” respectively). This phenomenon is not unique to Florida – there have been successful condominium association reorganizations throughout the United States.

WHAT IS A BANKRUPTCY IN THE CONTEXT OF A COMMUNITY ASSOCIATION? The first point to understand is that Chapter 11 is a reorganization process – not liquidation under Chapter 7 of the Code. As such, it can provide associations the protections of the automatic stay and other relevant Code provisions while allowing them to formulate a plan of reorganization to extricate themselves from the particular financial situation.

UNDER WHAT CIRCUMSTANCES DOES IT MAKE SENSE TO REORGANIZE? The Code has unique provisions which in essence give associations a more level playing field to negotiate with creditors. A number of associations find themselves with daunting contracts or leases which they might renegotiate or simply reject if able to do so. A reorganization could, under the appropriate circumstances, accomplish this goal. Another example is filing for bankruptcy protection in order to prevent a judgment creditor from seizing or garnishing bank accounts. An association with a judgment or upcoming trial could turn to a reorganization as a way to automatically stay the lawsuit/collection of the judgment and permit a realistic settlement. Finally, associations finding themselves threatened with the shut-off of service by utilities or other providers can, under certain circumstances, resort to reorganizations to temporarily prevent this drastic action.

WHAT IS REQUIRED FOR AN ASSOCIATION TO REORGANIZE? Proper authority from the Board and appropriate attorney fees and costs. In addition, an association should file a reorganization with a clear understanding of its exit strategy (i.e., a plan of reorganization).

COSTS ASSOCIATED WITH A REORGANIZATION: Reorganizations are not inexpensive and simple matters – filing fees to the bankruptcy court alone exceed $1,000. The debtors also need to pay quarterly fees to the United States Trustee while the reorganization is pending. Any debtor (association or otherwise) needs to contact competent counsel in time to prepare budgets and plan accordingly. It can and is done – even in dire situations where utility services are about to be interrupted. Counsel can advise how to properly prepare the necessary documents, authority and budget to reorganize under the Code.

WHAT HAPPENS TO ASSOCIATION RESIDENTS WHEN A COMMUNITY ASSOCIATION REORGANIZES? Ideally, nothing directly. If the association files with appropriate board authority and a reasonable game plan, the association should be able to function and provide the necessary services to the association property and residents.

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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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A reader recently posed the following question:

In preparation of next years election of board members, where or how do I find a division approved education provider?  How will the new member become aware of the educational curriculum to obtain a certificate of satisfactory completion.
 

The reader may have posed this question believing that the certification requirements of SB 714 were in effect. 

Nonetheless, the Division of Florida Condominiums, Time Shares and Mobile Homes publishes information about approved educational providers on the website maintained by the Department of Business and Professional Regulation. 

The Office of the Condominium Ombudsman also offers education.  The courses are described as follows:

• Condominium Rights and Obligations - A general overview of the statutory rights and responsibilities of board members and unit owners.
   
• Condominium Elections - An in depth review of the requirements for the noticing, mailing, and balloting in a condominium election. A mock election will be conducted.
   
• Condominium Meetings - A comprehensive course on condominium meetings, notices, and parliamentary procedure.
   
• Basic Condominium Finances - An overview of condominium finances, including statutory requirements, budgets, financials, and reports.
   
• Serving on a Board of Directors - Information for persons considering or serving on a board of directors in a Florida condominium.
   
• Condominium Rules and Regulations - A review of rules and regulations in Florida condominiums and how they affect the community.

There are numerous opportunities for education and training throughout the state.  The above merely represent course curriculum posted by the State.

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A reader recently posted the following inquiry to this site:

I live in a community in which the HOA documents are not being enforced, for instance most every homeowner in the community except for about 40 out of 245, do not maintain the property.  There are piles of junk in the back yard, some still have hurricane shutters up now from last year. The common areas are not kept up by the HOA and the board members are just to afraid to send out violations. I happen to be an officer on the board and I have tried everything I can to correct this situation. Is there anything I can do legally?  My property value is declining more than it should because of this situation.
 

Florida courts have held that any lot owner may enforce the covenants if the authority to do so is contained in the applicable deed restrictions or Declaration of Covenants or if the restrictions and requirements therein "inure to the benefit of each owner".   Kirschner v. Baldwin, 988 So. 2d 1138 (Fla. Dist. Ct. App. 2008).

The case set forth above is a perfect example of how a homeowner has the right to redress what he or she perceives as a violation of the governing documents of the community, even in the event the association fails, or as in this case, declines initiate enforcement action.  In this case, Ms. Kirschner filed suit against the Baldwins, her neighbors, for both injunctive relief and damages as a result of the construction of a new garage in violation of the setback restrictions set forth in the Declaration of Restrictions, Limitations, Conditions and Agreements.  While the trial court initially ruled against her on various grounds, the appellate court reversed indicating that Ms. Kirschner had a right to seek enforcement of the documents.  Thus, the 40 or so responsible property owners in the subdivision have rights, even if the association ignores the violations.

Nonetheless, I understand your concern that communities are created with restrictions for a reason.  Many people buy property within a community association because they appreciate the uniform standards of maintenance and the quality of life those standards engender.  Unfortunately, some of those same people become demonstrably upset when asked to make the effort necessary to comply with those community standards, whether due to budgetary constraints or otherwise.  With appropriate language in the governing documents and an organized, conscientious board, community standards may be created and maintained successfully.   There are enforcement mechanisms in the Florida Statutes available to community associations and typically the governing documents will provide additional remedies.  There is no reason for your board to "be afraid" to engage in enforcement action, they just need thoughtful analysis of the issues at hand and clear direction as to how to proceed.

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Question: Our board of directors has been talking about switching over to “pooled” reserves. Can you explain what this means? L.A. (via e-mail)

 Answer: The concept of funding condominium reserves through the “pooling” method, sometimes also known as the “cash flow” method, came into vogue about seven years ago.

The Florida Condominium Act requires an association to include as part of the annual budget, a reserve schedule. Reserves must be set aside for roof replacement, pavement resurfacing, building painting, and any other item of association responsibility with a replacement cost or deferred maintenance expense of $10,000.00 or more.

Traditionally, the reserve schedule accompanying the proposed budget has used the “straight line” method of calculating required reserves. For example, assume that the roof on a condominium building has a twenty year useful life, is ten years old, and will cost $100,000.00 to replace. Further assume that the current amount of money in the roof reserve is $50,000.00. The association will need to collect $5,000.00 per year, over the next ten years, to accumulate another $50,000.00 so as to “fully fund” the roof reserve. This is traditional, “straight line” funding of reserves.

Similar calculations are then made for all other required reserve items (building repainting, pavement resurfacing, and other items with a replacement cost or deferred maintenance expense in excess of $10,000.00), and the annual contribution required to “fully fund” the reserve account is thus arrived at.

If no vote of the unit owners is taken, the board of directors is obligated to collect “fully funded” reserves as part of the monthly or quarterly assessment.  The law does permit unit owners to vote to reduce the funding of required reserves, or waive funding of reserves altogether. The law was also amended in 2008 to require that any reserve reduction or waiver vote include bold-faced disclaimer language on the proxy and ballot.

It is important to understand that when reserves are funded on the straight line method, whether fully funded or partially funded, the law provides that reserve funds can only be used for their intended purposes. For example, money could not be taken out of the roof reserve account to pay for painting the building. However, the association can use reserve funds for non-scheduled purposes if approved in advance by a majority vote of the unit owners. 

The vote required to waive or reduce reserve funding and the vote to use reserves for non-scheduled purposes (which are technically, two separate votes), each require approval of a majority of the voting interests present, in person or by proxy, and voting at a duly noticed meeting of the association. As with the reserve reduction/waiver vote, a vote to use reserves for non-scheduled purposes must also be accompanied by bold-faced disclaimer language on the meeting proxy and ballot.

The concept of “cash flow” or “pooled” reserve funding is a bit different. Under pooled reserves, it is still necessary for the reserve schedule which accompanies the annual budget to set forth required reserve items (roofs, painting, paving, and other items with the replacement cost/deferred maintenance expense of more than $10,000.00). Further, the “cash flow” reserve schedule must still disclose estimated remaining useful life and replacement costs for each reserve component. The main difference in the cash flow presentation of reserves is that instead of each reserve line item having its own fund balance, there is a “pool” of money in the reserve fund, which is available for costs affiliated with any item in the reserve pool. For example, the painting and roof reserve monies are “pooled” into one fund, so a vote of unit owners is not required for expenditures from the fund, as would be the case in a straight-line reserve scenario where monies from one reserve account would be used for another reserve purpose. 

It is important to note that even with pooled reserves, a vote of the unit owners is still required to use reserve funds for operating purposes, or for any expenditure involving items that are not part of the “pool”.

The pooling method of reserve funding attempts to predict when a particular item will require replacement or deferred maintenance, and reserves are scheduled and funded so as to insure that a necessary amount of funds are on hand when the work needs to be done. Theoretically, monthly or quarterly reserve contributions can be lowered, while still avoiding special assessments.

Of course, what works in theory does not always work when placed in human hands. In addition to needing a crystal ball to predict exactly when a reserve expenditure will need to be made, reserve contributions may be substantially higher in certain years, such as when the fund is depleted for the replacement of a required item, and there is a short useful life for the next asset that needs to be replaced. Personally, I neither encourage or discourage association clients from switching from straight line funding of reserves to cash flow. There are pros and cons, and it ultimately boils down to a matter of choice. Clearly, straight line funding is the more conservative funding mechanism.

The law is not entirely clear as to how the switch from straight line funding to cash flow funding is supposed to occur. I believe it is the position of the Division of Florida Condominiums, Timeshares, and Mobile Homes that the board of directors has the authority to present pooled reserves, even when straight line reserve funding has typically been used in past years.

However, I also believe that it is the Division’s position (and I believe consistent with the law) that if funds that were previously deposited in straight line accounts are going to be put into the “pool”, then majority approval of the unit owners is required. Accordingly, as a practical matter, every association which switches from straight line funding of reserves to cash flow funding will need to take a vote, so that the existing money in the straight line accounts can be put into the “pool.”

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Question: I am a member of a homeowners’ association. Our board recently hired a new management company. The owner of the management company is also a resident/property owner in our community. Some of us feel that this creates a conflict of interest. What is your opinion on this? T.W. (via e-mail)

Answer: As long as the owner of the management company is not also a member of your association’s board of directors, I do not believe that conflict of interest concerns in the traditional legal sense are presented.

There is no legal prohibition against contracting with a property owner within your community. I have seen a few associations which have bylaw provisions which prohibit contracting with association members, but such provisions are certainly the exception.

There are a couple of different ways to look at this. Some may argue that because the owner of the management company also has an investment in your community, he or she will go “above and beyond” to ensure that the community’s needs are served, thus protecting their own investment and keeping their friends and neighbors happy. Others would argue that contracting with an association member is a bad idea, because friendships and internal community politics could obscure the objective viewpoint the board should have in dealing with contractors.

Whether contracting with a neighbor or a total stranger, I always recommend that contracts between community association management firms and associations contain a liberal termination clause, with or without clause, upon reasonable notice (such as thirty days).

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Question: I live in a development that is governed by a homeowners’ association. More and more, we are seeing owners “walk away” from properties they can no longer afford due to the poor economy.

This leaves a void as to who is to care for their properties in their absence. Many times, the properties fall into disrepair, which causes potential buyers to think twice about purchasing in our community. Other owners are generally careful to maintain their properties, but it is those few abandoned properties that are scaring away potential buyers, and as a result, property values within our community have plummeted. Our association is considering taking on the task of fixing some of these abandoned properties to preserve property values and to make the community more attractive to potential buyers. Can we do that? M.D. (via e-mail)

Answer: You indicate that your community is a homeowners’ association, presumably governed by Chapter 720 of the Florida Statutes, also commonly (although not officially) referred to as the Florida Homeowners’ Association Act. If that is the case, then the answer to your question will depend on what your governing documents say.

Unlike the Florida Condominium Act, Chapter 718 of the Florida Statutes, which grants a condominium association the irrevocable right of access to each unit during reasonable hours for maintenance purposes, the Florida Homeowners’ Association Act does not expressly authorize a homeowners association to access an owner’s lot, let alone to make repairs where the owner fails to do so. Thus, the authority to do so must be contained in the governing documents.

Especially with more modern, well drafted documents, you will often find a clause in your documents which says that when the homeowners fail to maintain their property, the association is authorized to enter the premises and make repairs at the owner’s expense, after reasonable notice has been provided to the owner. Of course, what is “reasonable” will depend on the circumstances.

Unfortunately, your situation is far from unique in today’s economic climate. Owners in dire financial straits often do not make their mortgage payments. The bank will eventually initiate foreclosure proceedings. Under these circumstances, the owner may feel there is no way to salvage their interest in the property, or it is just not worth it for them, and they simply “disappear.”

In many cases, it is difficult for the association to ascertain the whereabouts of owners who have abandoned their properties, and thus notify the owner of the association’s intent to access the property and make repairs. Still, the association must make a reasonable effort to fulfill the notice requirement.

Where there is a mortgage and the bank has initiated foreclosure proceedings, it may also be appropriate to notify the bank of the situation. Banks are often unaware of the circumstances and upon being notified, may send someone out to maintain the property, since they have a substantial economic interest in it, and are usually conferred the right to do so by their mortgage agreement, or may seek court permission to do so. Other times, the banks are not equipped to have someone look after foreclosed properties, or they just do not believe it is worth the investment. If your association is considering the task of caring for “abandoned” properties (if authorized by your governing documents), please be aware that there may not be a way to recover the expenses incurred. A property owner who is unable to make mortgage payments, or carry out any other financial obligations (such as paying assessments to the association), is also likely unable to pay the cost of repairs on their “abandoned” property.

I would recommend consulting with the association’s legal counsel to verify whether the association has the authority to enter the property and make necessary repairs. Your attorney should also advise whether this is a proper expenditure of association funds, especially if the prospects of ultimately recovering the money spent are dim. Entering else’s property without proper legal authority may give rise to a trespass claim, notwithstanding the laudable intention of preserving the property values in your community.

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