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Most community association leaders are familiar with the fact that they have to hold off on collection activities (such as sending further demand letters, filing a lien or prosecuting the association's foreclosure case) when an owner files for bankruptcy protection. 

One important protection offered by the bankruptcy law gives the debtor "time to catch his/her breath" by stopping any and all actions by creditors against that debtor.  This "time out" is known as the automatic stay.  Creditors (whether secured or unsecured) cannot initiate or continue any actions designed to collect the debt included in the bankruptcy petition.  The creditor cannot begin or continue action with respect to:

1. lawsuits,
2. efforts to gain control of the debtor's property, 
3. perfecting or enforcing a lien, or
4. efforts to set-off the debt.

2010 changes to the condominium and homeowners' association acts gave boards of directors additional enforcement tools, including the right to suspend use of recreational facilities when the owner's debt is more than ninety (90) days past due.  The association can suspend use rights by corporate action in compliance with the procedures set forth in the applicable statute,  without filing any pleading or lawsuit in court, filing a petition for arbitration with the state or filing a Claim of Lien securing debt. 

So, the question becomes: can the association suspend use rights if the owner filed bankruptcy?  At least one bankruptcy Court said "no". 

An association in Miami suspended an owner's internet service and deactivated the key fob (or other entry device) for recreational amenities at the condominium pursuant to Section 718.303, Florida Statutes.  The owner immediately filed an Emergency Motion for Contempt in the bankruptcy court, claiming this action violated the automatic stay.  The Court agreed.  It held that suspension of privileges to use common areas was "in effect an act of coercion to compel the debtors to pay the past due association assessments".  The Court ordered the association to reinstate all privileges forthwith.

Associations need to consult with counsel to protect their rights as creditors in bankruptcy cases.  The association can participate in the bankruptcy proceeding to ensure the amounts claimed are correct and in some cases ask the court for permission to proceed with collection activities, especially if the debtor does not reside in the property. 

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

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

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

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

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

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

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

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

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

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As you already probably know, the Condominium Act was amended as a result of SB 1196.  Newly elected Board Members must either take a state approved educational course to qualify for Board service or submit a written certification to the Secretary of the Association.

Becker & Poliakoff is pleased to inform you that we have been approved by the Department of Business & Professional Regulation Division of Florida Condominiums, Timeshares and Mobile Homes to teach the required course materials to newly elected Board Members.

This course, “Everything You Wanted To Know About Being A Board Member But Were Afraid To Ask!”, will be taught at various locations throughout the state.  All instructors are attorneys practicing Community Association Law and have been certified by the Department of Business & Professional Regulation.

Why Attend?
- Comply with State Law - rather than simply "certify" yourself
- Understand your legal responsibilities and obligations including your “fiduciary duty”
- Receive our new publication “You’re a Board Member, Now What?” for day to day questions and strategies for handling board responsibilities
- Receive a Quick Reference Guide of checklists, statutory deadlines and charts to assist with elections, meetings and other Board responsibilities.

Topics Covered:
Operations * Records Maintenance * Dispute Resolution * Budgets & Reserves
*Elections * Financial Reporting & More 

Registration is required and you will receive your Certificate of Completion at the end of the course.  ClickHERE for the schedule and information how to register.
 

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

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

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

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

The Association argued:

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

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

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

What Will the Lender Pay?

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

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

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The Community Association Leadership Lobby (CALL) Announced Last Week it is Working on a 'Glich' Bill to Clarify Several Community Association Rights and Remedies.

The purpose of the CALL bill is to make proposed changes to Chapters 718, 719 and 720, Florida Statutes to address certain “glitches” resulting from SB 1196.  Co-Executive Directors Yeline Goin and David Muller explained that any large piece of legislation is likely to have unintended consequences and need further clarification.
 

So far, the CALL bill proposes many important legislative items, such as:

• Allowing condo boards to meet in private to discuss personnel matters just like HOA boards;
• Allowing condos and HOAs to collect management company collection charges from delinquent owners and clarify the parameters of action on the part of management;
• Ensuring that rent collected from a tenant is applied to the oldest balance on the unit owner's account; and
• Ending any argument that cable or television programming is a “utility service” - authorizing immediate suspension when a unit owner is more than 90 days delinquent. 

The CALL team always entertains comment from its members.  If you are a member or would like more information, please visit www.callbp.com or email call@becker-poliakoff.com.
 

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As a result of SB 1196, the law now prohibits HOA directors, officers, or committee members from receiving any salary or compensation from the association for the performance of his or her duties as a director, officer, or committee member.   This is basically the same rule that applies to condominium association directors.

However, Section 720.303(12), Florida Statutes significantly expands the restrictions upon HOA directors, officers and committee members.  In addition to the above, the law also says that a director, officer, or committee member “may not in any other way benefit financially from service to the association.”  The reference to "service to the association" in this second part of the sentence is not limited to those services performed in connection with the duties of the director, officer or committee member.  That is a substantial change in the law.  Read strictly, this means that HOA directors, officers, or committee members:

• cannot work as association employees;
• cannot serve as a paid manager; and
• cannot provide services through firms or business entities in which such persons hold a financial interest.

The previous law allowed the association to enter into contracts with companies involving 'interested directors',  if the director disclosed his or her financial interest, if the contract was fair and reasonable, and if the interested director refrained from voting.

There are exceptions.  If your community has and still employs or contracts with companies in which a director has a financial interest (stands to gain from the contract), there are two options laid out in the statute.  Compensation is permitted if it is authorized by the governing documents or if the members vote to authorize compensation.  The vote should take place in advance of hiring or contracting with an 'interested director'.

Reimbursement for out-of-pocket expenses is specifically allowed.  If your community has not developed a procedure for application and payment for out-of-pocket expenses, now is a good time to create your procedures and formally adopt them at a meeting.  Most governing documents authorize the board to reimburse directors (and others) for expenses, but do not specifically outline what types of expenses may be incurred, whether certain types of expenses require advance approval, what documentation must be submitted or who approves the reimbursement, etc.

There are other exceptions for directors appointed by the developer, for recovery of insurance proceeds and if all members benefit financially from some action taken by the association.

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Is your Association Leaving Money on the Table?

Bank foreclosures continue to be an impediment to collection of unpaid assessments in many communities.  Sure, after the 2010 legislation became effective, community associations are entitled to collect either 1% of the original mortgage debt or 12 months worth of assessments from the mortgagee (whichever is less), but what about the rest of the balance?  Does it disappear into thin air?

Because a bank foreclosure will usually directly impact the ability to successfully lien and foreclose, communities must be aware of other alternatives to collect unpaid assessments.

Strategic Defaults - According to Wikipedia:

A strategic default is the decision by a borrower to stop making payments (i.e. default) on a debt despite having the financial ability to make the payments.

While many owners who lose their units in foreclosure cannot pay, it is important to remember that a unit owner is personally liable for all unpaid assessments that are left when a bank forecloses.  The Association may seek to collect the balance on the account from the former owner.  More and more, people who do have assets make choices to abandon properties because there is no equity.  If there is a possibility that an owner has assets to satisfy a judgment, a community should consider taking action against a former member to collect those unpaid assessments.

Many associations are thinking short-term instead of long-term when they decide to forgo pursuing a money judgment for the balance between what a lender pays if it takes title as a result of foreclosure and the outstanding obligations on the account. Yes, there are costs involved. If the association doesn't have a lawsuit pending, it needs to file a lawsuit. There are attorneys fees, filing fees, costs associated with service of process, etc. If the association already has its lawsuit pending, most of those costs have already been absorbed - so why not wait for the bank to foreclose (and pay its statutory obligation), then continue to pursue the balance against the former owner? A judgment is recorded in the county and with the State's registry; it is initially valid for 10 years and can be renewed for another 10 years. During that time if the debtor desires to buy another property, obtain financing for purchase of a vehicle, college, etc., the judgment will appear.

While the debtor/former owner may not have sufficient cash-flow right now, who knows what the future will bring? If the debtor has significant assets in another state, the association can even take the extra step of domesticating the judgment in another state and pursue collection efforts there.

Asset Searches Can Be Helpful in the Decision Making Process

An asset search may help discover assets. It is more difficult (sometimes almost impossible) to collect from a corporate unit owner or a foreign person.  Nonetheless, your community should consider its options after a bank foreclosure - you may be leaving money on the table.

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SB 1196 Includes New Remedies for Collecting Money Owed to Associations.

Community leaders and managers have complained for years about investor owner delinquencies.  Why should the owner continue to collect rent from his or her tenant without paying maintenance fees and/or assessments?  Sure, both the Condominium and Homeowners Acts allowed the association to apply to the Court to request the appointment of a rent-receiver, but to take advantage of that provision it had to file the foreclosure lawsuit.  The law requires notices to the delinquent owner, preparation and recording of the claim of lien, filing and serving the foreclosure lawsuit - all before the association could ask the Judge for authorization to collect rent.  It could take several months to obtain the appropriate Court Order - all while the account remains delinquent. In some cases the tenant moves out before the association has the chance to collect any rent.  Of course there are costs and expenses involved with that whole process. 

Recently (as reported on this blog in Condo Receiver Helps Collect Assessments; Q&A: Condo Receivers; Collecting Rent from Tenants; Q&A: Collecting Rent from Tenants (revisited) ) the Courts have extended the law to allow 'blanket receiverships' for all units subject to foreclosure - and even more recently some Orders were entered authorizing the receiver to collect rent from tenants occupying units even before the association filed for foreclosure.

Well, in response to those cries for help the legislature included a 'self-help' procedure for associations.  The first paragraph of this portion of the new law says:

If the unit is occupied by a tenant and the unit owner is delinquent in paying any monetary obligation due to the association, the association may make a written demand that the tenant pay the future monetary obligations related to the condominium unit to the association, and the tenant must make such payment. The demand is continuing in nature and, upon demand, the tenant must pay the monetary obligations to the association until the association releases the tenant or the tenant discontinues tenancy in the unit. The association must mail written notice to the unit owner of the association’s demand that the tenant make payments to the association. The association shall, upon request, provide the tenant with written receipts for payments made. A tenant who acts in good faith in response to a written demand from an association is immune from any claim from the unit owner.
 

 The Association must follow a specific procedure to collect rent from tenants.  There are some pitfalls to avoid.  Its a good idea to discuss these issues with counsel or allow counsel to send the demands on your behalf. 

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