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

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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Court Rules in Favor of Use Blanket Receiver to Collect Rental Income When Investment Owners Fail to Satisfy Financial Obligations to Association.

The Miami Herald and Sun-Sentinel both reported that the Third District Court of Appeal denied a challenge to an Order appointing a 'blanket' receiver to collect rental income from tenants when the unit's owner failed to pay assessments.  The owner challenging the Order owns several units, most or all of which are in delinquency status.  The appellate Court denied a request for a Writ of Prohibition, allowing the Association to continue enforcement of the blanket order requiring rent to be paid to the receiver to satisfy outstanding assessments and other sums due.

This 'mini-receiver' program has been very successful in South Florida.  The Order entered in the Verabella Falls Condominium Association case specifically requires the receiver to collect all rents and monies from tenants due to unit owners when the unit's owner is subject to a foreclosure action for the failure to pay past due assessments.  It also permits the receiver to engage a property manager to offer unoccupied units for lease or rent when the unit's owner is a defendant in foreclosure proceedings filed by the Association. 

Seminars will be held throughout the State to explain the success of these programs to community leaders.   Please check this site for more information regarding those seminars and other educational events.

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