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

A housing conference is taking place today in Washington, D.C., where industry leaders and government officials are discussing the future (if any) of Fannie Mae, Freddie Mac and other Government Sponsored Enterprises (GSE) that offer mortgages.

These entities (Fannie, Freddie, etc.) are backed by the U.S. government.  Government backing lowers lending costs which translates to lower mortgage rates for consumers.  In theory, lowering mortgage rates and providing consumers with more access to capital encourages home ownership, increases home values and supports thousands of industries with hundreds of thousands of employees.  Both Fannie and Freddie have been in conservatorship since 2008 and supporting cash-flow needs with a credit line from the U.S. government.    Now the government (and many industry experts) wants the private sector to play more of a part in home financing.

What does this mean for community associations?  It could mean several things: 

• It could mean that future home purchasers will have to fund a larger down payment.  If home or unit owners have more at stake in the property they will be more likely to take care of the property and less likely to default. 
• It could mean that the historically low mortgage rates will go up - making homes or condominium units less affordable.  Higher interest rates may prolong sales of abandoned properties. 
• It may mean that Fannie, Freddie and other GSEs will be required to dispose of properties acquired as a result of failed mortgages even at a loss - resulting in better bargains.  

Fannie Mae recently auctioned close to 100 South Florida properties.  Those properties were only offered to owner-occupants (individuals and families who plan to live in the homes), not investors, in an effort to stabilize neighborhoods severely impacted by foreclosures.

There are some obvious benefits to GSE financing and some obvious detriments.  One benefit is flexibility - government backing allows Fannie Mae to offer hardship relief to home/unit owners.  For example, Fannie has the ability to offer loan forbearance to mortgagors plagued with chinese drywall.   Skipping six (6) months of principal payments may be all that is needed for homeowners to catch up with other financial obligations (such as community assessments).

Community association leaders and members can take strategic actions to stabilize their own communities.  Community associations have the power to regulate use and occupancy of the properties, the level of maintenance and care required, and can even establish guidelines regarding the financial responsibilities of new members.  With a little planning, advice of counsel and other professionals and effort by board members, committee members and other volunteers - you can make your community better positioned in the future.

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A couple of CA bills of interest were heard by the House Civil Justice & Courts Policy Committee on Tuesday (February 4, 2010) morning. HB 329 by Rep. Robaina was debated and it was decided by the Committee to hold off on taking a vote due to some concerns with the provisions pertaining to the ability of associations to go after payment of assessments from renters when unit owner landlords aren’t paying.

HB 561, a omnibus CA bill which CALL is working on very closely with sponsors Bogdanoff and Hudson, was passed by the committee after adopting several amendments pertaining to the contentious sprinkler retrofit issue. It would move the date of compliance to 2019 from 2014 and say that if an association has voted to forego retrofitting that 10 percent of owners could petition to have a special meeting “re-vote” once every 3 years. CALL will continue to monitor this issue to make certain a workable solution is found which doesn’t jeopardize the bill.

There was also a discussion on the Florida Supreme Court’s administrative order re the mandatory mediation process for residential mortgage foreclosure cases. David Muller of CALL was asked by the Committee to testify and was able to provide helpful information on the foreclosure crisis many associations are facing and how this mediation process must not cause further delay and cost. This issue remains a top priority of CALL. We need you to let your Legislators know how your association is being impacted and ask for action.

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Free Educational Forums for Board Members, Property Owners and Managers Announced at 15 Locations Around Florida. Conference will focus on Strategies for Communities to Deal with Economic Crisis.

Becker & Poliakoff announces its Annual Community Association Leadership Conferences beginning on January 15, 2010 where attendees will learn strategies to deal with the financial issues facing their Florida communities. Topics will include liability of owners versus subsequent purchasers, collecting rents in lieu of assessments, depositing rents into the court registry, extraordinary receiver appointments and extra-judicial remedies, among others.

A panel of Becker & Poliakoff’s attorneys from a variety of practice groups will answer questions during the third hour of the conference. You may submit questions in advance for the panel members by email to questions@beckerpoliakoff. com. Please indicate which event you are attending in the subject line of the email, so that the panelists can do their best to respond at the event you attend. See page 3 for Conference dates and locations.

Register today for this free conference at www.becker-poliakoff.com/events/ca/ for the event nearest you.

For dates, locations and registration information - continue reading (below)

Register today for this FREE conference at www.becker-poliakoff.com/events/ca/ for the event nearest you.

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Ownership of Property Governed by a Condominium, Cooperative or Homeowners' Association Carries Significant Responsibilities. 

Gary A. Poliakoff, J.D.  and Jennifer Bales Drake both interviewed on Fox Business News.  Click HERE to watch Gary Poliakoff.  Click HERE to watch Jennifer Bales Drake.

Owning property governed by a community association carries responsibilities in addition to privileges.  Among other things, owners bear responsibility for the costs associated with maintenance, repair, replacement and protection of the common property and facilities as well as administration of the Association. 

Mr. Poliakoff explains how important it is for buyers to research the financial status of the Association before purchasing a property in a "Shared Ownership Community" or "SOC", which is the term used in his new book, New Neighborhoods: The Consumer's Guide to Condominium, Co-Op and HOA Living.   The interview also includes comments relative to the housing market, especially with regard to the impact of lending criteria by government sponsored entities such as Fannie Mae and Freddie Mac. 

Ms. Drake explains the pitfalls of leasing residential property in the current foreclosure market to Fox Business News' co-anchors Dagen McDowell and Brian Sullivan in the interview posted above.  Bank foreclosures are responsible for significant losses of revenue to community associations throughout Florida and nationwide.

The more owners understand the obligations associated with ownership and occupancy of a residence within a shared ownership community the better.   Community leaders are, for the most part, owners as well.   Minimizing disputes that can become quite costly and aggravating for everyone involved is especially important in this economy, as community leaders need to focus on streamlining operations, reducing expenses and handling delinquencies.

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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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At Least Five Community Associations in Florida have filed for Bankruptcy Protection and Relief.

Reorganization through Bankruptcy Allows Communities to Restructure Obligations and Reduce Debt.

On July 8, the Daily Business Review reported about the Maison Grande Bankruptcy filing.  Maison Grande condominium owners are obligated to pay the developer over $100,000 per month for a 99-year lease of the pool and some other improvements.

Bankruptcy Attorney Aleida Martinez Molina of Becker & Poliakoff indicated that the bankruptcy code contains unique provisions which, in essence, give associations the upper hand in dealing with creditors.   According to the Daily Business Review, Maison Grande owes the developer almost $700,000, but the lawsuit filed by the developer is on hold while the bankruptcy court has jurisdiction.

There a various benefits to reorganization through bankruptcy proceedings:

• If the Association is facing lawsuits from several creditors in different venues, the bankruptcy court may have the power to shift the jurisdiction to streamline addressing each claim.
• The Bankruptcy Code includes provisions allowing debtors to assume or reject executory or unexpired leases, providing opportunities to renegotiate onerous provisions.
• A Bankruptcy filing will delay, and in some cases prevent, a creditor from seizing or garnishing bank accounts and will also delay cancellation or shut-down of utility services.

Many community associations are obligated under contracts initially entered into by the developer.  The Legacy Park Community filed for bankruptcy protection when it could not pay a cable bill in excess of $100,000, especially since it reported over $250,000 in lost (unpaid) HOA assessment fees not paid by the owners that lost homes due to foreclosure.

Presidential Golf Maintenance Association also recently filed for relief under Chapter 11 allegedly due to the fact that in can no longer maintain approximately 97.8 contiguous acres because they do not have sufficient funds. They filed to “restructure and evaluate other strategic alternatives.”

Attorney Molina strongly encourages any Association desiring to take advantage of relief that may be available through bankruptcy proceedings to only file with a clear understanding of its plan for reorganization.   

Judge Mark dismissed a  bankruptcy filing on the behalf of View West Condo Association.  View West had controversy with roofer who supplied services to the condominium regarding payment, quantity and quality of work performed and warranty of work.  The Court found:

There does not appear to be any purpose for filing a Chapter 11 plan nor any reason for the Debtor to stay in Chapter 11 other than Debtor’s counsel’s suggestion that this Court would be a more expeditious forum for litigating claims against third parties. That reason is insufficient if the litigation solely involves state law issues.

As a result of current economic conditions, bankruptcy filings may become more prevalent for community associations.  Please contact us if your community would like to discuss whether bankruptcy is a viable option.

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There are several programs available to homeowners that will avoid the loss of their homes through foreclosure such as repayment plans, forbearance plans and loan modifications.  “Short Sales” have also become a popular solution to avoid foreclosure but “Short-Pay” solutions are emerging as the best option available to help families keep their homes, lower their mortgage payments, and avoid foreclosure even when the homeowner owes more than their homes are worth! 

What is a Short-Pay?
A Short-Pay, or also known as a short-refinance, is a transaction, where a current lender agrees to accept less than the full amount owed to them.  This process is similar to a short sale but, instead of selling the home to a third party, the homeowner keeps their home by refinancing with a new lender with a new loan based on the current market value of the home.  The Short-Pay allows the homeowner to keep their home, and avoids a foreclosure or possible bankruptcy.

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