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

Over 40% of the Home Loans Issued in Two Major Florida Cities in February are Government-Insured FHA Loans. 

The marketability of the homes in your community is highly dependent upon the availability of mortgage financing.  We've included several posts on this site regarding purchase money financing issues over the past 2 years, including reporting on the changes to federal underwriting guidelines. Since mortgage financing (or lack thereof) severely impacts community association operations, Community Associations Institute (CAI) announced it is "stepping up its Congressional and federal regulatory advocacy on behalf of American homeowners, home buyers and common-interest communities."   CAI issued a statement on behalf of its 30,000 members that included the following quote:

"The stakes for homeowners, home buyers and communities are enormous,” says CAI Chief Executive Officer Thomas M. Skiba, CAE. “Rules being developed today may likely govern mortgages for the next several decades. If you live in an association or work in the community association industry, you need to understand the magnitude of these issues, keep abreast of the latest developments and weigh in when such opportunities are available.”  

You can learn more about CAI's new initiative at Mortgage Matters.

The mortgage crisis is also evident by comparing the percentages of FHA backed home loans.  FHA project approval has proven to be a significant factor in home sales. DataQuick Information Systems reports the following increases in Florida:

The future of GSE (Government Sponsored Enterprise) financing is also up-in-the air.  However, Fannie Mae announced an incentive program it says will help stabilize communities.  Purchasers of Fannie-Mae owned HomePath properties are eligible for financial assistance to help pay up to 3.5% of the closing costs.  Fannie Mae-owned HomePath properties are listed on HomePath.com and most listings include detailed property descriptions, photographs, information about local schools and more.

Proactive community leaders have taken steps to ensure their communities are approved for favorable purchase financing.  You may want to discuss project approval or certification with your community association attorney.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

By Adam Cervera

Almost every association has been through it. A deadbeat unit owner has stopped paying their mortgage and the lender brings a foreclosure action against them to enforce the note and mortgage. Not surprisingly, this same owner stops paying his maintenance fees to the association and the association finds itself stuck between a rock and a hard place: bring its own foreclosure action and attempt to obtain title, knowing that ultimately the lender will recapture this title from association as a superior lien holder, or wait for the bank to finish its foreclosure action and hope the new owner begins to pay all future maintenance fees.

For those associations opting for the latter option, a great deal of frustration arises when they see just how long it takes for the average bank foreclosure lawsuit to reach its resolution. While under the Tadmore decision an association can no longer force a lender to pay monthly maintenance fees while its case is pending, since they are not the “legal” owner of the property, all hope is not lost.

Associations have rights when mortgagees foreclose. Don’t let these mortgage foreclosures drag on and on and on ….

Ask for a Case Management Conference. This gives the association’s attorney the opportunity to request hard deadlines in the case. Judges can enter Orders requiring summary judgment motions filed and hearings set within a short period of time, generally 30 days or less. Summary judgment is key because once this is granted, the case is essentially over and all that is left to be done is to sell the property.

With the order on the case management conference in hand, the association now has a powerful tool in its arsenal that can only lead to positive results. If the lender’s attorney complies with the order, the final judgment clears the way for the property to be sold. If not, the door is wide open for the association to seek and recover sanctions against the lender for the delay.

Bank attorneys are often unable (or possibly unwilling?) to comply with scheduling orders. Judges hate when parties do not follow their orders and are often very quick to sanction or fine those plaintiffs. Sanctions can range from a one-time lump sum payment all the way up to daily fines that accrue every day until they take action. In short, associations can finally have the upper hand when a bank drags its feet in violation of a court order.

In Miami-Dade County alone, Becker & Poliakoff has collected several thousands of dollars in sanctions for associations who have filed motions against dilatory lenders and their slow moving counsel.

This is crucial - if an association finds itself in a situation where a lender’s case is in a standstill, set a case management conference as soon as possible. It is important to authorize counsel to act fast once the initial case management conference order deadline expires. Judges around the state are becoming more sympathetic to associations that get caught in the middle of lender foreclosure cases that go on forever. 

• Email This
• Print
• Comments (3)
• Trackbacks
• Share Link

The United States Department of Housing and Urban Development (“HUD”) announced recertification deadlines for condominium projects that had received approval for FHA-backed mortgage insurance prior to October 1, 2008.    

In the past many association leaders viewed FHA financing negatively.  The decline in real estate values and banking crisis has eliminated many options from conventional lenders.  Lenders will not finance properties if the loan is not acceptable to the secondary market (Fannie Mae, Freddie Mac and the like).   FHA requires a minimum down payment of  only 3.5%, but it also requires proof of affordability and satisfactory credit scores. FHA guidelines limit housing costs to 31% of income which means a new buyer must earn 3 times the monthly mortgage and association dues.

Whether you think the economy is on its way to recovery, or gearing up for a double dip recession, having your community approved as a FHA/Fannie Mae eligible project is one way to increase the marketability of units in your condominium.

Fannie Mae is a government-sponsored enterprise (GSE) chartered by Congress with a stated mission to provide liquidity, stability and affordability to the U.S. housing and mortgage markets and to increase the amount of funds available in order to make homeownership and rental housing more available and affordable. Fannie Mae works with mortgage bankers, brokers and other primary mortgage market partners to help ensure they have funds to lend to home buyers at affordable rates.

If your unit owners are experiencing difficulty in selling or refinancing their units, and your community is not a Fannie Mae or FHA approved project, you may want to investigate whether it would be worthwhile for your project to become approved. Fannie Mae or FHA approval just may bring more buyers to the table for those units “for sale” because financing will be more readily available. Additionally, the increased marketability of those units currently for sale in a Fannie Mae or FHA approved project not only helps the current sellers, but also serves to increase the value of all units in the condominium. This will not only help owners currently looking to sell or refinance, but will also help those unit owners who may wish to sell or refinance their units in the future.
 

While there are fees associated with the application for Fannie Mae or FHA project approval and the securing of an attorney review letter in support of same, the unit owners of your condominium, whether or not their units are on the market at the current time, might agree that such costs and fees are worthwhile to assist in the free flow of funds to be lent to homebuyers in your condominium at affordable rates.

• Email This
• Print
• Comments (4)
• Trackbacks
• Share Link

In nearly every case where a first mortgage of record exists on a property, the association's lien is subordinate or inferior to that mortgage. This means if an association elects to foreclose its lien and takes title to the property, it will take title subject to the right of the first mortgagee to foreclose its mortgage.  Associations in the past were reluctant to foreclose when the mortgagee already commenced its own foreclosure action or when the value of the property did not exceed the amount of debt secured by the first mortgage.  That's changing now.  
 
Associations are now making the decision to foreclose more often under these circumstances. The primary reason for this is serious delay in the prosecution of the mortgagee's foreclosure case. These delays are brought on by a variety of factors including the sheer volume of cases handled by the mortgagee's law firm, protracted efforts to work with the borrower either to short sale the property or modify the loan, problems associated with serving necessary parties with the foreclosure complaint or locating original documents that are to be filed with the court, back log in the courts and even strategic decisions by mortgagees to slow down the process.
 
In some cases, associations can obtain favorable results when foreclosing, even against properties that have fair market values below their mortgaged amount.  Sometimes the homeowner has the means to pay the association but  has elected to spend money on other concerns.  Because foreclosure results in the owner losing title to the property, if the owner has the means to pay and does not desire to walk away, they pay rather than lose title.  Foreclsoure can be a powerful deterrent for owners who have the means to pay but elect not to or to pay late because they hear others doing the same.  Another option is the association's right to rent the property once it takes title, if permitted by the association's governing documents.  For some associations, the rental market is favorable and significant income can be recovered before the mortgagee forecloses and takes title.   
 
Many times the owner cannot or will not pay and rental is not a viable option. However, associations still make the decision to foreclose for any number of reasons. Because so many mortgage foreclosures are being contested by owners raising defenses unique to the mortgage foreclosure action, and thus stalling the mortgage foreclosure case for months or even years, the association can effectively render those defenses moot as they relate to the mortgagee's foreclosure by foreclosing the association's lien.  When the owner is divested of title by the association, the owner will drop or lose the fight against the lender in the mortgage foreclosure action, thus paving the way for the lender to take title and begin paying assessments.  Another option for associations taking title is negotiating a short sale with the lender or tendering a deed in lieu of foreclosure to the lender.  I have also filed motions in mortgage foreclosure actions notifying the court that the association has taken title and does not contest the mortgagee's foreclosure, therefore, speeding up the lender's acquisition of title.  These associations understand the key is getting a paying owner into the property sooner rather than later.  That way, more in terms of future assessments are recovered rather than lost while a mortgage foreclosure lingers on for years and no one pays the assessments.
 
What every association should consider is each case is different and the association is well served if it carefully considers all of its options and selects a strategy that works best in any given case.  In this ever changing environment, there is no one size fits all approach.

• Email This
• Print
• Comments (56)
• Trackbacks
• Share Link

You may have heard that several major lending institutions, including Bank of America, GMAC and JP Morgan Chase, are putting foreclosures on hold in Florida. Our Attorney General joined other states to investigate mortgage foreclosures throughout the country. We expect other lenders and mortgage servicing companies to make similar announcements in the near future.
 
Why? Well recent news reports that the people signing thousands of affidavits in court proceedings did so without verifying ownership of the loan and the amounts due. They reportedly did not review original documentation or have any personal knowledge of the facts alleged in the affidavits. Some representatives have reportedly signed 8,000 to 10,000 affidavits a month. The lenders and/or mortgage servicers need to review and assess whether these foreclosures and filings comply with state laws.
 
Although it is uncertain how much delay these current reviews will add to the foreclosure process, most experts believe it is only delaying the inevitable. We believe it will take thirty to sixty days for the companies to perform an internal review. This is not good news for Florida's community associations. Various research outlets currently list the average length of the foreclosure process in Florida between 14 and 17 months. Some foreclosures are taking much longer.
 
Community associations must recognize their rights as a party in these actions. Community leaders cannot sit back and wait for the banks to figure out what they are going to do next. The Florida Rules of Civil Procedure govern these cases in litigation - the banks (and bank attorneys) have to follow the rules and if they do not, they can be made to suffer the consequences. Courts have imposed significant sanctions against banks and their law firms for failing to abide by court orders regarding the prosecution of foreclosure cases.

Certainly, the overwhelming number of foreclosures filed in Florida is challenging the resources of the courts, but boards that wait and simply ride out the storm can lose out on valuable rights (and dollars) for their communities. There are alternatives to simply waiting out the bank foreclosure which, if successful, can help move the process along.  However, these alternatives must evaluated on a case by case basis and in consultation with your association's counsel.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

By:  Tammy LoVecchio, Gulfshore Insurance (Naples & Ft. Myers) and Greg Marler, Becker & Poliakoff, P.A., (Naples)

We were pleased to present a one-hour flood insurance webinar on August 19th. 

Please feel free to view the webinar in its entirety.

We especially appreciate the interest shown and questions raised by the attendees. There were some recurring follow-up questions that warrant brief discussion.

Mortgagee Demands
First, it appears that several owners and associations have recently received demands from mortgage lenders to obtain flood insurance.  Some report being asked to increase the amount of current coverage above the maximum available through the National Flood Insurance Program (NFIP), that being $250,000 per home or unit, or in some cases, above the replacement cost of the property.  Some associations have even been threatened with force-placed insurance on the entire community.

As we discussed during the webinar, the most common source of the requirement to have flood insurance is the National Flood Insurance Reform Act of 1994, which requires most lenders to require flood insurance on any property located in a Special Flood Hazard Areas (SFHA).  But that Act, and all of the regulations and guidelines adopted by FEMA and government sponsored entities such as Fannie Mae, clearly only require flood insurance up to a maximum of $250,000 per home/unit.  It is not at all clear why these new demands are being made.  It is certainly within the authority of a lender to make risk management decisions and impose insurance requirements in excess of those imposed by the Act.  To determine if the lender can then force place insurance on you as a borrower, you must read your mortgage.  But there is no legal authority for a lender on a home or unit in a shared ownership community to force place flood insurance on an entire association.  Our advice is that you inquire directly with the demanding lender to determine its specific basis for making the request.

Homeowners’ Associations
Some questions seek clarification of flood insurance requirements for a homeowners’ association.  Because single family homes, and usually the lots on which they are built, are separately owned and freestanding, insurance on those homes must be obtained directly by the owner.  But what about an association’s clubhouse or other amenities?  Must the association carry flood insurance for those improvements?

Unlike condominiums, the law governing homeowners’ associations in Florida does not contain mandatory insurance coverage requirements.  But you should review your governing documents to determine if they contain insurance requirements.  Unless the association has a mortgage on its property, in which case it would be reasonable to expect there are insurance covenants, the only possible, remaining source of a flood insurance requirement on homeowners’ association-owned improvements is the fiduciary obligation of the board to protect and maintain the property against known or reasonably foreseeable risks.  We are not aware of any cases that have established that a homeowners’ association has a legal obligation to carry flood insurance.  But since the issue will likely arise only after a catastrophic flood loss when the stakes are high, there is some risk to simply dismissing the issue.

To add to the risk, directors and officers liability insurance policies typically exclude coverage for claims against the directors based upon the failure to obtain insurance.  It is true that the exclusion can be removed, but obtaining flood insurance is a condition of removing the exclusion.  This is akin to obtaining auto insurance on the condition that you agree never to own or drive a car.

• Email This
• Print
• Comments (6)
• Trackbacks
• Share Link