Run Your Association Like a Business

October 29, 2015, Posted by Michael E. Chapnick

MichaelChapnicksrhl-law.jpgRunning any type of business is no easy feat, and that is especially true for businesses that are operated by volunteer leadership. Nonetheless, community association officers and board members should engage in certain businesslike approaches to help ensure that they are running their association successfully.

A vital yet often overlooked fact that association leaders must keep in mind is that their association is a corporation - with officers and directors who are elected by their membership to govern and run their corporation effectively. Albeit categorized under the non-profit sector, associations are still responsible for preserving the association's budgets and bank accounts. They are also accountable for maintaining and hiring vendors, management, and staff, increasing (or at least preserving) property values and sustaining the community's quality of life.

Since the operation of a community association is the operation of a business, cultivating a business plan to help elected officers and directors run their "business" properly might serve a more useful purpose than most people think.

Foster Great Leaders

Elected officers and board members have a fiduciary duty to prudently serve their community, while always acting in the best interests of their organization. This means that however board members decide to act on behalf of their association, they must make sure they are doing so in good faith and with due care.

Ultimately, this means that whoever is elected to undertake this role must never place their personal wants and desires over those of the community as a whole. They must comprehend and uphold the association's articles of incorporation, bylaws, declaration, and rules and regulations, and must always make sure they are acting within the scope of their authority.

This leads to the importance of customer service. In any business, the customer service department plays a pivotal role in the reputation of the corporation. While board members should always enforce their association's rules and should abide by them as well, they also need to take care of their "customers."

pool rules.jpgAs such, consistency is the key. There should never be any inclination of "favoritism" when enforcing these rules. Initiatives such as publishing newsletters, sending emails and posting up policies around the community's common areas can serve as friendly reminders for those residents who are new to the community, or for owners who may have simply forgotten the rules. The golden rule that every successful business follows is: Treat others as you would like to be treated. When enforcing restrictions, make sure to stay polite. It is, after all, business.

Like other diligent business executives, board members must also invest time in learning about legal, financial and other community association-related topics that might help them evolve into effective leaders. Those that volunteer to serve should always engage in continuous learning - whether that means collecting newsletters, attending seminars or participating in LinkedIn discussions. Board members should never stop seeking information that can assist them in doing their jobs properly.

Stay Fiscally Responsible

Every business needs money to survive - as does every association. Community associations should always be financially responsible and act within their means.

Carrying the proper insurance policies is an extremely important factor for the financial wellbeing of any association.

Heavily researching contractors prior to commencing repair projects can also help associations to act correctly. This does not mean cutting corners. Research can prevent associations from overpaying for shoddy construction work and avert costly payments for low-quality materials.

All businesses, including community associations, must develop a system of checks and balances within their organization in an effort to protect their corporation from becoming victims of fraud. Community associations should work with their legal counsel and accountants to set-up precautionary measures that will help keep the association's money secure. Maintaining adequate reserves, accurately understanding the association's expenses (i.e., staffing, landscaper fees, etc.), and knowing which incidentals are covered by the association versus those covered by the owners can also help in ensuring an association stays economically viable.

Establish relationships with quality vendors and professionals. Dependable vendors allow board members and property managers to focus their attention on time sensitive matters, rather than having to micromanage every vendor that drives through their gates. Having a good rapport with CPAs, attorneys, management companies and other qualified professionals who serve the community association industry can save board members when they need to turn to an expert for advice. Knowledgeable and dependable resources are assets every association should try to cultivate.

All successful businesses rely on business plans and models to keep their corporations targeted on their respective goals. Treat your association as the business that it is, and develop and follow systems and procedures for operating that business. You will find that your association will thrive, and your "customers" will be happier.

Plan Early for Successful Annual Meeting, Election

October 26, 2015, Posted by Roberto C. Blanch

Roberto Blanch 2013.jpgThe year-end holiday season is also the season in which most community associations celebrate their annual meetings and elections. But no matter when your community association celebrates its annual meeting and election, it is important to begin the planning and organizing process well in advance in order to help ensure the best possible outcome.

The work should begin with a thorough review of the roster of current owners for each of the residences. Ideally, it is best to organize the roster in numerical order by the unit numbers or addresses in order to facilitate the registration and ballot verification process.

While a title search of the county public records deed database is the most accurate means to verify ownership of the residences, a more economical approach would be to turn to the county's property appraiser's office to verify ownership. Once obtained, the records should be organized in a binder, together with copies of the deeds in the same order as the roster or sign-in sheet. Using dividers to separate each floor/street is also advisable, as it may help to facilitate the verification of ownership on the day of the meeting or election. For those communities that require voting certificates to be submitted on behalf of units owned by corporations, partnerships, other entities or by more than one individual (including for units owned by a married couple), it is important for the board or management to ensure that binders are well-organized with copies of the voting certificates that have been submitted to the association in the past - as such forms are typically valid until revoked, modified or rescinded and the votes for those units cannot be counted unless the association is in possession of the forms.

Proxies that are received prior to the meeting should be verified in order to help ensure that they are dated and signed by the owner or other qualified voting member. Verified proxies should be logged in on the sign-in sheet for the meeting, and a note should be included on the sheet indicating those who have been designated as the proxies for corresponding units in order to help ensure that the designated proxies sign-in on behalf of the appropriate residences. Proxies that are found to be questionable or incomplete during the validation process should be set aside for the association attorney to review, and the valid proxies should be organized in a folder in the same order as the sign-in sheet for reference at the time of the meeting.

meetingvote.jpgFor those associations that suspend the voting rights of owners delinquent in the payment of monetary obligations, well-documented records should be maintained to confirm that the voting rights were properly suspended and the association's accounting records should be updated to ensure accurate records of the amounts owed by such owners.

In addition to closely adhering to all of the statutory notice requirements for the meeting, associations would be well advised to go beyond those minimum requirements in order to help maximize attendance and participation in the election. Telephone calls, emails, and door-to-door visits by the management staff are encouraged, as these efforts will help to ensure that all of the owners are made aware of the date and the importance of their making every effort to participate by voting in the election.

While applicable statutes may provide for the posting of the meeting notice at one designated location, some communities opt to post notices in a fairly prolific manner in order to broaden the opportunities for all of the owners to view it. For those communities, in addition to posting notices in the clubhouse and recreation rooms, communities should also consider posting them in the mail room, elevators, fitness center and any other appropriate spots through which the residents typically pass.

Another important strategy to maximize the attendance and participation of the membership is to include information on the importance of the annual meeting and election for the financial and administrative wellbeing of the association in all of the notices and communications.

My colleague Michael Chapnick with our firm's West Palm Beach office recently posted a brief video in the "Community Chatter" page of our website about some of the best practices for associations to maximize the attendance and participation of their members. Click here to watch Michael's video.

By starting the planning early and working closely with qualified community association legal counsel in order to follow all of the prescribed protocols, associations can help to ensure that their annual meeting and election are a resounding success and in full compliance with Florida law.

Article by Firm's Michael Chapnick in Today's Daily Business Review: Clarion Call for Changes to Outdated Association Documents

MichaelChapnicksrhl-law.jpgFirm partner Michael E. Chapnick contributed a guest column that appeared in today's edition of the Daily Business Review, South Florida's only business daily and official court newspaper. The article focuses on two recent rulings in which outdated community association declarations enabled foreclosing lenders to avoid any liability for prior owners' association debts. Michael's article reads:

Essentially, both recent rulings found that the associations were barred from recouping any of the prior owners' past-due fees from the foreclosing lenders by their very own declarations and covenants for their communities. The associations were done in by nearly identical clauses in their declarations indicating that lenders would not be responsible for the prior owners' assessments even though Florida law has held for more than seven years that associations are entitled to receive a statutorily capped amount.

The first ruling was filed in May in the case of Genesis RE Holdings v. Woodside Estates Homeowners Association by the appellate division of Broward Circuit Court. Genesis appealed the final judgment from the county court that found it liable for the prior owner's delinquent assessments in accordance with the law.

The appellate panel found that Woodside's declaration, which operates as a contract between the association and the unit owners, includes a provision that exempts Genesis from liability for the former owner's assessments.

That provision reads: "Where any person obtains title to a lot pursuant to the foreclosure of a first mortgage of record, or where the holder of a first mortgage accepts a deed to a lot in lieu of foreclosure of the first mortgage of record of such lender, such acquirer of title, its successors and assigns, shall not be liable for any assessments or for other moneys owed to the association which are chargeable to the former owner of the lot and which became due prior to the acquisition of title as a result of the foreclosure or deed in lieu thereof."

The opinion acknowledges that this provision, which was recorded as part of the community's declaration in 1987, serves to disadvantage Woodside, but its plain and unambiguous language absolves those who obtain title to a unit via the foreclosure of a first mortgage from liability for the former owner's past-due assessments.

The opinion found that Florida law does not supersede the community's governing documents because the declaration does not contain what has become known as the Kaufman language, providing that statutory changes would be incorporated automatically into the declaration.

Michael's article concludes:

Similarly, in the case of Willoughby Estates v. BankUnited, the Palm Beach Circuit appellate division found in favor of the foreclosing lender in its ruling filed in June. It found that the association's declaration contained language that was nearly identical to that of Woodside's absolving foreclosing lenders from liability for prior owners' assessments.

In addition to associations losing out on the ability to collect any of the former owners' past-due assessments from the foreclosing lenders, the appellate rulings granted the motions for attorney fees from the lenders, so there will likely be substantial sums that the associations will be paying to the lenders for their legal counsel.

These cases and several other similar rulings by the Florida courts in the last two years are sending a clear message to the community associations in the state with outdated declarations, which likely were recorded by their original developers in hopes of facilitating mortgage financing to spur sales at the properties.

During the height of the foreclosure crisis, the foreclosing lenders and their attorneys were not bothering to review the declaration documents of the communities, but those days are now over.

The lenders and their attorneys have come to understand that many older communities throughout the state still contain provisions in their declarations to absolve foreclosing lenders from liability, and they have not been updated to remove those stipulations and add the Kaufman language to indicate conformity with all future laws.

Our firm congratulates Michael for sharing his insights into the implications of these new rulings and other similar rulings with the readers of the Daily Business Review. Click here to read the complete article in the newspaper's website (registration required).

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Community Associations Must Comply with Florida Law Protecting Tenants in Foreclosed Residences

October 14, 2015, Posted by Awilda Esteras

AEsteras.jpgMany community association boards and property managers are still unfamiliar with Florida Statute 83.561 enacted this summer, offering limited protections to tenants in foreclosed homes.

During the 2008 - 2014 foreclosure crisis, a federal law was passed, The Protecting Tenants at Foreclosure Act, which assisted bona fide tenants by providing them the opportunity to stay in the property after the completion of the foreclosure. The Protecting Tenants at Foreclosure act expired in December 2014 to be replaced by Florida Statute 83.561.

Similar to the federal act, Florida Statute 83.561 only applies to tenants who are renting under a valid arm's length transaction rental agreement for a rate that is not significantly below market value, and where the tenant is not the mortgagor in the subject foreclosure or the child, spouse or parent of the mortgagor in the foreclosure.

Unlike the expired federal act, Florida Statute 83.561 requires a new owner, including an association, wishing to terminate the tenancy after acquiring a property via foreclosure, to provide the tenant with a 30-day written notice of termination, which should be in substantially the following form:

You are hereby notified that your rental agreement is terminated on the date of delivery of this notice, that your occupancy is terminated 30 days following the date of the delivery of this notice, and that I demand possession of the premises on ...(date).... If you do not vacate the premises by that date, I will ask the court for an order allowing me to remove you and your belongings from the premises. You are obligated to pay rent during the 30-day period for any amount that might accrue during that period. Your rent must be delivered to . . . (landlord's name and address).

If the tenant fails to vacate the property after the 30-day period expires, the new owner may apply to the court for a writ of possession based upon a sworn affidavit that the 30-day notice of termination was delivered to the tenant and the tenant has failed to vacate the residence after the 30-day period has expired. If the court awards a writ of possession, the writ must be served on the tenant.

Unlike the federal act, Florida Statute 83.561 does not require for the new owner to intend to occupy the residence in order to terminate the tenancy, nor does it seek for the tenant to complete the terms of the rental agreement. Rather, the new law assist tenants in foreclosed homes by providing a 30-day window to seek alternate living arrangements, while ensuring compliance by the new owner of the tenant's rights as afforded under Florida law.

Community associations that acquire title to a unit via foreclosure and wish to terminate a tenancy should consult with qualified legal counsel in order to ensure compliance with the requirements under Florida Statute 83.561.

Do Property Management Companies Need to Comply with Fair Debt Collection Practices Act?

October 7, 2015, Posted by Maryvel De Castro Valdes

MDeCastro.jpgQuestions regarding compliance with the federal Fair Debt Collections Practices Act for the collection of community association assessments by property management companies have been a source of confusion in the industry for decades. Since the ruling in Harris v. Liberty Community Management, Inc., property management companies that fall within the exemption found in §1692a(6)(F)(i) of the FDCPA are not subject to the restrictions imposed by the Act.

The Act provides an exemption for persons or entities "collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity is incidental to a bona fide fiduciary obligation." Liberty Community Management, as the property management company for Little Suwanee Point Community, was hired to provide management services for the association, which included the right to contract for the regular maintenance, repair and operation of common areas and facilities of the association, contract for utility services, purchase insurance policies, and negotiate the collection of assessments from delinquent homeowners.

Liberty, as the association's agent pursuant to the management agreement, was also authorized to request, demand, collect, receive and invoice for all charges and assessments due to the association. Homeowners residing at Little Suwanee Point Community brought an action against Liberty claiming it was a debt collector which had engaged in unfair business practices when it sent late letters to homeowners who were delinquent in the payment of assessments.

After reviewing the facts presented and the exemptions set forth in the Act, the Eleventh Circuit held that Liberty was exempt from the requirements of the Act since the collection of past due assessments was incidental to its obligations to the association. Had the collection of assessments been central to Liberty's fiduciary obligations to the association, it would be considered a debt collector as defined by the Act, subject to the requirements imposed therein.

Whether a property management company meets the requirements of the exemption is a question of fact for each individual case. If the collection of assessments is central to an association's contract with its property management company, the company's actions to collect the debt will fall within the meaning of term "debt collector" as defined by the Act, making it subject to the requirements imposed therein.

Our attorneys write about important legal and business matters for community associations in this blog on a regular basis, and we encourage association directors, members and managers to submit their email address in the subscription box at the top right of the blog in order to automatically receive all of our future articles.

Theft, Fraud Schemes and How Community Associations Can Avoid Them

September 28, 2015, Posted by Roberto C. Blanch

RobertoBlanch2013.jpgIn her blog entry below that was posted on Sept. 10, Laura Manning-Hudson wrote about the disturbing trend of increased cases of fraud, theft and embezzlement at Florida community associations that she and many other association attorneys have been seeing. The damage that can be inflicted on associations by unscrupulous managers, employees and board members is indeed very severe, and this article will focus on the types of schemes that appear to be most prevalent and some of the best practices for associations to employ in order to help to avoid becoming a victim.

One of the most elementary strategies that are used by fraudsters is the pilfering of cash received from owners for their monthly assessments, which can be easily concealed by destroying copies of the receipts. The more elaborate schemes often entail under-the-table payments, bribes or kickbacks involving vendors that are actually co-conspirators. This could take the form of overpayments to the vendors that are then returned directly to the employee or board member instead of to the association. Other times it may involve a simple kickback from the vendor as an ongoing reward for their inflated contract.

The association's checking account tends to be the primary vehicle for the theft and embezzlement of funds. Forged signatures and counterfeit checks may be used, and some fraudsters create fictitious vendors and issue payments directly to themselves using a bogus company name. Association credit cards have also been used in a similar fashion.

Election fraud aimed at taking a majority voting control of an association's board in order to gain control of its purse strings is also one of the ploys that is being used with considerable success. By tampering with the ballots, stuffing the ballot box with forged and counterfeit ballots, and destroying legitimate ballots, fraudsters have been able to gain control of association boards in order to hatch and execute elaborate schemes to filch thousands of dollars from their associations each month.

Some of the best practices associations may implement to avoid being victimized include employing a high level of vigilance for all assessment payments, including verifying that the account number on the back of all of the returned checks matches the association's account.

It is also important to ensure the independence of your association's accounting firm by having it be selected by a vote of the board as opposed to the property manager. These accounting firms are called on to complete comprehensive annual audits, including a thorough review of the files for every member and vendor, as opposed to relying solely on reports.

Associations should also consider requiring two board members to sign all association checks. It is never recommended that associations allow property managers or other non-directors to sign association checks.

A designated board member should also conduct monthly reviews of the bookkeeping with the property manager, and this should include any credit card statements. Bank statements should also be required to be sent to the designated board member as well as the manager. The monthly review of these statements should include a careful review of all the checks that were issued and the signatures for each.

It is also wise to rotate the board membership on a regular basis and avoid having the same individuals in charge of the board or finances for considerable lengths of time.

For any payments received in cash, it is best to use a three-part cash receipt book so that copies of the receipts go to the payer, one for the bank deposit records and one for the bookkeeper.

By using these and other precautionary measures, community associations can make it as difficult as possible for managers, employees and board members to deploy schemes aimed at defrauding associations.

Firm's Roberto Blanch Quoted in Cover Story of This Week's South Florida Business Journal About Airbnb Rentals at Local Condos

RobertoBlanch2013.jpgFirm partner Roberto C. Blanch was quoted in the main cover story of this week's edition of the South Florida Business Journal, the region's exclusive business weekly. The article, which is titled "Listings on Airbnb, Similar Sites Often Violate Rental Rules at South Florida Communities," focuses on the difficulties that some local condominiums are having with short-term rentals that are stemming from listings on Airbnb and its rival websites.

The article reads:

"It becomes a tough pill to swallow for board members and unit owners who see units advertised for short-term rentals when the rules don't allow for short-term rentals," said Roberto Blanch, who specializes in community association law at Coral Gables-based Siegfried, Rivera, Hyman, Lerner, De La Torre, Mars & Sobel. "You have associations that don't have the means by which to screen these people, who for all you know could be coming in to raise hell on a long weekend."

. . . One of Blanch's clients recently asked him if the owner of a short-term rental website could be brought into a claim "to the extent it knowingly or willingly participated in a violation of the association contract," he said.

But Blanch noted that would be "probably a bit of an aggressive approach, but it is a problem real enough that it merits looking into these questions."

Our firm congratulates Roberto for sharing his insights into this important new issue for condominium associations with the journalists at the South Florida Business Journal and the publication's readers. Click here to read the complete article in the publication's website (subscription required).


Article by Firm's Michael Hyman in Today's Daily Business Review: Knee-Jerk Reaction in Foreclosure Case Costs Association $35,000

MichaelHyman.jpgFor the second consecutive day, an article about important issues for community associations written by one of our firm's attorneys appeared today in the Daily Business Review, South Florida's only business daily and official court newspaper. The article by Michael L. Hyman focuses on a recent foreclosure case in which a condominium association was ultimately done in by its own initial pleadings stating that it was only entitled to a capped amount. His article reads:

In the case of Bank of America v. The Enclave at Richmond Place Condominium Association, Bank of America appealed the trial court's decision that it was not entitled to the statutory "safe harbor" liability caps for past-due association assessments for foreclosing lenders. The Second District Court of Appeal reversed the lower court's ruling, and it based its decision on the association's own initial responses and pleadings from the onset of the foreclosure proceedings.

The appellate panel found that in its answer to BoA's initial foreclosure filing, the association affirmatively pleaded:

"The mortgage which is being foreclosed is a first purchase money mortgage which was recorded after April 1, 1992. Pursuant to Fla. Stat. § 718.116, the plaintiff's lien is superior to any title and interest to any condominium assessments, except for those unpaid dues, which are not to exceed six months' unpaid assessments or one percent of the original principal balance of the mortgage, whichever is less."

After BoA acquired the property, the association claimed it was entitled to more than $36,000 in unpaid assessments, interest and various fees. BoA responded by filing a motion to enforce the final judgment, contending that it was liable for only $1,421, which represented 1 percent of the original mortgage debt, the lesser of the two amounts.

The trial court found that it had continuing jurisdiction and could therefore address BoA's motion, and it ruled that BoA was not entitled to the benefit of the safe harbor provision.

Michael's article concludes:

In its appeal, BoA argued that the association is estopped from taking a position contrary to that which it affirmatively took in the underlying foreclosure proceeding. The appellate panel agreed, noting in its opinion:

"We conclude that the Association's affirmative plea of entitlement to only the lesser of six months' unpaid assessments or one percent of the mortgage debt was a waiver of any claim to a greater assessment figure."

The takeaway for community associations and their attorneys from this ruling is very clear and extremely important. Rather than being so specific and referencing its own governing documents in the initial pleadings, associations and their legal counsel should use the initial pleading in response to a lender's foreclosure filing simply to state that it would be entitled to the safe harbor amounts should those caps be deemed to apply.

In addition, if during the course of the proceedings the association and its attorneys determine that they plan to call into question the applicability of the safe harbor liability caps or the provisions of the governing documents, the association must withdraw or amend its related pleadings and affirmative responses prior to the final judgment and the issuance of an estoppel stating the amount that it seeks to collect.

Our firm congratulates Michael for sharing his insights into this important new appellate ruling for Florida community associations with the readers of the Daily Business Review. Click here to read the complete article in the newspaper's website (registration required).


Article by Firm's Jeffrey Berlowitz and Jordan Weinkle in Today's Daily Business Review: Construction Defect Defendants Using ABCs to Minimize Payments

JordanWeinkle.jpg JeffreyBerlowitz.jpg The firm's Jeffrey S. Berlowitz and Jordan G. Weinkle wrote an article that appeared in today's edition of the Daily Business Review, South Florida's only business daily and official court newspaper, about how bankruptcy and community association attorneys must work together in order to assess the strength of an association's construction defect claim against a debtor company that files for an asset liquidation under the state's Assignment for the Benefit of Creditors statute. Their article reads:

Unlike federal bankruptcy proceedings, with an Assignment for the Benefit of Creditors (ABC), the assignor, or debtor, company that elects to liquidate its assets in order to repay its creditors is able to do so in a more debtor-friendly state court proceeding in which they are able to select and appoint the assignee, who then serves in the role in which trustees serve in bankruptcy cases to oversee the liquidation of the assignor's assets in order to pay secured creditors and unsecured creditors.

The ABC liquidation process typically takes the form of a private sale or auction in which creditors and parties of interest are notified of the sale and have the opportunity to present higher and better offers for the assets. Ultimately, the sale of the assignor's assets must be approved by the state court.

While there is no "automatic stay" on pending litigation imposed upon the filing of an ABC, unlike a bankruptcy stay which is immediately in effect upon the filing of a bankruptcy petition, creditors of the assignor are essentially stayed from continuing their pursuit of claims because the comprehensive liquidation of the debtor's assets makes it virtually impossible to collect on a judgment.

The most notable benefit of an ABC to the assignor company is the opportunity that the assignor's principals have to buy back their assets under a newly formed entity, should that newly formed entity offer the highest and best bid for the assets.

With ABCs, the assignors can and often do negotiate the buy-back of their business assets via the liquidation or auction process through a separate entity, enabling them to stay in business with little interruption or disruptions whatsoever while diminishing their debts to pennies on the dollar.

Their article concludes:

As a result, we are now starting to see cases in which condominium associations and homeowner associations that either have pending construction defect litigation or have filed a notice of claim against developers, general contractors, subcontractors or other firms are being notified that their payouts will be determined via ABC actions in state court.

The ability to assess the strength of an association's construction defect claim against a debtor company filing an ABC requires a unique blend of bankruptcy law and community association law knowledge.

The analysis of the association's construction defect claim against the debtor would not only take into account the merit and magnitude of the underlying claim itself but also the strength of the claim as it relates to the ABC.

The association counsel, together with experienced bankruptcy counsel, should review the number of secured and unsecured creditors of the debtor, its assets and liabilities, the priority that the association's claim would take compared to the other claims, the amount that the association might recover through the post-liquidation payouts to creditors, and the practical nuances of an ABC in general.

Depending on how far along in the defect litigation the association may be when the ABC is filed, it is also important to consider whether the assignee will have adequate documentation regarding the association's claim in order to effectively determine how much of the claim, if any, will be allowed.

They will typically consider all of the engineering reports and evidence of the defects, but they will also take into account the practical considerations of the total sum that the sale of the assets will generate and the sums that are due to other creditors.

An association may seek to resolve its claim with the assignee who has been engaged to liquidate the assets and make distributions on allowed creditor claims by reaching a settlement with them for an allowed unsecured claim in the ABC, staving off unnecessary attorney fees to prove the construction defect claim.

Our firm congratulates Jeffrey and Jordan for sharing their insights into this matter for community associations that file construction defect claims against defendants that resort to using the state's Assignment for the Benefit of Creditors statute. Click here to read their complete article in the newspaper's website (registration required).


New Embezzlement Case at S. Fla. Condo; Best Practices for Associations to Avoid Theft

September 10, 2015, Posted by Laura Manning-Hudson

LauraManningHudson.jpgIf it seems as if there have been more and more stories in the news recently about condominium association's funds being stolen or misappropriated by either board members or property managers, it's because it's true. Many of the reports have been coming from Bob Norman of Local 10 News (WPLG), the ABC affiliate for Miami-Dade, Broward and the Keys.

Norman's latest story aired on Aug. 28, and it can be watched below. The story discusses the arrest of the former property manager of The Waterway condominium in Hollywood, Fla., for the alleged embezzlement of $228,000 from the association.

The information uncovered by Norman for this report is similar to that of many other cases that he and other Florida journalists have chronicled over the last several years which appear to be a disturbing trend in condominium and homeowner associations. Board members should pay close attention to the business of the association in order to avoid becoming the next victim of an unscrupulous manager or director. As we have discussed in the past, a board member's responsibility is not limited to simply showing up at meetings to vote. Recall that board members are charged with a fiduciary responsibility to protect the interests of the entire association and all of its members. This means being vigilant about the business of the association.

The association in this case broke one of the cardinal rules of association management by allowing the property manager to sign checks on its behalf. Board members should be the only individuals allowed to sign checks, and I typically recommend that at least two board member signatures be required. Looking at the supporting documentation, backup and invoices for those checks is also important.

In addition, associations should be diligent when hiring new managers including performing background checks and checking references. While individuals who have been convicted of a felony (whose residency rights have not been restored) cannot serve as directors, some associations even go so far as to run background searches on candidates or seated board members.

Associations should also request duplicate statements from their banks, and the statements should be sent to someone other than the person who is handling the bookkeeping. In addition, association accounts should be independently and professionally audited at least once per year.

By taking these and other precautions, associations can help to avoid becoming the victim of fraud, theft and embezzlement.

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Article by Firm's Laura Manning-Hudson in Today's Daily Business Review: Wave of Appellate Opinions on Association Assessments Owed by Foreclosing Lenders Create Roadmap for Practitioners

LauraManningHudson.jpgFirm partner Laura M. Manning-Hudson wrote an article that appeared in today's edition of the Daily Business Review, South Florida's only business daily and official court newspaper, about the recent spate of decisions by the Second, Fourth and Fifth District Courts of Appeal with regard to whether the court in a mortgage foreclosure action retains jurisdiction to determine the amount of unpaid condominium and homeowners association assessments that a foreclosing lender must pay. Her article reads:

In July, the Fifth District Court of Appeal issued an opinion in Central Park A Metrowest Condominium Assoc., Inc. v. Amtrust REO I finding that the trial court lacked jurisdiction to decide a post-judgment issue - namely the amount of assessments owed by the foreclosing lender for the prior owner's past-due condominium assessments. The lender's complaint had averred that the condominium association "may claim some interest in or lien upon the subject property by virtue of [a] Claim of Lien." The association answered the complaint and asserted a counterclaim for unpaid assessments. The appellate court, however, found that despite litigating the issue of past-due assessments in a counterclaim, the trial court did not have jurisdiction to determine the issue post-judgment where the final judgment merely provided that "[j]urisdiction of this action is retained to enter further orders as are proper including, without limitation, a deficiency judgment."

For the Fifth DCA, the issue was not whether the assessments had been litigated in the underlying action, but whether the court had specifically retained jurisdiction in its final judgment to determine their amount.

However, in the two most recent opinions issued by the Second and Fourth District Courts of Appeal, the standards vary. But, there's a lesson here.

In Citation Way Condominium Association v. Wells Fargo Bank and Leslie Linder, the Fourth DCA found that the lower court had retained jurisdiction to determine the post-judgment issue of past-due condominium assessments where "[t]he issue of unpaid assessments was raised in the underlying foreclosure action and the third-party purchaser, Fannie Mae, had a direct relationship with the plaintiff, Wells Fargo."

Wells Fargo, as the servicing agent for Fannie Mae, had alleged in its complaint that "its lien was superior to any other claims against title and interest except for unpaid condominium assessments as provided in section 718.116, Florida Statutes." Unfortunately, the opinion does not reference the language in the final judgment, but apparently it was sufficient basis for the appellate court to decide that the issue had been raised in the underlying action and therefore the lower court could retain jurisdiction.

However, in Grand Central at Kennedy Condominium Association v. Space Coast Credit Union, the Second DCA, citing the Central Park opinion, agreed with the association, concluding: "The trial court lacked jurisdiction because entitlement to assessments was neither litigated nor adjudicated and the trial court did not specifically reserve jurisdiction to determine the amount of assessments due pursuant to section 718.116(1)(b)." The underlying final judgment did not address the condominium's assessments but merely "contained only a general reservation of jurisdiction." Apparently, condominium assessments (pre- or post-judgment) were never considered in this case.

Laura's article concludes:

As shown by these three rulings, the standard in each of the Second, Fourth and Fifth Districts varies as it pertains to post-judgment jurisdiction. While for some courts the issue depends on whether the assessments were litigated at the trial level (albeit, the extent of that litigation was not exemplified), for each of the courts the specific reservation of jurisdiction was key. In fact, the message could not be any clearer than it is in a footnote in the Second DCA's opinion:

"This appears to be a prevalent issue in mortgage foreclosure actions to which homeowner or condominium associations are parties. In such cases, we would encourage the circuit courts to consider including in their final judgments specific language concerning the reservation of jurisdiction to address the issues of entitlement to and the amount of any unpaid assessments."

Because attorneys typically submit proposed final judgments to the trial courts for consideration, these three opinions should serve as an instruction to practitioners to include specific language in their final judgments reserving jurisdiction to address the issue of unpaid assessments. Additionally, in order to ensure that the issue is "litigated" in the underlying case, association counsel should be similarly instructed to raise the issue of assessments (pre- and post-judgment) in their affirmative defenses to lender foreclosure cases.

For both the lenders and associations involved in foreclosure cases, it is almost always preferable that assessments be determined by the trial court as part of the foreclosure proceedings rather than via a separate action, thus saving the client both legal and court costs.

Our firm congratulates Laura for sharing her insight into these important new appellate decisions with the readers of the Daily Business Review.


Disaster Recovery Takes Careful Planning and Execution

August 28, 2015, Posted by Roberto C. Blanch

Thumbnail image for RobertoBlanch2013.jpgInsurance coverage and claims are often among the most confusing and troublesome matters that developers and community associations must address, and large claims involving serious property damage from any type of disaster will typically require the guidance and expertise of attorneys and public adjusters.

Florida law stipulates that associations must maintain insurance for all portions of the property as originally installed or renovated. However, the statutes exclude certain portions of the units from the insurance coverage which an association must carry, and they do not provide that associations' insurance coverage must extend to the personal property of individual residents. As such, unit owners are responsible for maintaining their own insurance to cover damages to the floors, walls, ceilings, electrical fixtures, appliances, cabinets, counters and window treatments in their units.

In the event of a loss that will require the filing of an insurance claim, your first responsibility is to mitigate the damages and do everything in your power to stop it from getting worse. Leaks should be plugged and blown out windows should be boarded, but by no means should an association make any permanent repairs prior to an insurance claim being properly filed. Insurance policies will typically require that the carrier have the opportunity to have its representatives investigate the loss prior to any permanent repairs by the policyholder, as repairs made prior to the investigation may interfere with such right.

The claims process will typically begin with the filing of a formal incident report to the insurance carrier. Since these reports are often filed immediately following the loss, it is important that they be updated and corrected with new information on the extent of the loss as it becomes available during the claims process. Should a dispute arise, the carrier may point to a lack of notice of the extent of the damages, so it is vital for the report to be kept as accurate and up-to-date as possible. Additionally, association counsel and a qualified adjuster should assist associations in the filing of this report.

In addition to having the insurance carrier's adjuster inspect the damage, it is usually also wise for the property to have its own independent expert conduct a thorough inspection. water.jpg This is especially true if there are any questions as to the cause and origin of the damage. Insurance carriers may not provide all of the information to their insureds from the reports that they receive from their own claims investigators, so it is typically very helpful for the property to have its own detailed analysis of the nature and extent of the loss.

The next phase typically involves the hiring of a mitigation contractor to conduct the necessary repairs. It is imperative for properties to use reputable contractors that are properly licensed and insured. Also, in order to help avoid any potential problems with the contractors after their work has commenced, it is advisable to have the property's attorney review the contract prior to finalizing it.

Some of these contracts call for an assignment of benefits to enable the contractor to speak on behalf of the property to the carrier and receive the payments directly from the insurer. This may not be in the best interests of the insured. Bear in mind that the insurance company is not tasked with policing the quality of the repairs, so it is incumbent on the association to have its own experts conduct ongoing inspections to certify the work.

There are many aspects of the claims process that typically require the guidance of qualified professionals for associations and developers. Insurance carriers may require recorded statements, proof of loss statements, and examinations under oath to evaluate the claim and determine whether the extent of the loss is being exaggerated by the insured.

In addition, in determining the amount of coverage that will be provided for the claim, insurers may use different figures based on the replacement cost value, actual cash value and actual cost of construction. Experienced insurance attorneys and independent adjusters can help associations to force the carriers to properly categorize the costs for the necessary repairs and maximize the recovery.

Article by Firm's Laura Manning-Hudson in Today's Daily Business Review: Win for One Association Actually a Loss for Florida Associations

LauraManningHudson.jpgFirm partner Laura M. Manning-Hudson wrote an article that appeared in today's edition of the Daily Business Review, South Florida's only business daily and official court newspaper, about the recent decision by the Fifth District Court of Appeal in the case of Central Park A Metrowest Condominium Association v. Amtrust REO I. Her article reads:

As part of the condominium association's apparent strategy to aggressively pursue its collections for the previous owners' debts, the association issued an estoppel to Amtrust REO demanding the full amount of past-due assessments totaling more than $30,000.

In turn, Amtrust REO responded by demanding that the association apply the safe-harbor liability limits set forth in the state Condominium Act, and it also filed a motion to determine amounts due in the foreclosure action seeking to have the same judge who had entered the final judgment determine the amount that it now owed to the association. The foreclosure court considered the motion and ruled that the agent was entitled to the statutory safe-harbor limits, and the association appealed.

The Fifth District Court of Appeal agreed with the association's position that the trial court's order must be reversed because it lacked jurisdiction to decide a post-judgment issue that was not a part of the lender's foreclosure case, to wit the amount which the agent owed to the condominium association for past due assessments.

Laura's article concludes:

However, while the association won on the technical issue regarding the post judgment jurisdiction of the trial court, it apparently lost the argument that an agent or servicer of a first mortgagee is not entitled to the safe-harbor protections afforded under the Condominium Act. Section 718.116(1)(b), F.S., provides that the liability of a first mortgagee "or its successor or assignees" which acquire title to a unit by foreclosure is limited to the lesser of 12 months of assessments or 1 percent of the original mortgage debt.

The Fifth District opinion also concluded: "Although the trial court appears to have correctly interpreted the substantive law at issue, the trial court lacked continuing jurisdiction to issue a ruling on that matter."

Accordingly, while the trial court's decision was quashed due to lack of jurisdiction, the opinion appears to have interpreted that an "agent" or "servicer" is the same as a "successor or assignee" and is therefore entitled to safe-harbor protection.

If the association now continues to demand the full amount of past-due assessments owed on the unit, the agent/servicer will be required to file a new action to determine its rights. If that is the case, the servicer could very likely seek -- and be awarded -- its attorney fees from the association.

Our firm congratulates Laura for sharing her insight on this new appellate decision with the readers of the Daily Business Review. Click here to read her complete article in the newspaper's website (registration required).


Reviewing and Updating Associations' Governing Documents and Bylaws

August 17, 2015, Posted by Roberto C. Blanch

RobertoBlanch2013.jpgFor condominium associations and HOAs, effective governing documents are essential for their successful management and financial wellbeing. Association boards should regularly review their governing documents and bylaws to ensure their continued functionality and eliminate provisions that may have become archaic.

Deciding whether the documents and bylaws need to be amended can be difficult, and ratifying new amendments with the approval of the membership often presents significant challenges. Most governing documents include voting requirements for amendments stipulating that they must be approved by super majorities of two-thirds or three-fourths of the membership.

One of the best approaches for associations to take in reviewing and updating of their governing documents is for the board of directors to appoint a revision committee for the documents. The committee, which should work together with the association attorney, should review all of the bylaws and develop suggested changes as necessary.

Some of the most common provisions of the association documents which may benefit from updates include those pertaining to voting, collections, leasing and fining procedures. Many associations are implementing amendments to limit voting rights to members who are not delinquent in their financial obligations to the association, and some are addressing recent statutory amendments authorizing electronic voting. Other associations are incorporating amendments to maximize their ability to recover attorney's fees incurred for collection efforts, ban short-term rentals using websites such as Airbnb and other online listing services, strengthen their ability to fine members who refuse to comply with the community's rules, and address rules involving pets and the use of the community's amenities by members who are in arrears to the association.

Once the committee has identified changes to the bylaws that it would like to propose, they should present them to the board of directors. If the board approves, the committee should then work on drafting the amendments with the association's legal counsel to ensure their enforceability and the likelihood of their adoption.

Before the proposed amendments are put to the membership for a vote, they should be presented and discussed with the members during the association's monthly meetings or in special meetings that are called expressly for the purpose of proposing and considering the changes.

In order to facilitate the adoption of proposed amendments, they should be scheduled for votes at times during which higher voter turnout is expected, such as during the annual meeting. The text of the proposed amendments should be included in the delivery of notice for the meeting and its agenda, and the use of limited proxies should be considered for those who cannot attend the meeting in person.

While the process for changing a community association's governing documents can be difficult and tedious, it is unwise for associations to ignore outdated provisions in their bylaws or avoid implementing important changes that can provide significant benefits.

Article by Firm's Michael Chapnick in Today's Daily Business Review: Court OKs Injunction Mandating Speedy Repairs to Condo Foundation

MichaelChapnicksrhl-law.jpgFirm partner Michael E. Chapnick wrote an article that appeared in today's edition of the Daily Business Review, South Florida's only business daily and official court newspaper, about the recent decision by the Second District Court of Appeal in the case of John and Annmarie Amelio v. Marilyn Pines Unit II Condominium Association. His article reads:

The appellate ruling . . . reversed the trial court's decision to deny a mandatory injunction against the association. The Amelios filed suit for a mandatory injunction and damages against the association due to its failure to adequately address and resolve the problems caused by moisture seeping through the slab on which their unit sits.

The couple first noticed the excessive moisture in their residence in 2010 when it began to cause water damage to the unit and its contents. The association responded by bringing in a leak detection service, which determined that there was excessive moisture in the slab not caused by a leak.

The association retained an engineering firm in March 2011 to inspect the slab, and the firm recommended the installation of a moisture barrier over the slab and an exterior drainage system. It then took the association until December 2011 to hire a different engineering firm for the design and installation of the drainage system, which was not completed until more than a year later in early 2013. However, high levels of water intrusion and moisture continued to plague the unit.

The association retained the original engineering firm, which again recommended a moisture barrier, and it contracted with another company for the addition of the moisture barrier. Unfortunately, the barrier was not installed in accordance with the engineering firm's specifications, and the concrete slab may have been too soft and powdery for it to be effective. The Amelios' residence continued to be damaged by moisture intrusion, and it eventually became uninhabitable as the association refused to take any further action.

Michael's article concludes:

The court found the requirement of irreparable harm satisfied by finding a violation of the Condominium Act and the condominium documents, but it went further and found that the irreparable harm was evidenced by the excessive moisture in the unit, the inability of the association to remedy the situation and the fact that the association had the exclusive duty to make repairs to the slab.

The frequently more difficult element to establish is that of having no adequate remedy at law. Citing Hiles v. Auto Bahn Fed'n., (Fla. 4th DCA 1986), the court stated, "If monetary damages would fully compensate a loss, then this element is not established."

In reversing the denial of the request for injunctive relief, the appellate panel found that because the association had the exclusive right to remedy the problem and because until it did so the unit would continue to be damaged and uninhabitable, monetary damages would be inadequate to fully compensate the Amelios. Therefore, the unit owners had no adequate relief at law.

The association in this case had been advised from the onset of the problems with the slab in 2010 by its own legal counsel that it was responsible for the maintenance and repair of this component of the property. However, it failed to adequately rectify the problem, and now it will be forced to take immediate actions under the terms of the injunction while also facing the prospect of significant monetary damages to the Amelios.

Our firm congratulates Michael for sharing his insight on this new appellate decision with the readers of the Daily Business Review. Click here to read his complete article in the newspaper's website (registration required).