Supreme Court Responds to Law Eliminating Important Homeowner, HOA Protections Against Construction Defects in Community Infrastructure Systems

August 7, 2013, Posted by Laura Manning-Hudson

In previous articles and blogs we wrote about a new law enacted in 2012 which we considered one of the most surprising and anti-consumer pieces of legislation for Florida homeowners and HOAs. Section 553.835, Florida Statutes, was enacted in 2012 in direct response to a decision from the Fifth District Court of Appeal in the case of Lakeview Reserve Homeowners Association, Inc. v. Maronda Homes of Florida, Inc., where the appellate court extended the common law warranty of fitness and merchantability to off-site improvements such as infrastructure, roadways, retention ponds and drainage systems within a community, holding that "essential services" must include items that obviously support the home and make it habitable including roads for ingress and egress, drainage systems to divert flooding, retention ponds to correct water flow damage, and underground pipes (whether they be storm water or sanitary sewer pipes) which are necessary for living accommodations. Thumbnail image for Laura Manning Hudson The new law however, eliminated an HOA's cause of action for breach of the common law warranty of fitness and merchantability as it pertains to improvements that are not located on or under the lot on which the home is constructed or which do not "immediately and directly support the habitability of the home itself." The new law was specifically enacted "to reject the decision by the Fifth District Court of Appeal in the Maronda case..." and was also intended to apply to all cases accruing before, pending on, or filed after the July 1, 2012 effective date of the statute.

But earlier this month the Supreme Court of Florida issued its opinion agreeing with the appellate court below and chastising the legislature for overstepping its bounds stating "[t]he statute even provides that the purpose of the law is to place limitations on the applicability of the doctrine or theory of implied warranty of fitness and merchantability, and to reject the decision by the Fifth District Court of Appeal in the Maronda case. This is a clear violation of separation of powers because the Legislature does not sit as a supervising appellate court over our district courts of appeal."
The attempt by the legislature to limit the Lakeview Reserve HOA's ability to continue to pursue its existing cause of action against its developer and builder would have had the effect of just pulling the rug right out from underneath the HOA. The wisdom of the Supreme Court prevailed however and the Lakeview Reserve HOA will be able to maintain its claim because generally, once a cause of action accrues, it becomes a vested right - which means that it is a right that may not be eliminated or curtailed in any manner. Because in Maronda, the HOA had already filed suit for breach of implied warranties when the statute was enacted, its cause of action became a vested right which could not be taken away by an act of the legislature.

Even so, the developer and builder argued that the Supreme Court should not apply implied warranties beyond what the statute prescribes because it is generally the province of the Legislature to balance public policy and define the scope of the implied warranties. The Supreme Court fired back again stating "[i]t is however, the province of this Court and not the Legislature to decide issues of constitutional validity when a statute attempts to retroactively abolish common law remedies or the elements of such actions." The Supreme Court also held that the new law does not apply to any causes of action that accrued before the effective date of the law.

With the passage of this new law, it is more imperative than ever that the turnover process for communities include thorough testing and inspections of the infrastructure and drainage systems by a certified engineer. If the community is experiencing flooding prior to turnover, the association should have its engineer inspect and identify any flaws in the infrastructure that may require additional work or repairs. Many times in the past, when these types of defects have arisen, the parties have been able to settle their issues because reputable developers and contractors generally take responsibility for faulty infrastructure and make the necessary repairs.


Appellate Court Reverses Foreclosure Judgment for Lack of Proper Notice to Unit Owners by Association

June 24, 2013, Posted by Laura Manning-Hudson


Laura Manning HudsonA decision earlier this month by the Third District Court of Appeal serves as a good lesson to community associations and their attorneys about the importance of working closely with their process servers to ensure that all of the statutory requirements for service or "constructive service" on unit owners in foreclosure actions are met. In the case of Castro v. Charter Club Inc., the appellate panel reversed a Final Judgment of Foreclosure finding that the search and inquiry performed by the Charter Club condominium association and its attorneys did not satisfy the constructive notice statute, its notice by publication was improper, and the foreclosure judgment against the homeowners was void and must be vacated.

In this case, the association's process server went to the Castro's daughter's home address, which the couple had listed as their alternate address and billing address with the association. The daughter stated that she gave the process server the new address for the Castros, but the server never wrote it down. The process server then went to a wrong address in search of the Castros, and no further attempts were made to revisit the daughter to verify the correct address. The process server also did not advise the daughter that he was there to serve the Castros with a complaint for foreclosure.

pserver.jpgIn addition, the association had approved the Castros to lease their unit to a tenant who paid rent directly to the association's attorney in order to pay down the past-due assessments. The association received rent payments for two years prior to moving forward with its foreclosure action. The association never attempted to contact the tenants to see if they knew the correct address for the Castros.

As a result, the court found that the association did not use all of the knowledge in its command or extend its inquiry to those persons likely or presumed likely to know the facts that it sought. Its affidavit of diligent search filed with the trial court merely stated that the Castros' residence was unknown, and it failed to provide the information and addresses that were known to the association for the daughter and tenant. The appellate opinion also notes that the process server's return of service affidavit was defective where it stated that the server had discontinued trying to serve the Castros with the complaint and summons "for the reasons detailed in the comments below" but failed to include any such comments.

Pursuant to Florida law, in order to employ "constructive service" on an owner who cannot be located, associations must strictly adhere to the requirements set forth in the statute and reasonably employ the knowledge at its command, make diligent inquiry, and exert an honest and conscientious effort appropriate to the circumstance to acquire the information necessary to enable it to effect personal service on the defendant. The efforts in this case appear to have fallen far short of these requirements, and as a result the association's foreclosure judgment was found to be void and had to be vacated. We encourage condominium associations and HOAs in Florida to exercise diligence in their work with their attorneys and process servers to locate unit owners and ensure proper notice to those unit owners in foreclosure actions.


Delinquent Assessments and Short Sale Offers - A Quick Guide for Associations

June 12, 2013, Posted by Nicholas D. Siegfried


Recently, short sales in South Florida have become a popular foreclosure alternative. In a short sale, the sales price is less than the amounts owed to creditors. Accordingly, the owner is required to negotiate a settlement with all creditors in order to sell the property free and clear of any liens. Commonly, the offer submitted to the association in connection with a short sale is less than the full amount owed to the association. Should the association accept less that the full amount owed? Should the association negotiate the amount it will accept? Can the association demand payment in full? In the video below, I discuss in detail what associations should look for when considering a settlement offer submitted in connection with a short sale.







2013 Bank Foreclosure Trends

May 23, 2013, Posted by Maryvel De Castro Valdes


For the last several years, the state of Florida has been labeled as the foreclosure "hot spot" of the nation. In February, a report from RealtyTrac, a market research firm, reported that Palm Beach, Broward and Miami-Dade counties were ranked the highest in foreclosure activity in the nation. The report also noted that Florida's foreclosure rate was more than three times the national average.

Foreclosures in Florida have been delayed by lengthy court processes, new legislation and owners who successfully stall the proceedings. These delays have caused thousands of files to sit in South Florida courts without any resolution. In an effort to push through aging foreclosure cases, judges are now setting many of these cases for trial in order to speed up the cases that are not progressing. In the brief video below, I discuss this new trend in more detail.






Inspections, Work Logs Imperative to Protect Condominium Associations Against Defective Concrete Restoration Projects

May 9, 2013, Posted by Daniel Salas


Daniel Salas SRLDS.jpgConcrete restoration projects are unavoidable during the lifespan of every concrete building in South Florida. They are among the most expensive construction renovation projects that associations will be required to take on, and as such many associations and their property managers try to mitigate the costs as much as possible. However, the old adage that an ounce of prevention is worth a pound of cure holds true with these projects. Associations should be very careful to avoid cutting corners on the record keeping, making sure to chronicle all of the work that was performed as part of these restoration projects in order to protect against the repercussions of shoddy work and defects.

My colleagues and I have experienced a number of instances where our association clients have had defects manifest themselves only a few years after a concrete restoration project has been completed. However, the associations have had a difficult time proving that the contractor was responsible due to inadequate and incomplete records of the work that was performed. After inspecting the defects in question, the contractors have responded by indicating that they were not responsible for the work on the affected areas. The associations then request records and work logs to verify the contractors' claims, only to find that the contractors and engineers did not keep detailed work logs of the work that was performed, leaving the association with little evidence to prove their claims.

balcony renovation.jpgThere are a number of measures that associations should take to avoid this scenario and protect themselves against the potential for inferior and defective work in concrete restoration projects. The foremost among these is the retaining of an independent third-party engineer or project manager to oversee and chronicle the restoration work performed in the building, and to help ensure that all of the work is performed in a cost-effective and timely manner. A third-party project manager not only protects the interest of the association during the construction process but also protects the association's interests should defects in the restoration work arise in the future. The benefits of hiring a third-party project manager are countless, for example, project managers will assist in the evaluation and hiring of the project engineer and contractor; evaluate the work of the engineer and contractor; hold timely meetings to review the process of the work performed; review the payment requisitions and daily logs; and keep the association informed of any potential issues on the project.

In addition to the use of an independent engineer or project manager, the association's attorney should also be called upon to review and or draft the contracts for the restoration project. The associations should ensure that their contracts include stipulations requiring that the general contractor and engineer maintain and provide to the association detailed work logs of all of the work performed. The standard warranty language in general construction contracts will not suffice without the detailed work logs showing exactly what work was performed and the location of such work in every facet of the building. It is much more difficult to hold contractors liable for defects in areas that are not documented as having been part of the restoration work performed.

Although these additional measures will add to the costs of concrete restoration projects for associations, without them the associations would be taking a significant risk of being unable to hold contractors responsible for any defects that may arise in the restored areas. Additionally, these added costs are minimal compared to the costs that the associations would endure in litigation or in repairs to the areas which had been restored. There is no doubt that concrete restoration projects are expensive, time consuming and a nuisance to the residents of the building. However, keeping these measures in place throughout the process will mitigate the time and money spent on the project as well as result in a well done concrete restoration project, retaining the value of the building as well as the safety of the residents.


HOA's Settlement with Trayvon Martin Family Illustrates Liability Issues Involving Neighborhood Watch Programs

May 1, 2013, Posted by Roberto C. Blanch


Roberto Blanch.JPGLast year I participated in a discussion with an Associated Press reporter and wrote about a central Florida community association's apparent endorsement of George Zimmerman as its neighborhood watch captain and his involvement in a tragic incident that took the life of the 17-year-old Trayvon Martin. I addressed the possibility that the victim's family may file a wrongful death civil suit against the association. Last month, news broke about the purported settlement reached between the parents of the victim and the association for an undisclosed amount reported by several news outlets to be in excess of $1 million.

During the course of the litigation and a mediation attempt prior to the settlement, it was reported that under the heading "Neighborhood Watch," the HOA's newsletter recommended that residents first call police and then "please contact our Captain, George Zimmerman . . . so he can be aware and help address the issue with other residents." This apparent endorsement of Zimmerman, who claimed to have been acting in the above-described capacity when the teenage victim lost his life, may have been considered by the association's board and counsel to expose the association to liability in the lawsuit.

watch program sign.jpgThe Community Associations Institute (CAI) offers an excellent article on neighborhood watch program considerations for HOAs that is available by clicking here. The article discusses how associations should work with their local police department to implement these programs, create a process for recruiting responsible volunteers who will follow all of the written procedures for the security measures, and continuously reinforce these procedures and the do-not-engage rules with the volunteers.

This article from the CAI is recommended for all community association board members and managers who are considering implementing or have already implemented a watch program in their community. As I wrote in my article last year, there are many reasons why associations should avoid formally creating these watch groups and leave it up to the individual owners to band together to develop their own efforts outside of the auspices of the association. However, for associations that cannot or will not distance themselves from the formation of the watch groups, they should follow the guidelines offered by CAI and consult with qualified legal counsel in order to limit their potential liability.


House Bill 1339 Would Enable Foreclosing Lenders to Avoid Paying Their Fair Share to Community Associations

April 29, 2013, Posted by Laura Manning-Hudson


Thumbnail image for Laura Manning HudsonOur other community association attorneys and I have been keeping a watchful eye on the bills impacting condominium associations and HOAs that have been proposed for the current legislative session in Tallahassee. Of the several bills that are being considered, House Bill 1339 filed by Representative George R. Moraitis attempts to clarify existing law, while it also appears to be the most potentially troublesome new legislation for community associations in the state. As it now stands, the bill includes language that would, on the one hand, clarify the responsibility of third-party purchasers of foreclosed condominium units but, on the other hand, diminish the financial liabilities of foreclosing lenders to the community associations.

One of the proposed changes to the Condominium Act presented in HB 1339 provides that a first mortgagee bank who acquires title to a unit by foreclosure is not liable for any interest, administrative late fees, reasonable costs or attorney fees, or any other fees, costs or expenses that came due prior to its acquisition of title. This new provision was drafted with the intent of clarifying the existing law. As the statute is currently drafted, for many years associations have sought to collect attorneys' fees, interest, and costs over and above the statutory "safe harbor" amounts of the lesser of 12 months of assessments or one percent of the original mortgage. If this change is implemented by the legislature, banks will have even less financial incentive to complete their foreclosures in a timely fashion, and the community associations would need to pass the burden to their paying owners for all of the fees and costs associated with pursuing their collection efforts against the owners who are not paying.

Florida legislature photo.jpgOne of the benefits of the proposed legislation, however, is that these same late fees, interest, costs and attorneys fees incurred by an association will definitively be collectible from subsequent purchasers of units (no matter how they acquire title). As the statute exists today, purchasers are jointly and severally liable with the previous owner for all unpaid assessments that came due up to the time of transfer of the title to the unit. Many "subsequent purchasers" have argued that this provision does not include attorneys' fees, costs, interest and late fees, and only means "assessments" in the purest sense of the word. Therefore, if this change is implemented by the legislature, condominiums will likely collect more than they have in the past, as there will be no fear of being challenged for attempting to collect these other amounts.

One other potential amendment present in HB 1339 is with regard to an association's right of access to a unit. As the statute is currently drafted, an association has the irrevocable right to access a unit during reasonable hours when it is necessary to prevent damage to the common elements or other units. This bill would amend the Condominium Act to provide associations with a right to enter abandoned units for inspection, make repairs, turn on the power, and otherwise protect, preserve and maintain the unit and adjoining common elements. Any expenses incurred by an association for this work would be chargeable to the unit owner and enforceable like an assessment. Additionally, the association may file an action in court to appoint a receiver to rent abandoned units for the benefit of the association in order to offset the association's costs and expenses of maintaining, preserving and protecting the unit.

The legislature remains in session until May 3rd and there are several bills in committee that could affect condominium and homeowners associations. We will continue to monitor the legislative session and post updates in our blog, and additional information on the pending bills affecting community associations is also available at www.myfloridahouse.gov or www.flsenate.gov.


Fourth DCA Rules Insurance Companies Not Required to Provide Coverage for all Portions of Condominium Property

April 22, 2013, Posted by Stephanie M. Chaissan


Stephanie Chaissan SRLDS.jpgRecently, the Fourth District Court of Appeal in the case of Citizens Property Insurance Corp. v. River Manor Condominium Association, Inc., ruled that an insurer is not required to provide an association with coverage for "all portions of the condominium property located outside the units" and "all portions of the condominium property for which the declaration of condominium requires coverage by the association," notwithstanding the requirements of Section 718.111, Florida Statutes. In the case, Citizens Property Insurance Corp. ("Citizens") provided insurance to River Manor Condominium Association, Inc. (the "Association") for a residential condominium comprised of three buildings and exterior common elements. The condominium was damaged in Hurricane Wilma and, when the parties were unable to agree on the extent of the damage, they participated in a mandatory appraisal process that resulted in an award that specified the total loss sustained by each building and the exterior common elements.

The policies issued by Citizens for each building excluded from coverage "other structures on the demised locations, set apart from the building by clear space," including such things as carports, swimming pools, walks, decks, etc. Under such exclusion, the condominium's exterior common elements would be excluded from coverage. However, the policies also contained a provision requiring them to be amended to "conform" to any conflicting statutes of the state in which the property was located. The Association claimed that the exclusion conflicted with Section 718.111, Fla. Stat. At the applicable time, Section 718.111(11), Fla. Stat. (2005), provided, in part, as follows:

(a) A unit-owner controlled association shall use its best efforts to obtain and maintain adequate insurance to protect the association, the association property, the common elements, and the condominium property required to be insured by the association pursuant to paragraph (b) . . .


(b) Every hazard insurance policy issued or renewed on or after January 1, 2004, to protect the condominium shall provide primary coverage for:

1. All portions of the condominium property located outside the units;

2. The condominium property located inside the units as such property was initially installed, or replacements thereof of like kind and quality and in accordance with the original plans and specifications or, if the original plans and specifications are not available, as they existed at the time the unit was initially conveyed; and

3. All portions of the condominium property for which the declaration of condominium requires coverage by the association.

(This provision, as amended, is now found in Section 718.111(11)(d) and (f), Fla. Stat. (2012)).

The trial court agreed with the Association and awarded final judgment to the Association, including the amounts that the appraisal attributed to the exterior common elements that were otherwise excluded from coverage.

4th DCA photo.jpgThe appellate court reversed, however, finding that Section 718.111(11), Fla. Stat., governed only condominium associations and not insurers. The court, guided by well-established principles of statutory interpretation, stated that while a statute must be given its plain and obvious meaning, it must be read in the context of the surrounding sections. The court also stated that the language of a statute must not be interpreted so as to lead to an absurd or unreasonable conclusion.

In interpreting Section 718.111(11), Fla. Stat., the court first noted that this section is contained within Chapter 718, which is aptly titled the "Condominium Act," the purpose of which is to give statutory recognition to the condominium form of ownership and to establish procedures for the creation, sale and operation of condominiums. The court went on to explain that the aim of Section 718.111(11), Fla. Stat., is not to further regulate insurance companies, as that industry is extensively regulated in other parts of the Florida Statutes. Instead, Section 718.111(11), Fla. Stat., imposes insurance obligations on associations and their boards.

By further examining the requirement in what was then numbered as Section 718.111(11)(a), Fla. Stat. (2005), that associations use their "best efforts to obtain and maintain adequate insurance to protect the association, the association property, the common elements, and the condominium property required to be insured by the association...," the court found that the purpose of subsection (11) was to identify the types of insurance the association was responsible for obtaining and the level of effort it must use to do so (i.e., "best efforts"). If the Association's argument that subsection (11) imposed an obligation on insurers to provide such coverage, subsection (11)(a) requiring the Association to exercise its "best efforts" would be rendered meaningless - the Association would not have to use any effort to obtain the required insurance as coverage could be obtained by legislative command if an insurer refused to provide it.

As such a result would be unreasonable, the court, therefore, concluded that subsection (11) was intended to impose an obligation only on associations to use their "best efforts" to obtain the required coverage, and it recognized that there may be time where market forces prevent this objective from being achieved. When read as a whole, Section 718.111(11), Fla. Stat., does not impose any obligation on insurers, and the court reversed the portion of the judgment that awarded damages to the Association for excluded items under Citizens' policies, i.e., the exterior common elements.

Based on this ruling, associations should carefully review their insurance policies with their insurance agents and/or experienced community association attorneys to determine the extent of coverage provided. Even though the statute requires associations to exercise their "best efforts" to obtain adequate insurance, insurers are under no obligation to provide such coverage. Therefore, associations may have to obtain more than one policy or pay higher premiums to obtain the necessary coverage for the condominium.


Florida Supreme Court Limits Economic Loss Rule Only to Product Liability Cases in Ruling on Lawsuit by Community Association Against Insurance Broker

March 18, 2013, Posted by Nicholas D. Siegfried


Nick Siegfried 2013.jpgA 5-2 majority decision by the Florida Supreme Court in the case of Tiara Condominium Association v. Marsh & McLennan limits the legal principle known as the "economic loss rule" only to product liability cases, thereby allowing many claims for breach of contract in the state to be accompanied by tort claims of negligence. The ruling allows the association to proceed with its lawsuit seeking to recover approximately $50 million in damages from its insurance broker, which it claims knew the 42-story oceanfront tower on Singer Island in Palm Beach County was underinsured and failed to tell the association.

The lawsuit stems from the more than $100 million in damages that the luxury condominium tower sustained as a result of two hurricanes in 2004. After settling with the insurance company for $89 million, the association then sued the broker for the remaining balance of the approximately $140 million in repairs, claiming breach of contract, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, negligence, and breach of fiduciary duty. The trial court in 2009 dismissed the lawsuit, and the association assessed each owner between $110,000 and $150,000 for the repairs and filed an appeal. The Eleventh Circuit Court of Appeals concluded that judgment in favor of the broker was proper as to the breach of contract, negligent misrepresentation and breach of implied covenant of good faith and fair dealing claims. However, as to the negligence and breach of fiduciary duty claims, a matter of state law, the Eleventh Circuit Court of Appeals directed a certified question to the Florida Supreme Court which restated the certified question as follows:

Fla supreme court 1.jpg

Does the economic loss rule bar an insured's suit against an insurance broker where the parties are in contractual privity with one another and the damages sought are solely for economic losses?

The majority opinion found that the economic loss rule did not bar the community association's lawsuit, and held that the economic loss rule only applies in the products liability context.

The legal principle of the economic loss rule originated as a means of limiting potentially unbounded losses based on a customer's expected profits from the use of a product that turned out to be defective. The most oft-cited case originating the rule involves a delivery company that sued a truck manufacturer for its lost profits resulting from a truck's defects that caused it to cease functioning. The court ruled that damages for lost profits and for money paid on the purchase price were appropriate under breach of warranty. However, the delivery company could not pursue the same claim in tort since it suffered only economic loss. The court reasoned that contract law was best to resolve economic losses as the parties are able to negotiate remedies for nonperformance. Tort law was more appropriate to address personal injury and damage to other property. Each state addresses the economic loss rule differently and Florida, while initially expanding the economic loss rule, began limiting the economic loss rule to its principled origins. With this decision, the Florida Supreme Court has now returned the economic loss rule to its original application and has limited it to products liability cases.

The dissenting opinion asserts that the majority expanded the use of "tort law at a cost to Florida's contract law." The number of tort claims will likely increase as a party may bring tort claims along with its breach of contract claim and recover remedies that may not otherwise be available under the contract. Our community association attorneys write regularly in this blog about important business and legal matters for community associations in Florida, and we encourage association members, directors and property 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.


2013 Community Association Proposed Legislation

March 4, 2013, Posted by Roberto C. Blanch


Roberto Blanch.JPGThe 2013 Florida legislative session will soon kick into high gear, and with it will come another round of bills related to Florida community associations. This article provides a brief overview of bills that have been filed in the Florida Legislature which aim to create new laws that will impact condominium, cooperative and homeowner associations in Florida.

SB 596: This bill is aimed at Homeowners Associations. It seeks to rename the Florida Division of Condominiums to include HOAs and would also require annual funds collected by the Division relating to the regulation of HOAs to be deposited into the Florida Condominium, Homeowners Association, Timeshares and Mobile Homes Trust Fund. The bill further seeks the establishment of the Office of the Community Association Ombudsman.

HB73 / SB436: These companion bills are the primary vehicles pushing for changes to the laws that govern Florida HOAs, condominiums and cooperatives. Once again, the bills aim to create exemptions of certain elevators from legally mandated code update requirements. If adopted, the law would delay mandated updates to elevators in some community association buildings for implementation of Phase II Firefighters Service until the elevator is replaced or requires major modification.

The bills also seek to remove requirements for a unit owner vote to approve two-year terms for condominium directors and would allow such terms if provisions for them are included in an association's by-laws or articles of incorporation. Procedural changes are also proposed aimed at clarifying the posting of notices for meetings when using broadcast notices, and at the retention of condominium board member certification certificates for 5 years or for the duration of a director's uninterrupted tenure.

Florida legislature photo.jpgThese bills include proposed revisions to community association laws related to election dispute arbitrations so that such proceedings must be commenced within 60 days from the announcement of election results. New procedures and deadlines for filing recall petitions are also proposed in the event that the association fails to do so timely. The new procedures would create a limit to the nature of the proceeding and would provide a window of time for filing recalls (i.e., not within 60 days of a scheduled re-election or before 60 days from election of the director(s) sought to be recalled).

The legislative changes proposed in this session further seek to expand upon the existing statutory protections related to hurricane shutters and glass installed in condominium buildings by broadening the scope to also reference hurricane "protection" as well as new provisions which are submitted to implement deadlines to add phases in phase condominiums and to clarify developers' ability to create "condos within condos."

The proposed legislation included in these bills further aims to establish clarifications pertaining to the ability of community associations to suspend the use of common elements due to owners' or residents' noncompliance, and the bills also seek to implement restrictions on an association's ability to suspend use rights for noncompliance to more closely resemble the common areas that are not able to be suspended for non-payment.

These bills contain proposed legislation that would clarify that lawyer-client privileged and work-product privileged documents are not reviewable by owners in HOAs and cooperatives, thus creating other clarifications to official records provisions to more closely resemble the provisions applicable to condominiums. Lastly, proposed changes are included to create certain situations limiting the requirement to obtain mortgagee consents for some votes in cooperatives and HOAs.

SB120/HB175: These companion bills were filed on behalf of developer interests and were proposed to address concerns regarding Interstate Land Sales Act compliance matters to clarify when a condominium comes into existence. These bills contain technical revisions that practitioners will have to be mindful of as many deadlines and timeframes currently included in the Condominium Act commence upon the filing of the Declaration of Condominium - a critical event that the proposed legislation seeks to modify.

HB87: This bill includes proposed revisions aimed at streamlining mortgage foreclosure cases. Many hope that the enactment of this bill will result in procedures that may be used by community associations to assist in having mortgage foreclosures expedited. Expediting mortgage foreclosures is expected to minimize the time associations typically wait before a paying owner is placed in legal title to an otherwise non-performing unit.

All community association stakeholders are encouraged to keep a watchful eye on the progress of these and other bills that have been filed given that their possible enactment may result in significant changes to the Florida community association arena. Our other community association attorneys and I will continue to monitor and write about the outcomes for these and other new legislative measures for the 2013 Florida legislative session, and we encourage community association members, directors and property managers to submit their email address in the subscription box at the top right of this blog in order to automatically receive all of our future articles.


Third DCA Opinion Deals Significant Blow to Condo Associations That Foreclose on Units in Advance of Banks

February 15, 2013, Posted by Laura Manning-Hudson


Laura Manning HudsonFor the past several years we have written many articles in this blog encouraging condominium associations to aggressively move their foreclosure cases forward in order to take ownership of those units whose owners are delinquent in advance of the banks' foreclosures. RealtyTrac's data shows that it takes an average of 2.5 years for bank foreclosures in Florida to conclude. By aggressively pursuing their own foreclosures, associations were able to acquire title to the units and subsequently lease them in order to recoup some of their back-due fees. This strategy has become increasingly popular with condo associations, which have benefitted economically from the approach and, in turn, regained financial stability. However, a recent ruling by the Third District Court of Appeal should cause condominium associations to reconsider.

Our other community association attorneys and I were quite surprised by the appellate court's reversal of the lower court's ruling in the case of Aventura Management, LLC v. Spiaggia Ocean Condominium Association, Inc. In Aventura, the lower court found that the condo association (which had acquired title to a unit through its own foreclosure) was entitled to bill all of the outstanding past-due fees to the eventual new owner, subsequent to the bank's foreclosure.

The appellate court disagreed and reversed the decision, finding that Florida law clearly provides that "the previous owner is jointly and severally liable" together with the new owner for all unpaid assessments that come due up to the time of the transfer of title. The opinion reads: "The plain language of the Statute does not state or suggest that an exception is to be made when the previous owner is the condominium association." Therefore, by positioning itself as the "previous owner," the majority held that the condominium association became liable for the unpaid assessments and could not turn around and impose that liability solely onto the eventual new owner.

Judge Shepherd.jpgJustice Frank A. Shepherd wrote the dissenting opinion and stated: "Applying these rules to the case before us, it is apparent the fundamental purpose of the Legislature in promulgating section 718.116 was to assist condominium associations to be made whole in the collection of past due assessments, while at the same time not unduly impairing the value of collateral held by first mortgagees. In furtherance of this design, the Legislature has given condominium associations a statutory lien on each condominium unit over which it has jurisdiction, to secure payment of assessments without the necessity of filing a claim of lien in the public records, with the single exception of first mortgagees, where record notice is required. ยง 718.116(5)(a). Thus, under the legislative scheme, third-party purchasers of condominium units, like Aventura Management, LLC, are subject to old-fashioned caveat emptor principles. Their protection lies in satisfying themselves before purchase, whether by contract or judicial sale, of the status of past-due assessments on the unit."

Our other condominium association attorneys and I agree with Justice Shepherd's dissenting opinion. In our communications with Florida legislators prior to and during the 2013 legislative session that starts in March, we will be urging them to enact new legislation to exempt condominium associations who take title to units via their own foreclosures from liability for past-due assessments. Until such legislation is ratified, condominium associations that are considering pursuing their own foreclosure actions and taking title to units in advance of banks' foreclosures should consult with qualified legal counsel to examine the specifics of their case in light of this new decision.


Third District Appellate Opinion May Affect Collection Strategies

February 4, 2013, Posted by Roberto C. Blanch


Thumbnail image for Roberto Blanch.JPGIn its recent opinion in the case of Aventura Management, LLC vs. Spiaggia Ocean Condominium Association, Inc., the Third District Court of Appeal may have significantly impacted the collection strategies implemented by many condominium and homeowner associations in Florida. The case involved a condominium association's efforts to recover full payment of past-due assessments and related amounts against an entity that acquired title to a unit resulting from a lender's foreclosure of the mortgage on such unit. At the time that the entity acquired title to the unit, the condominium association was the owner of the unit in question - having taken title to the unit as a result of being the prevailing bidder at the clerk's sale following the foreclosure of the association's lien on the unit.

In its attempts to recover payment from the new entity unit owner, the association argued that the condominium statutes in Florida provide that unit owners are jointly and severally liable with the previous owner for all unpaid assessments that came due up to the time of transfer of title to the unit. While the trial court apparently agreed with the association's position, the appellate court disagreed, determining that the association was the "previous owner" as contemplated in the statutes and as such, the association was jointly and severally responsible for the assessments together with the person or entity that owned the unit prior to the association.

3rd district court of appeal.jpgThe appellate court was not persuaded by the association's arguments that it was not responsible for the assessments and other amounts owed to the association. These arguments included claims that the applicable statutes were not intended to apply to associations acquiring title to units as a result of their own foreclosure cases, and that the new entity owner knew or should have known that it was responsible for the past-due assessments and other sums.

The appellate court is relevant given that the current legal and economic climate for community associations continues to be dominated by excessive mortgage foreclosure actions, which at times are dueling with community association efforts to collect on unpaid assessments owed by the owners of units subject to such mortgage foreclosure actions.

In light of the legislative protection for lenders foreclosing on their mortgages on units in community associations, prior to the inundation of court dockets with mortgage foreclosure cases, community associations were traditionally reluctant to aggressively pursue foreclosure actions on their own liens if the same unit was subject to a mortgage foreclosure action. However, the economic and real estate market crash coupled with the glut of mortgage foreclosure cases and the robo-signing fiasco dealt a crippling effect to the court system and the ability of community associations to collect upon delinquent owners. The board of directors of community associations and their management and legal counsel were forced to depart from the traditional philosophy of standing on the sidelines while bank foreclosure cases proceeded at speeds less than snail's pace. As a result, community associations commenced aggressively pursuing their lien foreclosure cases notwithstanding the existence of lender foreclosure cases on the same property - in hopes that such efforts would aid in mitigating prolonged periods of weakened cash flow to the associations.

As a result of these strategies, many community associations foreclosed upon their liens, resulting in the acquisition of such foreclosed homes by third parties or more typically, the acquisition of such homes by the associations themselves - in both instances, subject to the foreclosing lenders' mortgage liens. In cases where associations acquired title, some of these associations continued to pursue collection of past-due assessments from the eventual third-party purchaser who acquired title to the home at the conclusion of the lender's foreclosure case - despite objections from such new third-party owners. However, in light of the ruling in the Aventura Management, LLC case, community associations will have to think twice before continuing with such aggressive strategies.

Accordingly, this decision underscores the importance for community association managers and directors to consult with qualified legal counsel regarding the pros and cons of pursuing various strategies related to the collection of delinquent association assessments.


Report in Daily Business Review: Firm Wins Appeal Before Third DCA in Dispute Between Developer, Condo Association Over Ownership of Parking, Storage Spaces


3rd district court of appeal.jpgIn December, firm partners Helio De La Torre and Laura M. Manning-Hudson, together with of-counsel attorney H. Hugh McConnell, prevailed in their appeal on behalf of the developer of the 28-story Courvoisier Courts condominium tower on Miami's Brickell Key before the Third District Court of Appeal. The appellate court found that the lower court erred when it entered a Final Judgment requiring the developer to relinquish to the association all of the parking spaces and storage areas that it assigned to an unsold penthouse prior to turning over control of the property to the association.

The appellate court's decision in the case of Courvoisier Courts, LLC v. Courvoisier Courts Condominium Association, Inc. hinged on the association's declaration of condominium, which states that the association would receive all parking spaces and storage areas that are left unassigned after the developer has sold all of its units. The panel found that the parking and storage spaces in question did not become the property of the association upon turnover, and the developer retained the right to assign the exclusive use of these limited common elements until such time as it had sold all of its units.

dbr logo.jpgA report on the ruling from the Daily Business Review on December 27, 2012 quoted De La Torre indicating that "The lower court ruling said basically that all of the assignments made since the turnover were invalid. [The appellate decision] means we get our parking spaces back, [and] it's a very significant opinion." He, Manning-Hudson and McConnell believe that the trial court's interpretation of the condominium's declaration in this case could have set a challenging precedent for condominium developers in Florida.

Click here to read the Third District Court of Appeal's opinion for the case.


Top 10 Collections Resolutions for 2013 for South Florida Community Associations

January 7, 2013, Posted by Renee Renuart


Renee Renuart.jpgThe start of the year marks an ideal time for community associations to take a close and careful look at their collections practices and establish some new year's resolutions to make their efforts as effective as possible. Here are my top 10 suggestions for the best collections resolutions for associations to consider and adopt for 2013:


  1. Avoid Delays - Delays in taking action to collect delinquent dues and assessments from owners only encourage them to continue to avoid paying their share. It is natural to sympathize with owners who are struggling financially, but association boards have a fiduciary duty to protect the interest of the association as a whole. Associations should make a commitment to adopting uniform collections policies and procedures that call for expeditious actions to begin the collections process as soon as the law allows with all owners who become delinquent in their payments. No owner's account should be treated differently from another owner. This will avoid the defense of selective enforcement and gives everyone in the community the message that they must carry their part of the burden.
  2. Rely on Experts - Associations should rely on their attorneys to guide them through the different options that they have available to collect from delinquent owners. Part of being automatic with your collection process is knowing when to take the next step and what that step should be. The boards should require that their attorneys take the time to explain the entire collections process and how every facet is to be implemented in order to maximize the results of their efforts.
  3. Review and Understand Your Governing Documents - It is imperative for boards to review the association governing documents and bylaws in order to determine whether new rules need to be adopted to establish uniform collections procedures for the property. These rules, which can be implemented by a meeting and vote by the board, will help to avoid any arbitrary selective enforcement, which can lead to successful defenses by the unit owners in a foreclosure action.
  4. Issue Demand Letters Quickly - Some associations that do not establish uniform collections procedures slow down the start of the process by delaying the use of a demand letter from the association attorney immediately once an owner's payments are delinquent. There are many owners who will refuse to pay until they receive such a letter, so it is vital for the associations to issue them as quickly as possible.
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  6. File a Lien - Florida law requires that condominiums wait at least 30 days and HOAs at least 45 days from the issuance of the demand letter before they can file a lien against the owner's property for continued nonpayment. Associations should expeditiously exercise their lien rights by filing the claim of lien against the owner's property immediately after the statutory waiting period expires.
  7. File Foreclosure Actions - Florida law requires that associations provide a delinquent owner with an intent to foreclose letter prior to initiating a foreclosure action. Condominiums must wait at least 30 days and HOAs at least 45 days from the issuance of the intent to foreclose letter before filing the foreclosure action. Once the lien is in place and the owner has been provided with an intent to foreclose letter, associations and their attorneys should assess the status of any foreclosure actions by banks with superior first-mortgage liens in order to determine if delays in the lenders' foreclosure case creates a window of opportunity for the association to quickly foreclose and take title to the delinquent owner's unit. Many bank foreclosures are taking years to complete, and during that time associations can take title to the unit and lease it in order to begin recouping the past-due balances.
  8. Move Quickly to Collect from the Tenants of Deadbeat Landlords - A Florida law that became effective July 1, 2010, and has become a very effective collections tool allows associations to demand and collect the rent from the tenants of delinquent owners. Associations should move quickly to send demand letters to the tenants of delinquent owners requesting that they begin paying all of their monthly rent directly to the association or face eviction, as the law now allows.
  9. Offer Payment Plans - In today's economy and housing market, associations are finding that offering payment plans to owners who fall behind but want to avoid foreclosure and keep their residence makes a great deal of sense. It may not lead to recouping all of the past-due balances as quickly as the associations would like, but by offering and agreeing on a reasonable repayment plan the associations can recoup a great deal of what they are owed over time while avoiding the headaches, delays and expense of continued collections and foreclosure squabbles.
  10. Prompt Replies to Owners' Responses - Associations and their attorneys should work to ensure that they respond quickly to owners who raise any questions or concerns after receiving the initial demand letter or the intent to foreclose letter. If a foreclosure action is initiated against the delinquent owner, this enables the association to demonstrate that they responded to the owner in a timely fashion and allows them to avoid any potential defenses by the owner that they previously tried to resolve the matter but were unable to get a response. Boards should immediately refer any responses by the delinquent owner to the attorney, who can in turn reply to the owner as quickly as possible.
  11. Take Away Owners' Rights to Use Amenities and Vote in Association Matters - Florida law allows an association to suspend the right of a member, or the member's tenant, guest, or invitee, to use common areas and facilities for nonpayment of monetary obligations which are more than 90 days delinquent. pool 2.JPG These amenities include the pool, hot-tub and fitness center, as well as access to the clubhouse and the express entry gate for residents. The governing documents of the association do not need to provide for such suspension, but a suspension does not apply to the portions of the common areas used to provide access or utility services to the parcel and may not impair the right of an owner or tenant to have vehicular or pedestrian ingress and egress from the parcel, including the right to park. An association may also suspend the voting rights of an owner for nonpayment of monetary obligations more than 90 days delinquent. Suspension of use or voting rights imposed for delinquent monetary obligations must be approved at a properly noticed board meeting. Upon approval, the association must notify the parcel owner and, if applicable, the owner's occupant, licensee or invitee by mail or hand delivery. Many communities have found that the ability to suspend use and voting rights has been an extremely effective tool both in terms of deterring potential new delinquencies as well as getting some of the current delinquencies cured.

The challenges facing community associations in South Florida will not disappear anytime soon, but by adopting these collections resolutions for 2013 the associations can take important steps towards alleviating the financial strains caused by delinquent owners.


Hidden Costs for Associations Playing Music or Movies in Common Areas

December 20, 2012, Posted by Roberto C. Blanch


Thumbnail image for Roberto Blanch.JPGMany community associations provide for music and movies to be played in the common areas or common elements for the enjoyment of guests and residents. For instance, an association may play a series of songs over the stereo system at the association clubhouse dining facilities in hopes of providing a pleasant dining experience for residents and their guests. Another community may provide a similar environment for those entitled to use its gym facilities. Yet another community may schedule a weekly movie night for residents at no charge to those interested in attending. The foregoing scenarios are all too common throughout many community associations in Florida and may result in hidden costs to the associations in the event that the appropriate safeguards are not implemented.

Title 17 of the United States Code, known as the "Federal Copyright Act," grants certain exclusive rights to the owners of copyrighted works, such as the right of a musical composer to "perform the copyrighted work publicly." The term "perform" is defined in the Federal Copyright Act to mean "to recite, render, play, dance, or act it, either directly or by means of any device or process or, in the case of a motion picture or other audiovisual work, to show its images in any sequence or to make the sounds accompanying it audible." In addition, the Act provides that to perform the work "publicly" means "... to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times."

In light of the foregoing and in accordance with other general provisions of the Copyright Act, it has been suggested that businesses broadcasting background music to the public must obtain a license to play such music. While there are exceptions to copyright infringement for small businesses, including restaurants, when they broadcast radio or televisions shows, the same businesses are not exempt from copyright infringement when they play music from devices such as tapes or compact discs. Based upon the foregoing, certain facilities that publicly play recorded music from devices such as compact discs must obtain a license from the songwriter or the songwriter's agent to play such music.

Performing Rights orgs.jpgFederal copyright law permits a songwriter or his agent to grant permission to others to legally "perform" the songwriter's copyrighted work "publicly" and thus avoid copyright infringement claims. These performance rights are generally licensed on behalf of copyright owners by business entities or associations known as "performing rights" societies. The three major performing rights societies recognized by the Federal Copyright Act are the American Society of Composers, Authors and Publishers ("ASCAP"); BMI; and SESAC, Inc. These societies may grant a license to commercial establishments to use the music in their repertoire through a licensing agreement. The license entitles the commercial establishment to play only the music in that society's repertoire. Therefore, it may be necessary to enter into a licensing agreement with more than one society.

As an alternative to obtaining performance licenses from performing rights societies, commercial establishments may enter into an agreement with a commercial music services provider, which in turn enters into the licensing agreements with the performing rights societies. Under this arrangement, the commercial establishment only enters into one contract with the commercial music services provider and pays the provider for the privilege of playing copyrighted music rather than entering into licensing agreements with various performing rights societies.

Please note that Florida law imposes certain obligations on performing rights societies by statute, such as disclosure requirements that societies must meet when presenting proprietors with information on their services and requirements with which their contracts with proprietors must adhere. However, a discussion of these requirements is outside of the scope of this opinion. As such, it is advisable to have counsel for the association review any disclosures together with proposed agreements provided by a performing rights society prior to the association entering into any such agreement in order to determine whether they comply with Florida law.

Observance of the foregoing requirements may mean the difference between compliance with applicable copyright laws or committing potentially costly violations of such laws. Consult with your association legal counsel for an opinion as to your exposure if your community engages in activities or services such as those described above.