Lenders Win Another Decision Barring Community Associations from Collecting Interest, Costs and Fees in Addition to Assessments

February 17, 2014, Posted by Laura Manning-Hudson

Thumbnail image for Laura Manning HudsonThe recent decision in the case of United States of America v. Forest Hill Gardens East Condominium Association, Inc. and Forest Hill Gardens Property Owners' Association, Inc. serves to clarify an issue that many community associations have faced in years past. That is: Are foreclosing lenders responsible for costs, late fees, interest and attorneys fees in addition to the 12 months or one percent of past due assessments? Many law firms attempted to collect these fees on behalf of their community association clients and, for many years, banks paid. However, in recent years, the banks have started challenging the demand for payment of anything other than the statutory safe harbor amounts that they legally owe. The summary judgment issued by the federal district court in Forest Hill Gardens sends a strong warning to associations that are considering making these demands in the future.

The decision came in early January with the court issuing a partial summary judgment in favor of the federal government and its Housing and Urban Development agency (HUD), which as a result of bank foreclosures had become the successor and assignee to the mortgages issued on two units at the Forest Hill Gardens East condominium in West Palm Beach. The ruling found that HUD was not liable for interest and attorney fees as well as other collections costs against the units during the twelve-month period prior to foreclosure. The court found the statutory provision stipulating that foreclosing lenders are liable to community associations only for the "safe harbor" amounts of the last 12 months of assessments or one percent of the mortgage, whichever is less, to mean exactly what it says. The court also found that the association's demands for additional funds for interest, collections costs and attorney fees had no legal basis.

Bank owned 2.jpgTo make matters worse for the condominium association - which had attempted to argue that a provision of its declaration of condominium was invalid - the court agreed with HUD that not only was the association's declaration of condominium still valid, but that the provision at issue - which provided that foreclosing lenders will not be liable for any assessments which were due prior to taking title to a unit - applied in this case. The court found that HUD had no liability whatsoever to the association for the unpaid assessments that accrued prior to its taking title to each of the two units. Nada. Zero.

Further, potentially exacerbating the results of this disastrous ruling for the association in this case, the court may determine that the association must pay HUD's attorney fees for the defense that it mounted to counter the association's demands for sums that exceeded the safe harbor maximums. In a similar case issued last year, the Third District Court of Appeal in Miami ruled that a foreclosing lender was entitled to collect its attorney fees from an association.

While this ruling does not set a legally binding precedent for future rulings on this issue in state courts in Florida, the message that it and similar rulings in the state and appellate courts are sending to community associations appears to be very clear. Florida community associations would be well advised to avoid seeking sums from foreclosing lenders that exceed the safe harbor maximums, as more and more decisions are finding in favor of lenders. In addition, associations that pursue these "other" costs risk the possibility of having to pay lenders' legal fees and costs, and they may also end up receiving nothing from the lenders for past-due assessments based on antiquated provisions from the associations' own governing documents.

Firm Obtains Court Order Discharging Mortgage from Penthouse Unit Owned by Association

February 13, 2014, Posted by Nicholas D. Siegfried

Nick Siegfried 2013.jpgDuring the foreclosure crisis, lenders elected to file foreclosure actions but often failed to conclude their cases, resulting in the dismissal of many foreclosure actions throughout the state. Community associations were then left to decide whether to pursue their own foreclosure remedy or continue to wait for the lender to foreclose. In these situations, we recommended an aggressive strategy to our clients and advised them to pursue their foreclosure remedy notwithstanding the large mortgage on the property. This would at least allow the association to rent the unit while it waited for the lender to commence a second foreclosure action. However, in this recent case, the lender waited too long to re-file its second foreclosure action.

Upon my review of the lender's foreclosure action, I determined that its right to foreclose was barred by the five-year statute of limitations. After seeing so many community associations struggle due to the delays of lenders, I was very pleased to have assisted our community association client in securing a court order discharging a $1.44 million first-mortgage on a penthouse unit. The ruling is emblematic of the challenges that some banks are facing after they failed to expeditiously pursue and preserve their foreclosure rights.

In the recent decision, the Miami-Dade Circuit Court granted the association's motion for summary judgment declaring the first mortgage held by the lender null and void and discharged of record from the penthouse unit owned by the association. MD court seal.JPG The court agreed with our contention that the bank's cause of action accrued more than five years ago when the bank's loan servicer filed its initial foreclosure suit, thereby accelerating the amounts due under note and mortgage and starting the "clock" for the lender to file its foreclosure action.

The court found that the lender had initially filed suit against the borrower and the association in January of 2007 and elected to accelerate that payment of the complete balance due on the mortgage, but the action was dismissed when the lender's attorneys failed to appear at the initial case management conference in December of 2010. The bank then waited until December of 2012 to file its second suit to foreclose on its mortgage, but the filing was nearly a full calendar year after the five-year statute of limitations had expired.

This is not the first ruling of its type in which a lender's foreclosure suit has been barred by the statute of limitations. So far, no appellate court has addressed this issue.

Our community association attorneys will continue to monitor and write about these cases and other important rulings for Florida associations in this blog, and we encourage association directors, members and property managers to submit their email address in the subscription box at the top right of the blog in order to receive all of our future articles.

Progressive Condo Associations Working to Accommodate Electric Cars

January 31, 2014, Posted by Laura Manning-Hudson

Thumbnail image for Laura Manning HudsonWith the spike in gasoline prices over the last five years, plug-in electric vehicles (PEV) are becoming increasingly popular, and auto industry analysts predict that Florida will be among the leading states in the country for PEVs. For those who reside in a single-family home, plugging in these vehicles for overnight charging presents little difficulty, however the challenges of charging them overnight can be significant for someone who lives in a condominium. Our firm has already had several condominium association clients inquire about their responsibilities and options for accommodating these cars, and their approaches toward finding a solution can vary a great deal.

There are three different levels of PEV charging stations. A level one charging station requires a standard 110-volt household outlet and takes anywhere from 12 to 20 hours for a full charge. A level two charging station uses a 220-volt outlet - such as those that are used for large kitchen appliances, water heaters and washer/dryers - and is two to four times faster than a level 1. A level 3 charging station is the most expensive type of charging station costing in the range of $50,000 and therefore not likely to be considered by most associations.

Due to the abundance of standard 110-volt outlets coupled with the low cost of installation, a level one charging station would seem to be the easiest to deploy and use, and many condominiums may be able to accommodate PEVs simply by using existing outlets or installing new ones in the parking garage.

carchrg2.jpgAs PEVs become more and more popular however, associations may want to consider installing a level 2 charging station in order to make the property more appealing to their current and future unit owners with electric cars. The installation cost for level 2 charging stations averages around $2,000 for basic models and, in addition to the faster charge times of four to eight hours for a full charge, some of the more advanced level 2 charging stations also feature retractable or suspended cords, usage tracking and billing capabilities, and the ability to charge up to four cars at once.

There are several challenges for condominium associations when dealing with these charging stations. First, as we know, parking spaces are hot commodities in condominiums. Therefore, determining the most beneficial location for installing a level 2 charging station could present an issue for a condominium, as could a request for the installation of additional level 1 outlets throughout a parking garage. Generally, there is nothing in a condominium's governing documents that would obligate an association to equip a parking space with a separate electrical outlet. However, because most board's are empowered to approve an owner's request to install one (since residential unit owners cannot usually make any additions, alterations or improvements in or to the common elements without the prior consent of the board), the next issue is overcoming the location. Are there any common element areas where a station could be installed? Will the association have to ask owners to transfer, swap or relocate parking spaces? Does the association have the power to require owners to swap or transfer their parking spaces? These are all questions that must be answered before a condominium can make a determination as to what type of charger to install and where to put it.

Additionally, associations should be advised that utility costs incurred by an individual owner through the use of the electrical outlet would not constitute a common expense for which the association and, therefore, all the unit owners would be responsible. Therefore, associations should require that the utility costs for the electrical outlet be separately metered and billed directly to the unit owner. FPL can add sub-meters for these outlets in order for the association to bill the PEV owners for the electricity that their vehicles consume. FPL estimates that electric bills will go up by approximately $34 per month in order to charge a PEV enough to drive 1,000 miles per month. The company offers some excellent information and resources for condominium associations that are considering their options for accommodating PEVs at www.fpl.com/electricvehicles, and questions can also be sent to electric-vehicles@fpl.com.

Again, while the location of such a station in the parking garage and the allocation of parking spaces around it for PEVs present certain obstacles for associations, the added benefit and marketability of the property to PEV owners could easily outweigh these financial and administrative burdens. And, as the usage of PEVs continues to grow, progressive-minded associations that embrace this new technology could gain a significant marketing edge by helping their unit owners to go green and drive electric.

Community-Wide Smoking Bans Are Sparking Up Debate at Condo Associations and HOAs

January 20, 2014, Posted by Roberto C. Blanch

Roberto Blanch 2013.jpgThe Miami Herald and the South Florida Sun Sentinel featured articles in recent weeks about communities that are implementing community-wide smoking bans, including inside of the private dwellings of the residents. The Florida Clean Indoor Air Act already prohibits smoking inside of public buildings, which is interpreted to include the indoor common areas of condominium developments, but there are no laws regulating smokers' rights to smoke inside of their units or in their private balconies, porches and yards. As smoking rates continue to decline due to the adverse health problems associated with smoking and secondhand smoke, the question of whether community associations can impose community-wide smoking bans, including inside of owners' residences, is becoming a very hot topic with associations across the country.

The associations and boards that take up this issue and seek to implement such a ban may face significant challenges. New developments, such as the AquaVita Las Olas condominium which was featured in the Sun Sentinel article and will open later this year in Fort Lauderdale, are instituting smoking bans in their original declaration of covenants and condominium documents, so buyers are aware of the restrictions prior to their purchase. However, for existing communities which seek to institute such a ban on their current and future owners, their ability to amend their declaration of covenants with these new restrictions may ultimately be challenged, and the enforcement of such a ban may present serious difficulties.

s.jpgExisting communities wishing to implement the bans by a new amendment to their governing documents would be wise to consider several measures to make the new restrictions more practical and enforceable. Chief among these would be to create a "grandfather exception" to allow existing owners who are smokers to continue to smoke inside of their residences but to ban any new owners from doing so after the amendment has been ratified. Another suggestion would be to allow owners and their guests to smoke in the private balconies of condominium residences but to ban smoking inside of the units, as the complaints about secondhand smoke typically come from neighboring residents who indicate that the smoke and odor seeps through air vents and walls from adjoining units. In addition, the enforcement of the new smoking restrictions will become difficult if not impossible, as association boards and property managers will be unable to determine whether violations are taking place if they are denied access to the residences of owners who are suspected of smoking.

Given these considerations, condominium associations and HOAs that are adamant about implementing these smoking bans should consult with their attorneys and work with their owners, including both the proponents of the new bans as well as the smokers who wish to maintain the status quo. By using grandfather exceptions, allowing smoking in the balconies and only seeking bans for the residences of new owners who are informed of the smoking restrictions prior to their purchases, these restrictions may stand a better chance of becoming viable solutions for communities wishing to ban smoking within their properties as widely as possible.

Can a Manufacturer of Material Also Be a Supplier, Thus Triggering Condominium Warranties Pursuant to Section 718.203?

January 3, 2014, Posted by Jason M. Rodgers-da cruz

Jason.jpgIf you have construction defect involving a manufacturer, consider the most recent case on whether manufacturers owe statutory warranties to condominium associations pursuant to Section 718.203. The court in Port Marina Condo Ass'n v. Roof Servs., 119 So.3d 1288 (4th DCA 2013), broadly defined the term "Supplier"in addressing a condominium association's statutory warranty action against a roofing manufacturer pursuant to Section 718.203(2), Florida Statutes. The condominium association identified leaks emanating from the roof of the boat storage building and contacted the roofing subcontractor to correct the defects. The roofing subcontractor attempted to make repairs, but was unsuccessful at correcting the leaks and advised the association that the roofing product was defective.

The association then contacted the roofing manufacturer and was notified by the manufacturer that the installation was defective, not the product. Seeing no relief, the association filed suit against a roofing subcontractor and against the roofing manufacturer for breach of Section 718.203. The roofing manufacturer filed a motion to dismiss arguing that Section 718.203 did not apply to product manufacturers. The trial court granted the motion to dismiss with prejudice, relying on the holding set forth in Harbor Landing Condominium Owners Ass'n v. Harbor Landing, LLC, 78 So.3d 120 (Fla. 1st DCA 2012). The association appealed the trial court's decision on the basis that it sufficiently alleged that the roofing manufacturer was a supplier within Section 718.203, and that the trial court should have allowed an amendment to the complaint. In reviewing the trial court's ruling, the appellate court recited the elements necessary for bringing an action against a manufacturer for breach of Section 718.203, as follows: "(1) the defendant is a supplier of materials to a condominium; (2) the materials failed to conform to the generally accepted standards of merchantability applicable to goods of that kind, or materials failed to conform to the requirements specified in the contract; and (3) the failure of the goods to conform was the proximate cause of the plaintiff's damages." The court then focused on the term supplier and manufacturer within the purview of Section 718.203. The court noted that neither supplier nor manufacturer were defined in Chapter 718 and therefore, referenced Black's Law Dictionary which defines a supplier as "'a person engaged, directly or indirectly, in the business of making a product available to consumers,'" and "'a manufacturer as a person or entity engaged in producing or assembling new products.'" The appellate court also addressed Harbor Landing and deduced that it did not establish a rule automatically exempting a manufacturer from Section 718.203(2) warranties.

The court then reviewed the sufficiency of the complaint and agreed with the lower court that merely alleging that the manufacturer entered into a contract with the roofing subcontractor was not enough, and that pleading that the manufacturer "owes a duty to exercise reasonable care in "'supplying"" the material was insufficient to establish that the manufacturer was a supplier pursuant to Section 718.203(2). Although the appellate court agreed with the trial court that the complaint was deficient, it concluded that the association should have been given leave to amend the complaint and thus, reversed the trial court's ruling. Accordingly, the association was given another opportunity to properly assert its action for statutory warranties pursuant to Section 718.203(2) against the roofing manufacturer.

Roberto Blanch Elected to the Board of Directors of CAI's SE FL Chapter

RobertoBlanch_8016.jpgThe firm congratulates shareholder Roberto Blanch on being elected to the Board of Directors for the Community Associations Institute's Southeast Florida Chapter. This is Mr. Blanch's first time as an elected director for CAI's SE FL Chapter and his term shall commence in 2014.

Throughout the years, Blanch has been an active member of CAI's SE FL chapter and has served as co-chair of the chapter's Miami-Dade committee. He has helped plan numerous events such as the Chapter's educational breakfast series in Miami-Dade County and its Ask the Experts Panel Discussion.

We are very proud to have Roberto Blanch as a member of our firm and recognize his accomplishment.

Homeowner Alterations

December 9, 2013, Posted by Roberto C. Blanch

Some individuals argue that maintaining the uniform appearance of the homes or units in many condominium or homeowner associations is a valuable aspect of owning a home governed by community associations. However, often times, the owners of homes or units governed by community associations seek to deviate from such uniformity and endeavor to implement alterations to the appearance of their homes or units. The willingness of boards of directors to agree to some of the proposed alterations varies widely from one community to another - and in some instances, associations may not even have the right to oppose proposed alterations. When presented with a situation in which an owner is interested in making an alteration to his home or unit, community association directors should consider certain factors prior to making their determination.

First, it must be determined whether the Association has the right to approve or disapprove the proposed alteration. For instance, in the event that the proposed alteration is deemed to affect or alter common elements or common areas, then the association may not have an option but to deny the proposed alteration given that some statutes and the provisions of some community association governing documents restrict the ability of owners or associations to effectuate changes to the common areas or elements. Furthermore, in some instances, alterations to the common areas or elements may only be allowed in the event a certain vote of the owners or directors is obtained. For example, Florida Statutes provide that material alterations to condominium common elements may not be effectuated unless approved by the vote of 75% of the association's voting interests, unless otherwise provided in the association's governing documents. While home owner associations do not have a corresponding material alteration statutory restriction, the governing documents of such associations may provide a requirement for an ownership vote to approve alterations to the common areas - as is the case with many condominium associations.
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Another issue that should be considered by community associations in connection with owner requests to proceed with alterations is how the alteration may impact the association's obligations to maintain, repair, replace or insure the areas affected by the alteration. For instance, the owner of a condominium unit may want to enclose a patio by installing a new roof over the affected area and extending the enclosed area of the unit. Such alterations result in the creation of new areas that will have to be maintained, repaired, replaced and insured. Furthermore, even if the association is deemed not to be required to maintain, repair or insure such improvements, the creation of such improvements may affect existing improvements for which the association is responsible. In light of the foregoing, for those circumstances in which the association is inclined to allow owners to alter, the association directors should consider establishing a contractual relationship between the owner and the association to clearly define how the maintenance, repair, replacement and insurance responsibilities related to such improvements are to be divided. The proposed agreement may further serve to clarify other conditions related to the alteration and the association's approval thereof. For instance, the proposed agreement should establish requirements for the owner to engage licensed and insured contractors, for the work to be performed in accordance with professionally drafted plans and for required permits to be issued for the performance of the work. Additionally, provisions could be included in such agreement for the protection of the association during and after performance of the work, such as insurance and indemnification protection to be provided by or on behalf of the contractor to perform the work.

The foregoing underscores the importance of exercising caution when presented with owner requests to alter home, units or common elements in properties governed by community associations. In light of the broad impact and long term effect that owner alterations might produce, it is advisable for community association directors and managers to consult with qualified and experienced legal counsel to ensure that the association is adequately protected.

Do I Really Have To Turn Over A Copy Of The Key To My Castle?

November 12, 2013, Posted by Laura Manning-Hudson

For anyone who lives in a condominium you know that there are certain trade offs that are made as compared to living in a single family home. For instance, you don't have to mow your own grass, you don't have to paint your own home, and you don't have to maintain your own landscaping. But you do have to allow your condominium association into your unit and sometimes you even have to give them a copy of the key. Yes, the State of Florida requires that all condominium associations have the irrevocable right to access all condominium units. Recall that an association has a duty to protect the common elements of the condominium and preclude damage to owner's units caused by the common elements. As such, the legislature has recognized this duty and codified the duty in Section 718.111(5), Florida Statutes. While an association's right of access to the units is broad and not restricted to instances in which an emergency is presented, it comes into play whenever the association's related functions of maintenance, repair, or replacement of property are implicated, and, although the statute does not require that each owner turn over a copy of the key to their unit, many condominium documents, rules and even simple board policies require owners to provide management with a copy of the key to their unit. Thumbnail image for Laura Manning Hudson

There have been numerous challenges to an association's right to require that a copy of an owner's key be turned over - all of which have been upheld even amid allegations from owners that they fear theft of their valuables or simply don't trust their board members. Both the Division of Condominiums and Florida courts have found that an association's right of access - which is provided for the protection of all unit owners - outweighs any concerns by owners that their valuables could be taken especially where precious minutes could be lost if the association had to find an owner or neighbor or resort to a locksmith for breaking down the door.

While access is allowed, it is not unlimited. Such access must be during reasonable hours, when necessary, for the maintenance, repair, or replacement of the common elements or any portion of a unit to be maintained by the association. In order to avoid the potential for unnecessarily upsetting residents, whenever it is practical or possible, condo association boards should provide notice to their residents of an upcoming inspection in order to allow the resident the opportunity to be present for the inspection. It is also good business practice to have more than one person enter the unit with the contractor. Failure to allow the association access to the unit, or even to turn over a copy of the key to the unit (if required by the association's governing documents) could result in the association taking legal action against the resident.

Finally, for those associations that do maintain copies of keys to units, instituting safeguards to protect the keys by limiting the number of personnel who have access to the keys and/or who know where the keys are located, goes a long way in ensuring and gaining the trust of the residents.

HOAs: To Reserve or Not to Reserve?

October 8, 2013, Posted by Roberto C. Blanch

Many homeowner associations' boards of directors find themselves working on their association budgets for the upcoming fiscal year. A good deal of those budgets will include line items for the funding of unforeseen contingencies. In some instances, the directors preparing such budgets will classify the funds in those line items as "Reserve" funds without knowing that laws governing Florida homeowner associations provide for special treatment of such funds. Since the use of designated reserve funds are restricted by Florida law, community association directors should exercise caution before categorizing a budgetary contingency line item as a reserve account. Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for Roberto Blanch.JPG

Specifically, Florida law provides HOA boards with the discretion to fund their association's budget with reserve accounts for capital expenditures and deferred maintenance for which the association may be responsible, except to the extent that the association's developer established the reserves or the associations' membership elected to provide for budgetary reserves. Therefore, while it is advisable for associations to have some funds on hand for anticipated capital expenditures and deferred maintenance, in the event that HOA reserves were not established by the association's developer or the associations' membership, then boards might wish to consider categorizing such funds as something other than "reserves" (e.g. "Contingency Funds"). Of course, directors in those communities without "reserve" accounts should be mindful of limits that might be imposed upon increases resulting in the level of assessments charged to owners as a result of the increases to budgetary funding for capital expenditures and deferred maintenance. Additionally, directors HOAs without established reserves will have to be sure to comply with statutorily required disclaimers to the association's membership if the association is responsible for the repair and maintenance of capital improvements that may result in special assessments if reserves are not provided. The terms of such disclaimer will differ in the event that formal reserves have not been established but the association is providing for the funding of capital expenditures and deferred maintenance.
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For those HOAs with reserves established by the association's developer or membership, directors should pay special attention to the statutory conditions for the funding of such accounts and the limitations imposed by law as to the use of the funds accrued in reserve accounts. For instance, the applicable statutes provide a formula that must be followed as to the annual funding of the reserve account. Additionally, once reserves are formally established, the applicable statutes permit for the funding of reserves to be reduced or waived upon obtaining a favorable vote from a majority of the association's membership voting at a meeting at which a quorum is present. Lastly, the funds that have accumulated in reserve accounts shall remain in such accounts and shall be used only for authorized reserve expenditures unless their use for other purposes is approved in advance by a majority vote at a meeting at which a quorum is present.

Once again, the foregoing serves to illustrate the importance of having HOA directors work closely with a team of experienced and qualified community association managers, accountants and attorneys in order to steer clear of the pitfalls that may arise in the complex world of community association administration.

Do You Really Need to Install A Fire Sprinkler System In Your Condominium Building?

September 12, 2013, Posted by Roberto C. Blanch

Many condominium buildings throughout Florida will be required by local municipal ordinance or other requirements to retrofit their buildings with code-compliant fire sprinkler systems. The estimates provided to a good deal of those associations indicate that the costs associated with such retrofitting may exceed the million dollar range. However, the owners of units in a large number of the condominium associations which would be required to retrofit their buildings with fire sprinkler systems may not be in a position to pay the assessments that may have to be imposed by the association in order to comply with the foregoing retrofit requirements. Fortunately, Florida law offers condominium associations with breathing room - providing unit owners with the ability to vote to forego the retrofitting that may be required by the local governmental authorities having jurisdiction.Thumbnail image for Thumbnail image for Thumbnail image for Thumbnail image for Roberto Blanch.JPG

The Florida Condominium Act provides that the local governmental authorities having jurisdiction cannot require a condominium building to be retrofitted with a fire sprinkler system if a majority of the voting interests within the condominium vote to forego such retrofitting. Those associations that do not vote to forego the retrofitting requirement may not be obligated to retrofit their buildings prior to December 31, 2019. The law further provides that associations which have not obtained the vote to forego the retrofitting requirement, and which have not yet achieved compliance with the applicable retrofit requirements, will have to initiate the application process for the issuance of a building permit by December 31, 2016, for the installation of such fire sprinkler system by the December 31, 2019, deadline.

It is important to keep in mind that the above-described majority vote of the association's voting interests may be obtained by written consent of the association's members or by a vote at a duly noticed meeting at which a quorum has been achieved. If the vote is to be taken at a meeting, then the use of limited proxies may facilitate the association's efforts to obtain the vote. Once the required vote is achieved, then other steps must be followed. For instance, a certificate of the vote to forego the retrofitting requirement will have to be filed in the public records of the county where the condominium is located. Additionally, a written notice must be sent to the owners within 30 days of the vote announcing the successful results and a notarized affidavit must be kept with the association's official records to document that the foregoing notice was properly sent. Within 60 days from recording the above-described certificate, the association must also file a notice with the Florida division of condominiums announcing the successful vote. Lastly, each unit owner is required to provide a copy of the notice sent by the association to anyone renting his unit and to the purchaser of the owner's unit prior to the closing of such sale.

It should be noted that the decision to forego retrofitting is one that should be carefully evaluated by condominium directors, managers and unit owners given that buildings which forego retrofitting will not have the fire sprinkler systems that could play a vital role in protecting the residents of such buildings from injury and damage in the event of a fire. Additionally, buildings that forego retrofitting may be required to pay higher insurance premiums and may be subject to lower property values due to the lack of life safety systems valued by some purchasers. Moreover, even after a successful vote to forego retrofitting, owners of units in a condominium may trigger a vote to require retrofitting, provided at least 10% of the voting interests petition for such a vote.

Given the tedious requirements involved in above-described process and the impact such vote might have on a community, it is advisable that associations seek the assistance of their legal counsel in the process to ensure that the votes have been properly obtained and to minimize the risk of liability that may result from a failure to comply with the applicable requirements.

Association held Liable for Excessive Collection Demands

August 19, 2013, Posted by Jonathan M. Mofsky

Jonathan Mofsky Gort photo-thumb-100x150-17765-thumb-120x180-17766.jpgWhile everyone agrees that a first mortgagee's ("bank") liability for assessments when they acquire title to a unit is limited to 12 months of assessments or 1% of the mortgage, whichever is less, some associations take the position that a first bank is also liable for all of the past due interest, late fees and attorney's fees and costs due on the account. However, a newly released opinion from the Third District Court of Appeal along with the trial court rulings against the association illustrate the risks and exposure that associations and attorneys take when seeking amounts in excess of the statutory maximum.

In Ocean Bank v. Caribbean Towers Condominium Association, Inc., the Third District addressed two trial court orders which stated that the association could not recover interest, late fees and attorney's fees and costs from a bank who acquires title to a unit pursuant to its own foreclosure action.  The Third District agreed with the trial courts' finding that an association is not entitled to recover interest, late fees and attorney's fees and costs and is limited to collecting 12 months of assessments or 1% of the mortgage, whichever is less.  Furthermore, the Third District held that the bank was entitled to its attorney's fees for having to litigate the association's position which one trial court referred to as "frivolous".  As a result of the association's counsel losing on its claim for attorney's fees, costs, interest and late charges, the association is now exposed to a claim for attorney's fees likely to be thousands of dollars, if not more, for having taken such a position. If appellate attorney's fees are awarded to the Bank, the association will likely be accountable for paying substantially more.   

In the opinion, the Third District stressed the excessive demands of the association, noting that for one unit, the association claimed almost nine times that which it was entitled to collect, and on the other unit, the association was found to have improperly claimed more than thirteen times the amount to which it was entitled from the bank. The Third District commented that:

Section 718.116(1)(b), Florida Statutes (2012), capped the Bank's liability for condominium assessments at no more than one percent of the original mortgage debt. Notwithstanding this statutory cap, on one unit in this consolidated appeal, the Association issued a certificate . . . totaling $8,835.93, an amount almost nine times the statutory maximum. On the other unit, the Association issued a certificate claiming a lien of $20,233.14, an amount more than thirteen times the statutory maximum.

This appellate decision highlights the importance of seeking counsel from community association attorneys with regard to association collection policies and uncertainties about the association's ability to recover attorney's fees, costs and other charges from a bank or other purchaser.


August 7, 2013, Posted by Roberto C. Blanch

The recent session of the Florida legislature produced a series of new laws affecting community associations in Florida. However, often times the creation of new laws have unintended consequences that could not be foreseen.
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One example of the foregoing relates to the provisions of Section 718.112(2)(d)2, Florida Statutes, governing the qualifications of candidates seeking to be elected to a condominium association's board, which were modified by HB 73. Prior to July 1, 2013, a candidate seeking to be elected to a condominium board was required to meet certain procedural thresholds established by the statute and statutory eligibility criteria included in the above-enumerated statute. Such eligibility criteria provided that the following individuals could not be listed on a ballot for a condominium election: (i) a person who has been suspended or removed from the board by the Division under Chapter 718, Florida Statutes; or (ii) a person who is delinquent in the payment of a fee, fine or special or regular assessment owed to the association for more than 90 days. However, after July 1, 2013, the second prong of the foregoing criteria was revised to preclude condominium election ballots from including the names of individuals who are delinquent in the payment of monetary obligations due to the association. Such legislative change broadened the scope of the types of debts that may disqualify an individual from being considered for condominium board election. Prior to July 1, 2013, a candidate would be ineligible if he was delinquent by more than 90 days in his obligation to pay the association a fee, fine or special or regular assessment. Now, the 90 day requirement has been eliminated and the debt has been expanded to include any "monetary obligation" owed to the association.

However, in those associations where there is no requirement for directors to be unit owners, it would be possible to have a non-unit owner - with no obligation to pay assessments to the association - run for election - whereas a unit owner who is delinquent in his monetary obligations to the association may not do so. Additionally, while a sitting director may not be considered disqualified from the board until he has been delinquent in his payment of monetary obligations to the association for more than 90 days, the tolerance for a candidate is significantly lower. The foregoing issues present interesting questions. For instance, in those condominiums with no requirement for directors to be unit owners, does it make sense to remove the requirement for unit owners to be current on their monetary obligations to the association? Additionally, would it not make sense to disqualify directors from the board the moment they become delinquent, as is the case with regard to the consideration of a candidate as ineligible for election to the condominium association board? Additionally, was it intended for all possible monetary obligations owed to the Association to serve as the basis for a potential disqualification from eligibility to run for election to the board? For instance, should the eligibility also extend to those owners that may have monetary judgments entered against them by the association, albeit not related to their assessments, fines or fees?

The foregoing illustrates that new laws may not always eliminate problems or questions related to condominium governance but may create a new line of issues or uncertainties. This result highlights the importance of seeking counsel from community association attorneys with regard to the new laws affecting your community association and the impact that such laws might have.

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.