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Florida HOA Lawyer Blog

The start of a new year represents a slew of new beginnings for most community associations. From holding annual elections to the preparation of annual budgets, the first quarter of the year marks a pivotal time for many associations. With that comes a great deal of confusion, particularly with regard to the proper way to fund reserves.

Contrary to common misconceptions, Florida Statutes require that associations must present a fully funded reserve to their fellow unit owners. An association may also present to the membership the option of either waiving reserves, or funding reserves less than fully, but it is not required to do so.

Reserves are used by associations to fund capital expenditures and items of deferred maintenance. Some reserve categories are mandatory (e.g., roofing, painting, paving, and any item expected to cost in excess of $10,000), while others are discretionary (e.g., insurance premiums). However, once a reserve fund is established, the monies dedicated to each category, including interest, may only be used for that category (unless the membership approves an alternate use).

According to Chapter 718.112(2)(f) of Florida Statutes, Florida condos must fully fund reserve accounts for capital expenditures and deferred maintenance. The amount to be reserved must be computed using a formula based upon the estimated remaining useful life and estimated replacement cost or deferred maintenance expense of each reserve item.

Now, what happens if once presented with a fully funded reserve account the association becomes interested in waiving or reducing all or specific reserve items? A vote must occur. Not only must a quorum be established in order for voting to take place, but a majority of the owners must be present either in person or by proxy in order to approve any changes.

Keep in mind that it is possible that certain owners will be voting via limited proxies. Should that be the case, special language must be included on the face of the proxy ballot, in capitalized, bold lettering, that should read as follows: WAIVING OF RESERVES, IN WHOLE OR IN PART, OR ALLOWING ALTERNATIVE USES OF EXISTING RESERVES MAY RESULT IN UNIT OWNER LIABILITY FOR PAYMENT OF UNANTICIPATED SPECIAL ASSESSMENTS REGARDING THOSE ITEMS.

Should a majority of the quorum of members not agree to waive or reduce the reserve account, then the association is responsible for fully funding the account. Whatever your association decides, keep in mind that the decision is only good for the particular year in question, and the whole process will have to be done again on the following year.

A recent arbitration ruling over a request to inspect the official records of a condominium association by a unit owner as prescribed under Florida law should serve as a reminder to all Florida community associations that they cannot impose rules and prerequisites that are outside of the scope of the statute to deny such requests.

The ruling by an arbitrator with the Florida Department of Business and Professional Regulation Division of Condominiums in the case of August E. Hawkins v. Points West Condominium Association involved a denial by the association of the unit owner’s request to access the current list and contact information for all of the unit owners. The association based its denial on a rule that was adopted by its board of directors stating that all association fees and debts must be current in order for unit owners to be granted access to its official documents and records. The association claimed that Hawkins owed $600 in attorney fees to the association for its prior issuance of a demand letter.

floridadbprThe arbitrator ruled that Florida law stipulates associations “may adopt reasonable rules regarding the frequency, time, location, notice and manner of record inspections and copying” of official records, but it may not create any other category of rules or prerequisites that owners must meet in order to gain access to the official records. The ruling concludes that there is no language in the Condominium Act which authorizes an association to institute debt collection procedures which interfere with an owner’s entitlement to access to official records. It finds the rule to be null and void and unenforceable, and the association’s failure to allow access to the records to be in violation of the law.

The arbitrator concluded that the association must grant access to the records within 10 days of the ruling and pay $500 as statutory damages to the unit owner for its willful violation of the official records statute. In addition, Florida law provides that the prevailing party in these proceedings is entitled to have the other party pay reasonable attorney’s fees and costs.

Associations that seek to impose any sort of rule, regulation or prerequisite involving records requests by unit owners should bear this ruling in mind and seek the guidance of qualified legal counsel.

Roberto C. Blanch

Roberto C. Blanch

Firm Partner Roberto C. Blanch wrote an article that appeared in today’s edition of the Daily Business Review, South Florida’s exclusive business daily and official court newspaper, about the implications for Florida condominium associations of the recent ruling by the Second District Court of Appeal in the case of The Retreat at Port of the Islands LLC v. Port of The Islands Resort Hotel Condominium Association.  His article reads:

The acquisition of condominium units by investors, including bulk-buyer unit purchasers, has served a critical role in the recovery of the South Florida real estate market. These concerns acquired scores of units at condominium developments during the height of the foreclosure crisis and enabled the associations of many distressed developments to regain their financial footing.

Most of these units were purchased by legal entities, including corporations and limited liability companies, comprised of various shareholders, members, directors and officers. As the recovery of the housing market continues, South Florida’s condominium associations should take a close look at their bylaws and other governing documents regarding the ability of these legal entities to take a majority voting control of their boards of directors.

A recent ruling by the Florida Second District Court of Appeal has clarified that a clause which is commonly found in many condominium association bylaws enables representatives of entity-owned units to have multiple individuals serve as members of the board of directors. In the case of The Retreat at Port of the Islands LLC v. Port of The Islands Resort Hotel Condominium Association, Retreat appealed the circuit court’s summary judgment in favor of the condominium association. The lower court interpreted a provision in the association’s bylaws to limit Retreat’s representation on the association board to one of its representatives, regardless of the number of units that it owned in the property.

His article concludes:

In its reversal of the trial court’s opinion, the appellate panel found that the section of the association’s bylaws in question was devoid of language limiting the number of Retreat’s managing members who may serve as directors, as it was clearly addressing the class of individuals who are qualified to represent a unit owner’s interests on the board rather than the number. The court also noted that the bylaws allow co-owners of a unit to occupy multiple seats on the board if they own more than one unit, so the association already allows for owners of multiple units to occupy multiple seats on the board.

Some condominium association members have traditionally been wary of having one group of owners with shared interests control a majority of their board of directors, arguing that it can be a recipe for problems such as creating favoritism in the board’s decisions and awarding of vendor contracts, as well as facilitating fraud and embezzlement of association funds.

In light of this ruling, association members who wish to restrict entity-owned units, including bulk unit-owners, from having representatives hold multiple board seats and take a majority voting control of their condominium association board of directors should consult with qualified legal counsel to evaluate whether their association’s bylaws and other governing documents should be amended.

Our firm congratulates Roberto for sharing his insights into the implications of this ruling for Florida condominium associations with the readers of the Daily Business Review.

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Community association attorneys are often asked about the lack of uniformity in the Florida laws and regulations for condominium associations and those for homeowners associations. There are many differences between the statutes governing condominium associations and those for HOAs, and condominiums are much more heavily regulated.

In fact, all condominium associations in the state must pay an annual fee to fund the Florida Department of Business and Professional Regulation’s Division of Condominiums, which serves to provide regulatory oversight over condominium association elections and disputes stemming from the actions of their members and boards of directors.

Homeowners associations have been excluded from the purview of this state agency since its inception, which, among other things, has created significant discrepancies in the laws governing these different types of community associations involving their elections, meetings, board recalls, vendor contracts, and other areas. However, a bill that was introduced by Rep. John Cortes of Osceola County seeks to change that and bring HOAs under the regulatory oversight of the state agency.

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HB 653 represents potentially sweeping changes for HOAs in Florida. It seeks to rename the state agency in order to add homeowners associations to its name; authorize the agency to investigate certain complaints involving HOAs, conduct related investigations and adopt penalty guidelines; have HOAs pay an annual fee to fund the agency, provide notices for certain meetings, impose certain fines, and revise annual meeting requirements; and it provides for changes to the provisions relating to the transition of association control, and the requirements for voting by general and limited proxy and for board elections and vacancies.

The bill calls for the state agency to oversee the mediation of HOA disputes and maintain a list of certified mediators who the associations must use for these proceedings. HOA elections, which have historically been left to the protocols and procedures established under their respective declarations, would be required to adhere to the process that has been in place for condominium associations.

The changes involving elections are very significant, as are the measures pertaining to meeting notice procedures. If the bill is passed and these new provisions go into effect on July 1, 2016, HOAs across the state will need to be prepared to make dramatic changes to many of their policies and procedures. This will undoubtedly present some serious difficulties and challenges for many associations that have grown accustomed to their previous protocols over the years and decades, but the introduction of this bill appears to send the message that the time for uniformity in the state’s laws governing condominium and homeowners associations may now be upon us.

In Florida, not all foreclosure cases are the same for the state’s more than 47,000 community associations, as a recent ruling by the Fourth District Court of Appeal illustrated.  The ruling serves as a reminder that community associations must look to their own declaration and governing documents in cases involving the foreclosure of mortgages.

The ruling reversed the lower court’s decision and found that a lien by the homeowners association for the Pipers Landing community in Palm City, Florida, did not have priority over a mortgage issued by U.S. Bank. The appellate panel based its decision on the fact that the HOA’s declaration did not include the necessary language specifying that its liens take priority over mortgage liens and relate back to the date of the filing of the community’s declaration.

4dcaThe Fourth DCA based its opinion on the ruling by the Supreme Court of Florida in Holly Lake Association v. Federal National Mortgage Association in 1995. That ruling held that “in order for a claim of lien recorded pursuant to a declaration of covenants to have priority over an intervening recorded mortgage, the declaration must contain specific language indicating that the lien relates back to the date of the filing of the declaration or that it otherwise takes priority over intervening mortgages.”

Because Pipers Landing’s declaration did not contain any such language giving the association’s lien priority over that of the lender, the appellate panel reversed the lower court’s ruling.

Obviously, this ruling deals a blow to associations that may wish to attempt to assert lien priority in cases involving the foreclosure of older mortgages.

However, the ruling does serve as an important reminder for associations and their legal counsel to double-check the language in an association’s governing documents for cases involving the foreclosure of mortgages, as it is possible that the declaration may contain the necessary language as required by the Holly Lake ruling for the lien to be found to be superior over the lender’s mortgage lien.

The myth that turkeys can’t fly was proven untrue after it was discovered that turkeys can actually soar up to 55 feet in the air. For longer flights, however, they fly like the rest of us – in coach or business class. Or at least emotional support turkeys do, anyway.

Fox News recently covered a story on a turkey that ruffled quite a few feathers on a Delta flight, and it wasn’t because passengers caught a glimpse of the flying fowl from their windows. The turkey – which was brought on the flight as a regular passenger with its own assigned seat and all – was allowed on the flight as an emotional support animal. The traveler who owned the bird was able to provide the airline with the proper documentation required, forcing Delta’s hand into printing a boarding pass for the poultry. But when is enough, enough?

tkey3The honest answer: who knows? Lately, it seems as if the use of emotional support animals is becoming more widespread. Community associations, which are commonly faced with this issue, have been fighting for stricter standards for years. In fact, communities with pet restrictions that have fought passionately against accommodating your regular cat and dog are now having to battle against allowing animals such as pigs and even kangaroos to enter their communities.

The real crux of the matter is that as people get more and more creative with their requests, the law seems to stay silent.

The important thing to keep in mind is that there are certain steps community associations can take to evaluate the service/emotional support animal request to ensure its legitimacy. Remember, there is certain information an association can and cannot ask for, and wrongfully denying a request for a reasonable accommodation may result in a costly and protracted legal battle. When in doubt, consult with qualified legal counsel to guide you through the evaluation process to make sure that you are not exposing your community to any liability – even if the end result means having a turkey as a neighbor.

Click here to read the report in the Fox News website.

The firm’s Michael L. Hyman authored an article that appeared as a “My View” guest column in today’s Business Monday section of the Miami Herald.  Michael’s article shed light on the new estoppel bill that is being considered by the Florida Legislature and how it would lead to increased fees for most associations.  His article reads:

“. . . with the backing of the powerful real estate industry and title companies, a new version of the bill now seeks to take the burden of paying for the preparation of estoppels away from some of their clients and place it on the existing homeowners in the communities where their clients wish to buy.

House Bill 203, this year’s version of the measure, has already passed the House’s Civil Justice Committee, and it is on track for a vote during the 2016 legislative session that began on Jan. 12. It calls for changes to allow estoppel certificates to be delivered electronically and require them to include specific content as well as effective periods. The amount that associations can charge home buyers for the certificates would be capped at $500, and the certificates would be required to be prepared and delivered within 10 business days of a request.

None of these changes are the one that presents the most concerns for associations, although the requirement for a 10 business-day turnaround will prove difficult in complex cases that may include fines in addition to delinquent maintenance dues and/or litigation. Bear in mind that the size and sophistication of community associations varies greatly, and small associations with antiquated bookkeeping will find these difficult cases to be particularly daunting. In addition, any differences between the capped amounts that home buyers can be charged for the preparation of an estoppel and the actual cost of creating it would be passed on to all of the unit owners of an association.”

Michael’s article concludes:

“. . . the most troubling aspect of the bill for associations is that they and their unit owners would be on hook for these fees in many cases when sales fail to close. The bill calls for associations to wait for a sale of a unit to close until they get paid for the work and fees that they incurred in preparing an estoppel to facilitate the sale. If the home or condominium sale did not close, the association would ultimately be responsible for these fees and costs if it were unable to collect them from the seller of the unit, as would often be the case with so many distressed properties being sold by owners already delinquent on their association dues.

This aspect of the bill is sure to have a deleterious financial impact on many condominium associations and HOAs throughout the state. Real estate sales fail to close all of the time due to failed inspections, and the associated costs for conducting these home inspections are always rightfully borne by the prospective buyers. Estoppel certificate fees, which are typically less than $400, are actually among the smallest expenses of all of the closing costs and fees incurred in connection with real estate transactions.

Community associations in Florida have had to overcome dire financial strains in order to recover from the collapse of the housing market and the foreclosure crisis. HB 203 seeks to shift estoppel fees to the associations and their unit owners, and take them away from those who enter into contracts for the purchase of a property and then fail to close. Association directors and members as well as property managers should contact the Florida lawmakers for their district to voice their opposition.”

Our firm congratulates Michael for sharing his insights with the readers of the Miami Herald on the potential negative impact of this legislation on community associations in Florida.  Click here to read the complete article in the newspaper’s website.

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If your condominium’s governing documents allow dogs and renters, my bet is there’s a large number of both in your community. We get a lot of questions from condominium boards asking how they can reduce the number of renters and dogs in their buildings because – in the words of one manager: “Our building is going to the dogs!”

Depending on the language in your governing documents, you may have to keep living with the dogs unless or until your membership votes to amend them. If your association’s declaration does do not expressly restrict tenants from having pets, then an amendment will be necessary since a rule cannot conflict with a recorded restriction.

Although the association is authorized to adopt and enforce reasonable rules and regulations governing the operation and use of the condominium property, under Florida law in order for such rules to be valid and enforceable they must not contradict a recorded restriction in the association’s governing documents. In general, provisions in the declaration take precedence over any conflicting language in the rules.

esupdog.jpgWhile the Division of Condominiums has upheld and enforced association rules that specifically differentiate between unit owners and tenants, in such cases the declaration contained express provisions to substantiate the rule. Specifically, the Division upheld a condominium association’s rule restricting tenants from maintaining pets on the premises but allowing pet ownership by unit owners. In Grove Isle Condominium Association, Inc. v. Levy, et al, the association’s declaration provided that “[n]o pets may be kept on the condominium property except for usual and ordinary domesticated pets weighing less than twenty-five (25) pounds which may be kept by unit owners . . .” Based upon that provision, the arbitrator held that the board-adopted rule prohibiting tenants from maintaining pets was valid and consistent with the association’s declaration, which specifically granted unit owners the right to own pets – but was silent on the issue of tenants’ rights regarding pet ownership.

Similarly, in the arbitration case of Quatraine Condominium II Association v. Bradley, the association’s declaration provided that original owners of the condominium were permitted to maintain pets in the condominium residences. The board adopted a rule which provided that lessees were not allowed to have any pets. The arbitrator held that differential treatment between owners and renters was valid.

As such, we recommend that before your board starts promulgating rules that could be unenforceable and, if challenged, subject your condominium to expensive legal fees, check first with qualified legal counsel with regard to the options in your community.

CHEpipeslawsuit.jpgThe firm’s Stuart Sobel, Jason Rodgers-da Cruz and Alton Hale, Jr., together with partner Ervin Gonzalez with the firm of Colson Hicks Eidson, held a press conference today on our filing of a class action lawsuit concerning defective fire sprinkler systems and a national cover-up over a significant life safety issue in condominium towers in Florida and across the country. The attorneys believe the total damages for this case will exceed $1 billion nationwide.

The suit alleges that some or all of the defendant manufacturers had knowledge of the defects since 2007 from their own testing, yet they deliberately did not disclose it. It alleges that the defendants’ pipes are incompatible with an array of basic construction products and unsuitable for use in fire sprinkler systems. Their defects cause leaks, cracks and blow-outs in the sprinkler systems, depressurizing and rendering the systems unavailable for fire suppression, giving rise to the potential for loss of life, injuries and property damage. The news release on the lawsuit is available by clicking here.

The Miami condominiums named as the lead plaintiffs in the class action lawsuit are the Wind Condominium at 350 S. Miami Ave. and Latitude on the River at 185 Southwest 7th St.

Media coverage of the case includes reports by The Miami Herald, Daily Business Review, WFOR-CBS 4, WTVJ-NBC 6, WLTV-Univision 23, and WIOD-610 AM. Click below to watch the reports from CBS 4 and NBC 6.

Foreclosures by community associations against their delinquent unit owners were virtually unheard of 10 years ago, as lenders would almost always move quickly with their own foreclosures against these owners, and their first-mortgage liens are superior to those of associations. Today, the practice has become the prudent approach for cases involving lenders that try to place their mortgage foreclosures into a holding pattern while they wait for the housing market to make a complete recovery.

Many community association attorneys now counsel their clients to complete their own foreclosure actions in certain cases in advance of the banks in order to acquire and rent the residences before the lenders’ foreclosures are finalized. With so many lenders taking years to complete their foreclosures, the revenues from these rentals have helped to relieve a great deal of the financial strains that some associations have faced.

Last year, the state legislature added some clarity to the law governing the liabilities of foreclosing lenders to associations for the prior owners’ association debts. The banks had argued in a number of cases that associations which foreclose in advance of mortgage lenders have effectively put themselves in the position of the prior owner, which is not entitled to collect any past-due fees. An amendment to the law fixed this loophole, and now lenders are still held liable for the safe-harbor liability caps to associations that have completed their own foreclosure in advance.

As such, the question for associations facing lender foreclosure cases that appear to be dragging on is when they should pull the trigger and foreclose their outstanding lien held on the property for unpaid past-due assessments. The answer requires qualified legal counsel to carefully review the case file along with the property appraiser website, tax collector website, court dockets and official records. Considerations that always have to be taken into account include the amount that is owed under the first mortgage, if there is also a second mortgage on the property, the exact status of the mortgage foreclosure case, and the status of the tax records on the property.

MT2.jpgIn addition to these universal considerations, some cases may also include issues involving the deterioration of the unit itself. Associations will need to carefully consider their options involving residences that will require major renovations in order to prepare them for rental. This is very important, as associations cannot rely on third parties to purchase these properties via the foreclosure sales but rather they must prepare to take title to the units.

Another important aspect of these prolonged foreclosure cases is that they can set the tone for associations that wish to take a firm and uniform stance on their collections and payment-enforcement efforts. Sending a demand letter and recording a claim of lien but going no further, even when a foreclosure that should take only a few months to complete begins to approach the one-year mark, is probably not the ideal precedent for associations to set.

While the banks are beginning to move their mortgage foreclosures a bit quicker, oftentimes they are still moving far too slowly for associations which are being burdened by the property’s outstanding unpaid assessments. Together with qualified legal counsel, associations should carefully weigh all of the above-mentioned matters and considerations to determine whether to move forward with their own foreclosure actions in advance of lenders or to wait to enforce their liens.