Florida HOA Lawyer Blog

Five years ago, it was rare to see community associations take title to properties using their lien and collection rights. In years past, it was also rare to see community associations leasing newly acquired units in order to recoup past-due fees and assessments from delinquent owners. In light of the increase in association foreclosure actions however, it has now become commonplace to see associations become unit owners, as bank foreclosures are constantly delayed and properties that could yield significant rental income are sitting idle in foreclosure limbo. Community associations that foreclose their claims of liens and take ownership of residences in their communities should be mindful of these helpful guidelines when considering whether to offer these residences for lease.

Prior to entering into lease agreements with tenants, it is important for community associations to review the provisions of their governing documents in order to determine whether there are any restrictions governing rentals. Once a community association acquires title to a unit or home, the association assumes the responsibilities and obligations in the governing documents that apply to property owners. Therefore, associations that become property owners are not exempt from complying with the leasing rules and restrictions set forth in the governing documents. Community associations should be careful to follow the leasing restrictions promulgated for property owners in order to avoid challenges from owners alleging selective enforcement. If, for example, the community association has a tenant approval process that includes a background check, application, screening fee and common-area security deposit, the community association should follow and document each and every step in the screening process prior to approving and entering into a lease agreement with a prospective tenant.

Community associations should also work with experienced legal counsel who is able to draft a lease agreement that incorporates sufficient protections for the association in the lease transaction. For instance, if an association intends to lease property that is subject to a pending lender foreclosure or a superior mortgage lien, the lease agreement for the property should disclose the superior lien interest. The lease agreement should also include releases of liability in order to protect the community association from legal action by the tenant in the event the lender foreclosures its superior lien and the tenant is required to vacate the residence. Although the "Federal Protecting Tenants at Foreclosure Act" provides that foreclosing lenders must give tenants at least 90 days prior notice if the lender intends to terminate the tenancy once it takes possession of the property, an association could be exposed to liability if the potential foreclosure is not disclosed to the tenant and proper safeguards are not in place in the lease agreement to protect the association's interests.

The lease agreement should also include provisions addressing tax certificates that may be issued for outstanding property taxes. Since governmental tax liens are superior to community association liens, these tax liens are not extinguished by association foreclosure actions. Although a community association is not liable for delinquent taxes that accrue prior to the association acquiring title to the property, the unpaid property taxes could lead to tax certificates being issued and sold through tax sales or auctions. If the tax certificate is not redeemed within two (2) years after it is issued (i.e., satisfactions of all delinquent taxes, including interest and costs), the purchaser of the tax certificate can apply for a tax deed to the property. Once a tax deed is issued, the grantee of the tax deed is entitled to the immediate possession of the property, and the tenant will most likely be required to vacate the residence. Therefore, it is essential that the terms of the lease agreement also incorporate adequate disclosures to the tenant and provisions to protect the community association in the event of a tax sale.

It is also important for community associations to maintain adequate property and casualty insurance for the residences that the association intends to lease. Community association boards should consult the association's insurance agent in order to ensure that the association has a landlord insurance policy or some other level of insurance coverage to protect it against damages to the improvements within the residence, personal injuries that may occur within the residence, and damages and claims arising due to the acts or omissions of the tenant. Community associations leasing properties should also require that their tenants maintain renter's insurance policies, and that the association is named as an additional insured and certificate holder on the tenant's policy. Furthermore, evidence of the tenant's insurance should be kept as part of the community association's records.

Community associations should be very aggressive in their approach to using their lien and foreclosure remedies to take title to properties and rent them in order to recover past-due fees and assessments. By using these guidelines and working with experienced counsel to develop and negotiate the lease agreements, associations can effectively lease these residences in order to help to recover from the foreclosure crisis.

The repercussions of the robo-signing debacle are still reverberating in foreclosure cases that are being heard today in the South Florida courts. Delays and dismissals of the banks' foreclosures due to improper paperwork and loan documentation have become the norm, and this is dealing another significant financial blow to the community associations that have already been struggling with unprecedented numbers of foreclosures during the last several years.

The South Florida community association attorneys at our firm have found that it has become imperative to take a very active role in the banks' foreclosure cases in order to help ensure that any delays are kept to a minimum. Many bank foreclosures are being delayed or dismissed because the bank's paperwork is questionable or the homeowner has retained a foreclosure defense attorney to mount a number of strategic defenses. This makes it vital for the associations and their legal counsel to regularly monitor the dockets for these cases, and to quickly take action to speed things along as necessary.

Associations can enter a request for a status conference on the case, which would enable them to determine the exact progress of the case and the nature of any delays. They can also file a Motion to Compel, which essentially asks the court to require the bank to take specific actions by set deadlines. If the association takes title to a property via its own foreclosure action then, in the bank foreclosure, the association can make a request for a summary judgment in the bank's favor. If the delays are taking place in the earliest stages of the bank's case, the association's attorneys should make these efforts to notice the case for trial and move it to the final judgment hearing as soon as possible. If the bank's case is almost complete and the bank has received a final judgment, the association can ask the court to set or reset the sale date for the property. Many banks that reach this stage are cancelling their foreclosure sales just days prior to the sale date, and the courts have been receptive to requests from the associations to immediately reset the sale dates.

If a bank's foreclosure is dismissed, or even prior to it being dismissed, it may be prudent for an association to proceed with its own lien foreclosure action, as the bank's delays or dismissal creates a window of opportunity. If the association is comfortable owning the residence and the governing documents allow rentals, then the association can and should quickly foreclose and take title to the residence, as it is then able to begin renting the unit to recoup the past-due fees and assessments. If the bank's foreclosure is dismissed, it could take the bank a significant amount of time for it to gather missing documentation and try again to foreclose on the residence. During that time, the association is able to use the residence to generate revenue.

As the delays and dismissals in the lenders' foreclosure cases continue to slow the pace of the entire process, the community associations that act quickly to move the bank cases along or take title to the properties are the ones recovering from the housing meltdown as expeditiously as possible. Our attorneys will continue to write about these and other pressing issues for Florida community associations, and we encourage association members, directors and property managers to submit their e-mail address in the subscription box on the right in order to automatically receive all of our future articles.

For some time now an association assessment debtor was precluded from arguing that their failure to pay assessments which led to their association's foreclosure of the debtor's unit (or lot) was due to the association's failure to maintain the common areas. In other words, an owner's failure to pay assessments could not be justified on the basis of the association's failure to perform its duties. In far simpler terms, the courts have held that the ol' "tit for tat" argument was not sufficient to avoid paying assessments.

In the 1987 case of Abbey Park HOA v. Bowen, the 4th District Court of Appeal held just that. In this seminal case, Bowen failed to pay her monthly assessments, which resulted in Abbey Park HOA filing an action to foreclose its claim of lien against Bowen. In response, Bowen filed an answer, affirmative defense and counter claim. The affirmative defense asserted that Bowen was not liable for the assessments because Abbey Park failed to maintain the common elements as per the declaration of covenants. The counter claim sought a mandatory permanent injunction to compel Abbey Park to maintain the common elements and damages for Abbey Park's alleged breach of the declaration.

In reliance on an earlier 1980 4th DCA opinion, Sandles v. Sheridan Lakes, the 4th DCA held that the affirmative defense of failure to maintain the common elements "is inadequate as a matter of law." Since then, courts have routinely held that an association's failure to maintain common elements is not a viable excuse to avoid paying assessments.

Fast forward to a brand new decision, E. Qualcomm v. Global, issued April 27, 2011: In this very recent 4th DCA case where the court's opinion is still wet on the page and the parties still have time to appeal, the assessment debtors alleged as an affirmative defense that their association failed to maintain the common areas and, as a result, the owner was entitled to a "set-off." The owner also raised a counter claim for the association's alleged failure to maintain the common areas.

You're right if you think this sounds familiar to the Abbey Park case. So why did the 4th DCA reverse the trial court's summary judgment ruling entered in favor of the plaintiff/association? Some might argue that this new case eviscerates Abbey Park.

Whoaa... slow down!

The E. Qualcomm v. Global holding is not at all contrary to the long standing principle that a counter claim for failure to maintain common areas is not a viable defense to an association assessment foreclosure. In this recent case, while it's true the appellate court reversed the summary judgments that were granted by the trial court in favor of the association as to possible damages due to the defendant as a result of the counter claim and the association's assessment foreclosure, the appellate court did not reverse the assessment foreclosure summary judgment because the association failed to maintain the common areas. Rather, it did so because the association had not properly refuted the set off counter claim used as an affirmative defense.

The court did not even mention its own prior holding in the landmark Abbey Park case. Perhaps the court didn't do so because it wasn't necessary. Here, the appellate court reversed the partial summary judgment of foreclosure in favor of the association because it found the association had not properly refuted them. Maybe if the association had argued the rationale of Abbey Park during its summary judgment hearing, then if the trial court had included a detailed discussion of the effect of Abbey Park in its resulting order, perhaps at least the partial summary judgment of foreclosure entered on behalf of the association would have survived?

In any event, during the appeal, the defendant paid its assessment deficiency. The debtor's decision to pay the back assessments due and owing could also be the reason why the appellate court did not rely on its prior Abbey Park decision. It did not have to, as the issue was mooted by the debtor's payment (or, could it be the result of the fact that the lawyer who initially lost the trial court portion of the Abbey Park case is now a sitting judge on the 4th DCA?). Sadly, this also means that we'll never get the needed clarity, and this case will, no doubt, be misconstrued to mean something contrary to what it actually does mean. Nevertheless, the decision does highlight yet another reason for associations to properly maintain the common areas/elements.

The community association attorneys at our firm have seen our share of delay tactics and legal ploys by lenders in the aftermath of the robosigner-fueled faulty foreclosures that clog the courts. However, the opinion filed today by the Third District Court of Appeal has caught our collective attention as one of the most glaring examples of the problems with lenders' blatant disregard for following the most basic and essential rules of the entire process.

The ruling should prove embarrassing for Citibank, as it paints the picture of a financial institution's improper attempts to promote its own interests, much to the obvious detriment of a condominium association. In the ruling, the court chronicles a history of disturbing facts about how Citibank managed to maintain a condominium at the Jade Winds Association in an "extended limbo" since April 2009.

The Third District details how Citibank failed to notify the attorneys for the condominium association of its Emergency Motion to Cancel and Reschedule Foreclosure Sale, which Citibank's attorney presented to the court at the last minute on the date of the sale in October 2010. In addition, Citibank asserted that it needed additional time to determine whether the defendant qualifies for a loan modification, which was completely false and misleading since the condominium association held title to the residence as of August 2009.

Notably, the court observes that: "Unfortunately, the irregularities did not end there." The condominium association filed and won a Motion for Sanctions against Citibank, which also provided that "the court further orders that the sale scheduled for January 4, 2011, SHALL NOT be cancelled." Appallingly, less than a month after this order on December 30, 2010, Citibank filed a second Motion to Cancel, this time requesting that the sale be postponed until after February 1, 2011, to enable it to complete its review of foreclosure documentation. This second motion omitted the fact that the sale had previously been reset with a court order indicating that it cannot be cancelled. And, true to form, Citibank again failed to mail a copy of the Motion to Cancel Sale to the attorneys for the condominium association.

The appeal comes as a result of Citibank being granted its second sale cancellation based purely upon "affidavit review" without notice to the condominium association. The court found that Citibank clearly failed in its obligation to serve the attorneys for the condominium association with the second motion and notify them of the hearing. Highlighting Citibank's misconduct, the court observed that "Citibank knew that its actions were inappropriate." The Third District concluded that "[b]ased on Citibank's actions, this condominium unit has basically been in extended limbo since April 2009, which is when the final judgment of foreclosure was entered in favor of Citibank. It is time for this condominium unit to be sold."

In addition to reversing the court order on the second Motion to Cancel and issuing directions to set the foreclosure sale, the opinion also states that "the Division Circuit Court judge and/or Foreclosure Master Calendar judge are free to impose appropriate sanctions against Citibank and/or its counsel based on the aforementioned conduct."

This decision is emblematic of the severe problems with the banks' handling of foreclosures in the wake of the meltdown in the housing market. This type of misconduct hinders the recovery in residential real estate that is starting to take hold, and it is our hope that cases such as this will serve to expose banks for their appalling and embarrassing misconduct.

By Vincent B. Flor and Jonathan M. Mofsky

The collapse of the Florida real estate market is, at this point, old news, but community associations are still dealing with its aftershocks. Over the last five years, you'd be hard-pressed to find an association that has not had to deal with a bank foreclosing on a property in the association's community. No one expected that the resulting crisis would last this long.

Communities often get served with bank foreclosure complaints when owners default on their mortgage loans. On top of that, when owners aren't making their mortgage payments, they are also usually not paying community assessments. That being said, if a bank is foreclosing, an association is generally faced with budget shortfalls and other challenges in sustaining its community's day-to-day operations. There are several facets to the current assessment-delinquency epidemic, but how and why should communities deal with this particular problem that has become so widespread?

By way of a background, associations are served, and named as defendants, in bank foreclosure cases because they have junior lien interests in the residence that is involved in the foreclosure. Condominium associations and HOAs are also included in bank foreclosure cases because community association statutes provide that a lender can limit its liability to associations when it takes title to a property via foreclosure if it holds a first mortgage and the association is included in its case. However, if a foreclosing bank fails to satisfy those statutory requirements and ultimately takes title to a property, it sits in the same general position as anyone else taking title to that property: the association can demand that the bank pay all past-due assessments, interest, late charges, attorney fees, and costs. It's no surprise that banks try to take full advantage of the laws limiting their potential exposure to community associations.

Community associations should react to bank foreclosures by filing a response with the court. The most important reason to respond is so that an association is aware of, and asserts, its rights against the bank. First, there is some case law suggesting that a junior-lienholder, such as a community association, may waive rights when it fails to participate in, or defend against, a bank foreclosure case. Filing a response helps to dispel a court's potential perception that an association has surrendered its legal rights by not raising or defending them, or by submitting to a default because it didn't respond to the bank's case. On the other hand, doing nothing could, among other things, cost a community its ability to enjoy valuable statutory protections, or to recover surplus money remaining in the court registry after a bank foreclosure sale.

Second, in deciding to address, and respond to, a bank foreclosure, an association has an opportunity to review the title to a property and gather a wealth of information to inform its collections decision-making process. Most significantly, a title review allows a community to determine whether a foreclosing bank actually holds a first mortgage on a property. If a bank is not foreclosing a first mortgage, then the association might (depending upon when the mortgage was originated) be able to assert a statutory right to recover all past-due assessments and related collections charges from the bank, should the lender wind up owning the property. If an association doesn't know where a foreclosing bank stands in terms of mortgage priority, the community never gets a chance to avoid potentially needless losses from unpaid assessments.

Also, a title review in connection with preparing a response to a bank foreclosure can help a community association ascertain whether a property has equity, i.e., whether a property is worth more or less than the recorded mortgages and liens against it. A property with equity (net positive value) is much more likely to be purchased at a foreclosure sale by someone other than a bank claiming limited liability to an association. That knowledge can help a community decide whether to wait for a bank to foreclose and produce a new owner who is obligated to pay assessments, or to proceed with its own foreclosure efforts. If a property has equity such that a third party is more likely to buy it at a public foreclosure sale, the association might be well-served by moving forward with its own collections efforts (or bringing a cross-foreclosure claim in a bank's case).

In responding to a bank foreclosure, an association can (and should) ask its attorney to establish a regimen of monitoring the bank's case. Keeping track of a bank case's progress puts a community in a position to make better budgetary forecasts, stay abreast of any changes in property ownership, and become aware of the potential availability of surplus funds to be recovered for a community's benefit. Additionally, monitoring the case 's progress may reveal opportunities for an association to ask the court to force the bank to proceed with its case if there are unreasonable delays.

In addition, by responding to and monitoring these foreclosure cases, community associations can increase the likelihood that they will receive notice of owner bankruptcy filings. An owner's bankruptcy filing can have a dramatic effect on the amount that an association can expect to recover on a delinquent account. For example, there is somewhat-recent bankruptcy law in effect which can give rise to an owner avoiding all pre-bankruptcy-petition assessments in the absence of a community association properly contesting such a result. Having notice of, and participating in, owner-bankruptcy proceedings increases the likelihood that a community gets a chance to fight against a total write-off of delinquent assessments.

Considering all of these benefits for community associations, our attorneys who focus on working with South Florida condominium associations and HOAs work with our clients to help them to respond to and monitor bank foreclosure cases. Filing a response, typically in the form of an answer substantiated by a title review, and monitoring a bank case is inexpensive relative to the amount of unpaid community assessments and the related charges in a given case. Doing nothing in response only cheats a community out of information and opportunities to assert its legal rights, better-manage its fiscal affairs, and minimize its assessment-losses.

Recent Articles Discuss Association Reserves, Member Directories, Lender/Foreclosure Stalling Remedies, and Other Important Topics

The South Florida community association attorneys with our firm take great pride in serving as a source for authoritative and insightful information on the issues affecting condominium, homeowners', cooperative and commercial associations in the State.

A few of the topics that I've recently covered, along with the links to the complete articles, include:

• Bank Foreclosures Taking Forever? - There are some simple strategies that community associations can use to make sure that lenders' foreclosures lead to timely sales of the foreclosed properties. This article explains several strategies to consider. [Full Story]
• Reserves, Reserves, Reserves - This article offers a few helpful hints for condominium and homeowners associations to consider in the budgeting of their reserves. [Full Story]
• Can We Still Publish Our Membership Directory? - Changes based on last year's Condo and HOA Acts in Florida have led to questions as to whether community associations can publish the phone numbers and e-mail addresses of their members as part of their membership directories. This article examines the issue. [Full Story]

I will continue to post summaries and links to my column from the Palm Beach County Condo News in our blog on a regular basis. Be sure to submit your e-mail address in the box on the right to receive all of our blog posts. Of course, you are able to opt out at any time.

By Vincent B. Flor

As the foreclosure crisis begins to unwind, short sales have proven to be one of the most popular types of foreclosure avoidance measures for banks and homeowners in South Florida. For community associations, these transactions, in which the bank agrees to accept less than what it is owed, can bring new buyers for properties whose existing owners have typically not been paying their maintenance fees and assessments. There are many reasons for community associations to accept short sale proposals when they arise, but the attorneys who focus on working with South Florida condominium and homeowners associations at our firm are advising and working with many associations to explore possibilities for counteroffers with higher payments for past-due fees to the association.

When a short-sale transaction is negotiated between a lender and their borrower/homeowner, the community association, which is also a lienholder on the residence for past-due assessments, will usually be asked to approve the transaction. The association is typically offered to accept just a fraction of what it is owed, since banks understand that the association will be highly incentivized to replace the delinquent property owner with a new buyer who will presumably begin paying monthly assessments accruing after they become the new owner. If the association does not accept the offer and approve the deal, then the transaction will probably not be finalized and the bank must continue with its foreclosure proceedings against the property.

However, for community associations which believe that they would be better served by risking the delay that the foreclosure process presents rather than accepting an offer that they believe is too low, a counteroffer for a greater amount that they would be willing to accept for the short-sale transaction can and should be made. In many cases, the bank, seller, buyer and brokers are also very eager to see the sale finalized, and they may be willing to make additional financial concessions to the association in order to get the deal done. The key for the association is to understand and work within their level of risk tolerance for the sale being scrapped and the unit going through the foreclosure process.

Our community association lawyers are working closely with South Florida condominium and homeowners associations to help them understand and assess their options in making counteroffers in short-sale transactions. We write about issues such as this on a regular basis, and we encourage the members, directors and managers of Florida communities to submit their e-mail address in the box on the right in order to receive all of our future blog posts.

The foreclosure epidemic has caused significant financial difficulties for South Florida homeowners and condominium associations, and many of the strains are caused by unnecessary and troublesome delays from the foreclosing lenders. As a result, the Florida Supreme Court has adopted amendments to the rules of civil procedure relating to mortgage foreclosures based on the findings of a report by the Task Force on Residential Mortgage Foreclosure Cases, which was issued under a directive by the court. In December, the Fifth District Court of Appeals reaffirmed that the Florida courts are going to stringently enforce these amendments and policies based on the Foreclosure Task Force, as it upheld a condominium association's right to secure a court order for a post-judgment judicial sale.

In the appeal, the lender contended that trial court was not authorized to order a post-judgment judicial sale of the property or had abused its discretion in ordering the sale, which came as a result of the court's approval of a motion by the attorneys for the condominium association. The lender argued that as the judgment holder, it had the right to control when, if at all, a foreclosure sale takes place, and as the junior lien holder, the association could not demand that a foreclosure sale date be set.

In its decision, the appellate judges ruled that trial court's order comports with the Florida statutes and the policies proposed by the Foreclosure Task Force and adopted by the Florida Supreme Court in its amendments in early 2010. The ruling notes that the amendments include a list of reasons for the cancellation of a scheduled judicial sale, and the stipulation that if a sale is canceled, the plaintiff then moves to have it rescheduled. The ruling concludes: "In other words, the supreme court, in adopting the [Form 1.996(b) entitled "Motion to Cancel and Reschedule Foreclosure Sale], apparently did not contemplate that a judicial sale would be left in limbo."

The condominium association lawyers at our firm and throughout the state are going to be able to reference this decision to argue that community associations which are junior lien holders to foreclosing lenders are able to have the trial court set a sale date when the lender refuses to do so. We will continue to monitor and write about important court decisions for Florida community associations, and we encourage those who are interested in this information to enter their e-mail address in the box on the right in order to automatically receive all of our future blog posts.

Homeowners associations and condominium associations from Miami-Dade, Broward and throughout South Florida are coping with the challenges of the record numbers of foreclosures and distressed properties in today's housing market. In order to learn more about some of the most troublesome issues and questions that associations are facing when individual unit owners default, approximately 45 community association members and property managers attended a breakfast seminar hosted by the Community Associations Institute's Southeast Florida Chapter featuring a presentation entitled "To Foreclose or Not to Foreclose? That is the Question."

The May 25 seminar, which qualified for one-hour of CEU credit for community association property managers, focused on the legal strategies and tactics that associations should use in their efforts to collect from delinquent unit owners. It covered a considerable number of real-world case studies and examples as well as some of the most recent court rulings, and many of the attendees were able to have their specific questions answered by Guillermo Mancebo and Howard Perl, who are also attorneys from the law firm who focus on homeowners and condominium association matters.

Many of the attorneys at Siegfried, Rivera, Lerner, De La Torre & Sobel who focus on representing and counseling community associations throughout South Florida are active members of the local CAI chapters. This important organization provides an excellent forum for the members and officers of local HOA and condominium associations as well as their property managers to exchange ideas and learn about the latest developments affecting community associations. We look forward to leading more helpful presentations for the South Florida CAI chapters in the future, and additional information on the Southeast Florida Chapter is available at www.cai-seflorida.org.