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A recent ruling in Broward County Circuit Court could have significant implications for Fannie Mae and the community associations with units in various stages of bank foreclosure. In the case of Federal National Mortgage Association v. Park Place at Pompano Condominium, the court ruled that Fannie Mae was not entitled to the statutory “safe harbor” that limits the amount of assessments that first mortgagees must pay to associations when they take title to a unit through foreclosure.

Under Florida law, first mortgagees — or their successors or assigns — who acquire title to a unit through foreclosure or a deed in lieu of foreclosure are only responsible to condominium associations for payment of unpaid condo dues in an amount equal to 12 months of assessments or one percent of the original mortgage debt, whichever is less. In cases where owners have not paid their condo dues in years and the bank finally takes title to the unit, this usually amounts to just a couple of thousand dollars.

However, in the Park Place ruling, the court found that even though Fannie Mae bought the loan and had been the assignee of the first mortgagee’s right to bid at the foreclosure sale, Fannie Mae did not receive an assignment of the mortgage as is required by Florida law. When Fannie Mae filed an action against the condominium association to have the court determine whether it was entitled to the “safe harbor” amounts, the circuit court agreed with the association that an actual “assignment of mortgage” had to be executed in order for Fannie Mae to be considered an assignee of the first mortgagee and to receive the safe harbor protections afforded to lenders in foreclosure cases.

fmae.jpgThe ruling applied the provisions of section 701.02, F.S. which provides that an assignment of a mortgage is ineffective in law or equity against creditors and subsequent purchasers “unless the assignment is contained in a document, that in its title, indicates an assignment of mortgage and is recorded according to law.”

Prior to this ruling, Fannie Mae had consistently been able to cap its exposure for past due condominium assessments in Florida by claiming to be the equitable assignee of the first mortgagee. However, in light of the recent ruling in this case, Fannie Mae may now be treated like any other new owner acquiring title to a foreclosed property, meaning it may be found to be jointly and severally liable with the prior owner for all unpaid common expenses and assessments.

As this was a circuit court ruling, it remains to be seen whether other Florida circuit courts will follow along the same lines or whether they will continue to find that Fannie Mae is the equitable assignee of the first mortgagee. In addition, the federal mortgage agency may now decide to alter its procedures and go through the formalities of assigning the loan.

Our firm’s other community association attorneys and I will monitor the repercussions of this decision as it plays out in similar cases in the coming months, and we will provide updates for community associations and property managers as they become available in this blog. 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 automatically receive all of our future articles.

The housing market may be in recovery mode, but many community associations continue to face significant challenges with unpaid assessments from unit owners. One of the remedies that our firm’s community association attorneys have discussed in prior articles in this blog is the ability that associations have to collect the rent directly from the tenants of owners who are delinquent in the payment of their monthly association dues. In this two-minute video, I discuss how associations are now routinely demanding and receiving the rent payments directly from the tenants of the owners who fall behind on their assessments.

 

 

Last year, several of our firm’s community association attorneys wrote in this blog about the decision by the Third District Court of Appeal in the case of Spiaggia Ocean Condominium Association Inc. v. Aventura Management LLC that has since caused many Florida condominium associations to reconsider their collections strategy. In the split decision in early 2013, the appellate panel ruled that when the association for the Surfside condominium obtained title to a unit through its own foreclosure action, the association disavailed itself of its ability to collect assessments from the third-party purchaser at the bank’s foreclosure sale. The appellate court reversed the order from the Miami-Dade trial court and remanded the case back to the trial court. However, the trial court again ruled in favor of the association, and the third-party purchaser appealed to the Third DCA. This time, the appellate court reversed the ruling and remanded the case back to the trial court with specific instructions to enter judgment in favor of the third-party purchaser.

The new unanimous appellate panel found that the trial court misinterpreted the appellate court’s original majority opinion last year, but Judge Leslie B. Rothenberg wrote for the panel that the previous 2-1 split decision was “somewhat ambiguous” and “could have been clearer.”

3rd district court of appeal.jpgIn the 2013 majority opinion, the appellate court found that Florida law clearly provides that “the previous owner is jointly and severally liable” together with the new owner for all unpaid assessments that come due up to the time of the transfer of title. “The plain language of the Statute does not state or suggest that an exception is to be made when the previous owner is the condominium association.” Therefore, by positioning itself as the “previous owner,” the majority held that the condominium association became liable for the unpaid assessments and could not then impose that liability solely onto the eventual new owner.

After the case was remanded back to the trial court, the trial court ruled that all three parties were jointly and severally liable for the unpaid assessments, but that the association as the creditor could collect in full from any of the three parties it chose. The trial court ruled that the third-party purchaser was required to pay the full amount of unpaid assessments, and that its only remedy was to seek contribution from the prior owners: the association and the original owner.

The new appellate ruling concludes that the trial court “erred in holding Aventura Management jointly and severally liable with the prior two owners,” the association and the original owner who went into foreclosure. The new appellate opinion finds that the third-party purchaser “cannot be held liable for the unpaid assessments of the original owner.” The third-party purchaser could only be held liable for the unpaid assessments of the immediate prior owner, the association.

The Third DCA’s recent ruling in this case sends a clear message to Florida condominium associations that when they take title to a unit, they will be unable to collect prior owners’ past-due assessments from the subsequent third-party purchaser at the bank’s foreclosure sale. The Florida legislature remedied this loophole for homeowners associations last year by amending the law to exclude homeowners associations, under Florida Statutes Chapter 720 governing HOAs, from being considered as the previous owner under the statute when HOAs take ownership of foreclosure units prior to banks’ foreclosures. We will have to wait and see whether the Florida legislature will take similar action in 2014 in order to remedy this issue for condominium associations under Chapter 718, Florida Statutes.

I have written several articles in this blog about the challenges that community associations are facing with unit owners who file for personal bankruptcy and utilize what is known as the “lien stripping” provisions of the bankruptcy code to avoid pre-bankruptcy maintenance assessment arrears due to their associations. If approved by the bankruptcy court, these code provisions enable a debtor in bankruptcy to wipe away second mortgages and association liens tied to their real property if they are able to demonstrate that they owe more to their first mortgage lender than what their home is worth. However, recent court decisions are a boon for the associations that lose certain of their lien rights against these bankruptcy debtors and then attempt to collect the past-due assessments from the subsequent buyers of the properties.

In a case recently decided by one of our local bankruptcy judges in the Southern District of Florida, the court determined that even if an owner strips off a condominium association lien because their unit lacks equity and is ultimately released from their pre-bankruptcy personal obligations to the association, the subsequent owner will not receive the benefit of the prior owner’s lien strip off and will remain liable to the association for the prior owner’s unpaid assessments that were due at the time title to the unit transferred to the subsequent owner. bankruptcy court sign.jpg In other words, no matter what a unit owner in bankruptcy accomplishes in their bankruptcy case with respect to their liability for maintenance assessments, nothing can impact a subsequent owner’s personal liability for the unpaid assessments and nothing in the prior owner’s bankruptcy impacts the association’s right to pursue payment from that subsequent owner.

Similarly, in a case in which I represented the community association, a new third-party purchaser at the prior owner’s foreclosure sale argued in court that they were not liable for the prior owner’s unpaid assessments because the prior owner filed bankruptcy and received a personal discharge from his obligations to the association. The new owner asked the court to give it the benefit of the prior owner’s bankruptcy discharge and the resulting avoidance of the prior owner’s personal liability to the association for unpaid assessments.

I successfully demonstrated to the court that the bankruptcy discharge had no legal bearing on the statute assigning liability for past unpaid assessments to new property buyers. The court concurred and issued a summary judgment in favor of the association, ruling that the subsequent purchaser does not receive the benefit of the prior owner’s bankruptcy discharge.

The lien stripping provisions of the bankruptcy code have definitely taken a financial toll on many community associations throughout Florida. Thankfully for the associations, these recent rulings by a state circuit court and local bankruptcy court should provide some clarity that the courts are not going to exacerbate the damage lien stripping brings upon an association by applying it to subsequent buyers. Our other community association attorneys and I will continue to write about important issues for Florida associations in this blog, and we encourage association directors, members and property managers to submit their emails in the subscription box at the top right of the blog in order to receive all of our future articles.

The 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

  1. Avoid Delays – Delays in taking action to collect delinquent dues and assessments from owners only encourage them to continue to avoid paying their share. It is natural to sympathize with owners who are struggling financially, but association boards have a fiduciary duty to protect the interest of the association as a whole. Associations should make a commitment to adopting uniform collections policies and procedures that call for expeditious actions to begin the collections process as soon as the law allows with all owners who become delinquent in their payments. No owner’s account should be treated differently from another owner. This will avoid the defense of selective enforcement and gives everyone in the community the message that they must carry their part of the burden.
  2. Rely on Experts – Associations should rely on their attorneys to guide them through the different options that they have available to collect from delinquent owners. Part of being automatic with your collection process is knowing when to take the next step and what that step should be. The boards should require that their attorneys take the time to explain the entire collections process and how every facet is to be implemented in order to maximize the results of their efforts.
  3. Review and Understand Your Governing Documents – It is imperative for boards to review the association governing documents and bylaws in order to determine whether new rules need to be adopted to establish uniform collections procedures for the property. These rules, which can be implemented by a meeting and vote by the board, will help to avoid any arbitrary selective enforcement, which can lead to successful defenses by the unit owners in a foreclosure action.
  4. Issue Demand Letters Quickly – Some associations that do not establish uniform collections procedures slow down the start of the process by delaying the use of a demand letter from the association attorney immediately once an owner’s payments are delinquent. There are many owners who will refuse to pay until they receive such a letter, so it is vital for the associations to issue them as quickly as possible.

lien form

  • File a Lien – Florida law requires that condominiums wait at least 30 days and HOAs at least 45 days from the issuance of the demand letter before they can file a lien against the owner’s property for continued nonpayment. Associations should expeditiously exercise their lien rights by filing the claim of lien against the owner’s property immediately after the statutory waiting period expires.
  • File Foreclosure Actions – Florida law requires that associations provide a delinquent owner with an intent to foreclose letter prior to initiating a foreclosure action. Condominiums must wait at least 30 days and HOAs at least 45 days from the issuance of the intent to foreclose letter before filing the foreclosure action. Once the lien is in place and the owner has been provided with an intent to foreclose letter, associations and their attorneys should assess the status of any foreclosure actions by banks with superior first-mortgage liens in order to determine if delays in the lenders’ foreclosure case creates a window of opportunity for the association to quickly foreclose and take title to the delinquent owner’s unit. Many bank foreclosures are taking years to complete, and during that time associations can take title to the unit and lease it in order to begin recouping the past-due balances.
  • Move Quickly to Collect from the Tenants of Deadbeat Landlords – A Florida law that became effective July 1, 2010, and has become a very effective collections tool allows associations to demand and collect the rent from the tenants of delinquent owners. Associations should move quickly to send demand letters to the tenants of delinquent owners requesting that they begin paying all of their monthly rent directly to the association or face eviction, as the law now allows.
  • Offer Payment Plans – In today’s economy and housing market, associations are finding that offering payment plans to owners who fall behind but want to avoid foreclosure and keep their residence makes a great deal of sense. It may not lead to recouping all of the past-due balances as quickly as the associations would like, but by offering and agreeing on a reasonable repayment plan the associations can recoup a great deal of what they are owed over time while avoiding the headaches, delays and expense of continued collections and foreclosure squabbles.
  • Prompt Replies to Owners’ Responses – Associations and their attorneys should work to ensure that they respond quickly to owners who raise any questions or concerns after receiving the initial demand letter or the intent to foreclose letter. If a foreclosure action is initiated against the delinquent owner, this enables the association to demonstrate that they responded to the owner in a timely fashion and allows them to avoid any potential defenses by the owner that they previously tried to resolve the matter but were unable to get a response. Boards should immediately refer any responses by the delinquent owner to the attorney, who can in turn reply to the owner as quickly as possible.
  • Take Away Owners’ Rights to Use Amenities and Vote in Association Matters – Florida law allows an association to suspend the right of a member, or the member’s tenant, guest, or invitee, to use common areas and facilities for nonpayment of monetary obligations which are more than 90 days delinquent. pool 2.JPG These amenities include the pool, hot-tub and fitness center, as well as access to the clubhouse and the express entry gate for residents. The governing documents of the association do not need to provide for such suspension, but a suspension does not apply to the portions of the common areas used to provide access or utility services to the parcel and may not impair the right of an owner or tenant to have vehicular or pedestrian ingress and egress from the parcel, including the right to park. An association may also suspend the voting rights of an owner for nonpayment of monetary obligations more than 90 days delinquent. Suspension of use or voting rights imposed for delinquent monetary obligations must be approved at a properly noticed board meeting. Upon approval, the association must notify the parcel owner and, if applicable, the owner’s occupant, licensee or invitee by mail or hand delivery. Many communities have found that the ability to suspend use and voting rights has been an extremely effective tool both in terms of deterring potential new delinquencies as well as getting some of the current delinquencies cured.

 

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

Recent lawsuits involving community associations have created quite a stir among condominiums and homeowners associations, as owners have alleged in the suits that law firms and associations are improperly seeking to collect unpaid assessments, interest and other charges in violation of Florida law and the governing documents of the associations. The lawsuits seek to recover significant amounts due to demands for what are claimed to be excessive and unlawful charges.

For example, in the case of USA v. Keys Gate Community Association, Inc. which was filed in February, the government sued the association after the U.S. Department of Housing and Urban Development (HUD) obtained title to a foreclosed home in the community. The government’s lawsuit alleges that the association sought to collect an improper amount of assessments, interest, late charges, attorney’s fees and costs from HUD as the new owner. The suit includes assertions that the claim of lien was invalid because it encumbered the subject property for more money than HUD was legally required to pay, and it further alleges that the claim of lien violated Section 720.3085, Florida Statute, in that it failed to itemize any of the charges claimed to be owed by HUD.

HUD.jpgThe suit claims, among other things, that claim of lien prevented HUD from being able to sell the property, and alleges numerous causes of action for slander of title, tortious interference with business relationship, breach of contract, and declaratory relief.

Similar claims regarding the collection of unpaid assessments and other charges have been alleged against other community associations by foreclosing banks as well as investors who acquire title to properties. Florida is not alone, as other states, including Nevada, are also seeing lawsuits pertaining to collections practices and lien amounts.

The lesson here for community associations is to work closely with management and attorneys in order to ensure that the association is seeking to collect proper amounts from owners, and to comply with statutory safe harbor limitations as well as any limitations set forth in the association’s governing documents, if applicable. This will enable associations to avoid lawsuits which could potentially force them to pay significantly more in damages than the amount in dispute.

During the slow recovery in the housing market, many community associations are taking more aggressive approaches with foreclosures and rentals to recover delinquencies and gain financial strength. These associations are using their lien rights in order to avoid the issues that arise with bank delays in foreclosure cases, as delays have become the norm in the aftermath of the recent robo-signing scandal, foreclosure moratoriums and related mortgage foreclosure crisis. By employing aggressive strategies with foreclosure properties in their communities, associations are recouping much of their past-due assessments, if not all, oftentimes prior to the bank completing its foreclosure. These collections are far in excess of that which many associations would have recovered had they simply waited for the foreclosing lender to complete its case and take title to the property through judicial sale.

The strategies employed by these associations involve working closely with their attorneys and managers to properly evaluate lender foreclosure cases, assess the condition of subject properties and ownership interests, and develop a cost-effective streamlined course of action to maximize the association’s recovery. If delays are present due to a slow-moving bank, the associations and managers are working with their counsel to quickly obtain a foreclosure judgment for unpaid association fees. The judgments then go through the public foreclosure auction process, and associations will either recoup the indebtedness from third-party purchasers or, more likely, they will acquire title to the foreclosed property subject to any existing encumbrances.

After title transfers, associations can either list the property for rent or sale, subject to the association’s governing documents, but the process is different from a typical lease or sale. For leases, associations, as owners, should work with their counsel to ensure that the lease terms comply with the leasing restrictions and requirements set forth in the community’s declaration and by-laws, as leases for association-owned properties are not exempt from tenant screening procedures, minimum lease terms and other provisions contained in the association’s governing documents. In addition, appropriate disclosures should be included in the lease agreement regarding the superior mortgagee, unpaid real estate taxes, and other issues which may affect the tenant’s interests in the leased property. Such disclosures will protect the association against potential claims by the lessee if the property is subsequently sold through a foreclosure auction or tax sale.

Short Sale sign photoAnother option that is becoming increasingly popular among community associations is negotiating a short-sale with the lender. This requires teamwork among the association, its manager, counsel and other parties involved. It also entails added legal expense associated with contracts and negotiation, but the end result can be well worth the effort. Generally, the first step is for the association to engage a real estate agent to begin listing the property and obtain a buyer. The executed purchase and sale agreement will then be presented to the lender for approval, and the former owner may also need to be involved in the transaction because many lenders are only willing to approve a short sale if the former owner is identified as the seller. If the parties can finalize an agreement, it is a win all around, with the association recovering the past-due assessments under the terms of the short-sale and also benefitting from a new owner in the property who will start paying monthly association fees moving forward.

Whether an association desires to lease or sell the property, the association should always consult its counsel prior to signing a listing agreement or other contract. Oftentimes, addendums will need to be drafted or contracts will need to be revised so they are suitable for the association’s use and execution.

The recovery in the housing market is indeed moving slowly, but the community associations that are working closely with their managers and counsel to employ these strategies are making significant strides toward solid financial footing.

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