Wednesday, February 23, 2011

Think twice before sending that email!

Email has become the biggest part of the day for most of us. Without dating myself too badly, I can remember the first law firm I clerked for and there was no email! We did everything by phone, regular mail and fax. Imagine that, a life without spam and incessant beeping whenever a new email hits our inboxes.

There is no turning back now with email but we can all learn how to harness email in a way that makes sense for our lives and jobs. This is especially true for volunteer board members who might not understand how quickly problems can arise when a formal email policy is not in place. What should be in your association’s email policy? The following are some suggestions to start your board thinking about how you wish to handle emails amongst each other, with your manager and with your members.

• Try to keep the number of emails your directors send to each other to a minimum; they should save these discussions for properly noticed and open meetings.

• Require board members to use an association email address that is separate and apart from their personal or business email address. Doing so underscores the fact that emails sent to and from association email accounts become part of the association’s official records.

• Board members and the association manager should not write emails that a reasonable person would consider offensive. There is no preventing the content of the emails sent to the board but the board can control how it chooses to respond.

• Speaking of responding to email, other than requests for document inspections or substantive questions, there is no statutory requirement that directors or managers respond to abusive emails that serve no useful purpose.

• Emails should be reviewed prior to sending. Typos, poor word choice and other errors in information send the wrong message to association members, fellow directors and vendors.

• If a discussion requires more than 2 emails back and forth, a phone call is a much better choice. If a topic is sensitive, a face to face meeting is a much better choice.

• Do not put anything in an email that you would not feel comfortable seeing blown up and sitting on an easel in front of a judge, jury or arbitrator.

• Directors and/or the association manager should not forward emails containing private or sensitive information without the board’s prior knowledge and approval.

• The Board’s official email policy should affirmatively state that the board does not conduct official business via email.

Eventually, our common interest ownership statutes in Florida will acknowledge the pervasive use of email today and seek to regulate same amongst board members but in the interim, every board should adopt a reasonable and comprehensive email policy.

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.

Monday, February 21, 2011

How to lose a tenant without even trying

In his most recent blog, Sun Sentinel Reporter Daniel Vasquez asked if condominium associations should be in the rent collection business. See: http://blogs.sun-sentinel.com/condoblog/2011/02/should-you-condo-associations-be-in-the-rent-collections-business.html

Whether or not you agree that associations should take advantage of the statutory rights granted to them last year to collect rent from tenants in delinquent properties, one thing is certain: some associations will be more skilled at collecting such rent than others.

The first decision an association must make is who should contact the tenant and how. Should the manager send a letter or make a phone call first? Should the letter come from the association attorney or should a board member make the contact and deliver the message that some or all of the rent must now be tendered to the association rather than the landlord?

It is important to remember that the tenant will undoubtedly be receiving a much different message from his or her landlord than the one the association will deliver. Landlords in associations have been fairly proactive in advising their tenants to “ignore those letters from the association” and that “the association can’t do anything to you if you don’t pay them.” In fact, the new statutory rights give associations the ability to evict those tenants who do not comply with an association’s demand for rent.

In many communities, tenants in these delinquent properties are the association’s only source of income for those properties. Why then do so few associations give due consideration to the tone and type of communications they want to use with those same tenants? If the tenant is not a nuisance, is not in violation of the documents and is generally an asset to the community, does it make sense to send a letter worded in such a manner as to make the tenant think about vacating the property? Conversely, if the tenant is a nuisance, you probably want to ensure that the rent demand letter does not serve to waive any rights the association may have to pursue future or existing violations on the tenant’s part.

I have seen some rent demand letters that were certainly not drafted with the tenant’s sensibilities in mind. Starting off your initial communication with threats, ambiguities as to who owes what and general disregard for the tug of war that is sure to play out between the association, tenant and owner/landlord will not help an association in achieving what it wants with this new statutory right; namely the ability to have the delinquency owed to the community paid down or off.

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.

Friday, February 18, 2011

Association Awarded Sanctions Against Mortgage Holder and its Counsel

In a recent appellate decision, an Association was awarded sanctions against a mortgage holder and its counsel as a result of wrongfully naming the Association in the mortgage foreclosure action.

In March 2009, Wells Fargo filed a mortgage foreclosure action wrongfully naming the South Bay Lakes Homeowners Association as a party. The Association filed an answer asserting that Wells Fargo lacked standing to bring the action. The Association asserted that there was confusion associated with the legal description contained within the documents filed with the Court. The Association also served a Request for Admission asking the bank to admit that it did not have standing to bring the action inasmuch that the bank had no evidence to substantiate that it was the equitable owner of the note and mortgage in question. Wells Fargo failed to file an Answer to the Request for Admission.

In May 2009, the Association filed a motion for summary judgment with an affidavit explaining that an assignment of the mortgage had not been recorded in the public records. The Association further asserted that the legal description set forth on the Lis Pendens was not a property located within the Association. The Association also served a Motion for Attorney's Fees pursuant to Florida Statutes, Section 57.105 which required the bank to resolve the matter within a twenty-one day time period. Again, the bank took no action.

On July 29, 2009, the attorney for the Association attended the hearing on its Motion for Summary Judgment. Wells Fargo made no appearance. Based on the admissions and the affidavit, the trial court entered a Final Judgment dismissing the entire action without leave to amend.

Thereafter, the Association filed its Motion for Attorney's Fees and scheduled a hearing for November 2009. Wells Fargo sent a local attorney who had not reviewed the file to the hearing. He had "no idea" whether the legal description in the bank's complaint had been inaccurate.

In this case it was undisputed that Wells Fargo filed a foreclosure action without an assignment or other legal basis on which to file the action and that neither the bank nor its attorneys took any steps to confirm that Wells Fargo had the legal right to file the action. At oral argument, the bank's attorney tried to justifu the improper filing as being the result of the vast volume of foreclosure cases in the judicial system.

That argument was summarily rejected by the Court.

This very timely and significant case for associations is South Bay Lakes Homeowners Association, Inc. v. Wells Fargo Bank, N.A., 36 FLW D389 (2nd DCA).

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.

How Many Florida High-Rises Have Exercised Their Hard-Won Sprinkler Opt Out Rights?

For the last seven years, residents in older condominium and cooperative high-rises in Florida have fought what they perceived to be an unfair application of the Life Safety Code to their buildings. Legislation that was designed to give these folks the right to decide for themselves whether or not to install costly sprinkler systems in their buildings was vetoed twice by two different governors.

When Governor Crist vetoed SB 714 he did so with the mandate that the Division of Florida Condominiums find out just how many buildings would be impacted by the sprinkler retrofit issue. The Division's report concluded that approximately 7,000 buildings would have to retrofit with sprinklers in order to comply with Florida's version of the Life Safety Code. The costs to retrofit these older, occupied buildings was staggering in some instances.

Fortunately, the Community Advocacy Network(CAN), its 12-member Advisory Council and its more than 2,000 member associations went to bat again last Session and saw success in the passage of SB 1196. High-rise condominium and cooperative associations now have the ability to decide by a majority vote to forego installation of sprinklers in their units and in the common areas. Of course, there is a catch. If an association has not voted to opt out of sprinklers by December 31, 2016, they are automatically on the path to sprinkler installation. Those associations who have not opted out by that deadline must immediately initiate an application for a building permit for the sprinkler installation and that sprinkler installation must be completed by December 31, 2019.

Word of our success in this fight has spread. We have been contacted by associations facing similar costly retrofit demands by local fire marshals in New Hampshire and Ocean City, MD. We have advised them that the process was certainly lengthy but it can be done.

My Firm has been steadily preparing more and more Sprinkler Opt Out Voting packages for affected associations. The question is how many other impacted high-rise associations are holding off on taking this vote and why?

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.

Sunday, February 13, 2011

Will loosening community rental restrictions solve delinquency and foreclosure issues?

Ask some folks how to solve the foreclosure crisis plaguing so many of our community associations in Florida and they can boil it down to one issue: it is too darn hard to rent out your property in some communities. Just how much weight does this argument hold?

In most communities, the restrictions on an owner’s ability to rent out his or her property are found in the Declaration of Condominium, Declaration of Covenants and Restrictions in an HOA and, in a cooperative community, in the Bylaws. Thus, the decision to tighten or loosen those restrictions rests with the association members and not the board alone and must be accomplished via an amendment.

Some years back, Section 718.110(13) of the Condominium Act was amended to make it much more difficult to pass amendments affecting rental rights. A Maine resident had purchased a condominium unit in a Florida community that had no leasing restrictions only to find he was on the losing end of vote to implement such restrictions after his purchase. This gentleman happened to know then Senate President Jim King and the rest is history. As with most legislation, however, there were unintended consequences. At the time 718.110(13) was amended, the real estate market was booming and most people couldn’t imagine that some time down the road there would be a need or desire to loosen those same restrictions. The only concern was how to stop communities from imposing rental restrictions when none previously existed. Fast forward several years and that same language in 718.110(13), which reads that any attempt to alter the duration of the rental term or which specifies or limits the number of times an owner can rent during a specified period, only applies to current owners who approve or to new owners who take title after such amendment is recorded and it just became harder to loosen up rental restrictions.

For example, if your community’s documents currently provide that an owner can only rent for a minimum 12 month lease term and no more than once per year and your members would like to amend that to provide for smaller lease terms of three or six months and allow leasing 2 or 3 times a year, you are altering the duration of the rental term as well as specifying the number of times an owner can rent throughout the year and the requirements of 718.110(13) will kick in.

Just as the good times weren’t always going to last, neither will the bad ones. Communities could go back and forth like pendulums on tightening and loosening their rental restrictions. At the end of the day, it is a community decision whether or not leasing should be encouraged, discouraged or simply tolerated. Arguments against leasing include the fact that too many rentals render the community unattractive to certain types of financing which drives down sales and results in more foreclosures. Arguments for leasing include the fact that paying tenants allow an owner to meet his or her financial obligations to the association. This is more true than ever since associations can now collect monies directly from tenants in delinquent units.

Wherever you stand in this debate, it is interesting to note that the very legislative change that was made to discourage leasing restrictions might actually work to make it difficult for associations that have long-standing rental restrictions from loosening those same restrictions.

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.

Monday, February 7, 2011

Some Condominium Purchasers Might See the Return of Their Deposits!

Scott Salzman had originally planned to buy a condominium unit at Axis Condominium in Miami's Brickell area. He made two deposits in 2004 and 2005 totaling $74,000 on the unit which was listed for $370,000. After seeing the built-out unit and common areas, Salzman changed his mind about going through with the purchase as the construction did not meet the design aesthetic, quality and common amenities he was promised.

The developer, BCRE Brickell, returned only 5% of the purchase price or $18,500. Salzman then sued for the return of the rest of his deposit. The Circuit Court sided with the Salzmans and ordered the developer to return the deposit because it failed to split the money in half and hold it in two separate escrow accounts pursuant to Section 718.202 of the Florida Condominium Act.

What makes this case so interesting is the fact that Section 718.202 was amended in 2010 at the behest of the developers' lobby to ensure that they could keep deposits higher than the standard 10% in one escrow account so long as they keep separate accounting records. In reality, this legislative change made it much more difficult for condominium purchasers who backed out of their contracts while the housing crisis was exploding to recover their substantial deposits.

Salzman successfully argued at the Circuit level that the 2010 amendment was not just a clarification of existing law but a substantive change which would be unconstitutional if applied to existing contracts.

The case is now in the hands of the 3rd District Court of Appeal. The 3rd DCA will have to determine if the original statute required that 20% deposits for condominium purchases were required to be placed into two separate escrow accounts as well as whether or not the 2010 amendment allowing one escrow account with separate accounting records can be applied retroactively.

The 3rd DCA's decision will have wide-ranging impact on the thousands of Floridians who have millions of dollars in unreturned deposits on failed or aborted condominium purchases.

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.

Wednesday, February 2, 2011

Are your association funds and property at risk?

Who can sue your association and why?

Basically, anyone who has come into contact with your community either through a contractual relationship, an injury or other dispute and wants his or her day in court. This could mean the roofer who wasn’t paid in full, the party guest who fell on the pool deck or the former accountant with unpaid invoices. We have already discussed that the fees for some services that permanently improve a property such as a new roof can be collected via the placement of a mechanics’ lien; many others, however, cannot.

Let’s say the association asks its accountant to perform a forensic audit which costs $15,000. The association is not satisfied with the result and decides not to pay the accounting invoice. The accountant becomes upset and decides to sue for his fees and wins a money judgment. Now what?

Even though certain creditors may not have the right to file liens against real property owned by an association, most if not all of an association’s assets are at risk in the event a creditor secures a money judgment against the association. The process for enforcement of a judgment is called “execution”. An execution can be levied on land, tenements, chattels, goods, corporate stock, equiteable interest under security agreements and even bank accounts.

What does this mean in practical terms? If the creditor in this example obtains a money judgment, he may garnish the association’s bank accounts (including reserve accounts) and even get the sheriff to take the association’s personal property such as lounge chairs, lobby furniture, computer(s) in the association office, etc. Essentially, a sheriff can take property that belongs to the association and place it in storage or the sheriff can secure the property in question wherever it may be located. Once a sheriff levies on the property, the Sheriff has the right to sell the property to the highest bidder at auction.

In addition to levying on personal and real property, a judgment creditor can attempt to obtain money in the Association’s bank account. Thus if a judgment creditor knows where the association does its banking (and most vendors will, having received prior payments), then all of the association’s funds, including reserves, are at risk. Once a bank is served with a writ, all funds in its possession in the amount of the judgment (plus more) are immediately frozen. An association can find itself unable to utilize funds in its accounts when they are desperately needed.

Finally, in certain instances, especially with homeowners’ associations, real property (such as a clubhouse) which may be owned in fee simple may also be subject to execution and/or judicial sale. Once again, if a sheriff levies on real property, an auction can be held and the property awarded to the highest bidder. Unlike individuals who can “judgment proof” themselves by holding title to property with a spouse or claiming head of household status, most of these exemptions do not similarly apply to corporate entities.

Experience has taught that many associations are truly unaware of how vulnerable their funds and other assets are in the face of a money judgment. This underscores the need for every association to ensure that they are making wise decisions when it comes to vendor relations and other areas that are fraught with potential for disputes.

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.