Friday, April 29, 2011

Community Association Lien Foreclosure Cases-Equity Stripping?

During these difficult economic times, many community associations, including condominium and homeowners’ associations, are facing assessment delinquencies on an unprecedented scale.

In years past, it did not make sense for homeowners to lose $30,000, $40,000 or even $100,000 of home equity for a relatively small community association bill of $3,000, $5,000, or even $10,000. Indeed, home equity was the driving force behind the resolution of a vast amount of community association lien foreclosure cases.

Unfortunately, that is no longer the case.

While certainly a significant number of homeowners are plugging along paying their mortgage obligations, as well as their community association assessments as if nothing has happened, most if not all of these homeowners have lost 40 – 50% of their home equity, and a significant number are “upside down” completely where the fair market value of their homes are worth far less than what is owed to the mortgage holders let alone the community associations which govern their respective neighborhoods.

Some have suggested that community associations are moving ahead of the mortgage holders with their community association lien foreclosure actions thereby stripping what little equity is left in these properties.

Certainly, one can never speak in absolutes, but it would be easier to find 60 degree Fahrenheit temperatures in South Florida in August, than it would be to find a case where a community association obtained title to a home with $600,000 of equity on a $10,000 community association lien foreclosure case.

Indeed, the only pool of money left for many community associations to survive on is the rental income they derive from properties they acquire through their lien foreclosure cases.

In the overwhelming majority of the cases, the associations take title to properties with mortgage debts far in excess of the fair market value of the properties. The associations make valiant efforts to rent these properties for as long as possible until they inevitably lose title to the mortgage holders through their own foreclosure actions.

This is a meager existence for many community associations who often find the properties stripped of all appliances, door and cabinet knobs, faucets, decorative moldings, and the like. All too often, the costs of making these properties habitable far exceeds the rental monies the associations can expect to recover in the short window of opportunity before the mortgage holders re-takes the properties.

Homeowners who are trying to work out mortgage modifications can avoid the loss of their title to these community associations simply by asking for a payment plan while the modifications are being worked out. After all, it is far easier for a community association to pursue a foreclosure action against a delinquent owner than it is for a lender to do so. Associations do not have to contend with lost promissory notes, Truth in Lending or RESPA violations or any of the myriad attacks you can launch agaist a lender's foreclosure. Delinquent owners need to be educated on this fact and realize that they could very well lose their home to their association while fighting their lender's foreclosure or attempting a mortgage modification.

Moreover, Judges who oversee these foreclosure matters go out of their way to make every reasonable, and in some instances, unreasonable accommodations for any homeowner who makes even a cursory attempt to save their home. More often than not, these good faith efforts by the Courts are abused by homeowners who seek to remain in their homes free of any payments to their mortgage holders or associations while they “milk the system” for as much time as they can possible muster.

The system is ripe for abuse by those trying to avoid the payment of their obligations more so than it is for creditors seeking to score windfalls on home equity which is virtually non-existent.

Those brave few who make good faith efforts to work out plans with the mortgage holders often find community associations eager to help.

Given the current state of the housing market, community associations would be well advised to educate their community members on these issues and to keep paying members in their communities whenever possible by means of a reasonable payment plan.

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

Tuesday, April 26, 2011

There Ought To Be a Law!

"There ought to be a law!"

How many times have you heard that phrase or perhaps even uttered it yourself? Now that we are nearing the homestretch of the 2011 Florida Legislative Session, it brings to mind this phrase and whether or not it is accompanied by some equally important questions.

This Session we saw proposed legislation known as the "Droopy Drawers" bill. What was the subject matter of this proposal? The visibility of one's underwear in public depending on how high or low one wears outer garments such as jeans.

Presumably someone took a look at an individual wearing jeans around his or her calves and said: "There ought to be a law!" The same holds true for many of the proposed changes we've seen in the community association arena over the years. There are undoubtedly communities where a director has been on the board forever and no one else can get on which precipitated the legislative proposal a few years back to create one-year term limits for condominium directors. However, there are just as many communities where the residents thank that one person for agreeing to serve year after year when no one else will.

No matter what the subject matter of proposed legislation, once the phrase "There ought to be a law" is uttered, the following questions need to be asked:

-What is the problem that the proposed legislation is addressing?
Is the problem significant enough to change the law? Would a reasonable, ordinary person feel the need to address the problem legislatively or is it a matter to be addressed instead with common sense and behavioral standards?

-Is the problem widespread enough to warrant changing the law?
Is the problem isolated in a few areas or is it statewide? Will fixing the problem in one part of the State create other problems elsewhere in the State?

-Will there be any unintended consequences should this bill pass?
One of the biggest problems in attempting to fix a perceived problem is the potential to create two new ones in the process. Had term limits for directors passed, there might have been communities that would have been forced to seek the appointment of a Receiver to operate those communities.

-What is the fiscal impact should this bill pass?
We saw in the recent deregulation bill, HB 5005, that in an attempt to address the State's budget deficit, the bill actually had a negative fiscal impact by removing significant sources of revenue derived from licensing and testing fees.

-Is the legislative proposal crafted in such a way as to most efficiently and painlessly address the problem as possible?
A laserlike approach in bill drafting is always preferable to a shotgun.

-Who is pushing for the legislative change and why?
Is the legislation self serving and being pushed by a particular industry?

For anyone who has spent time reading our Florida statutes, the necessity for this kind of deliberation before drafting and passing bills becomes readily apparent.


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

Sunday, April 24, 2011

Legislator for a Day Part II: How would you find fiscal balance in Florida's property insurance industry?

Tallahassee’s current property insurance proposals seek to shore up private and public insurance companies’ reserve funds. They claim to be doing this to achieve fiscal balance but do they get it right? If not, what would you do if you were Legislator for a Day?

1) Under a Senate proposal, mitigation discounts could be revoked if insurance companies can demonstrate that the aggregate amount of mitigation discounts they provide to policyholders results in a loss of revenue to the company.

How would your association handle an increase in premiums if its mitigation discounts were revoked during the term of your policy?

Would this affect your decision to move forward with “hurricane hardening” plans?

2) Non-renewal notice – Insurers would be allowed to change the non-renewal notice from 180 days to 90 days. Is 90 days long enough for your association to find a new insurance carrier?

3) Legislators have proposed to reinstate the “use and file” system, which allows insurance companies to start charging higher premiums before the State has approved them.

4) One proposal includes the repeal of the requirement to reduce the number of policies in Citizens’ high risk areas (coastal areas where Citizens provides wind-only coverage).

Would failing to eliminate this requirement reduce the number of private market carriers providing coverage in coastal areas? If private insurers are required to cover wind, would they choose not to offer coverage?

For more information on these and other legislative proposals this Session, please sign onto CAN’s website, www.canfl.com.

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

Saturday, April 23, 2011

Legislator for a day- How would you fight fraud and find fiscal balance in Florida's property insurance industry?

Florida’s insurers claim current rates do not adequately cover the risk in Florida. At the same time, the state has the third highest unemployment rate in the nation and one of the highest foreclosure rates (1 in every 450 homes is in foreclosure). Needless to say, Florida homeowners and voters are not in favor of increased homeowner’s insurance premiums.

Legislators are grappling with how to balance these demands. Below are some of the insurance proposals still alive with less than two weeks of the regular legislative session remaining. Full, detailed summaries can be found on our Community Advocacy Network (CAN) website at www.canfl.com.

What would you do if you were a legislator for the day?

Fighting and preventing fraud is a primary goal of the current crop of insurance bills. Does Tallahassee get it right? If not, what would you do?

1) Currently homeowners have five years to file a claim after storm. Some legislators want to reduce this to as few as three years. This change is being pursued to presumably cut down on insurance fraud. Naturally, fraud is the first thing most insurance companies claim whenever confronted with a demand for payment from a policyholder. It shouldn't take an owner five years to determine if he or she had storm damage, right? However, in the association setting, it sometimes takes years (or new boards) to get it right. We saw communities filing claims up until the very day of the 5-year Wilma deadline because previous boards bungled the job. Imagine how many more communities would have suffered staggering losses had that Statute of Limitations been only three years rather than five.

2) Homeowners can choose an insurance policy that will reimburse them for the cost of replacing damaged structures. Legislators have proposed giving these homeowners a smaller amount up front, based on the depreciated value of the destroyed structure.

If association property is damaged, the association will get the rest of the funds when they sign a contract for repairs. In the meantime, insurance companies can require you to pay for “incidental expenses” related to mitigating further damage to the structure until repairs are complete. Insurance companies can choose to give you all the money up front, if they like. Most people need the insurance proceeds up front to make property damage repairs and would not be able to sign contracts in the absence of same.

Would your association be able to cover the new up-front costs imposed under this proposal? If the answer is no, you must make sure you read your policy very carefully before purchasing it. Of course, your policy purchasing decision should always be reviewed and discussed with your association attorney prior to signing on the dotted line to ensure that you understand what you are getting in terms of real costs, exclusions, deductibles and more.

3) Public adjusters (PA) are paid based on a percentage of the loss. PAs whose clients are homeowners with private insurance can charge 10% within a year of a hurricane, 20% after a year and no cap on the percentage of a re-opened or supplemental claim. Legislators have proposed to “delink” their compensation from losses.

The plan would allow PAs working on private insurance claims to still collect the fees at the current rates for initial claims and cap re-opened or supplemental claims at 20%.

PAs working on Citizen’s insurance claims would be allowed to charge “a reasonable” hourly rate. Additionally, they may not be paid on a contingency basis, if a new amount is offered, they may collect a maximum of 5% of the additional offer. Furthermore, they may not begin work until Citizen’s has issued its first offer.

These changes are being sought due to some abusive adjuster behavior that occurred during our tumultous hurricane seasons five and six years ago. Still, this wide-sweeping change would impact the entire industry. If you were a PA, which type of claim would you prefer to work on – a private claim or a Citizens’ claim?

If your association is covered by Citizens’, would you be able to engage a public adjuster under these conditions? Perhaps the better course of action would be educating Florida's consumers when and why to use a PA in the first place. Consumers of insurance products should know up front what a PA's full costs will be and how they get paid. These same consumers should know when a PA can help with a claim and when an attorney is needed. PA's often play a very useful role early in the claims process. However, when you are bumping up against resistance or a statute of limitations, you are better off utlizing an attorney to fight for your claim. These professionals have long worked together to ensure that Florida's policyholders receive what they are owed when a covered event occurs.

The second part of our Legislator for a Day blog series will focus on finding fiscal balance in Florida's property insurance industry. Stay tuned!

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

Tuesday, April 19, 2011

New Bill Would Allow Process Servers to Now Serve Writs of Possession!

HB 291 by Representative Frank Artiles and SB 426 by Senator Jack Latvala amends Chapter 48 of the Florida Statutes to authorize process servers to serve writs of possession in actions for possession of residential property. Currently, only the Sheriff's Office serves these writs so this bill is a significant departure from current practice.

From a practical standpoint, this would give the association the option to use a certified process server as opposed to the Sheriff in serving the writ of possession in eviction actions to remove the occupants from the property. This would come into play either when the association is evicting a tenant in a delinquent property who has refused to tender rent to the association or when the association has taken title to a property via foreclosure or deed in lieu of foreclosure. Presumably, it will be quicker to utilize a certified process server to wrap up eviction actions as opposed to waiting for a civil servant such as the Sheriff to do so.

In the event the tenants or occupants have already already vacated the property, it might be quicker and cheaper to use a Process Server to post the Writ of Possession on the property. Current law provides that the Sheriff's Office may charge $40 for docketing and indexing each writ of execution, regardless of the number of persons involved and $50 for each levy. In addition to these fees, the Sheriff is authorized to charge a reasonable hourly rate and the person requesting the Sheriff to stand by to keep the peace in an action for possession of property is responsible for paying the Sheriff's hourly rate.

Despite these fees, if an association is concerned about the possibility of a confrontation with occupants still in residence, it might be prudent to continue to use the Sheriff's Office to serve such Writ of Possession.

This bill bears an effective date of July 1, 2011 and is expected to pass. The Staff Analysis on CS/SB 426 is as follows:
http://www.flsenate.gov/Session/Bill/2011/0426

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

Sunday, April 17, 2011

Would you turn your house into a billboard?

A California company called Adzookie has started a new campaign where it will pay a homeowner’s monthly mortgage payment for each month that the home remains a “live billboard”. Over three to five days, this company will paint the entire outside of the house minus the roof, windows and any awnings to advertise various products and services. The house must remain painted for at least three months and the billboard arrangement may be extended up to a year.

The only condition the company places is that the home must be owned and not leased or rented. No mention of any concerns about entering into such an agreement for owners whose homes are located inside community associations where the neighbors might very well have some issues with a “billboard house” in their midst. Of course, there could be problems with municipal and county codes as well for owners living outside associations.

Still, it is food for thought. There are two types of delinquent owners: those who are not paying the association because they have not made the association assessment a priority and might even believe that the association has no recourse against them and those owners who simply cannot pay due to a job loss, illness, death, disability or other reversal of fortune. For the latter category, no amount of use suspensions, threats or other actions will make much difference.

How far is too far when it comes to saving your property? Judge for yourself: http://www.adzookie.com/paintmyhouse.php

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

Does Your Community Do a "Walk-Around"?

Every Spring, my HOA board performs its annual "walk around" to assess all of the properties in the community. Typically, every member of the board agrees to participate and they take the better part of a Saturday to walk or ride on a golf cart throughout the neighborhood. When I served my term on the board, I was part of this crew with clipboard in hand and sunscreen in place.

What were we supposed to be looking for?
-Roofs that needed cleaning
-Mailboxes that needed replacing
-Landscaping that needed pruning or trimming
-Driveways that needed pressure cleaning
-Houses that needed painting
-Fences that needed replacing
-The occassional contractor's sign or holiday decoration that had been left up well beyond its natural expiration date.

I'd like to think that there was no favoritism played during these reviews but human nature being what it is, I'm not so sure. When you are talking about aesthetics, beauty really is in the eye of the beholder. Some of the things that caught my fellow board members' eyes surprised me and some of the things they overlooked did as well.

Most folks will tell you that they moved in to a mandatory association to ensure a certain level of community appearance and services. A few years back, my neighbor several houses down painted his house a color that can only be described as "Pepto Bismol Pink". It certainly wasn't my taste but our documents didn't prohibit the color since the board was empowered with a lot of discretion in terms of approval and disapproval for exterior changes. Since then, the HOA Act has changed to require that kind of subjectivity to be replaced with actual published rules and policies.

It's not easy to be asked to go around and judge the appearance of your neighbors' homes. Still, the board is tasked with upholding the community's governing documents so how better to do it than to roll up your sleeves and walk around?

As for the bright pink house, it grew on me and I do appreciate the diversity in house style in my neighborhood. Still, I have to ask myself had the paint been neon green whether I would have felt differently?

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

Tuesday, April 12, 2011

Will the Demand For Rent Statute Withstand a Grand Challenge?

The "sky is falling" mentality is probably too extreme in the aftermath of the recent Cohn v. Grand decision. Still, passing the Pomponio balancing test (assuming it will be applied in subsequent court challenges) is no easy feat.

The Florida Supreme Court explicitly affirmed the 3rd DCA's decision in Grand and the 3rd DCA did explicitly apply the Pomponio test to the statute at issue. What does this all mean? Let's take a look at the change made last year to the common interest ownership statutes allowing associations to collect rent from tenants in delinquent properties and see if such statutory change could withstand the Pomponio test as cited by the 3rd DCA in the Grand case.

The first question posed by Pomponio is: "Was the law enacted to deal with a broad, generalized economic or social problem?"

If the Demand for Rent statute was being scrutinized, I would say the answer to this question is Yes. The Demand for Rent language was added to address the distressed financial situations of associations with absentee owners that don't pay their assessments but generate revenue from renters.

The second question posed by Pomponio is: "Does the law operate in an area which was already subject to state regulation at the time the parties' contractual obligations were originally undertaken or does it invade an area never before subject to regulation by the State?"

The answer to this question if the Demand for Rent language is being scrutinized is probably No because the relationship between investor owner/tenant was not subject to significant regulation prior to the enactment of the demand for rent language in 2010.

The third question posed by Pomponio is: "Does the law effect a temporary alteration of the contractual relationships of those within its coverage, or does it work a severe, permanent and immediate change in tohse relationships irrevocably and retroactively?"

I think the answer to Question #3 can be argued both ways. You can argue that the impairment is temporary (i.e. the impairment will end when the owner catches up on the delinquency) or you can argue that the impairment is immediate and severe.

If I were the trier of fact in a case where a delinquent owner was challenging his or her association's right to collect rent from the tenant where the documents did not contain "as amended" language, I would uphold the application of the statute but it would be a very close call!

You be the Judge! Run through the many legislative changes made to Chapter 718 over the last decade and see which you would uphold applying the test set forth above.


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

Friday, April 8, 2011

What Does the Recent Florida Supreme Court Cohn v. Grand Ruling Mean for Your Association?

The Florida Supreme Court’s recent holding in the Cohn v. Grand case has generated much ado. That’s not to say that this case isn’t significant: it is. Commentary that the legislature is now powerless in the arena of association policy, however, misconstrues the decision in this case.

Remember, this two-page decision yielded a two sentence ruling: The Constitution prohibits the impairment of contracts; and the statute regulating mixed-use condominiums (F.S. 718.404(2)) impaired the Grand’s unit owner’s contractual rights, which are established in the Grand’s declaration.

Impair or not to impair?

The Constitution’s prohibition against contract impairments is not a black-and-white, absolute rule. Contracts are not sacrosanct items that the government can never touch. Contractual impairments can and do occur. They key is whether or not such impairments are unreasonable!

So what can the government change and when?

Florida courts look to the Pomponio case when deciding cases like Grand. What does Pomponio say? Everyone’s favorite legal response, “it depends.” Although Pomponio outlines a formula for courts to use when determining whether government action changing the terms and conditions of a contract is constitutional, the underlying premise is that the decision will be determined by the facts and circumstances of each case.

The formula used to determine whether a state action impairing a contract is constitutional looks at three factors:

1) To what extent are the contractual rights impaired;
2) Does the state have a good reason for enacting policy that changes contractual rights; and
3) Are the means the state will use to achieve this policy reasonable?

The courts then “balance” these factors, measuring the extent to which rights are changed against the necessity of the policy and the means the state employs. This has been the court’s approach in Florida since 1979. Its use by the court in Grand should be of no surprise to anyone.

Dust off your Declaration

What is significant is the court’s ruling with regard to determining the contractual rights of the Grand’s unit owners under their declaration (the contract among the members of the Association). The Grand’s Declaration stated that unit owners would governed by the “the Condominium Act of the State of Florida in effect as of the date of recording this Declaration.” The Declaration did not include the phrase, “as amended from time to time.” As a result, Grand unit owners’ contractual rights are defined by the terms of the Florida Condominium Act at a fixed point in time and do not vary when changes to the Act are made. Every association (Condominium, Cooperative, HOA and Timeshare) should review their declarations to see if these "magic" words are included.

So, what does the Grand decision mean for your association?

Is any legislative change that contradicts our Declaration invalid? NO. In light of the balancing test, it is not difficult to see why the Florida Supreme Court ruled as it did pertaining to a change in the Grand’s voting rights. The critical right to vote would have been dramatically and significantly altered by the subsequent statutory change to 718.404(2), F.S. This does not mean every association contractual impairment case will follow suit. Issues such as collecting rent, enforcing board member eligibility standards, etc. may not be viewed by the court as carrying the same weight as voting rights nor would their impairment by subsequent legislative change necessarily be seen as unreasonable. Additionally, the court would have to factor in the state’s reason for changing these rules and the way it goes about achieving these changes.

Check your documents: While the Grand case pertains to a condo hotel, it is conceivable that attempts could be made to apply the same reasoning to other types of association coverants as well. Do you reference the Condominium, Cooperative Act in your Declaration or Cooperative Bylaws? If so, do these documents contain the words, “as amended from time to time” when referring to the particular statute to which your association is governed?

It is highly recommended that you discuss the impact of this recent Florida Supreme Court with your association attorney.

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

Monday, April 4, 2011

Fido or Cujo? It all depends on your perspective

Is it possible to find a balance between people wishing to live in a community without pets and those individuals who truly have disabilities that can benefit from sharing a home with a pet? As with most questions, the answer is: “It depends”.

There are many different domesticated animals that fit neatly within the pet category but since dogs and cats seem to whip up the most frenzy, let’s use them for this example. For every person who loves dogs or cats (myself included), there is someone who purchased in a community with a prohibition against pets either due to that person’s fears relating to dogs or cats, allergies or a general aversion to barking and potentially stepping in a doggie surprise. Those individuals can become just as depressed with a sudden influx of four-footed residents into the community as the people wielding the prescriptions to bring them in. Several years ago, an owner in a high-rise condominium threatened to sue the board if it did not strictly enforce the community’s pet restrictions. It turns out that this owner had been bitten by a Chow several years before moving into the building and the sight of any dog caused her anxiety. The board explained that the dogs she was seeing were service animals and not simply pets but this owner wasn’t buying that argument. Whose rights are more worthy of protection at that point?

As with most issues, it is the few that abuse the system that make it difficult for those who truly are deserving of protection. There are studies that show that dogs alleviate depression and studies that show they cause it. However, if fur is what you need, perhaps a small breed dog can fulfill that purpose as opposed to a St. Bernard? Having an animal in a community that otherwise doesn’t permit them should bring with it a sense of responsibility to minimize the disruption that animal might cause. Unfortunately, that is not always the case and the resentment springs from there.

Some years back, a husband and wife came to me with the husband explaining in great detail his wife’s need for an emotional support dog. I represented the couple against their condominium association and won. The association agreed to allow the dog and waived all fines previously levied. A few weeks after that win, the husband called me again. Apparently his wife’s condition was acting up again and they had now moved a new puppy into their apartment in addition to the other dog they had brought in. He wanted to know what needed to be done and I told him to call someone else. I have no doubt that the shenanigans that couple pulled set back others in their community who had a real need of a service animal.

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