Tuesday, September 27, 2011

Coping with Compliance Costs – What is your community’s plan to pay for Phase II Elevator Fire Safety Implementation?

The year 2015 may seem comfortably down the road, but cash-strapped community associations with elevators should already be planning for a pricey big-ticket item: 2015’s Phase II Elevator Fire Safety requirements.

In 2010, legislators passed a measure that requires condominiums and multifamily residential buildings to provide firefighter service for the elevators in an association’s buildings.

The implementation of this service is divided into two phases.

Phase I requires elevators to be recalled to a specific floor and have the doors open if smoke or heat is detected in the lobby or machine room. The elevators remain at the designated floor until authorized personnel make them operable.

Phase II – elevators must have a system that would permit firefighters, exclusively, to control the elevator once “Phase I” is activated in an emergency. Associations may waive the Phase II requirement if the local fire marshal creates a substitute elevator access plan “if it is technically, financially or physically impossible” for the association to comply with the regional access requirements.

The Phase II elevator retrofit costs are significant. The estimates run from hundreds of thousands of dollars into the millions. For homeowners already trying to weather community association life in the face of delinquencies, this is a major financial burden.

Interestingly, Florida’s Department of Business and Professional Regulation has stated that there have been no reported instances of injury or death in Florida related to the failure or absence of these components in an elevator.

Has your community begun to seek estimates? If so, how much are these changes going to cost?

How is your community going to pay for this upgrade? Do you have funds in your reserves to cover the cost?

It goes without saying, you cannot put a price tag on safety, but would your community prefer to postpone these changes until the financial condition of our economy and communities is a bit sunnier?

Monday, September 26, 2011

Board member eligibility in Florida: what does it mean to have one's civil rights restored?

Last year, HB 1195 transported certain board member eligibility requirements from Chapter 718, F.S. (the Condominium Act) over to Chapter 720, F.S. (the HOA Act). Specifically, members who are delinquent in the payment of any fee, fine or other monetary obligation to the association are ineligible to serve on an HOA board as well as any person who has been convicted of a felony in Florida or in any US District or Territorial Court or in any other jurisdiction where such act would be considered a felony if committed in Florida UNLESS the felon's civil rights have been restored for at least five years as of the date on which such person seeks election to the board.

Before 2008, the language in the Condominium Act pertaining to board member ineligibility as a result of a felony background tied the matter to a former felon's "right to vote" being restored. However, in 2008, the Condominium Act was amended to change that to a requirement that a felon's "civil rights" be restored for at least five years.

Community association election season in Florida is right around the corner which begs the question: does your board know what is meant by the requirement that a candidate's civil rights be restored?

In 2010, The Pierre Association confronted this very issue and sought clarification from the Division of Florida Condominiums, Timeshares and Mobile Homes. The association was inquiring whether a candidate to the board whose civil rights had been partially restored (the right to bear arms had not) was eligible to serve on the condominium board. Years earlier, this particular board candidate had pled guilty to one count of federal mail fraud which is a felony. In 2002, the candidate's federal civil rights were restored; in 2004 his Florida civil rights were also restored.

The association took the position that this individual was not eligible to serve on the condominium board becasue he was not yet authorized to bear arms within his federal civil rights. Civil rights include the following:
- the right to vote
- the right to hold office
- the right to serve on a jury
- the right to bear arms
In the case at hand, the candidate's Florida civil rights were restored by executive order which served to only partially restore his civil rights since the order specifically excluded the right to "own, possess or use firearms." On April 12, 2010, the Division issued a Declaratory Statement (No. 2010009834) stating that the candidate was ineligible to serve on the board until his federal and Florida civil right to possess a firearm along with all other civil rights had been restored for a period of no less than 5 years as of the date on which the candidate seeks election to the board pursuant to Section 718.112(2)(d)1. This law is now also in effect for homeowners' associations in Florida.

Does the inability to bear arms render a candidate for a Florida condominium board ineligible to serve? Turns out it does! While having an ineligible person serve on the board does not automatically nullify any board action taken before such ineligibility is discovered, the preferred course of action is obviously to ensure that directors are all eligible to serve. Now that you know what to look for, keep that in mind when association members start throwing their hats in the ring this election season.

Monday, September 19, 2011

There ought to be a law ... easier said than done

There has been much talk lately about the very significant success that the 232-unit Spa at Sunset Isles condominium community obtained in Bankruptcy Court under its Chapter 11 proceedings. This community was able to hold banks liable for surcharges incurred as the struggling community continued to maintain the property which comprised the banks' collateral.

Naturally, after hearing of the win, the first question some association leaders asked was: how do we do it? Well, the first step would be to file for Chapter 11 bankruptcy protection and many communities are not prepared to do that either because they do not meet the conditions precedent to filing, don't want to incur the costs incurred to proceed in bankrutpcy court or find the consequences of a bankruptcy to be unappealing.

The second utterance after considering this community's award and the fact that a bankruptcy prompted it, is often: there ought to be a law to do the same thing without having to file for bankruptcy first!

Great sentiment but just how easy would it be to pass such a law?

First, one would have to contend with the very strong Florida Bankers Association (FBA), the lobbying arm of Florida's banking industry. The FBA was established in 1888 (you read that correctly, it's one of the oldest trade associations in Florida), has a 39-member Board of Directors, 19 full-time employees and is composed of more than 300 banks and financial institutions. They are the epitome of a well-organized, successful machine.

Second, one would have to recognize that approximately 1/3 of Florida's legislators have strong ties to the banking industry.

Third, one would have to understand political realities and the fact that of all the bills proposed each Session, the vast majority do not become law.

This does not mean we should throw our hands up and despair of ever passing needed legislative reforms. Community association members are becoming more effective each year at doing just that. However, there might be other avenues to achieve the same goals without having to jump through the many hurdles that present themselves whenever a change in law is contemplated. Lawyers representing associations can and are making the same or similar arguments that were made in the U.S Bankruptcy Court in the Spa at Sunset Isles case to hold banks responsible for delays in foreclosing on troubled properties and the real costs to the rest of the community as a result of those lender delays.

I suspect that much of the successes we see for associations going up against banks will take place in the courts and not in the Legislature.

Monday, September 12, 2011

4th DCA decision makes waiting for the banks to foreclose an even longer proposition for associations!

Most associations these days have stopped waiting for the banks to foreclose and have started proceeding with their own foreclosures against non-paying owners even though the association is the junior lienholder in most cases. Those associations that heeded this advice years ago have managed to recoup significant amounts around the State in past due amounts owed to the community by renting out those properties until the banks finally completed their own foreclosure actions.

Often we hear that the banks “don’t want to foreclose” because they don’t want these properties in their inventory, they don’t want to pay to rehab them or they don’t want to be stuck paying association assessments until they can unload the properties. All of that may be true but far too often, banks aren’t foreclosing, or their foreclosures are being delayed, due to technical improprieties.

Many months ago we first heard of the “robo signing scandal” wherein bank employees with little to no experience in handling foreclosure cases were preparing and filing massive amounts of foreclosure documentation, often improperly. In a 4th DCA decision last week, this issue has reared its head once again. The 4th DCA reversed, in part, a 2010 Palm Beach County Circuit Court that had granted a summary judgment in favor of LaSalle Bank against homeowners, Gary and Anita Glarum in the amount of $422,677.00.

Why did the 4th DCA overturn the foreclosure judgment in favor of the bank? Quite simply because the $422,677.00 amount was based on an affidavit of indebtedness signed by a loan servicer employee who had no personal knowledge that a debt in this amount was in fact owed to LaSalle Bank. Instead, the employee pulled the amount from a computer which the Appellate Court said amounted to “hearsay”. The bank employee did not know who put that figure into the bank’s computer system, how it was calculated or when the data was inputted into the system. However, LaSalle relied upon that Affidavit to obtain its summary foreclosure judgment which the Appellate Court ruled was improper.

This home has been in foreclosure since 2008 and the borrowers continue to reside there. Where does the story go from here? Presumably the owners will not live there forever without having to pay their mortgage but the bank will now have to attempt another summary judgment or start over, all of which means a lot more time invested in the process. Imagine if the Glarums’ home was located within a condominium or homeowners’ association. Imagine the board thinking that the bank’s foreclosure was imminent and waiting. Of course, we know now that the association would have been waiting 3 1/2 years up to this point with the prospect of waiting for months or even years to come based on this recent legal loss for the bank.

Frankly, association foreclosures do not have the same inherent hurdles as bank foreclosures. Association members have fewer holes to poke in an association foreclosure. Delinquent association members cannot derail an association foreclosure because a director was improperly elected or the pool is not well maintained. The only defense to an association foreclosure is that the debt is not owed. If the association member can provide proof of payment, he or she can halt the association foreclosure.

If your board is not having a frank discussion with your association attorney or collection agency about strategies that make sense in today’s environment, what are you waiting for?

Tuesday, September 6, 2011

Condominium Association Loses Fight to Keep Its Beach Private!

A federal judge in Pensacola has dismissed a lawsuit filed by the Crystal Dunes Owners' Association and individual condominium owners alleging that the City of Destin, the City Manager, the Mayor and the Okaloosa County Sheriff all violated their due process and equal protection rights by failing to provide the association with notice and an opportunity to be heard before declaring their beachfront property subject to "customary use" and therefore open to the public.

The lawsuit was filed in May, 2010, after the City and the Sheriff's Office allowed people to use the beach 20-feet landward of the line between wet and dry sand in front of the condominium complex. The association had argued that the property was private and therefore subject to enforcement of trespassing laws.

The Erosion Control Line was established by the State of Florida to distinguish between publicly and privately owned property. The defendants in this case argued that the plaintiffs failed to state a claim for a violation of their procedural due process rights because they have no right to enforcement of the criminal trespass laws. The defendants further argued that the plaintiffs failed to state an equal protection claim as they did not allege that other citizens in similar circumstances received more favorable treatment.

The U.S. District Court for the Northern District of Florida cited the case of Town of Castle Rock, 545 U.S. at 755, as follows:

"While states may provide their citizens with benefits, the mere provision of a benefit does not bestow upon citizens the right to receive it; indeed, benefits are not protected entitlements if government officials may grant or deny them in their discretion....In Florida, law enforcement officials have discretion in determining whether to enforce the laws, particularly where, as here, the statute contains no mandatory enforcement language."

Chief U.S. District Judge, M. Casey Rodgers, clearly felt that the association members had no right to enforcement of Florida's criminal trespass laws and thus, were not entitled to notice or an opportunity to be heard before the City of Destin and the Sheriff's Office decided not to enforce those criminal trespass laws against members of the public wishing to use the beach in front of their condominium complex.

Beachfront associations in Florida would be wise to discuss this case with association counsel to determine whether their current expectations regarding the private or public nature of their beaches are reasonable and enforceable.

A copy of the Judge's order can be read online, here: http://richmedia.onset.freedom.com/nwfdn/lqz5g2-4lawsuit.pdf