Sunday, January 27, 2013

Is your Condo or HOA Board enforcing phantom rules?

We often hear of boards enforcing a variety of rules restricting pets, leasing, guests, commercial vehicles and more. Many times these restrictions are proper and the board is within its rights to enforce them. However, sometimes it is discovered that a long-standing restriction doesn't really exist.

How does it happen that some boards are enforcing phantom rules?

When association boards are elected, sometimes the new directors do not review the governing documents with care (or even at all) and rely, instead, on longstanding patterns of practice by previous boards. Some directors are astonished to discover that the new purchaser approval language doesn't mention at all a requirement for a personal interview despite the fact that they were themselves subjected to an interview when they moved in. The same false patterns can hold true for something as controversial as a pet restriction or as innocuous as the date of the annual meeting being wrong.

Naturally, at some point an owner may challenge an enforcement action and respond with the obvious: "show me where in the documents it says that." If a board cannot demonstrate the authority to enforce a certain restriction, it may wind up paying attorney's fees and costs to the opposing party as well as undermining membership confidence.

Every board of directors would be well advised to undertake an annual rules and regulation audit to determine which restrictions are currently enforceable pursuant to the association's governing documents as well as current law.

Wednesday, January 23, 2013

Just released 3rd DCA opinion could harm your already struggling association

A case decided today could mean financial hardship for already struggling Florida associations. The Third District Court of Appeal’s ruling in the case of Aventura Management, LLC v. Spiaggia Ocean Condominium Association, Inc., Case No. 3D11-2545, January 23, 2013, underscores the need to amend the statutes for condominiums, cooperatives and homeowners’ associations to clarify that when an association takes title to a unit via its own foreclosure, the association does not become jointly and several liable for past-owed assessments and further clarify that an association can collect the past due assessments from the previous owner up to the time a new owner (other than the association) takes title to the unit.
In the Spiaggia Ocean case, the condominium association took title to a unit via foreclosure of its lien for past due assessments and began renting out the unit.  Subsequently, the first mortgagee filed its foreclosure action and the investor group, Aventura Management, purchased the unit at the foreclosure sale.
The association attempted to collect from Aventura the past due assessments, late fees and interest that had accrued since the original owner defaulted.  The association maintained that as a third party purchaser, Aventura was responsible for all past due assessments up to the time it took title pursuant to Section 718.116(1)(a), Florida Statutes.  The trial court granted the association’s motion for summary judgment, and Aventura appealed.
The 3rd DCA overturned the trial court’s ruling and ruled that as an intervening owner, the association was also jointly and severally liable for the past due assessments when it was the owner. The majority decision opined that the Statute did not provide an exception to the joint and several liability conundrum for associations who take title to delinquent property.  As a result, the association could not collect the past due assessments, late fees and interest that had accrued since the original owner defaulted from the third party investor purchaser.
This opinion flies in the face of the conventional wisdom urging associations to pursue their own foreclosures and rent out the property rather than waiting months or years for the banks to turn over delinquent properties. It may still be the case that an association can recoup losses from such action rather than having to pursue a third party purchaser at the bank’s foreclosure sale but this decision will further delay or entirely prevent associations being made whole.
The dissenting opinion in Spiaggia Ocean really gets to the crux of the problem and addresses the overriding issue of the statutory intent- trying to assist associations and not savvy investors who pick up properties at foreclosure sales.  In his dissenting opinion, Justice J. Shepherd wrote:
Applying these rules to the case before us, it is apparent the fundamental purpose of the Legislature in promulgating section 718.116 was to assist condominium associations to be made whole in the collection of past due assessments, while at the same time not unduly impairing the value of collateral held by first mortgagees. In furtherance of this design, the Legislature has given condominium associations a statutory lien on each condominium unit over which it has jurisdiction, to secure payment of assessments without the necessity of filing a claim of lien in the public records, with the single exception of first mortgagees, where record notice is required. § 718.116(5)(a).  Thus, under the legislative scheme, third-party purchasers of condominium units, like Aventura Management, LLC, are subject to old-fashioned caveat emptor principles. Their  protection lies in satisfying themselves before purchase, whether by contract or judicial sale, of the status of past-due assessments on the unit.
I could not have stated the issue any more succinctly and agree wholeheartedly with Justice Shepherd’s analysis.  We will be working diligently this session to seek redress for this type of a ruling, and craft a legislative change that makes it clear that an association is not considered a previous owner, thereby denying it the right to seek past due assessments, late fees and interest from third party purchasers.

Sunday, January 20, 2013

So a receiver was appointed for your community, does this mean the end of your troubles?

For some folks. the mention of a receiver sends chills down their spines while for others it signals salvation for a community with troubles. Typically, in a community association setting a receiver would be appointed when the following occurs:

  • No one wishes to serve on the board or a board refuses to fill vacancies sufficient to constitute a quorum;

  • The board is unwilling or unable to act in the aftermath of a natural disaster or just as a result of dysfunction and the community's assets are being wasted as a result;

  • The association is being dissolved;

  • There are a number of abandoned units that the association wishes to rent out; and

  • Prior to the change in Florida law allowing associations to demand rents from tenants in delinquent properties, receivers were usually sought to fill this function.

Often, lawyers, managers and accountants are appointed to serve as receivers in shared ownership communities. However, there are no specific requirements as to who is eligible to serve as a receiver; it is up to the court's discretion to appoint same. Receivers are required to post a bond at the time of their appointment to cover the complete inventory over which they will be exercising control and discretion. It is very important at the outset then that the bond is high enough to cover any failures or misdeeds on the receiver's part.

Receivers are entitled to fees subject to the court's approval. Unless the Order appointing the receiver contains an automatic removal provision (i.e. upon dissolution of the association, election of a new board or other triggering event) the receiver will remain in place until someone moves the court to terminate the receivership.

Receivers have helped return many communities to health but, as is often the case in life, there are also examples where receivers have done damage. The last few years saw several receivers going to jail and others embroiled in litigation over excessive fees, questionable judgement calls and failure to relinquish control.

In Florida, we are looking at possible legislation in the 2013 Session that will facilitate the appointment of more receivers in community associations. It is in a community's best interests to always ensure a system of checks and balances is in place and that applies even when a court-appointed receiver is running the show.

Sunday, January 13, 2013

Why should your condo, coop or HOA board consider amending the association's governing documents?

Without fail, every month sees at least several new association clients who arrive with a sheaf of dusty parchment paper that they present to us with a ceremonial flourish and the ominous words: here are our governing documents.

After gently thumbing through the documents which are naturally unbound and have the consistency of fragile onionskin, the question "Are you here to discuss amending these?" is often met with a quizzical look and a negative head shake. Why are so many associations reluctant to amend documents that are so obviously in need of a major face-lift?

I think it's because many associations have been burned previously in the amendment process. Sometimes they have attempted to amend without professional guidance and not gotten the results they wanted and other times they have used their attorney to prepare the amendments and gotten a whopping legal bill at the end.

The amendment process does not have to be torture if a board does two things: keep its expectations reasonable and stay involved throughout the process. Here are my other recommendations to make amending your documents a little easier for everyone involved:

Decide if you need a complete overhaul or whether strategic "spot amendments" will do. Some boards think they need to completely rewrite the documents to remove archaic references to the developer; sometimes those kinds of amendments can be window dressing. You might save money by leaving it in there.

Have a frank and ongoing discussion with your association attorney about what you are trying to accomplish and how much you want to spend. If you are way off base, he or she will tell you. You should also get a realistic delivery date on those amendments so your membership meeting can be planned accordingly.

Speaking of your members, involve them early. It would be prudent to do a straw poll vote first to see if your community actually supports freshening up the documents; chances are they do but it couldn't hurt to check before you spend a lot of money on amendments that won't pass.

Some amendments are simply easier to get approved than others. Removing illegal and unenforceable restrictions on children and satellite dishes make sense to avoid liability and should easily win approval. However, tell folks what they can and can't do with their property and whom they can have in their homes as guests and you're likely to have a real battle convincing some of your members to cast yes votes.

If your association's governing documents haven't been touched substantively in years, you may be missing out on some important legislative changes over the years; you may also have hidden time-bombs in your documents that put your association at a distinct disadvantage when it comes to lenders and others.

The start of a New Year is the perfect time to dust off those old documents and give them a fresh outlook.

Sunday, January 6, 2013

When will we become proactive rather than reactive when it comes to storms impacting our communities?

I was fortunate to spend New Year's Eve and the Sugar Bowl (despite the Gators' peformance) with my cousins in the Big Easy! I have always loved New Orleans, particularly because many of my extended family members live there. My husband and children, however, had never visited the city so it was nice introducing them to iconic places like the Franch Quarter and the Garden District and all the city's amazing places to eat.

The course of conversation one night turned to Superstorm Sandy and the inevitable comparisons with Katrina and New Orleans' fate came up. My children listened to stories of how their cousins each lost their homes to Katrina. When we sat in the Superdome, we couldn't help thinking about the thousands of people who had called that stadium home for far too long and some of the atrocities that took place there. New Orleans lost 1,800 of its citizens and suffered a staggering $100 billion in damage thanks to Hurricane Katrina.

When we visited plantations outside of New Orleans we saw levees built up outside the gates of those stately homes where none had previously existed. In fact, New Orleans now has one of the largest storm surge barriers in the world thanks to a $14.5 billion project paid for by the federal government. The Crescent City is now protected by 350 miles of stronger levees and higher flood walls. Some of my relatives remarked that the northern folks who thought the city of New Orleans should be abandoned due to its geographically vulnerable location might now think differently.

Superstorm Sandy has inflicted $80 billion in damage in New York and New Jersey alone. The difference though is that this storm was accurately predicted and well in advance of actual landfall. Experts now have data proving their theories that super storms are becoming more frequent and more powerful. Perhaps the time is now to assess all areas that could become potential targets to these kinds of storms and "weatherize" them in the same manner that New Orleans underwent so we can all rest a little easier.