Sunday, March 31, 2013

Are folks really being forced to buy homes inside associations?

Many folks in various association groups on Social Media complain about the concept of shared ownership community governance and lament the fact that they cannot purchase homes (particularly in Florida) anywhere else other than inside a mandatory community association.

I ran through my list of friends and colleagues and found them about evenly split between those who live in a mandatory association and those who do not. There are choices for housing all over the state that do not come with a mandatory association but typically that means you will be buying an older home and refurbishing it.

My friends who bought inside community associations typically list the following reasons for doing so:

  • Recreational amenities they couldn't afford on their own (ie: tennis court, swimming pool, etc.)
  • Security they couldn't afford on their own.
  • Shared vision about how the community should look and enforcement of same.
  • Lower maintenance responsibilities (particularly true when the association has the responsibility to paint, pave, pressure clean, landscape, etc.)
  • Prime location (beach, golf course, etc.)
  • Wanted new construction
  • Purchase inside a community association was happenstance
My friends who bought outside a community association typically listed the following reasons for doing so:

  • Previous negative experience in an association
  • Location (wanted an historical area, a remodel, acreage for horses, etc.)
  • Purchase outside a community association was happenstance.
Whether or not there are fewer housing units being constructed outside a planned development scheme these days requires some extensive research. Still one question does not beg research or a philosophical debate: what do developers build?

 The answer is that developers will build what they can sell. If fewer and fewer people bought in communities with mandatory associations, over time fewer of these communities would be built. It is the simple law of supply and demand.

What has surprised me recently is some areas where the owners have not only formed voluntary associations but would now like to take it a step further and encumber the lots with private restrictions forming a mandatory association. Why would these folks who have lived in their homes for some time unfettered by association restrictions and politics decide to go that route? When asked, the resounding answer was overall disgust with the lack of municipal responsiveness when problems do arise.

The sad reality may be that there is unhappiness and disappointment both inside and outside mandatory association communities with the target of that unhappiness and disappointment either being an elected board of your neighbors or your elected local officials.

Sunday, March 24, 2013

Leaning In: Is there a Gender Gap on Community Association Boards?

I just finished reading Sheryl Sandberg's book, Lean In, about women, work and the leadership gap that still exists. For those of you who don't know, Sandberg is the COO of Facebook and her book has stirred up quite a bit of water cooler talk.

The premise of Sandberg's book is that women and men have to both lean in to embrace roles that traditionally have not been their territory. For women, that means filling leadership roles at the office and for men, that means pushing for more time at home and with the kids.

Despite the controversy surrounding Sandberg's book, I found it to be filled with nonjudgmental observations by a woman of my generation who has filled quite a few interesting seats from the Treasury Department to Google to Facebook.

So what does this book and its topic have to do with your community association?

It got me thinking about whether or not there is a gender gap on most community association boards? One of the themes in Sandberg's book is that most women don't push for a seat at the table. When I meet with different types of association boards, I usually find both genders represented on the board, seated comfortably at the same table and the women are hardly reticent to express their opinions. However, if I had to do a more formal poll, I'd probably say there are more men sitting on boards than women, at least from what I've seen.

I think back to my own HOA board and at the time I served, I was the only woman out of the 5 directors who was female. I was also a few decades younger than my counterparts. I was asked to be the Secretary of the board because that was what the "female director" did. I declined and one of the other directors begrudgingly took on that task. Later I was asked to resign and I declined that offer as well.

I do think that the older the demographic on a board of directors, the less this gender gap shows up. Why? Perhaps it is because the older you get, your perspective and your inhibitions change and you grow a little bolder?

Far too many associations complain (both rightly and wrongly) that there is little to no leadership qualities displayed by their board of directors. Is that lack of leadership attributable to a gender gap or something else.

What do you think?

Monday, March 18, 2013

Recent Florida Supreme Court Ruling Helps Association Injured by Insurance Broker

On March 8, 2013, the Florida Supreme Court issued a 5-2 ruling in the case of Tiara Condominium Association, Inc. v. Marsh & McLennan Companies which has been widely cheered by plaintiff's attorneys.

The nature of this dispute stemmed from more than $100 million in damages that this Riviera Beach community suffered in 2004 from two separate hurricanes. The board had been assured by its insurance broker that the association had $50 million in coverage per occurrence. In reality, the association discovered it had only $50 million in total coverage. The association settled with its insurance company for $89 million and sued the broker for the rest.

The trial court dismissed Tiara's claims and the U.S. Court of Appeals for the Eleventh Circuit affirmed that Tiara's claims for breach of contract, negligent misrepresentation and breach of good faith had been properly dismissed.

The following certified question was sent to the Florida Supreme Court:

Does the Economic Loss Rule prevent a policyholder from suing its broker if they have a contract where the only damages sought are economic?

The economic loss rule originated in the product manufacturing arena to limit losses and the ability to pursue a tort claim to a customer's expectations of a particular product. Over the years, courts began expanding the reach of the economic loss rule to other areas and to contracts for professional services such as those provided by accountants, insurance brokers, etc. This expansion of the rule required attorneys seeking recovery for damages that were purely tied to a loss of money (as opposed to loss of life, injury, property damage, etc.) to perform extraordinary mental gymnastics to attempt to collect when those claims were otherwise supported by contract law.

Justice Jorge Labarga, writing for the majority, stated that the Economic Loss Rule was not a bar to the Tiara board's claim against its broker and went even further by proclaiming that from this point forward that rule would once again apply only to product liability cases.

So what does this case mean for your association? It underscores the need for your community to really understand what kind of insurance coverage you are purchasing. The Tiara board wound up making legal history with its claim but something tells me that they would rather have foregone the battle and simply reaped the benefits of the coverage they thought they had.

Thursday, March 7, 2013

Different perspectives on foreclosures could hurt association bill's chances.

Yesterday, a bill designed to speed up stalled bank foreclosure actions filed by Representative Kathleen Passidomo ( a Republican from Naples,FL) was debated at length in the House Justice Appropriations Committee. The bill did pass out of this committee by a vote of 9 to 2 but only after much emotional testimony that clouded the real issues at times.
The individuals who spoke in opposition of the bill did so from the perspective of folks who had previously lost a property to foreclosure. While it usually tugs at the heartstrings to hear of people losing homes as a result of their inability to make their mortgage payments, one could be equally sympathetic to the folks who continue to pay and now must pay more to make up for often significant shortfalls in their association's budgets. Some of those still-paying folks have one foot on the foreclosure path themselves if relief doesn't arrive in time.
The individuals who testified yesterday in opposition also did not seem to understand the significance of the bill's provisions which would shorten the amount of time that banks can pursue deficiency judgments from the current five years to one year! Instead, the focus was that Pep. Passidomo's bill would force banks to move their foreclosures forward expeditiously, a result that is soundly applauded by most people in the community association industry, including the writer of this blog!
A mortgage defense attorney testified that her own home was the subject of a foreclosure action which seemed odd in terms of being compelling testimony against this bill. Many delinquent owners have managed to stave off bank foreclosure actions for years as a result of the bank's own shoddy housekeeping or as a result of missing or flawed loan documents. However, at some point the bank usually overcomes those hurdles and then the owner must pay or leave.
What most opponents missed yesterday was the concept of this bill addressing the greater good. The fact remains that speeding up bank foreclosures will help struggling associations and the majority of people living in them. The folks that are displaced as a result will hopefully eventually own again with a mortgage which they are capable of paying. 

Monday, March 4, 2013

Hanging on for far too long...developers' reservation of rights often pose long-term problems for association residents

Most new home buyers look at a potential community and rightfully spend quite a bit of time investigating the types of recreational and other amenities that make up the total package attached to that particular community's lifestyle. However, not nearly as many potential purchasers carefully review the association's governing documents to see just how long that developer will continue to play a role in the community both in terms of the use and maintenance of those amenities but the costs associated with them as well.

Typically known as a developer's reservation of rights, this lingering authority can greatly impact residents' enjoyment of their community depending on how it is exercised and over what community components or operational aspects. Developers can and do insert clauses in their documents that allow them to control items such as parking spaces, storage areas, boat docks and other common areas and limited common elements well beyond the time that owners have assumed responsibility of the board and the association's operations.
Many owners are shocked to learn that a developer can continue to exercise control over certain aspects of the community as long as the developer still owns a unit or units and the governing documents clearly spell out the developer's reservation of rights. A recent Florida Third District Court of Appeal case underscored a developer's rights in this regard. In the case of Courvoisier Courts LLC v. Courvoisier Courts Condominium Association, Inc, the 3rd DCA reversed the trial court and held that a developer could maintain control over unassigned parking and storage spaces even post transition since the declaration contained clear and unambiguous language allowing it to do so. In this case, the developer transferred a number of unassigned parking and storage spaces to a penthouse unit it still owned with the intent to sell these valuable commodities at a future date. If there had been any sort of ambiguity in the documents, presumably Florida case law would have continued to strictly construe such ambiguity against the developer. However, in the Courvoisier case, no such ambiguity existed.
What is the moral of the story? It is important for potential purchasers to not only understand how the community will operate at the time of purchase but also how it will operate months and years down the road. If a developer has taken far too many liberties in terms of its reservation of rights, a purchaser cannot assume that the developer will never exercise those rights nor can he or she assume that a court will not uphold them. In those instances, the best course of action may be to keep looking for that dream community.