Monday, February 22, 2016

There's a Sucker Born Every Minute-Just Make Sure Your Association Isn't One of Them

P.T. Barnum is widely quoted as having said that "there's a sucker born every minute" and that was well before the Great American Recession which resulted in countless community associations assigning their bad debt over to creative collection companies or law firms touting themselves as super aggressive in the collection arena.
While the vast majority of shared ownership communities can never count on collecting 100% of their assessments at any given time, the Recession produced crippling levels of delinquencies in many associations. It was understandable at that point in time if a community decided to give up quite a bit in terms of its real property rights to have a collection company or law firm pursue those delinquent accounts at no apparent charge to the association. However, there is another old saying "there is no such thing as a free lunch" and that is true in this arena as well.
There is always a cost and if a company or law firm tells you there is not, then you are compelled to dig deeper. The companies and lawyers pursuing your association's bad debt are not doing so on a pro bono basis; there is money to be made or they would not be in business for very long. Typically, their profits come from the excess amounts they attempt to collect from banks (interest, late fees and costs) and obtaining the right to purchase or lease the delinquent property once the foreclosure is complete. However, there are also plenty of costs built directly into the business model including significant administrative and other processing fees added onto the delinquent owner's ledger and, in one contract I reviewed, the right for the collection company to receive 10% of any insurance proceeds the association may receive in connection with a windstorm or other casualty loss. Was the client shocked to learn that they will have to pay this collection company a hefty price should they suffer a loss due to a hurricane? You betcha they were shocked. Other uncomfortable surprises can include the association being sued by a third party as a result of amounts being demanded by the company or lawyer which are not really owed and/or a nuisance tenant or new owner who takes up residence in the formerly delinquent property because the association has waived its approval rights in connection with the assignment of debt on that property.
Collecting the assessment stream which funds your community's essential services is a cost of doing business. Period. Yes, it is a plus if there is sufficient equity in a delinquent property to allow the association to collect without having to come out of pocket. However, even in circumstances where there is no equity, the Board not only has a fiduciary duty to collect outstanding amounts owed, it also has a fiduciary duty not to utilize risky or ill-advised collection tactics. Mapping out a reasonable, customized collection strategy is the association equivalent of old-fashioned blocking and tackling. It might not be as sexy as the 'Hail Mary' pass but it comes with a lot less risk.
Now that the Recession is largely past us and most real property values are not only stabilizing but increasing, there is no longer any excuse for associations to take the easy way out, particularly as it usually turns out not to be so easy or so cost-effective in the long-run.

Monday, February 15, 2016

Part II of Guns in Community Associations Can your Board of Directors Restrict or Prohibit Firearms In and On the Common Areas?

In Part I of my blog post on guns in community associations, we discussed the fact that the U.S. Supreme Court ruling in the case of District of Columbia v. Heller, 554 U.S. 570 (2008) categorized gun ownership inside a home as a fundamental right which likely means that a mandatory community association, despite being a private actor, would not have the authority (either by rule or amendment to the documents) to prohibit guns inside the units or homes.
In Part I of this blog post, we also discussed the three ways that the actions of private actors like community associations can be subject to constitutional challenge under the doctrines of state action through judicial enforcement, the public function test or the state involvement test.
Since there is no equivalent to the Heller ruling which confirms that carrying a gun outside the home is a "fundamental right", then a private residential community could attempt to regulate or prohibit guns on the common areas. Moreover, the Court noted in the Heller decision that the Second Amendment right is not without limits when it stated: "nothing in our opinion should be taken to cast doubt on longstanding...laws forbidding the carrying of firearms in sensitive places such as schools and government buildings".
Communal living compels that some individual rights be abrogated in deference to and in support of the greater good. If a community association's prohibition of guns in common areas is ever tested in court, the question may ultimately be whether or not the common areas of a private residential community qualify as a "sensitive area". There have already been far too many instances of gun violence in shared ownership communities across the country including crimes against directors, residents and association managers/employees. The highly publicized death of teenager Trayvon Martin further highlighted how quickly a community can be swept up in all of the issues related to gun violence.
The Florida Second District Court of Appeals in the case of Hidden Harbor Estates, Inc. v. Basso, 393 So. 2d 637 (Fla.Dist.Ct. App. 1981) held that a community's restrictions cannot "abrogate some fundamental constitutional right". The right to carry or discharge a gun on an association's common areas has not been held to be a "fundamental" constitutional right. Moreover, the Basso court did acknowledge that a community association could pass restrictions which were designed to promote "the health, happiness and peace of mind of the unit owners". An argument could very well be made that a prohibition against guns in the Clubhouse, pool area, meeting rooms, etc. would give peace of mind to (and safeguard the health of) residents already troubled by the volatile discourse in their community.
However, any Association rule regarding guns would be scrutinized on a reasonableness standard while an amendment to the governing documents regarding guns would be cloaked with a presumption of reasonableness. Communities who are interested in restricting or prohibiting guns in and on their common areas should speak with association counsel prior to attempting to do so. There are other state and federal gun laws which may impact the manner in which a board of directors may draft such restrictions and, naturally, given the highly charged nature of the gun debate, taking the community's pulse on the topic ahead of time would be advisable.
Footnote:  The Heller decision was one of the most significant decisions authored by Justice Scalia who passed away suddenly over the weekend. Justice Scalia was appointed in 1986 by President Reagan and, with 30 years' service, was the longest-serving Justice on the current Bench.  Love him or hate him, the decision Justice Scalia penned in the Heller case has and will continue to have long-standing effects for years to come.