Monday, May 21, 2018

What are your Board's Rights and Obligations with regard to Sales and Financing in Your Community?

On any given day in any given Florida community association, a manager or director may receive a frantic call from a real estate or title agent about an upcoming closing. These frantic calls typically include an immediate request for information in the form of affidavits, estoppel information, lender questionnaires or other records and information. Naturally, if there is any delay or a refusal to provide certain information, the next call or email contains threats of dire legal consequences should the closing not occur on time or at all.

Responding to inquiries about the monetary amounts owed to the Association on a particular property (also known as estoppel certificate requests) are relatively easy. The shared ownership statutes mandate a certain form be used and outline the maximum fees your Condominium, Cooperative or Homeowners' Association board may charge to provide those estoppel certificates. However, when it comes to other information being demanded these days from lenders and their title/closing agents, the waters are not so clear.


Just how much does your association need to facilitate sales and refinancing activity in your community?


Owners living in mandatory community associations are entitled to expect a certain amount of cooperation from the Board as it pertains to sales or financing transactions.  However, owners are not entitled to expect the association to expose itself to potential liability in doing so.  Boards need to strike a balance between not overextending themselves by providing information of which they are uncertain and not holding up sales and financing transactions by refusing to engage altogether.

The requests for information other than estoppel requests usually involve one or more of the following items:


1.    Lender Questionnaires. These forms are typically overly broad and require the board or manager to confirm information that might not be accessible to them.  For example, many communities are not certain of the exact number of units currently being leased because some owners hide leasing activity from the board. These forms require the board to function as a quasi loan risk officer to help the lender determine whether or not a loan in a particular community is a good risk.  There is little upside to the board or its manager in attesting 100% to answers for which there is not 100% certainty.  Any questionnaire which does not frame the information being provided as being done so "to the best of the signer's knowledge" is a big no-no.  If your board is inclined to fill out a lender questionnaire, work with association counsel to modify the language as needed to best protect the association's interests.


2.    Litigation Information.  Far too many associations are sued in routine "slip and fall" and water leak cases.  Those cases are then usually turned over to insurance defense counsel to handle.  Closing agents may want certain assurances from the board or the association's general counsel that the amount of potential loss or damage is known and can be covered by the association without the need for a special assessment or a loan from the reserves.  Also, they will want to confirm that the litigation has no impact on the safety, structural soundness, habitability or functional use of the building and that the amount of the litigation is covered by the association's insurance policy. Unfortunately, it is often not possible to fully assuage those concerns particularly if settlement negotiations are ongoing with no immediate end in sight. If you are confronted with this issue in your community, see if defense counsel can prepare a brief statement about insurance coverage for the claim(s) in question. While this option is rarely if ever used, counsel for the purchaser or the seller is also able to pull and read the court pleadings and draw their own conclusions about the potential impact in order to facilitate the closing.


3.   Public Records Concerns.  There are items recorded in the Public Records which can delay or complicate closings until they are resolved.  A classic example of this is a Notice of Commencement which was recorded by a contractor with regard to a construction project in the community.  Closing agents will want an Affidavit of Sufficient Funds confirming that the association has the funds on hand to pay for the work contemplated by the Notice of Commencement.  Providing such an Affidavit is fine, however, if the project has ended it is preferable to record a Notice of Termination in the Public Records to remove this concern for future transactions.  Even better, be sure that when you have ongoing construction projects in your community, you work with association counsel to ensure that all proper contractor documents are recorded in the Public Records to evidence in a timely manner both the commencement and the completion of these projects.


Naturally, gathering and providing all of the foregoing information takes time that volunteer boards and time-strapped managers cannot spare.  The shared ownership statutes confirm that your board is not expected to provide this information at no charge.

Sections 718.111(12)(e), 719.104(2)(d) and 720.303(4)(d), F.S. all provide that the association is not required to provide any information to a prospective purchaser or lender other than estoppel information but, if it chooses to provide other information, it can charge $150 plus any reasonable photocopying costs and attorney's fees incurred in responding to those requests as follows:

"The association or its authorized agent is not required to provide a prospective purchaser or lienholder with information about the condominium or the association other than information or documents required by this chapter to be made available or disclosed.  The association or its authorized agent may charge a reasonable fee to the prospective purchaser, lienholder or the current unit owner for providing good faith responses to requests for information by or on behalf of a prospective purchaser or lienholder, other than that required by law, if the fee does not exceed $150 plus the reasonable cost of photocopying and any attorney's fees incurred by the association in connection with the response."


Some of my clients have passed Board Resolutions confirming what information they are willing to provide to lenders and closing agents pursuant to the pertinent statutes.  Others are happy to provide any and all information requested and they are charging for the costs do so including my time to assist them with a response.  The foregoing sales and financing requests will confront every community association on a regular basis.  If your Board has been handling these requests on an ad hoc basis up until now, it is best to have your attorney craft a reasonable policy for you to enforce from this point forward.  Your first answer to that next urgent phone call or email should be "here is our policy on these kinds of requests".