Resignation May Not Prevent the Cessation of a Board Member’s Right to Designation of Your Representation…

…and this may lead to frustration and vexation!

Florida law and most association bylaws allow for board members of non-profit entities (such as condominium and homeowners associations) to tender their resignation at any time during their tenure.  The resignation is effective at the time it is tendered unless a later effective date is specified.   If the resignation is made effective as of a later date the board of directors may fill the pending vacancy before the effective date provided that the successor does not take office until the effective date.  Florida law and many bylaws further provides that the vacancy is to be filled by a majority vote of the “remaining” directors.  See Florida Statutes 617.0807, 617.0809 and your association’s bylaws.  Note: This procedure may be different for vacancies created by a recall.

The potential problem with this scenario is as follows.  Say a board member develops a conflict of interest, such as the filing of a lawsuit against the association, and that board member decides that he or she must resign from the board due to this circumstance.  That board member would be well within his or her rights to tender their resignation with a future effective date and the board could then decide to vote on a successor prior to the departure of the resigning member.  The question then arises as to whether the departing board member is afforded the right to participate in the vote for his or her successor.  Since the individual is still technically a board member at the time of the vote, he or she may be deemed a “remaining” director and therefore, may actually have the right to cast a vote despite the fact that such a literal interpretation of the word “remaining” may seem to confer an unintended right on the departing board member.

The Florida Department of Business and Professional Regulation has dealt with this circumstance and has issued an opinion supporting this literal interpretation of the term “remaining” director.  In the matter of Rhoda Blau v. Martinique 2 Owners Association, Inc., Case No. 99-1880, the arbitrator in that entered an order stating that “it is apparent from the statutory sections set forth above (617.0807 and 617.0809) that a director who resigns with a delayed effective date may generally continue to exercise the authority conferred on board members, absent countervailing circumstances.”  The opinion does go on to clarify that these particular statutory provisions and the resulting literal interpretation of the term “remaining” directors would not apply if the vacancy at issue was the result of recall efforts.

In light of this information, associations should be wary of resignations with delayed effective dates and should ideally wait until the resigning board member vacates his or her position before a vote is held to select a successor.

Daniel Wasserstein

E-mail: danw@wassersteinpa.com

561-288-3999

The Dirty Deed…In Lieu of Foreclosure

When an owner decides that they simply cannot pay their accrued assessment arrearage, they often take steps to either maximize the amount of time that they can hold on to (ie: live in or rent) their property, or alternatively, may endeavor to quickly hand over the subject property to minimize their personal liability.  With regard to the latter, the delinquent owner may make the association an offer where the owner would agree to deed over the property rather than endure the foreclosure process.  In exchange for this quick turn over of title, referred to as a “deed-in-lieu” (in lieu of foreclosure), the owner usually requests a waiver of personal liability for the accrued debt.  Since foreclosure can be both time-consuming and costly, this is often an attractive option to an association, especially where the unit is in habitable condition and the association can quickly get a renter in place.

It is important, however, that the association do its homework before accepting such a deed.  The reason being that there may be other junior lienholders out there with rightful claims that are secured by the property.  The subject property may have no mortgage on it, leading the association to think that it is getting clear title by accepting a deed-in-lieu, but that is not necessarily true.  The association does get title to the property, but that title is still subject to junior claims that may exist against the property.  For example, if the original owner had work performed by a contractor before deeding the property over to the association and that contractor placed a lien, called a mechanic’s lien, on the property due to nonpayment, the contractor would still have a rightful encumbrance on the property which he or she could foreclose on and in doing so, dispossess the association of the property.  Of course, had the association learned of this encumbrance and foreclosed on its own lien rather than accepting a deed-in-lieu, these types of junior claims would have been wiped out (ie: foreclosed) and the association, if it took title through the foreclosure process, would have obtained clear title rather than what this author calls a “dirty deed.”

The lesson is that the quick and easy option often has hidden pitfalls and it is important that your association consult an attorney to discuss and review these types of decisions before any action is taken.

Daniel Wasserstein

E-mail: danw@wassersteinpa.com

561-416-0170

Liens are Fine, but Fines are Not Liens

When owners choose to live in a community with an association, they implicitly agree to comply with all of the provisions contained in their association’s governing documents.  In those documents there are almost always restrictions on certain things such as the size and type of pets they are allowed to have, the color of paint they can use for exterior surfaces and even the type of vehicles that can be parked in their driveway.  Break one of these rules by say, parking a semi truck in their driveway, and they should expect to hear about it from their association by way of a violation notice and subsequent fine.

Once a violation has been issued and a resulting fine has been approved, the next obstacle from the association’s standpoint, especially in these challenging economic times, is how to actually collect on the fine.  The question has recently been raised as to whether an association can place a lien on an owner’s property for accrued fines as an association has the ability to do for unpaid assessments.  The simple answer to this inquiry for associations in Florida is generally, no.

Florida Statute 718.303(3), which governs condominium associations sets forth quite concisely that:

  • The association may levy reasonable fines for the failure of the owner of the unit or its occupant, licensee, or invitee to comply with any provision of the declaration, the association bylaws, or reasonable rules of the association. A fine may not become a lien against a unit.

Florida Statute 720.305(2) which governs homeowners associations sets forth in relevant part that:

  • The association may levy reasonable fines of up to $100 per violation against any member or any member’s tenant, guest, or invitee for the failure of the owner of the parcel or its occupant, licensee, or invitee to comply with any provision of the declaration, the association bylaws, or reasonable rules of the association. A fine may be levied for each day of a continuing violation, with a single notice and opportunity for hearing, except that the fine may not exceed $1,000 in the aggregate unless otherwise provided in the governing documents. A fine of less than $1,000 may not become a lien against a parcel.

Based on these cited provisions, the only instances where a fine may be able to become a lien is when a homeowners association fine is equal to exactly $1,000 (see additional commentary below) or where a homeowners association’s governing documents specifically provide that fines can exceed $1,000 in the aggregate.  Absent such language, it would be contrary to statute for a condominium association or homeowners association in Florida to lien an owner’s property due to unpaid fines.  So, while liens (for assessments) are fine, fines (for violations) are not liens.

Daniel Wasserstein

E-mail: danw@wassersteinpa.com

561-288-3999

Got Rent? Going After Delinquent Owners’ Rental Income

Its 2012 and for most associations, their biggest challenge this year, as with past years, will be delinquencies in their community and the all-important “accounts receivable” column on their balance sheet.  For many associations, even more irksome than a unit owner continuing to reside in the community without paying assessments is that same delinquent owner renting out their property and deriving income from it.

Fortunately, the Florida legislature recently acknowledged this circumstance and codified amendments to Florida Statutes 718 and 720 (Condo and HOA, respectively, see “Useful Links” tab above) empowering associations to send demand letters to tenants of delinquent owners, requiring that they immediately begin tendering their monthly rent payments directly to the association instead of the owner of the property.  Of course, a key element to the success of this program has been the threat of eviction.  In addition to providing an association with the right to demand rent payments from tenants of delinquent owners, the applicable statutes (specifically, 718.116 and 720.3085) also allow the association to evict those tenants who refuse to comply.  Since the word “eviction” generally strikes fear in the heart of most tenants, especially those who are able to pay their rent and generally like where they reside, it is this attorney’s experience that tenants who receive a demand letter often contact the association very quickly to arrange for the paying of their rent.

The tenant rent demand letter serves as a low cost way to generate an influx of payments which will reduce an association’s assessment arrearages and  accounts receivable.  Because of the low cost and high success rate, it is this attorney’s recommendation that any Florida condominium or homeowners association ensure that their attorney is using this valuable tool on their behalf.

Daniel Wasserstein

E-mail: danw@wassersteinpa.com

561-288-3999