Wasserstein, P.A. – 2015 Legislative Update

Wasserstein Logo CMYK

561-288-3999

danw@wassersteinpa.com

2015 LEGISLATIVE UPDATE

This shall serve as Wasserstein, P.A.’s newsletter to our clients regarding recent legislative changes of which you should be aware.  As of July 1, 2015 the most significant bill for community associations that was passed into law was HB 791.  Most changes included in HB 791 impact both condominiums and homeowners associations unless otherwise specified.  The following are the key changes and updates:

CONDOMINIUMS AND HOMEOWNERS ASSOCIATIONS:

Electronic Voting: One of the most significant changes passed this session is that associations may now conduct elections and other membership votes via an electronic (internet-based) system. The new law includes requirements necessary to establish an electronic voting method, including a board resolution adopting this manner of voting.  An owner’s consent to online voting is required, but if the owner does not consent then he or she is still entitled to vote by paper ballot.

Electronic Transmission of Proxies: As the law previously existed, it did not allow for proxies to be submitted electronically (scanned, faxed, e-mailed, etc.).  The new law contains language similar to the language already found in Florida Statute 607.0722(10), which governs for-profit corporations, and is being added to Florida Statute 617.0721, which governs not-for-profit corporations, including both condominium and homeowners’ associations.  This new law will allow for owners to submit their proxies electronically, which will certainly facilitate membership voting by making it easier to participate (albeit participation by non-participation since its by proxy!).

Electronic Notice to Owners: This part of the bill removes from the statutes the requirement that electronic notices to owners must be authorized by the bylaws (this requirement generally meant an amendment of the bylaws was necessary since many were recorded back when the Internet was merely just a dream of the U.S. Army, Al Gore, Bill Gates or whomever else claims to have invented it and electronic notice was not even contemplated!). Now, as long as the owner consents in writing, the association may provide the owner with electronic notice and save some trees.

Suspension of Voting Rights and Amenities: A welcomed change and clarification adopted by this bill is that when an owner’s voting rights are suspended, they are effectively removed from the total number of voting interests in the community for purposes of calculating a quorum or obtaining approval of membership action.  Basically, they are removed from the denominator of the fraction.  So if you have a community of 100 units and need 67% to vote in favor of the proposed action, and 10 owners have had their rights suspended, you need only 67% of 90 rather than 67% of 100.  The bill also clarifies that the suspension of right to use amenities applies to owner, their tenants and guests, regardless of number of units owned by the owner.

Fines: This section of the bill clarifies that it is the Board of Directors that is responsible for levying fines and that the fining/covenant enforcement committee hearing must be impartial and limited to the purpose of approving or rejecting the fine levied by the Board.  This is a change I find to be somewhat poorly conceived as it 1) takes away significant authority from the committee and places further burden on the Board and 2) is a somewhat poorly worded amendment to existing law confounding whether the fine is to be determined by the Board and then approved or rejected by the committee after the fact, at a subsequent fining hearing, or if the hearing takes place first and then the fine is levied.

CONDOMINIUM ASSOCIATIONS ONLY:

Application of Payment/Assessments: The Condominium Act sets forth that any payments received by owners on a delinquent account are applied first to interest, then late fees, then collections costs and attorney’s fees, and lastly, the unpaid assessments. The bill amends Florida Statute 718.116(3) to reinforce that this application of payments is to be followed regardless of any purported “full accord and satisfaction” or “payment in full” language or any other restrictive endorsement that may accompany a short or partial payment tendered to the association.

The reason for this change is to overrule a 2014 appellate decision (referred to as the St. Croix case) that held that if a check was tendered for less than the total amount owed, but was accompanied by any of the “full accord and satisfaction” or “payment in full” language, the acceptance of the payment essentially settled the account for the amount accepted.  This caused associations, their managers and attorneys to have to be overly cautious when processing each and every payment to make sure they were not waiving any amounts rightfully owed and even to turn away certain payments, but now that fear has been allayed, at least as to condominiums.

What I would like to see clarified is the last part of the statutory application.  The last item to which payments are applied are unpaid assessments but the question remains, to which unpaid assessments are those payments applied, the oldest or the most recent?  It would make sense to apply payments to the oldest unpaid assessments first and that is often how they are handled in practice as it is most fair to the delinquent owner (since the older an assessment, the larger amount of interest that accrues).  However, it would be nice to have a clarification.  Just wishful thinking on the part of an association lawyer.

Official Records: Previously, the Condominium Act had a catch-all type of provision that made “all other records of the association…which are related to the operation of the association” part of the official records. The new law clarifies that those “other” records are limited to only “written” records.  Effectively, items such as audio or video recordings of meetings or security camera video footage are now no longer considered “official records” and accordingly, do not have to be made available to owners seeking to inspect the official records.  An interesting debate is whether e-mail constitutes a “written” record and if so, whether audio or video files transmitted via e-mail are then made part of the official records.

Distressed Condominium Relief Act: The bill also extended the “distressed condominium relief act” also known as the “bulk buyer law” until July 1, 2018.  It had been set to expire, or “sunset” on July 1, 2016.  This is important for investors that buy distressed condominium projects as it gives them immunity from various obligations affiliated with being a developer.

Insurance: The new law modified a provision that previously made the association responsible for certain “uninsured losses.”  This change really just fixes a glitch and clarifies that the association’s obligation to subsidize insurance shortfalls for items that may otherwise be the unit owner’s responsibility is limited to situations where the association was actually responsible to insure the damaged element.

HOMEOWNERS ASSOCIATIONS ONLY:

Homeowners Association Act: Florida Statute 720, which governs homeowners association, is now officially known as the “Homeowners Association Act.”  Neat.

Governing Documents Includes Rules and Regulations: While most everyone has always considered the rules and regulations adopted by an association to be part of their “governing documents,” that term, as used throughout the Homeowners Association Act (my first time calling the statute by its new official name…exciting stuff!) is now deemed to explicitly include the rules and regulations.

Notice of Amendments: While the Homeowners Association Act still requires the providing of notice to the membership of recording an amendment to the governing documents, failure to do so does not affect the validity of the amendment.

Eligibility for the Board of Directors: Taking a page out of the Condominium Act, the Homeowners Association Act now provides that an individual who is delinquent in the payment of any financial obligation owed to the Association as of the last day that he or she could nominate himself or herself to the board is not eligible to be a candidate and may not be listed on the ballot.  Once on the Board, a member’s delinquency leash is a bit looser (so as not to create excessive vacancies) as it is not until they become 90 days delinquent in the payment of any monetary obligation owed to the Association that they are deemed to have abandoned their seat on the Board, creating a vacancy to be filled accordingly.

OTHER BILLS AFFECTING ASSOCIATIONS:

Evicting Tenants of Properties in Foreclosure:  HB 779 is meant to replace the Protecting Tenants in Foreclosure Act of 2009.  Once a property is acquired at foreclosure, the new owner, whether a lender or third party purchaser, must provide a bona fide tenant (someone who was leasing at arm’s length, at a market rate) with only 30 days’ notice of the termination of the rental agreement before eviction can be pursued (if the tenant does not timely vacate).  This is a much shortened window of time for tenants to vacate as compared to the prior Protecting Tenants at Foreclosure Act of 2009 which provided that a bona fide tenant was allowed to stay in the property for the entire remaining term of their lease unless the new owner wanted to actually reside at the purchased property.

Termination of Condominiums: Since this is not something that commonly comes up with condominium associations, thankfully, I will only mention that the Condominium Act now provides that if a termination vote fails, another vote to terminate may not be considered for 18 months and voting interests that have been suspended are still entitled to vote on the termination. Also, a termination vote may not take place until 5 years after the recording of the declaration of condominium unless there is no objection.

Daniel Wasserstein
E-mail: danw@wassersteinpa.com
561-288-3999

Advertisements

Abandonment Issues

Empty

All that empty space and no right to use it…until now.

A year ago I wrote an article titled “Is Your Association Down with OPP?”  discussing the pros and cons of renting out empty units without first taking title.  The legislature has heeded the call and last month amended the Condominium Act to allow condo associations certain rights with regard to abandoned units, including the right to rent them out.  Here’s how it works:

After mailing or hand delivering a 2 day notice to the owner of record at their last known address, a condominium association can now enter a unit to clean it up, perform necessary maintenance or repairs, and to turn on utilities (get that A/C going to prevent mold!) if a unit is “abandoned”.   The association can then charge all costs incurred to the unit ledger and lien for the amounts (if they are unpaid) the same as an assessment.  Also, if a unit is “abandoned” a condominium association can petition the court to appoint a receiver to rent out the unit to offset costs incurred with regard to the unit and unpaid assessments.

A unit is defined as “abandoned” if:

  1. The unit is in foreclosure and no tenant appears to have resided in the unit for 4 continuous weeks without providing prior written notice to the association (i.e.-someone sending a letter stating they will be out of town for a month);

       OR

  1. When a unit is not in foreclosure, but no tenant appears to have resided in the unit for 2 consecutive months without providing prior written notice to the association and the association is unable to contact the owner or determine their whereabouts after reasonable attempts.

If your association has questions as to how best to make use of this great addition, it is recommended you contact a community association attorney.

Daniel Wasserstein

E-mail: danw@wassersteinpa.com

561-288-3999

Knowledge is Power

knowledge-is-power

We have all heard the phrase “knowledge is power” but a recent Florida case involving a condominium association suggests that a lack of proper knowledge may prove to be even more powerful!

In the process of collecting delinquent assessments, a representative of the association’s management company is often required to attest to the process and procedures concerning their company’s handling of owner payments and account ledgers.  There are, however, instances where the current  management company may have had a predecessor at the property, or maybe even multiple predecessors, who handled the particular delinquent account at issue during their tenure.  So this naturally raises a question as to how the current management company can properly attest to the veracity of the records that predate their involvement with the association.

The answer is that the account history maintained by a prior management company has routinely been admitted as evidence under what is referred to as the “business record exception” in order to allow the association to fully substantiate the total amount due and owing.  However, in the recent case of Yang v. Sebastian Lakes the court held that it was not sufficient for the association’s current property management representative to authenticate the records of the prior company under the business records exception because the individual lacked personal knowledge of the predecessor’s practices and procedures and could not attest to the veracity of their records.  Really?

This is surprising since the court’s opinion is in direct conflict with the holding of the WAMCO case which is routinely relied upon and conversely holds that a testifying witness may indeed authenticate the records of a predecessor through the business records exception even though the witness is not aware of the predecessor company’s specific practices and procedures.

In comparing the two differing opinions, the WAMCO decision seems to makes more sense, at least from a real-world perspective.  Take for example the account history associated with a loan.  As we are all aware, ownership and servicing of a loan may change hands several times before there is either a payoff or a default.  In the case of a default, the logic under Sebastian Lakes would require the current holder of the loan to march a parade of witnesses into court so they could each testify as to how their specific company maintained the account history and recordkeeping for the loan during their period of ownership/servicing.  Then again, adding a parade to what many people already believe to be a circus may seem like a natural pairing so why not?

Even more concerning is that the Sebastian Lakes holding fails to account for the scenario where the predecessor, whether it be a bank, loan servicer or management company no longer exists.  It is, of course, impossible to obtain testimony from a representative of a non-existent entity, so under Sebastian Lakes there would seem to be no way to properly authenticate the prior records.  Great outcome!

Even though Sebastian Lakes seems to arrive at a somewhat strange conclusion it is beneficial in that it identifies a defense that has gained a degree of traction and reinforces the value of engaging your current management company to audit the records received from a prior management company for accuracy and consistency with generally accepted accounting principles, which, in turn, will allow them to more accurately testify on your behalf when necessary.

Daniel Wasserstein

E-mail: danw@wassersteinpa.com

561-288-3999

Speedy Foreclosure Law – A New Way to Avoid Delay

delays

The average number of days it has taken a lender to foreclose in Florida has been estimated at almost 900 days!  In many of these cases the borrower has defaulted in the lawsuit or has otherwise abandoned the property, so responsibility for this delay has often rested with the lender.  

Why would a lender purposely delay obtaining an uncontested judgment?  For one, the lenders have been happy to postpone recognizing the loss on their books.  Lenders have also been adverse to the possibility of taking title without a purchaser ready to assume the responsibilities of ownership.  These responsibilities include maintenance and upkeep expenses, tax and insurance liability, but most notably as to associations, the obligation to pay not only a portion of prior assessments, but also the ongoing obligation to pay future assessments until the property is sold.  

Facing these liabilities, the orchestrated inertia that has permeated in lender foreclosures is certainly understandable.  Delay is beneficial for the lenders because it allows them to move their cases at their own pace and avoid liabilities they are not prepared to take on.  Delay is also beneficial to the borrowers as they receive the gift of an extended reprieve which often equates to months (and sometimes years) of rent free living.  Who does the delay hurt?  The associations, which have continued to bleed assessments as lender foreclosures crawl towards finality.  While some association attorneys, including me, have taken proactive measures to prod these cases along, it certainly helps to have more tools at our disposal.

Enter the new speedy foreclosure bill, HB 87, that was just recently signed into law by Governor Rick Scott.  Amongst other things, it provides associations with statutory leverage to push uncontested lender foreclosures towards completion.  Previously the law allowed only the lender to seek what is called an “order to show cause” where the borrower would have limited time to show cause as to why a final judgment should not be entered.  If the borrower failed to show such cause or otherwise failed to participate in the proceeding, a final judgment of foreclosure would be entered without the need for further litigation.  Of course, with the overarching culture of delay, this tool was seldom used by lenders.  With the new speedy foreclosure law,  this right has been extended to associations and now they too can force the borrower to show cause as to why a judgment of foreclosure should not be entered against them in the lender’s case.  

While HB 87 should facilitate the movement of uncontested lender foreclosures towards a quick resolution, it is important to realize that many lenders may decide to stall even the filing of their actions since they have now lost a degree of control.  Although this new law is certainly a beneficial development for associations, as the sign above suggests it will remain an inevitability to “Expect Delays”.

Daniel Wasserstein

E-mail: danw@wassersteinpa.com

561-288-3999

Association Assessments: Caveat Emptor? Not Anymore!

Losing Money

One of the longest standing duties of Florida condominium and homeowners associations has been pursuance of delinquent assessments through the lien and foreclosure process.  With the downturn in the economy, the remedy of foreclosure has already been significantly diminished as foreclosed properties often have no equity due to overpriced mortgages, which means that investors rarely purchase properties at the association’s foreclosure sale and instead, title to the valueless property usually reverts to the association.  Since there is no equity in these foreclosed properties, associations have endeavored to rent the units to which they take title as their only means of extracting value out of these properties until such time as the lender finally forecloses on their mortgage.

In recent years, when the lender did finally complete its foreclose, if a third party investor purchased the property at the lender’s foreclosure sale it was always liable to the association for the unpaid delinquency that had previously accrued.  This is where the old adage of “buyer beware” came into play and investors had to consider the monetary obligations they would owe to the association as a factor in their determination whether or not to purchase the property at the lender’s foreclosure sale.

However, a recent court ruling in the case of Aventura Management, LLC v. Spiaggia Ocean Condominium Association, Inc. has essentially said: “Caveat Emptor? Not anymore!”

The court held that when associations foreclose on a property in advance of the lender, that because they became an intervening owner, they cannot later collect the unpaid debt that accrued on the property from a third party purchaser who later acquires ownership of the property at the lender’s foreclosure sale.  This ruling is problematic for board members because they now have to balance the duty of compliance with their governing documents and the applicable statutes, both of which encourage vigilance when its comes to delinquencies, with this brave new world in which pursuance of delinquencies may prove to be the wrong decision and result in an inability to collect pre-existing debt from future owners.

Bottom line: The court’s ruling has created a reality where condominium and homeowners associations are actually encouraged to sit on their rights because exercising their legal remedies may ultimately have a self-destructive effect–it needs to be overturned or the applicable statutes needs to be rewritten so that associations can confidently continue to pursue their delinquencies.  Until then, it is no longer “buyer beware” in these circumstances, but instead, at least for associations, it has become “seller beware”.

Daniel Wasserstein

E-mail: danw@wassersteinpa.com

561-288-3999

Going Green to Save Some Green – Installing Solar Panels to Reduce Energy Costs

Solar Panels

When it comes to aesthetics, associations in Florida generally try to maintain the uniformity of the community by making sure owners are staying consistent with the original design.  Minor alterations, modifications or additions are usually permissible but many decisions that would otherwise be within an owners control, such as the color of their house or installation of an outdoor enclosure, are often disallowed when one submits to association living.  So long as they are not selectively enforced, these aesthetic restrictions are justifiable because they help to preserve everyone’s property value by maintaining the integrity of the community, and with the economy the way it has been, homeowners certainly need to preserve every dollar of their property’s value.

So what about all this we hear about “going green”.  Sounds like a great idea, right?  That is of course until it shows up in the form of ugly black solar panels on your neighbor’s roof .  Under the aesthetic restrictions just discussed, you would think that your association would be able to preclude your neighbor from installing such an eyesore, right?  Wrong!  The Florida Statutes (section 163.04 for those scoring at home) specifically allow owners in HOAs and condos the right to install solar collectors on their home or on the roof of their condo free from any deed or covenant restrictions that the association would normally seek to impose.  If installed on a roof, the association is only allowed to determine the location where the solar collectors may be placed, but even then the location must be within an area with a southern orientation and the selected location must not impair the effectiveness of the solar collectors.

So it seems that just when you think the association has absolute control over aesthetics, renewable energy proves to be the higher power.

Daniel Wasserstein

E-mail: danw@wassersteinpa.com

561-288-3999

Pipe Burst – Who’s Responsible?

A pipe burst in a condominium can be everyone’s worst nightmare.  Its usually a haphazard, unpredictable event causing significant damage, but the aftermath can be even more challenging to filter out than the displaced water.  Both the Association and the affected unit owners will be carefully evaluating the nature of the damage, potential insurance coverage as well as causation, and all of this can certainly put a damper on carefree condo living.

Since most major pipe bursts are random occurrences, the Association should initially focus its efforts on repairing the pipe, analyzing the damage and preparing a claim to be submitted to the Association’s general liability insurance carrier.  The Association is obligated to maintain the common elements and the sooner it can obtain the insurance funding, the sooner the Association can replace certain items such as drywall (or in this case, wetwall) so as to prevent further damage to the common elements and potential health risks.

But what about poor Mrs. Unit Owner who had her hard wood floor coverings, her fancy drapes and her antique furniture damaged by a haphazard pipe burst?  Surely the Association’s insurance must cover those items too, right?  Actually, Florida Statute 718.111(11), which governs insurance requirements for condominium associations, requires that an Association’s insurance specifically exclude coverage for these types of personal property found within a unit and puts the obligation squarely on the unit owner to self insure against this type of loss.

So is Mrs. Unit Owner out of luck if she did not have insurance on her personal property?  Not entirely.  This is where the issue of causation comes into play–what caused the pipe to burst?  It could indeed be that another unit owner was negligent in attempting to make alterations which inadvertently caused damage to the common element pipe.  Alternatively, it could have been a situation where the Association was warned by a professional that a particular common element pipe was weak and preventative maintenance was never taken to address the issue.  In either case, the negligent party could be on the hook for all the resulting damage, not only the damage to the common elements but also to the internal surfaces, components, fixtures and personal property contained inside all affected units.

Daniel Wasserstein

E-mail: danw@wassersteinpa.com

561-288-3999