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

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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