Federal agency issues Final Rule that could impact association transfer fees

Last week, the Federal Housing Finance Agency (FHFA) published a Final Rule restricting the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal Home Loan Banks from dealing in mortgages on properties encumbered by certain types of private transfer fee covenants. The Rule bears an effective date of July 16, 2012.

The FHFA is an independent agency of the federal government which was established by the Housing and Economic Recovery Act of 2008 (HERA). This agency's mission is to reduce the risk exposure for Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The FHFA explains that the Rule is intended to protect the regulated entities (named above) from exposure to mortgages with certain features that may impair their value and increase risk to the financial safety and soundness of those entities. This Final Rule specifically applies to developers, condominium, cooperative and homeowners' association restrictions created after February 8, 2011.

The type of "private transfer fee" that was the intended target for the FHFA Rule was typically created by a developer as either a fixed amount or as a percentage (ie 1% of the property's sale price) and attached to real property in order to allow the developer to continue deriving revenue from that property each time it was subject to a resale. Some developer provisions went so far as to make these private transfer fees continue for 99 years!

The question for my readers is whether or not this FHFA Final Rule will impact the kinds of application fees that have been traditionally charged by all kinds of community associations in connection with the sale of lease of property in their communities. Could communities that have these kinds of application and approval fees in their declarations find themselves ineligible for federal-backed loans? For communities already struggling to find credit-worthy purchasers, this could be a significant setback.

There is an exception under the FHFA Rule as follows: "Excepted transfer fee covenant means a private transfer fee covenant that requires payment of a private transfer fee to a covered association and limits the use of such transfer fees exclusively to purposes which provide a direct benefit to the real property encumbered by the transfer fee covenants."

A "covered association" is defined as a nonprofit mandatory membership organization comprising owners of homes, condominiums, cooperatives and manufactured homes.

A "direct benefit" means that the proceeds of a private transfer fee are used exclusively to support maintenance and improvements to encumbered properties and acquisition, improvement, administration, and maintenance of property owned by the covered association of which the owners of the burdened property are members and used primarily for their benefit.

Boards who are currently charging and collecting application, transfer and approval fees in connection with the sale or lease of property must ask themselves whether or not those fees are then being used in accordance with the "direct benefit" language defined above. If they are not, your association members may find they are ineligible come July for federal-backed mortgages as a result. This FHFA Rule does not mean you must stop charging a transfer fee, it may mean that you must ensure that any fees collected are used to directly benefit the encumbered properties. A call to your association attorney to discuss your particular association covenant regarding transfer fees is highly recommended prior to July 16th!

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.

Status quo for community associations after 2012 Legislative Session ends

Florida's 2012 Legislative Session ended last Friday with a flurry of activity and nothing positive passing this year for community associations other than HB 13/SB 88 relating to dock space in multifamily communities. This bill removes some of the monetary inequities that the State has foisted on dock owners in multifamily communities.

This year's community association bill, HB 319 (Moraitis) passed the House with a vote of 114 to 1. Its Senate counterpart, SB 580 (Bogdanoff) died in Senate Messages on Sine Die, or the last day of Session, Friday of last week.

Did a pricey PR campaign bring down the bill? Oddly enough, no.

While the emails for and against the bill undoubtedly played a role, what ultimately killed the bill was Senate President Mike Haridopolos's refusal to allow it to be voted on by the full Senate. Apparently, Senator Haridopolos who is from Melbourne, was contacted by an umbrella group of associations on Florida's Space Coast opposing the bill. This group had issues with two provisions in the bill: the third party purchaser language which would have required purchasers at foreclosure auctions to pay more than just unpaid assessments for a delinquent property and the Safe Harbor clarification. Had Senator Haridopolos allowed SB 680 to be heard, chances are it would have passed.

The foreclosure bills HB 213/SB 1890 met a similar demise this Session. These bills also attracted their share of proponents and opponents. Some of the provisions in these bills would have provided community associations with more tools to force banks to speed up their foreclosures. However, there were constitutional and drafting concerns with these bills from the outset.

Lastly, the Florida Legislature did see fit to pass SB 1196 which is one of the most unfriendly pieces of legislation we've seen in years. This bill will remove an HOA owner's right to pursue a developer in Florida for defects in the sidewalks, driveways, drainage areas and other improvements not located directly on the owner's lot and/or not contributing to the habitability of the home. It is hard to truly understand the logic at play when deciding to pass a law that would have individual owners paying out of pocket for defective sidewalks, driveways, etc. The developers' argument was that the cities pass final inspection on these items so why should the people who built them be liable.

There is still the possibility that Governor Scott may view this new law in its true consumer unfriendly light. You can contact Governor Scott and urge him to veto this bill via email at rick.scott@eog.myflorida.com.

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.

Negotiations 101 for Community Associations

The common definition of negotiating is to communicate in search of mutual agreement. We negotiate every day whether we realize it or not. Often, it is obvious especially when we are trying to purchase a service or a product. Maybe it is a little less obvious when we are negotiating at our workplace or even just dealing with relatives about where we want to spend the holidays.

If you walk into any bookstore, you will find dozens of books teaching successful negotiation techniques. There are tricks of the trade that increase your odds of achieving mutual agreement in less time and more painlessly. Since almost of all these techniques can be utilized in a community association setting, it always amazes me that more boards, managers and association members don't employ them.

How much more effective do you think your negotiations with your board would be (or with your owners if you serve on the board) if effective negotiators were involved in those communications? No matter whether you are an owner addressing a shortcoming of the board or a director or manager addressing an owner's violation, the first thing to remember is that taking positions does not work during negotiations. Looking at the big picture or end game is much more effective than starting a dialogue from an entrenched position. Humor can also be a very powerful and effective tool.

Here are a few more tips to remember next time you are negotiating with your board or your owners to solve a particular problem:

• Not everything is worth negotiating; some battles simply don't need to be fought;
• Warn in a respectful way, don't threaten;
• Be soft on the people and hard on the problem;
• You can't control a bully's behavior, you can only control your response;
• Don't strike back;
• Don't give in;
• Don't break off or walk way. Keep working towards a mutual agreement;
• Ask the right questions: "What will it cost if we don't reach an agreement here?";
• Acknowledge some expertise on both sides;
• Present your view in addition to the other side's view not as an alternative;
• Don't always respond with a like-kind response;
• Acknowledge differences with some degree of optimism;
• Consider options that allow your opponent to "save face";
• Do the proper reserach befor embarking on the negotiations. Don't threaten certain actions or repercussions that simply aren't feasible; and,
• Silence can be powerful.

Successful negotiation in a community association context is especially important because it is a "living together" relationship. Unlike typical business negotiations, in an association setting, you will be forced to contend with each other for many years after the negotiations are over unless one of the party leaves the community. Realizing that dynamic should make it more compelling for your board, manager and association members to learn how to effectively negotiate.

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.

Safe Harbor Amendment battle heats up while condo and HOA owners watch and wait

The Senate counterpart to HB 319, SB 680 sponsored by Senator Bogdanoff, will be heard in the Senate Judiciary Committee today, Monday, February 20th at 10:30 am. It is anticipated that an amendment will be offered to add the "Safe Harbor clarification" to this bill to match what is already found in HB 319.

If such an amendment is offered and accepted, there is sure to be much hullabaloo to follow. We are already seeing the rhetoric ratcheting up in Social Media and other circles. Why?

Frankly, because there is a lot of money at stake. As with most crises, a cottage industry cropped up quickly after the real estate bubble burst. "Creative" collection companies began offering associations something that seemed too good to be true: no-risk collection work. How could they do that? By going after banks for all amounts owed and not just the 12 months' past due assessments or 1% of the original mortgage debt which is also known as the statutory Safe Harbor.

The amendment reiterating that a bank's liability is capped at the lesser of 12 months' past due assessments or 1% of the original mortgage debt that was added to HB 319 in its first committee, would stop some collection companies and attorneys from continuing to employ their current questionable practices. Is this pro-bank? It is certainly easy to spin it that way and adding words like "higher assessments" and "bank bailout" can sound convincing and scary. However, just how much risk to your association is truly involved with being aggressive on the statutory Safe Harbor provisions?

Originally, my instinct was to support associations making their own informed choices in this regard. However, just last week, a lawsuit was forwarded to me and my group, the Community Advocacy Network (CAN). This lawsuit had been filed by HSBC against a Tampa condominium association. Also last week, we received notice of a lawsuit filed by Pennymac Loan Servicing LLC filed against a Miami-Dade HOA. Why were these associations sued? They failed to stay within the statutory Safe Harbor boundaries. This begs the question of just how well informed associations have been when deciding to push the Safe Harbor envelope in the past.

Some weeks ago, CAN polled our members and others in the industry to gauge whether a clarification of Safe Harbor would be welcomed. Naturally, most folks would prefer to have the Safe Harbor limitation for banks eliminated entirely but that is not what is on the table this Session. What is on the table is whether or not the law should be clarified to ensure that all legal practicitioners color within the same lines.

Scare tactics and PR campaigns don't help associations or our elected officials make educated choices in this regard. A sound policy debate does. Whether or not the Safe Harbor amendments are added to SB 680 and remain on HB 319 is no longer the main issue here for associations. This Session's debate on this topic has revealed that banks who may have been unprepared or distracted in the past and paid amounts beyond the Safe Harbor, are not likely continue to do so in the future.

Moreover, depending on the cause of action a bank may bring, they may have years to go back after associations for amounts previously collected from them contrary to the Safe Harbor threshold as well as their attorney's fees and costs. In one of the lawsuits I reviewed, the bank refused to pay the amounts demanded by the association and lost the sale as a result. That bank is now seeking lost profits in addition to other damages, attorney's fees and costs.

At HB 319's first Committee stop, CAN lobbyists waived in support of the bill while not taking a stance on the Safe Harbor amendment. At today's stop, CAN's lobbyists will strongly support the inclusion of this Safe Harbor amendment for all the reasons stated above. Using scary catch phrases like "bank bailout" and "higher assessments" might sound convincing until a little more investigation is done into the policy, the settled law on the topic and the potential future risks.

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.

What is a Newcomer's First Impression of Your Community?

At some point, we were all the "newcomer" in our communities. Can you remember back to the day when you first moved into your condominium, cooperative or homeowners' association?

Your first introduction to your new neighbors might have come in the form of an application and a subsequent interview. Depending on how easy that application was to fill out and the nature of the person or persons who interviewed you, your impressions of your new community might vary widely.

The old saying that you only get one chance to make a first impression is particularly true when it comes to community associations. The approval process for new purchasers and renters as well as the first few weeks and months in a community, can set the tone for an enjoyable future that might include volunteering for the board or a committee or they can be unnecessarily traumatic.

In business, new hires are subjected to an "on-boarding" process in order to ensure that the new employee understands his or her job requirements and the company's expectations. A successful on-boarding process also is designed to teach the new employee a little bit about the company culture and to get them excited about the future and the opportunities it can bring.

I am always a little disappointed that more community associations don't approach the newcomer experience with that same approach in mind. This is your first opportunity to let new people know what is so great about your community, create a sense of excitement as well as inclusion while also letting them know "how things are done".

My first entree into the community association lifestyle was in a condominium association in Miami straight out of law school. The application was no problem at all. As a student, I was used to filling out form after form. The interview was a little trickier. My husband and I were scheduled and re-scheduled several times with little advance warning. When the day finally came, we met with only one member of the board and the least hospitable one at that. He looked at us both sternly and said, "If I like you, you will get to live here. If I don't, you won't."

Needless to say, our knees were both shaking but I suspect now that this board member was just having a little bit of fun at our expense. We were "approved" and went on to live in the community for 4 years. We had nice neighbors but we were left to meet them on our own. My husband went on to serve a term on the board but meetings were poorly attended and maintenance and management problems plagued the community.

My second act with community association membership came when we moved to a Broward County HOA. This time around, things were a lot more organized. The interview went well and was accompanied by a beautifully bound package containing the governing documents and branded rules and regulations. Within days of moving into our new home, we were greeted by a Welcome Committee with a nice basket of muffins and invited to a Newcomer's Social. This community has now been our home for almost two decades. There continues to be a strong sense of community and the thought that goes into welcoming and incorporating new members is evident.

Think back to your first days as a newcomer to your community and ask yourself what could have been done better. The answer to that question will help your community go on to create the newcomer protocol that can make the difference between a good community and a great one.

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.

Tired of the same old board member and manager educational classes?

Last week, Sun Sentinel Reporter, Daniel Vasquez, blogged about a few of the educational classes available to Florida's countless association directors and managers.

My group, the Community Advocacy Network (CAN), had drafted language that was initially included in this year's community association bill, HB 319, which would have extended the current certification requirements found in the Condominium Act to HOA and Cooperative directors as well. This language did not make education mandatory for directors (although many folks support mandatory education) but it would have required HOA and Cooperative directors to attest to having read their governing documents and agreeing to uphold same OR require them to attend a Division-approved educational course in the same manner currently required for their Condominium counterparts.

Unfortunately, CAN's board member certification language was stripped out of HB 319 at its first committee stop and the reason given was that House Leadership will not allow any bills containing "new regulations" to move forward this Session.  The argument that ALL directors deserve to be properly educated about the rigors of the job they are undertaking fell on deaf ears this Session. We will redouble our efforts next year to achieve some parity amongst all the common interest ownership statutes in this regard.

Fortunately, directors in all types of community associations continue to take advantage of the plethora of educational opportunities available now that the private sector has stepped up and expanded the choices. There really is a class for everyone as a result.

At my Firm, Katzman Garfinkel & Berger, you can experience a series of free classes that offer the unique opportunity to really interact with your course instructors and fellow attendees.  The topics are fresh, the delivery is innovative and the instructors are some of the best-known in the industry.

In addition to our very popular Board Member Boot Camp® Series and our Survivor Florida Hurricane Preparation and Recovery Class, we are fortunate to have Bill and Susan Raphan teaching both a Condo Series and an HOA Series. As many of you know, Bill and Susan served in the Condominium Ombudsman's class for 7 years and are passionate about educating volunteer directors and association managers.  Their Election Pitfalls class (which was borne out of their years of training Election Monitors)  is perhaps the most unique I've seen as they include an actual mock election!

All of our classes are free, provide board member certification as well as manager continuing education credits and include refreshments.

Click here for the full Katzman Garfinkel & Berger Master Course Listing:

http://www.canfl.com/pdfs/KGB%20Master%20Course%20Listing.pdf

If you are tired of the same old educational classes with attorneys in suits droning on behind a podium, please contact 1-855-KGB-FIRM (542-3476)  to obtain more information about our class times and locations and/or to register.

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.

Disturbing new trend impacting associations: don't like a judicial decision ... just change the law!

Two recent legislative attempts signal a disturbing trend that has the potential to negatively impact Florida's community associations.

The first is this year's construction defect bill, HB 1013, sponsored by Representative Artiles and its Senate companion, SB 1196, sponsored by Senator Bennett. These bills would take away a homeowner's rights to pursue a developer for defects to the driveways, roads, sidewalks. utilities, drainage areas and other so-called "off-site" improvements that are not located on the lot on which a home is constructed or which are located on such a lot but do not contribute to the "habitability" of the home.

These bills are a knee-jerk reaction to the case of Lakeview Reserve HOA vs. Maronda Homes wherein the 5th DCA agreed that a homeowners' association has a right of implied warranty for improvements such as roads, driveways, etc. The case is now on appeal to the Florida Supreme Court but apparently, Florida developers are not content to wait and see if the Florida Supreme Court agrees with the 5th DCA.

The developers' lobby has not only managed to secure sponsors for these bills but when they ran up against opposition last week in the form of HB 1013 not being put on the agenda for the Business and Consumer Affairs Subcommittee chaired by Represenative Doug Holder, they got the bill re-referenced to the Judiciary Committee. For sports fans, this was a nice "end run" around Representative Holder's Committee.

The developers' lobby has been spinning these bills to our elected officials as the necessary antidote to safeguard future development in the State of Florida. The fact that new construction has been stalled for the last several years due to the economy and the inability to secure financing is apparently of no consequence. The entire problem seems to rest with the fact that the Maronda case would bankrupt developers who don't build defect-free roads and sidewalks.

The other legislative attempt to overturn a judicial decision came in the form of Miami-Dade County seeking to clarify that Public Housing Agencies are not required to tender Section 8 rent to associations demanding same from delinquent owner/landlords. This proposal flies in the face of an order issued last year by Judge Hoy in the 15th Judicial Circuit wherein the Palm Beach Housing Authority was required to tender its share of rent on behalf of a Section 8 tenant directly to the Willoughby Estates POA. This was a significant victory for the association since the PBHA's share of the rent was $1,509 while the tenant's share was only $275.00. The PBHA refused to comply with association's demand for rent until ordered to do so by Judge Hoy.

Fortunately, Miami-Dade County's attempt to reverse this ruling legislatively appears dead for the moment but it once again underscores the desires by some who find themselves on the losing end of a court battle to get a "do-over" via the Legislature.

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.