A discussion of routine & complex issues which confront all types of shared ownership communities.

Condo and HOA Law Blog By Donna DiMaggio Berger, Esq.

Condo and HOA Law Blog By Donna DiMaggio Berger, Esq.
This blog covers every topic under the sun related to condominiums, cooperatives, HOAs, timeshares and mobile home communities from the unique perspective of attorney Donna DiMaggio Berger.

Thursday, September 30, 2010

Could the Small Claims Process work for you?

Do you really want your day in court?

Ask someone who has been involved in a lawsuit, and the answer might surprise you. Generally speaking, the civil litigation system is not a cost-effective way to resolve small monetary disputes. Even for simple conflicts, the process can be drawn out and expensive, leaving those without significant resources at a disadvantage. Many start out litigation expecting that justice will be served but end up discouraged and having to withdraw their claim or settle it for an amount that would otherwise be unacceptable, simply due to the high cost (and risk) of proceeding to a trial. The saying that you “start out litigation as a pig, but end up a sausage” aptly describes the bitter experience some have had with the system.

Did you know that small monetary disputes can be litigated without attorneys-or attorney’s fees-in the Small Claims Court? Surprising information coming from an attorney to be sure but it’s true. Complex cases or cases involving larger amounts in controversy cannot be handled in this manner but for small matters you might consider this path.

One of the chief misconceptions contributing to the belief that litigation can effectively resolve small disputes arises out of the right to recoup legal fees from your opponent if you win the case. In Florida, the prevailing party of a litigation is entitled to recover his or her legal fees and costs from the opposing party, so long as the litigation was over a contract containing an attorney’s fee provision, or over a right granted by a statute that authorizes such a recovery. But, in reality, the amount of attorneys’ fees that are ultimately awarded to the winner of a lawsuit is usually far less than what actually had to be spent to win that suit. Also, both the judgment and the attorneys fees awarded to that prevailing party still have to be collected – and there is no guarantee that the defeated party can, or will, voluntarily reimburse the victor. Even more money may therefore have to be spent trying to collect these judgments (and you may be throwing good money after bad – it is likely not a coincidence that high profile defendants have moved to a debtor-friendly state like Florida in the face of civil judgments being entered against them). Because of these practical realities, a conscientious attorney will counsel clients to accept otherwise unacceptable settlement offers rather than file lawsuits over small business disputes.

Along with entering displeasing pre-litigation settlements or avoiding lawsuits altogether, another alternative to resolving small monetary disputes is the small claims court. My firm often counsels our community association clients to file small claims court actions for uncomplicated matters such as collection of fines, reimbursement of repairs to damages to the common elements, or reimbursement of expenditures for necessary repairs made to a unit by the Association. The small claims court is set up to avoid the drain on time and resources that often occur in the State Circuit Court. Small claims proceedings can be used by anyone – individuals or corporations – where the amount in dispute is less than $5,000.00. Small claims proceedings are intentionally designed to permit a quick, simple and inexpensive way to resolve small monetary disputes. Unlike in the State Circuit Courts, corporations (including community associations) are allowed to appear in the small claims court without a lawyer. Immediately, this avoids the lion’s share of the cost of a lawsuit – legal fees. As the opposition most likely also will not retain counsel, the risk of having to reimburse legal fees is also avoided.

Self-representation may seem like a daunting task, but there is really no need to fear doing so in the small claims court. While small claims proceedings might not be quite as simple as they appear on television shows such as “Judge Judy,” they are nowhere near as procedurally complicated as ordinary civil lawsuits. In small claims court, there is generally no discovery (such as interrogatories, document requests and depositions) allowed, and the evidentiary rules at the “trial” are significantly relaxed. The process is genuinely designed to permit persons without legal training to proceed without attorneys, and the judges are acutely aware of this and give significant latitude to such persons.

Along with the savings in cost, small claims proceedings also save you time. Small claims do not get bogged down in a judge’s cluttered trial docket as can often occur in the State Circuit Courts. The small claims system is set up to resolve matters within several months, not years. Initially, the case is assigned a pre-trial hearing date, to take place within fifty (50) days of the initial filing. This pre-trial hearing is simply a settlement conference similar to a mediation – where many, if not most, cases are resolved without the need for further proceedings. If the matter does not settle at the pre-trial hearing, a “trial” date is assigned, which by statute is to take place within sixty (60) days.

Although the jurisdiction of the Small Claims Court is limited to matters under $5,000.00, a party can take advantage of this system regardless of the amount at issue so long as they are willing to accept a maximum award of $5,000.00 Such a tactic may be economically advantageous when taking into account the savings on legal fees and the cost of the additional time that would otherwise be incurred if litigating in the State Circuit Court. Obviously, there are some limitations to the small claims system, and we always recommend consultation with an attorney before filing a small claims action. However, this manner of litigating small monetary disputes can be highly effective and should be considered by persons who believe they are owed money but are reluctant to pay an attorney to seek recovery with no guarantee of success.

Wednesday, September 29, 2010

What is involved in an owner’s contest of lien?

When an owner is delinquent in assessments, most Associations enforce their declarations and proceed with collection efforts. A critical step in this process is to file a lien against the property of the delinquent owner. This lien will advertise to the public that the Association has a claim on the subject property and provides the Association with an avenue to foreclose on the unit. After the Association sends its initial demand letter and provides the owner the required 30 day (COA) or 45 day (HOA) notice of intent to place a lien, it should immediately proceed with the filing of the claim of lien. Along with the filing of the lien, another demand lender must be mailed to the delinquent owner giving 30 day (COA) or 45 day (HOA) notice of intent to foreclose on the claim of lien. Once the required time frame elapses, the Association will typically proceed to file a foreclosure action.

Once the lien has been recorded in the public records, Section 718.116(5)(c) (COA) and 720.3085(1)(b) (HOA), Florida Statutes, provides a path for the owner to dispute the Association’s claim of lien by filing a Notice of Contest of Lien. Similar to the Association’s lien, the filing of this Notice must be recorded in the public records of the county where the property is located. This Notice will state the book and page number where the Association’s claim of lien is recorded and requires that the association’s foreclosure action must be filed within 90 days. Once the Notice of Contest is filed, the Clerk of Court will send a copy to the address of the Association by certified mail, return receipt requested and, upon mailing, the 90days to file a foreclosure action begins to run.

The consequence for the Association of the filing of this Notice is that the amount of time to file a foreclosure action on the claim of lien is reduced to 90 days. Typically, a claim of lien filed by a Condominium Association is valid and enforceable for a one year period, while a claim of lien for a Homeowners Association is valid for five years. For an owner who believes the Association wrongly filed the claim of lien, this statutory provision expedites the process and provides an opportunity for the owner to appear before a Judge with the goal of removing the encumbrance on the property. The Association may also view a Notice of Contest of lien as a benefit as it can enforce the lien immediately without having to wait for the expiration of the 30 day (COA) or 45 day (HOA) notice of intent to foreclose on the claim of lien. Moreover, the Association can view a Notice of Contest of Lien as an opportunity to ensure that the ledger, lien, and all other preconditions to initiating litigation are in order. It is also important to recognize that the 90 day period will be extended if the Association is prevented from filing a foreclosure, which can occur if the owner files for bankruptcy protection.

The filing of a Notice of Contest of Lien is a rare occurrence because most liens are not recorded until it is verified that the debt is owed so there is no ability to contest. Nevertheless, in the scenario where the Association does not file a foreclosure action within 90 days of the filing of the Notice of Contest of Lien, the lien will be deemed void. Once the lien is considered void, if a delinquency remains, the Association will have to start the collection process anew and send out the initial demand letter giving the owner 30 day (COA) or 45 day (HOA) day notice of intent to place a lien on the property.

I have included below the actual statutory notice to contest a claim of lien. Be aware that if you do contest a lien and the lien is valid, you will only speed up the foreclosure against your property!

NOTICE OF CONTEST OF LIEN
TO: (Name and address of association)

You are notified that the undersigned contests the claim of lien filed by you on , (year) , and recorded in Official Records Book at page , of the public records of County, Florida, and that the time within which you may file suit to enforce your lien is limited to 90 days following the date of service of this notice. Executed this day of , (year) .

Signed: (Owner or Attorney)

Monday, September 20, 2010

Back to the starting gate: think twice before canceling that foreclosure sale!

An association client recently called two days before the foreclosure sale at which it was to take title to a property that had been delinquent for almost two years to request that the sale be canceled! Huh?

The association had not actually entered the property (this is an HOA not a condominium) but had been told that the owner had removed all the appliances and had left the property in terrible condition before leaving the State. The association was understandably reluctant about taking title to a property in woeful condition. To make matters worse, the lender must have shared those trepidations because it had dismissed its foreclosure action without prejudice (meaning they can refile again in the future) just a few weeks earlier.

What does all this mean for this association?

• The property has been abandoned and is in terrible condition.

• The bank isn’t likely to take title to the property for months or years.

• The association was at the finish line but, if its sale is canceled, they will be back at the starting gate.

This association does have a few options. If it takes title to the property, it does so subject to the outstanding mortgage. The association is not obligated to pay that mortgage but eventually the bank will take title to the property back. Since this particular lender has only recently dismissed its foreclosure action, that is not likely to happen anytime soon. In the interim, if the association takes title to the property it can either do a short sale or start renting out the property. The other option is for the association to go to court to seek a “reverse foreclosure” to force the bank to take title back to the property. The last option is risky: it will cost money to go back to court and there is no assurance of a successful outcome.

The manager advised that rentals in the community for a similar size property usually fall in the $1,500 per month range. If that is the case, the association might want to invest the equivalent of 2 months’ rent to replace the appliances in the home with scratch and dent models or other bargain appliances. Some communities with similar situations advise that certain renters are willing to purchase their own appliances if they can rent out the home for 50% or more below market value. In this case, even renting the property out for less than $800.00 a month would be better than letting it sit fallow for months or years to come.

Since the bank only just dismissed its action, chances are the association will be able to rent out the property for a year or longer before the bank gets around to refiling its action. Even after the bank takes title via foreclosure, any tenant in residence at that time is afforded another 3 months’ occupancy under a federal law known as the Protected Tenants at Foreclosure Act.

In this case, this association might not have really looked at the practicalities involved with moving back to the starting gate when the finish line is within reach.

Wednesday, September 15, 2010

Fannie Mayhem

A condominium association client recently wrote to advise of the frustration that a potential purchaser in their community is experiencing in trying to qualify for Fannie Mae (FNMA) financing for their unit purchase. Not only is this purchaser befuddled by the sheer complexity and number of Fannie Mae requirements but the owner/seller and the board have all spent countless hours trying to ensure that the purchase goes through, apparently to no avail at this point.

Two FNMA guidelines that proved to be hurdles to this transaction are:

1. Fannie Mae is requiring that “the annual budget must reflect at least 10% of the total income to be transferred to a reserve account.” This community’s 2010 income was $890,000 and they would be required by Fannie Mae to transfer $89,000into reserves. However, this community’s membership has waived full funding of their reserves since 1988 which is their statutory right. Over the years, they have placed $19,800 annually in reserves and now have approximately $250,000 in reserves, a whopping 28% of their budget. They have not, however, deposited 10% in any given year and that is the sticking point!

2. Fannie Mae is requiring fidelity bond coverage of $456,100. The community bonds the amount in its Operating Account which is $100,000, protects against fraud by annual independent audits and requires dual signatures on all disbursements. Requiring 4 1/2 times the coverage in this economy is not feasible for them right now without increasing assessments.

The purchaser, owner and board were all left to wonder whatever happened to the old-fashioned litmus tests traditionally used by lenders such as credit scores, income and the borrower’s other obligations? The people trying to buy and sell units in these communities are the ones feeling the harsh effects of Fannie Mayhem!

What can a CERT do for your community?


Have you ever heard the term “CERT” tossed around and not known what it really means or what these teams can do for community associations around our State?

Since we are now in the very middle of the most active part of our Hurricane Season, I have included below frequently asked questions and answers regarding a Community Emergency Response Team or CERT.

Q: What is CERT?
A: The Community Emergency Response Team (CERT) Program educates people about disaster preparedness for hazards that may impact their area and trains them in basic disaster response skills, such as fire safety, light search and rescue, team organization, and disaster medical operations. Using the training learned in the classroom and during exercises, CERT members can assist others in their neighborhood or workplace following an event when professional responders are not immediately available to help. CERT members also are encouraged to support emergency response agencies by taking a more active role in emergency preparedness projects in their community.

Q: How can CERT benefit your community?
A: People who go through CERT training have a better understanding of the potential threats to their home, workplace and community and can take the right steps to lessen the effects of these hazards on themselves, their homes or workplace. If a disaster happens that overwhelms local response capability, CERT members can apply the training learned in the classroom and during exercises to give critical support to their family, loved ones, neighbors or associates in their immediate area until professional help arrives. When help does arrive, CERTs provide useful information to responders and support their efforts, as directed, at the disaster site. CERT members can also assist with non-emergency projects that improve the safety of the community. CERTs have been used to distribute and/or install smoke alarms, replace smoke alarm batteries in the homes of the elderly, distribute disaster education material, provide services at special events, such as parades, sporting events, concerts and more.

Q: Is there a CERT near me?
A: There are 224 CERT programs in the State of Florida, one of the largest concentrations in the country.
Please click here to view those programs.

Q: How do we start a CERT program?
A: CERT requires a partnership between community members and local government, emergency management and response agencies. The program does take a commitment of time and resources from all parties. Interested community members should discuss with local government and emergency management officials ways to improve their community’s preparedness capability and how they can be involved. The outcome of these discussions can range from education programs to an active training program like CERT that prepares participants to be part of the community’s response capability following major disasters. It is also important to develop a plan that covers training, maintenance and activation standards as well as administrative requirements like databases and funding. This plan will act as a guide so that one can evaluate the program and make adjustments.

Q: How is the CERT funded?
A: Congress has provided funds through the Citizen Corps program to the States and Territories. Grants from these funds may be available to local communities to start CERT programs. Contact your State Citizen Corps point of contact to learn more about grant possibilities. Also, there are a variety of local approaches to funding. Some communities build costs into their local budget while others charge participants to attend training to cover costs for instructors and course materials. In a few communities, CERT organizations have formed 501 (C) 3 for non-profit status to allow them to do fundraising and seek corporate donations.

Q: What about liability?
A: The text of the Volunteer Protection Act of 1997 is available online. Also there is information about State Liability Laws located on the Citizen Corps website. During training, each sponsoring agency should brief its CERT members about their responsibilities as a CERT member and volunteer. Finally, there is a job aid on liability for you to review in our Start a CERT Program section. The CERT material was developed by the Los Angeles City Fire Department and adopted by the Federal Emergency Management Agency in 1993. The CERT manual contains basic and straightforward material that has been accepted by those using it as the standard for training. It is important to remember that the best sources of help in emergencies are professional responders. However, in situations when they are not immediately available, people will want to act and help. CERT training teaches skills that people can use to safely help while waiting for responders.

For more information, please visit the Florida Citizen Corps website at: http://www.floridadisaster.org/citizencorps/

Monday, September 13, 2010

One positive for the Florida Housing Market: prohibition against developers’ resale fees!


Florida has at least one good thing going for it in the housing market – Section 689.28, Florida Statutes, which prohibits transfer fee covenants.

While transfer fees payable to a condominium association, cooperative association, homeowners association or mobile home association were specifically exempt from the statute, in general the statute prohibits developers from collecting a fee every time a property is sold. Other states do not have such statutory protections, and developers are attempting to take advantage in today’s tough market. Some developers are including transfer fees of $5,000.00 or $7,500.00 every time the property is sold for the next ninety-nine years! Thank goodness the Florida legislature prohibited such practices in Florida.

See the story in the New York Times, here.

The FHFA should take into account that its recent proposed regulation should similarly exempt association transfer fees. It is hoped that other states will follow Florida’s suit and similarly prohibit developer transfer fees that are quickly becoming a relied-upon source of revenue for some desperate developers in today’s real estate market.

Higher water bills in the future for Floridians


You can expect to see higher water bills in the near future as a result of new mandates required by a lawsuit settlement between the federal government and environmental activists.

The first set of Environmental Protection Agency (EPA) mandates is scheduled to take effect in October and it is estimated it will cost the average Florida household an additional $700 per year. Why are the costs increasing? The new mandates will require utilities across Florida to make expensive, widespread retrofitting to water treatment systems. According to a study performed by Carollo Engineers, the capital costs for these projects could total $50.7 billion and require an additional $1.3 billion per year in additional operating costs.

This means that Florida’s utilities will be passing the cost of complying with the new mandates on to Florida’s families and businesses and services you are already receiving will cost more. As it stands, Florida would be the only state singled out thus far by the federal government with these new mandates and Floridians will be the only ones burdened with these additional water costs. A recent poll conducted by Mason-Dixon Polling & Research of likely Florida voters shows that 61 percent of Floridians are against the water mandates if the mandates were to result in a $700 increase in their water bills.

Naturally, we all want to keep our state waters clean, and Florida has been an exemplary leader in aggressively protecting our streams, lakes, rivers, estuaries and other waterways. However, many government and scientific agencies have expressed concerns that these proposed federal mandates are not supported scientifically. In this tough economy, how many Floridians can afford to invest more money to meet mandates that have no guaranteed results?

One set of the proposed federal water nutrient criteria singling out our State has been delayed until 2012 but others have not and the effects will be felt sooner rather than later. Please ask your Senators and members of Congress to stop the federal government from imposing this added financial hardship on Floridians at a time we can least afford it.

Thursday, September 09, 2010

Now may be the right time to buy out that long-term recreation lease!


My sister bought a condominium unit a few years ago and quickly found out that more than 50% of her monthly maintenance was going to pay a husband and wife living in another state for the long-term lease they held on her community’s recreational facilities. After paying for insurance, there was almost nothing left over to fund essential services in the community. Associations in this situation have three options: try to attack the lease as being unconscionable, persuade the lessor to sell or persevere and know that the 99-year lease will not be paid off in their members’ lifetimes!

Most lessors will not be inclined to sell given that the lease payments make a nice annuity for them. While Section 718.401 lays out what is and is not acceptable in recreational leases, any challenge to such a lease will inevitably be met by strong lessor objections and a claim that the statute is unconstitutional. Nevertheless, associations that are currently struggling under the burden of paying enormous land lease fees might want to consider current economic conditions and the wholesale devaluation of real property to determine if now is the right time to exercise your right to purchase the land lease.

If the association and the lessor cannot agree on the sale price (and it is almost a certainty that these two parties will not agree) arbitration must be used to determine such sale price. While there are many factors that will go into the arbitrator’s determination of such price, current assessed value will be part of the equation. Here is the pertinent section of 718.401:

f)1. A lease of recreational or other commonly used facilities entered into by the association or unit owners prior to the time when the control of the association is turned over to unit owners other than the developer shall grant to the lessee an option to purchase the leased property, payable in cash, on any anniversary date of the beginning of the lease term after the 10th anniversary, at a price then determined by agreement. If there is no agreement as to the price, then the price shall be determined by arbitration conducted pursuant to chapter 44 or chapter 682. This paragraph shall be applied to contracts entered into on, before, or after January 1, 1977, regardless of the duration of the lease.

If your community has ever toyed with the idea of buying out your land lease, now might be the best time to do it.

Tuesday, September 07, 2010

Did cluttered condominium unit contribute to fatality?


Firefighters in Lauderhill recently responded to a fire in a two-story condominium building. The fire was contained within a single unit but the cause remained unknown. When firefighters arrived on the scene, they encountered substantial difficulty in extracting the female occupant from the unit due to the number of items inside the unit. Their access was limited to about an 18-inch passageway. The firefighters were able to rescue the woman from the unit but sadly she passed away later at the hospital as a result of her injuries.

How do and should condominium and cooperative associations deal with the issue of owners who maintain unsafe conditions within their units?

Sometimes, it is an owner storing combustible material in their units, other times it is an owner who has been hoarding material for years to the point that there is no longer a safe place to enter or exit the unit. Some individuals living alone may begin to have problems caring for themselves and allow food and other materials to decay and attract rodents and other pests. These same folks may have problems with units that no longer have kitchen and bathroom facilities that meet their changing needs.

The starting point should be communication with the resident to determine what the association can do to assist him or her. If that communication is not welcomed, the association may wish to reach out to the resident’s family members if they have their contact information. Often, the board has no such information or the family members do not wish to get involved. If the board suspects that an owner is becoming a danger to himself or to the community, then the State’s Elder Services can be contacted for assistance but a speedy resolution is hardly guaranteed.

The issue of owners presenting a possible danger to the community is one of the hardest to resolve. With regard to this fire, owners in the other 13 units were eventually allowed to return to their units after a harrowing morning; other communities have not been so lucky.

Friday, September 03, 2010

How clear are your ballots on amendment issues?


Earlier this week, the Florida Supreme Court affirmed three (3) trial court decisions that struck proposed constitutional amendments from the upcoming ballot. The three (3) proposed constitutional amendments concerned health care, election districts, and Homestead exemptions. The Court upheld the trial courts’ rulings that the proposed constitutional amendments: 1) did not give fair notice and purpose of the effect of the amendment; and/or 2) the ballot summary was false and/or misleading; and/or 3) the amendment title was faulty and /or misleading.

How does this apply to your association?

When your association is contemplating or preparing amendments to your governing documents, make sure the information you convey to the owners is clear, concise and an accurate representation of what the proposed amendment will actually accomplish. Although the Statutes contain notice requirements, insure that you not only comply with these Statutory requirements, but that you also give the owners information as to the purpose of the amendment and the effect it will have. Your owners must be able to clearly understand what section or sections of your governing documents are being amended and which language is being added or deleted. In addition to having your association attorney prepare the actual amendment, have them prepare a cover letter in non-legal terms that simply and accurately portrays the reasons for the amendment as well as the effect on the owner and the association if the amendment is passed.

Is this something your association is doing? It should be!

Wednesday, September 01, 2010

Proposed Federal Regulation may further restrict access to mortgages for those living in associations

Many of you may have already heard or read about a proposed regulation from the Federal Housing Finance Agency (FHFA) issued on August 13, 2010, which would prohibit Fannie Mae, Freddie Mac and all federal home loan banks from purchasing mortgages for properties in communities with “deed-based transfer fees”.

The definition of these private deed-based transfer fees appears broad enough to include the types of screening and transfer fees that many communities in Florida charge when property in those communities is conveyed. If this proposed rule is adopted as it is currently drafted, that could mean that residents living in associations with such fees may be locked out of the mortgage markets.

There is a very real possibility that the rule will be modified after the FHFA is informed about this regulation’s potentially disastrous effect on thousands of Florida communities. Towards this end, the Community Associations Institute (CAI) is conducting a survey relating to the use of these fees by community associations. After the data is collected (no later than September 16, 2010), CAI will prepare a response to FHFA regarding its proposed regulation.

Whether you agree that associations need to charge a fee to properly screen new purchasers or you hate the idea, if this new regulation is adopted it will impact you either way as it can restrict access to financing for those living in associations with these fees.

I am sure there will be the usual useful comments to dismantle the association, not buy in one in the first place or amend the documents to remove any transfer fees, but the easiest path to take for those currently living in an association with these fees is to encourage the FHFA to modify its proposed regulation so the millions of Floridians living in community associations can have equal access to mortgages for their properties.

There will also be an opportunity for individual communities to file comments on the proposed regulation and naturally, you can and should reach out to your representatives in Congress on this issue.

If you are interested in taking the CAI Survey on these fees, please click here. If you have any questions, please send them to G&PA@caionline.org with the subject line “FHFA Transfer Fee Regulation.”

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