Category: Legal Morsels

A Florida Bill creating additional costs and burdens for condominium associations may become law.

By:  Lisa Magill, Esq.

lmagill@kbrlegal.com

(954) 928-0680

I believe most Floridians support toughing up on abuses in condominium associations.  The Division of Florida Condominiums, Timeshares and Mobile Homes and law enforcement should have the tools they need to ferret out theft, forgery, self-dealing, conflicts of interest or other wrongdoings and punish those purposely violating the law.  That goes without saying.

However, Florida CS/HB 1237, approved unanimously on April 20, 2017 by the Civil Justice and Claims Subcommittee contains provisions seemingly intended to increase transparency, but likely will increase costs and administrative burdens for condominium associations.  These additional costs will be passed through to the members, leading to budget increases for those communities with more than 150 units.

Association records maintenance is very important for compliance with regulatory requirements.  Each and every owner’s right to inspect Official Records must be preserved.  After all, the unit owners ultimately pay the bills.  Are the existing laws adequate?  Pursuant to the current statutes, members are entitled to request access to a host of records including financial records, meeting minutes, contracts and correspondence.  Associations that fail to provide access are subject to penalties and exposure for opposing party attorney fees.  The statutes also call for civil penalties against any individual who defaces, destroys or intends to cause harm to the members by failing to create or maintain the records listed in Section 718.111(12), Florida Statutes.

Disputes concerning maintenance and access to records cause a tremendous amount of strife in community associations.  In some cases, association leadership may be somewhat lax so the records are not maintained exactly as contemplated by Statute.  Leadership efforts to purposely withhold access to Official Records also does happen from time to time.  On the other hand, condominium unit owners frequently use their record inspection rights to harass and annoy board members and management.

This Bill, if adopted, would require condominium associations to also allow renters access to certain records.   Associations with more than 150 units will be required to post (upload) copies of the following documents on an association website created for this purpose.  Associations without websites or use of websites, web portals or web pages will need to create them or hire third-parties to do so.  The website must contain:

1. The recorded declaration with all amendments;
2. The recorded bylaws with all amendments;
3. The articles of incorporation with all amendments and current rules;
4. All management contracts, leases or other contracts where the association is a party of which unit owners have obligations;
5. Summaries of bids for materials, equipment or services;
6. The adopted annual budget and any proposed budget to be considered at the annual meeting;
7. The year-end financial reports required by statute;
8. Each director’s self-certification or evidence of participation in a Division approved educational program;
9. All contracts or transactions between the association and any director, officer, corporation, firm or any other entity in which an association director is financially interested;
10. Conflict of interest disclosures; and
11. Notices and agendas for both membership and board meetings.

Who will perform these services?  Will volunteers undertake these obligations?  What if the leadership isn’t computer or internet savvy?  Many associations will need to rely upon vendors to perform these services or expect management to absorb these responsibilities.  Management companies may have to hire additional staff to account for the extra work load.  All of this translates to increased costs to the associations and, as a result, the unit owners.

Additionally, associations will have to file a report with the DBPR containing the names of all the financial institutions with which it maintains accounts on an annual basis.

This Bill dramatically changes recall procedures and apparently eliminates the ability for a board to not certify a recall and then submit it to arbitration.  Admittedly, many recall efforts that should be certified by the board wind up in arbitration.  That is unfortunate but, at the conclusion, the rightful board controls operations.  Eliminating recall arbitration after a board fails to certify the recall means that wrongfully removed board members will have to defend their positions as individuals.  Board members will either have to accept their fate or file a petition for arbitration at their own expense.

This Bill is very close to being passed.  You only have a short time to contact your legislators if you believe these procedures will negatively impact condominium associations.  If you have any questions regarding these issues, please contact this office.

 

Kaye Bender Rembaum is pleased to announce another appellate court ruling in favor of a client of the Firm, which is beneficial to all community associations in Florida.  In its decision published on March 15, 2017, the Fourth District Court of Appeal has further confirmed and clarified that the lien of the association contained in the recorded declaration is sufficient to allow the association to pursue an independent foreclosure action when a lender foreclosure case is pending.  In Fountainspring II Homeowners Association, Inc. v. Veliz, Case No. 4D-3408 (Fla. 4^th DCA March 15, 2017), the Court was presented with a situation similar to what it had recently decided in Jallali v. Knightsbridge Village Homeowners Association, Inc., Case No. 4D15-2036 (Fla. 4^th DCA Jan. 4, 2017) (reported by us after the original decision in October 2016 at https://hjq.a4f.myftpupload.com/4th-dca-corrects-prior-ruling-clarifies-limited-application-quadromain-decision/), involving an association that had been pursuing a foreclosure for unpaid maintenance assessments which had been challenged by the homeowner over a technical jurisdictional issue in the lower court.

In Fountainspring II, the property in question was purchased by a third party at the Association foreclosure sale.  That purchaser held the property for over two (2) years, had it occupied by a tenant, and never paid assessments to the Association.  Before the Association commenced its own collection against the new owner/third party purchaser, the lender foreclosure case that had been pending when the Association completed its foreclosure case (allowing the new owner to take title to the property) concluded, and a foreclosure sale took place which resulted in title to the property being taken away from the third party purchaser.  The third party purchaser then went back to the trial court in the Association foreclosure case to claim that the Association should have brought its claim in the lender case rather than in a separate case as had been done (this was some time before the Jallali decision was published).  The trial court granted that motion and the appeal of that decision followed.

In reaching its decision, the appellate court reiterated that the claim of lien of the association related back to the recording of the declaration of covenants, which predated the mortgage.  As such, the Association had a prior recorded lien interest which did not require the Association to bring its claim in the lender foreclosure case.  By this conclusion, the principle of Jallali that involved the former owner of the property has been extended to include third party purchasers as well.

In 2014, the Second District Court of Appeal published its decision in St. Croix Lane Trust v. St. Croix at Pelican Marsh Condominium Ass’n., which created confusion in association collection cases (See our Legal Morsel article on this case from August 14, 2014, at: www.kbrlegal.com/appellate-court-decision-alters-23-years-collection-practices-condominium-associations/).  The Court ruled at that time that the provisions of Section 718.116(3) of Florida Statutes, regarding the application of partial payments made on a delinquent account, would not affect certain situations in which the party paying identified the payment as full satisfaction of the debt, called “accord and satisfaction.”  The Court held that these situations are governed by another provision in the Statute, Section 673.3111 F.S.

In St. Croix, an owner made a fairly small payment (under $900) and included a letter indicating it as “payment in full” against a claim of over $36,000.  The Circuit Court applied the provisions for the application of payment in the Statute.  After reviewing the facts, the Appellate Court reversed and ruled that by accepting the payment under those circumstances, the association was bound by the “accord and satisfaction” Statute in Section 673.3111 F.S. and that the application of payment provision of Section 718.116(3) F.S. would not apply.  In making that ruling, the Court indicated that because Section 718.116 F.S. did not expressly identify the accord and satisfaction issue, rather making reference only to “restrictive endorsements” on a payment, it was not the intent of the Legislature for this protection to apply to condominiums.  The Court further noted that there was no indication in the Legislative history to reach the conclusion that Section 718.116 F.S. should apply when there is a clear intent by the paying party to satisfy the entire obligation with the partial payment.

Immediately following that decision, there was much concern among attorneys and associations regarding its effects as, up to that point, it had been understood for roughly 23 years since Chapter 718 F.S. was changed to include that the intent of the application of payment provision in Section 718.116(3) F.S. (and subsequently included in Section 720.3085 F.S. for homeowners associations) was to eliminate claims of “payment in full” on partial payments, and for all payments to be applied in accordance with the Statutory formula.  It had also been the decisions of other District Courts that Section 718.116 F.S. applied in such situations.

In response to the St. Croix decision, the Legislature acted during the next Legislative Session in 2015, adding the express provisions to the Statute which clearly indicates that Section 673.3111 F.S. does not apply, and that the changes were made “to clarify existing law” (see Legal Morsel from June 30, 2015 at: www.kbrlegal.com/2015-legislation-affection-community-associations/.)  This last portion of the change is important as it allows for retroactive application of the change in the Statute which otherwise would not be available.

While this legislative change was pending, waiting for the governor to sign it into law, the case of Madison at Soho II Condominium Association, Inc., v. Devo Acquisition Enterprises, LLC was being litigated.  In Madison, there were similar facts to the St. Croix case, with a small partial payment expressed as payment in full on a large debt.  As it was required to, even with pending legislation to change the result, the Circuit Court applied the principles expressed in St. Croix, finding for the unit owner as an accord and satisfaction, which was appealed by the Association.  The Appellate Court expressly reversed itself on St. Croix, acknowledging that the Legislature clearly expressed the intention of the Statute and further, by including the language that the change was intended to clarify existing law, meaning it could be applied to existing cases.

The result of the Madison decision is, at least for condominiums, that partial payments on the account of a delinquent unit owner will be applied in accordance with the Statute, first to interest, then to any late fees, then to any costs of collection, then to any attorney’s fees, and then, whatever is left is applied to the unpaid assessment.  This application will apply even if the paying party includes a letter or notation or otherwise makes the claim that the partial payment was intended to be payment in full or an accord and satisfaction.  (It remains an issue as to whether the St. Croix decision will cause issues for homeowners associations as the provisions of Section 720.3085 F.S. have not been changed from what the St. Croix court applied in 2014.)

In what constitutes great news for community associations in Florida, the Fourth District Court of Appeals has clarified its prior ruling from 2012, U.S. Bank National Association v. Quadomain Condominium Association, Inc., which has been causing problems to community associations in collecting delinquent assessments.  The Quadomain holding addressed the situation in which at the time that the association is ready to file a foreclosure case, there was already a pending lender foreclosure, requiring other existing unrecorded claims to only be brought in that lender foreclosure case, as opposed to filing a separate law suit.  As a consequence of that decision, many trial courts have been extending the application of that case to limit the ability of community associations to pursue delinquent assessment claims, often resulting in an inability to collect at all, leaving associations without a remedy.  Since the Quadomain decision, it has remained the opinion of this Firm that the application of that decision should be limited to the specific facts of that case and a broader application of the case in community association foreclosure matters was legally improper.  Based upon our opinion, the Firm continued to pursue the legal issue as an appeal with the Fourth District Court of Appeals and, as a result of our appeal, the Court has now resolved the over-extension of the principles set forth in Quadomain in its decision in Jallali v. Knightsbridge Village Homeowners Association, Inc.

In Jallali, the delinquency of the homeowner occurred over 3 years after the lender filed its foreclosure against the homeowners.  The association foreclosure was filed in a separate law suit and proceeded through a final judgment.  Prior to the foreclosure sale being held, the homeowner filed a motion in the lower court to vacate the final judgment and dismiss the case due to the failure of the association to file its claim in the lender foreclosure case, in accordance with Quadomain.  In that the Quadomain holding had been interpreted by many lower court judges to require the association to bring its claim within 30 days of the lender filing a document in the Public Records, known as a lis pendens, it would have been impossible for the association to have made its claim in the lender case since it has not yet accrued.  The lower court in the Jallali case actually agreed with our position and denied the motion and the homeowner appealed to the Fourth District Court of Appeal.

Initially, the Appellate Court reversed the lower court, improperly applying the Quadomain principles, which would have eliminated any possible recovery for the association and made no logical sense.  However, after our Firm filed a Motion for Rehearing to reconsider that decision, the Court reversed itself and clarified the extent of the Quadomain case, significantly limiting it.  The Court clearly stated that the recorded declaration of covenants, and/or declaration of condominium constitutes a “prior recorded interest” that in essence removes the issue from the requirement to file the claim in the lender case set forth in Quadomain.  The Court also expressly recognized the impossibility of complying with the prior requirement when the delinquency does not occur within the 30 day window of the lender filing.  The Court further clearly stated that the Statute at issue, as well as the decision in Quadomain were intended to protect the interests of the lender, not to other parties, such as the homeowner here.

Our Firm is proud to have obtained this ruling which is one of the most important pro-association decisions made by an appellate court in Florida in many years, and eliminates what has been a significant impediment in the collection process for all associations.

Many community associations throughout Florida require that prospective sales and leases be reviewed and approved or disapproved by the board of directors prior to the transaction being completed.  Among the factors that are often reviewed in making the decision are the results of a criminal background check.  In light of a publication on April 4, 2016, from the Office of General Counsel for the U.S. Department of Housing and Urban Development (HUD), using the criminal background to disapprove could result in a successful claim for discrimination under Fair Housing laws.

In its published “Guidance on Application of Fair Housing Act Standards to the Use of Criminal Records by Providers of Housing and Real Estate-Related Transactions” (“Guidance”), HUD has indicated that, although “criminal record” is not a protected class under Fair Housing laws, HUD is of the opinion that criminal history-based restrictions on housing opportunities can be found to violate the Fair Housing Act if, without justification, the application of the restriction falls more often on individuals within a protected class (such as race or national origin).  In the publication, HUD cites to national statistics that reflect a disproportionately higher percentage of African Americans and Hispanics as having a criminal record relative to the general population.  By this analysis, HUD has stated that it is possible to conclude that application of a “criminal record” standard in denying housing opportunities could have what it calls a “disparate affect” on the protected classes, which results in discrimination under the Fair Housing laws.

HUD indicates that a violation of the Fair Housing Act can occur by an association when the policy or practice has an unjustified discriminatory effect, even when the association had no intent to discriminate.  It warns that certain policies that have a discriminatory effect violate the Act if the policy is not supported by a legally sufficient justification.  To avoid that conclusion, the policy must be necessary to serve a substantial, legitimate nondiscriminatory interest of the association or there is no other method that has a less discriminatory effect available.

When such a claim of discrimination is made, the association will be required to prove that the challenged policy is justified, being necessary to achieve a substantial, legitimate, nondiscriminatory interest of the association.  It may not be hypothetical or speculative.  Evidence must be provided by the association of the required interest, and that the policy actually achieves that interest.  HUD recognizes as a legitimate concern the interest of ensuring resident safety and protecting property to support a policy that evaluates the criminal background of an applicant as a basis for denial.  Proving that the policy actually assists in protecting resident safety and/or property will be required.  Having a blanket policy of disapproving any applicant with a criminal conviction will not be sufficient to avoid a finding of discrimination if such a claim is made.

HUD further warns that excluding individuals because of only an arrest, without a conviction or guilty plea, will not be able to meet the burden of proof for the association that is required under the guidelines.  With prior convictions, HUD also indicates the need to be mindful of the types of crimes that are included to only those in which there is a demonstrable risk to resident safety and/or property and not including those that do not.  The nature and severity of the conviction must also be identified, as well as the amount of time that has passed since the criminal conduct occurred.  In short, the nature, severity, and recency of the criminal conduct are required elements of such policy.  In all instances, the claims will be evaluated on a case-by-case basis.  For example, a conviction for shoplifting from 25 years prior to the application will likely not be a sufficient basis for denying an application.

If the association is able to meet its burden of demonstrating that the policy is justified, HUD must then identify whether the interest of the association could be served by another practice that has a less discriminatory effect.  It is suggested in the Guidance that a policy that contains individualized assessment of the criminal conduct of the applicant or relevant mitigating information will be more supportable.  Such individualized information includes: the facts or circumstances surrounding the criminal conduct; the age of the individual at the time of the conduct; evidence that the individual has maintained a good tenant history before and/or after the conviction; and, evidence of rehabilitation efforts.  It also suggests that the association delay consideration of criminal history until after the financial and other qualifications are verified.  This way, if other issues are sufficient to reach a conclusion of disapproval, the criminal background will not be an issue of concern.

One statutory exemption that is allowed under a blanket prohibition policy is a person who has been convicted of the illegal manufacture or distribution of a controlled substance, as defined by statute.  However, this does not extend to a conviction only for possession of the controlled substance.

While criminal background may still be used by associations in deciding whether or not to approve or disapprove a proposed sale or lease, since there is now a heightened risk of a possible discrimination claim, associations must now be more careful and specific in setting the standards for circumstances that will result in a disapproval.  Only convictions of crimes that are of a nature and severity that might threaten the safety of other residents should be included, as well as reasonable limitations as to the time that has passed since the conviction.  Such policies should be in written form within the association records and published to all owners.  Prior to setting up such criteria in the approval procedures of the association, consultation with the association attorney should be undertaken to be certain that the association exposure is minimized.

The declaration of condominium is the “constitution” governing the ownership and control of the condominium property and operations of the association. The declaration of covenants and restrictions governing a homeowners’ association is essentially the same – it is a deed restriction typically limiting the use, occupancy, maintenance and control of the property within a deeded community.

Understanding that these are the most significant documents governing the community (whether condominium or HOA), typically amendments or changes to these documents require the affirmative vote of a super-majority of the owners. If the document does not state the voting percentage specifically, the various Florida Statutes for the different types of community provide for at least two-thirds (2/3rds) of the total membership to vote in favor for an amendment to a declaration of condominium (with the exception of other identified items that require 100% to change) per Section 718.110(1)(a) F.S., and Section 720.306(1)(b), F.S.

It is reasonable to assume that amendments that did not receive the requisite amount of membership consent would automatically be invalidated by the courts. This is only true, however, if the issue is brought to the courts in a timely fashion. In some cases, simply waiting around and failing to take action may convert what should be an invalid amendment into an enforceable obligation due to the application of the statute of limitations.

A Statute of Limitations sets forth the maximum time frame to file a legal action making a claim or to enforce a party’s rights, depending upon the type of claim being made. After that statutorily-indicated time period runs, any claim asserting that cause of action will likely fail – regardless of whether the person or entity bringing the case is “right” or wrong” in the empirical sense.

In Florida, the most often cited Statute of Limitations is found in Section 95.11, F.S., which contains the time limits for the following common types of cases:

FIVE YEARS: An action on a judgment or court decree; an action on a written contract; an action to foreclose a mortgage and other actions founded on written instruments;

FOUR YEARS: An action founded on negligence; to determine paternity (with the time running from the date the child reaches the age of majority); an action founded on the design, planning, or construction of an improvement to real property; product liability actions; trespass actions; actions based on fraud, etc.;
TWO YEARS: An action founded on professional malpractice; actions to recover overtime wages; actions based on libel or slander; and,

ONE YEAR: Actions for specific performance, to enforce equitable liens and the like.

In three (3) recent cases, the Florida appellate courts have found that the statute of limitations to challenge the validity of an amendment to a declaration of condominium or an amendment to a declaration of restrictive covenants is five (5) years, as a claim on a contract. In Harris v. Aberdeen Property Owners Association, Inc., decided in 2014, the Fourth District Court of Appeal ruled that a homeowner could not challenge the validity of an amendment to a master association declaration that required owners in a sub-association within the community to become members of the club. The Court ultimately ruled that the homeowner could not challenge the validity of the amendment because the amendment was recorded more than five (5) years before the lawsuit was filed. While the homeowner was able to continue her case on a request for declaratory relief, it was clear that her effort to invalidate the amendment altogether did not succeed.

In Silver Shells Corporation v. St. Marten at Silver Shells Condominium Association, Inc., decided in 2015, the First District Court of Appeal found that a condominium association waited too long to challenge a very significant amendment recorded by the developer. In that case, the developer identified the beach lot as common area, but retained control over a portion of that lot to construct a future pavilion or other amenities. In 2000, the developer recorded an amendment removing the beach lot from the common area altogether so it could retain control over and ownership of that property. The association objected, claiming the developer basically “stole” a valuable property right and property ownership in violation of the original master declaration, so it filed a lawsuit challenging the amendment in 2009. The Court ruled that since the association claimed the developer breached the master declaration, the five-year statute of limitations associated with an action on a written contract applied. The association lost the case. In the Harris case, the Court started the statute of limitations clock ticking when the Plaintiff acquired title to her property. In the Silver Shells case, the Court applied Section 718.124, Florida Statutes and therefore did not start the clock ticking on the statute of limitations until turnover of control from the developer. Even with that later start date, the association there waited too long to make the challenge and lost out.

Another ruling issued within the last month follows this same logic. In Hilton v. Pearson and Paradise by the Sea Property Owners Association, Inc., the First District Court of Appeal refused to invalidate two amendments to the declaration of restrictive covenants, regardless of the plaintiffs’ claim that the amendments did not receive the proper vote. The amendments at issue were adopted in 2001 and 2005, and the law suit was filed in 2013.

Bottom line is that whenever amending governing documents, the board should confer with experience association counsel to ensure the association is following all required procedures so as to avoid a successful legal challenge. However, if the board has reason to believe proper procedures were not followed, be aware that there is a limited window of time within which to raise a legal challenge, and it is also best to confer with legal counsel before doing so.

As previously reported in Legal Morsels in June 2015, (at https://hjq.a4f.myftpupload.com/appellate-court-ruling-on-claims-of-third-party-purchasers-at-lender-foreclosures-likely-harmful-to-homeowner-associations/) a recent decision of the Fourth District Court of Appeals entitled Pudlit 2 Joint Venture, LLP v. Westwood Gardens Homeowners Association, Inc., has made the collection of assessments a larger challenge against parties that buy property at mortgage foreclosure sales.  The Pudlit decision ruled that when the covenants of a homeowner’s association community contains a provision eliminating the obligation of a party who acquired property within the community at a lender’s foreclosure sale to pay past due assessments, then such homeowner is not responsible for any assessments that came due before they owned the property.

Previous to this decision, the position of the associations has been that the statutes made the new owner “jointly and severally” liable for past due assessments not paid by the previous owner, since the interest of the new owner did not occur until title was passed through the foreclosure sale.  However, the Pudlit decision has eliminated that argument in many instances, at least for now.  Although the  Pudlit decision dealt only with homeowner’s associations, efforts are being made to extend this ruling to condominiums.  The current trend has seen third party purchasers argue in court that Pudlit should be applied to condominium associations.  In Palm Beach County, a small number of circuit court decisions have already applied the Pudlit principles to condominium associations.  An oddity in the decision is that a third party purchaser at a lender sale will pay less to the association than the foreclosing lender, had the lender taken title at the sale.

The effects of the Pudlit decision can be severe to associations, as many third party purchasers are now demanding a reduction in the amounts owed to associations to comply with the Pudlit decision.  Some third party purchasers are even initiating litigation against associations in order to have the court determine the amount of past due assessments, if any, that they are obligated to pay.  Another strategy being employed is for the third party purchaser to pay in full, with a notation that the payment is “under protest” and then sometime later, a law suit is filed to recover the funds previously paid.

To avoid unnecessary and costly litigation, it is recommended to have an experienced  association attorney review the current provisions of the governing documents for your community.  Each declaration is different and while some are similar, the smallest change in a provision may have a strong effect on whether the Pudlit decision might be applied by the courts.  Additionally, it is also recommended to have an experienced association attorney review the governing documents of the community to see whether an amendment approved by the owners would be beneficial.  Amendments to the governing documents can help to maximize an ability of an association to collect past due assessments from any owner that acquires the property.   By taking these protective steps, it may help to ensure that the association recovers the maximum amount of past due assessments possible, rather than only collecting little to no assessments on a property that has been past due for an extended period of time.  The Firm of Kaye Bender Rembaum has assisted many residential homeowner and condominium associations with this type of document review and amendment process, and is available to assist on such issues and concerns.

Under current Florida law, there is a trap that can result in the expiration of the covenants for the community.  Under the Marketable Record Title Act, Chapter 712 of Florida Statutes (“MRTA”), residential homeowners’ associations are required to preserve the integrity of the declaration (of covenants and restrictions) for the entire community to retain the status of the declaration as the source of marketable title with regard to the transfer of a member’s residence.  Florida law requires that this process be undertaken at least once every thirty (30) years.  The failure to take such action prior to the expiration of the thirty (30) year time will result in the expiration of the covenants, which can then be reinstated only with a vote of the homeowners.  (These issues do not apply to condominiums.)

While MRTA is relatively complicated, in simple terms, the key date to be aware of is the date the declaration of covenants is recorded in the public records of the county where the property is located.  In order to ensure that the integrity of the declaration is retained, which allows the board to continue to strictly and uniformly enforce all provisions therein, including the collection of assessments, it is necessary to take the required steps to preserve the declaration within thirty (30) years of the date of its original recording.

If undertaken before the expiration, the board must hold a properly noticed board meeting, which notice references that the purpose of the meeting is to “address the Statement of Marketable Title Action”.  Written notice of the meeting must be provided to all owners at least seven (7) days in advance of the meeting date and at the meeting, at least two-thirds (2/3) of the members of the board must vote to approve the recording of the Statement of Marketable Title Action, which will then serve to retain the status of the declaration as the source of marketable title, and renew it for another thirty (30) year period from the date that Statement is recorded in the public records.

It is also important to be aware that even if the residential homeowners’ association community amended its declaration in part, or completely, during the thirty (30) years following the initial recording, this will NOT extend the “life” of the declaration and the act to preserve the declaration should still be undertaken within thirty (30) years of the date of the original recording of the declaration.

Should the thirty (30) years pass without the proper preservation process being undertaken and recorded, the association risks the likelihood of the declaration has expired.  Should that occur, there is a process available under Chapter 720 of Florida Statutes to reinstate the declaration.  This process is much more involved and costly to the community, and requires a vote of the homeowners in order to reinstate the declaration, and an approval of the documents by the Florida Department of Financial Affairs in Tallahassee. As such, since there is a simple way to avoid it through renewal preservation, all residential homeowner association board members are urged to take immediate action to address this issue, or at least to determine how close they are to the thirty (30) year expiration period.  It is suggested that the renewal process for the declaration take place well in advance of the expiration date.

The Firm of Kaye Bender Rembaum has assisted many residential homeowners’ associations with this preservation process, and are available to assist any residential homeowners’ association with the preparation of all proper documentation needed to ensure that this process is properly and timely undertaken, or, in the event that the declaration has already expired, to assist with the process of reinstatement.

Although the 2015 Legislative Session was abbreviated when the House abruptly adjourned prior to the scheduled end of the Session, some new legislation affecting community associations was passed and subsequently signed into law by the Governor.  Of note is what is referred to as “House Bill 791″, which makes changes to Chapters 617, 718, 719 and 720 of Florida Statutes.  Also passed is “House Bill 779″ which provides certain protections for tenants of foreclosed properties.  “House Bill 643″ was also passed and makes changes to the Condominium Act relating to termination of condominiums.  “House Bill 87″ was passed, making changes to Chapter 558 F.S., involving construction defects.  House Bill 779 was made effective immediately upon being signed by the Governor (which has already occurred as of this writing), House Bill 643 was effective June 15, 2015, House Bill 87 is effective October 1, 2015, and all other changes are effective as of July 1, 2015.  (Below are highlights of changes that most affect the operations of community associations.  References to “718″ are to the Condominium Act; “719″ is to the Cooperative Act; and, “720″ is to Homeowners’ Association Act.)

 

HOUSE BILL 791 – GENERAL COMMUNITY ASSOCIATION BILL

ELECTRONIC VOTING

The most significant of the new legislation affecting community associations is in House Bill 791.  In our opinion, the most significant change in this House Bill is a procedure for electronic voting has been adopted and established for condominiums, cooperatives and homeowners associations.  New Sections 718.128, 719.129 and 720.317 F.S., have been added to the respective Statutes, entitled “Electronic voting”, which are essentially the same for all three.

Under these new provisions, an association may conduct its election and any other owner votes through an internet-based online voting system.  The new Statute requires the prior consent of an owner, in writing, to vote online.  Additionally, the association is required to provide (a) a method to authenticate the unit owner’s identity to the online voting system; (b) for elections of the board, a method to transmit an electronic ballot that ensures the secrecy and integrity of each ballot; and, (c) a method to confirm, at least 14 days before the voting deadline that the owner’s electronic device can successfully communicate with the online voting system.  Additionally, the online voting system must be able to authenticate the owner’s identity, and the validity of each electronic vote to ensure that the vote is not altered in transit.  A receipt for the vote received through the online voting system must be provided to the owner.  For elections to the board, the system must be able to permanently separate any authentication or identifying information from the electronic election ballot so that it is impossible to tie an election ballot to a specific owner.  The voting system must also be able to store and keep electronic votes accessible for recount, inspection and review purposes.

In order to use this voting procedure, the board of directors must adopt a resolution containing specific requirements, including notices to the unit owners of the option, requirement of their consent and opportunity to opt out.  If the resolution is to be considered at a board meeting, written notice of that meeting must be mailed, delivered or electronically transmitted to the owners and posted at the property.  If an owner consents to online voting, the consent is valid until the owner opts out.

PROXIES

Section 617.0721 F.S., which applies to all not-for-profit corporations, including community associations, is revised regarding voting by members of the association to allow a copy, facsimile transmission or other reliable reproduction of the original proxy to be used instead of the original proxy.  To do so, the copy must be a complete reproduction of the entire proxy.

INSURANCE

Section 718.111(11)(j) F.S., regarding insurance, has been amended to clarify that if there is no insurable casualty event that caused the damage, the maintenance provisions of the governing documents will provide for the determination of responsibility for the repairs.

OFFICIAL RECORDS

Section 718.111(12)(a)(15) F.S., relative to the “catch-all” provision of what is identified as the Official Records of a condominium association, open to inspection to owners or their authorized representatives, has been modified to add the word “written” regarding such records.

MEETING NOTICES

Sections 718.112(2)(d), 719.106(1)(d)(1)(b)(3) and 720.303(2)(c)(1)  F.S. have been modified to eliminate the need to have the authority in the bylaws of the association in order to use electronic mail (e-mail) for meeting notices.  As a result, all meeting notices,  including for board and committee meetings, may be provided by e-mail.  However, the requirement that owners provide written consent to receive notices by electronic mail remain.

ANNUAL BUDGET

Section 718.112(2)(f) F.S. regarding the annual budget has been revised to clarify that minimally, the items listed in Section 718.504(21) F.S. must be included in a proposed budget.  Subsection 2 has been split into two parts (a and b) to address reserves, with subsection (a) addressing the reserves in general, and subsection (b) addressing reserves before the turnover of control of the association by the developer to the non-developer owners.  Subsection (b) further clarifies the ability of the developer to vote its units to waive reserves.

ASSESSMENT PAYMENTS

Sections 718.116(3) and 719.108(3) F.S. have been revised to clarify that the application of payments made on a delinquent account are to be applied in the manner specified within the Florida Statutes, notwithstanding any purported “accord and satisfaction” or settlement agreement claimed by the payer by delivery of the payment.  This is in response to a recent case in which the court ruled in a manner contrary to the understood intent of the Statute since 1991 (see our Legal Morsel article on this case from August 14, 2014, which you can view online at:

https://hjq.a4f.myftpupload.com/appellate-court-decision-alters-23-years-collection-practices-condominium-associations/).  These provisions also state that they are intended to clarify existing law, which makes the application of the change retroactive.

BULK BUYERS

Section 718.707 F.S., relating to the bulk assignee or bulk purchaser of units, has been amended to extend the period of time for qualification from July 1, 2016 to July 1, 2018.

FINING AND SUSPENSION OF USE AND VOTING RIGHTS

Sections 718.303, 719.303 and 720.305 F.S. have been revised to clarify the proceedings for fining, which involve the board first levying a fine, and then a fining committee holding a hearing to approve or disapprove it.  It further clarified that the role of the fining committee is only to confirm or reject the fine proposed by the board.  Section 719.303(3)(b) F.S. has been modified regarding the qualifications for those who sit on the fining committee to mirror Section 718.303(3)(b), F.S. and be only “other owners who are neither board members nor persons residing in the board member’s household.  Sections 718.303(4) and 720.305(3) F.S. were  revised to clarify that the “monetary obligations” that qualify for suspension of use rights include a fee, fine or other monetary obligation.  Sections 718.303(5) and 720.305(4) F.S. have been revised to further clarify that when the voting rights of an owner are suspended, the total number of eligible units is reduced for the purpose of calculating the necessary percentage to pass a proposal.  A new subsection 718.303(7) and 720.305(6) F.S., have been added to clarify that any authorized suspension provided in the Statute applies not only to the member, but also to the tenants, guests, or invitees, and even if the delinquency or failure that resulted in the suspension arose from less than all of the multiple units owned by a member.  This means that if an owner owns 3 units and is delinquent more than 90 days on one of the units, the voting rights on all 3 units may be suspended.

MISCELLANEOUS HOA REVISIONS

Section 720.301 F.S. was amended to include the rules and regulations of the association under the definition of “governing documents”.

Section 720.3015 was created and added to the Statute to provide a title to Chapter 720 F.S. which is the “Homeowners’ Association Act.”

HOA BOARD MEMBER QUALIFICATIONS

Section 720.306(9) F.S. has been amended regarding qualification to serve on the board.  The revisions include that a person who is delinquent in the payment of any fee, fine or other monetary obligation to the association on the day that he or she could last nominate himself or herself or be nominated by another to the board may not seek election.  That person’s name should not be included on the ballot.  It further provides that any serving board member who becomes more than 90 days delinquent in the payment of any fee, fine or other monetary obligation to the association shall be automatically deemed to have abandoned the seat on the board.  If the board member owns more than one property, the delinquency on any parcel owned by that board member will disqualify him or her from serving on the board.

HOUSE BILL 779 – TENANT PROTECTION

House Bill 779 adopts changes to Chapter 83 of Florida Statutes, which is the landlord-tenant  statute.  A new Section 83.561 F.S. has been added, entitled “termination of rental agreement upon foreclosure.”  This new Statute creates certain rights and entitlements in tenants following the foreclosure sale.  There is no express distinction between a mortgage and association lien foreclosure in this new provision, which creates the presumption that it applies to an association foreclosure as well.  The tenant is allowed to remain in possession of the premises for a 30 day period following the date that the purchaser at the foreclosure sale delivers the 30-day notice of termination.  The Statute also provides a form of suggested language that the 30-day notice should include.  A writ of possession may only be applied for after the expiration of the 30-day period.  The new Statute does not apply to specified situations which include the tenant being the mortgagor in the subject foreclosure or is the child, spouse, or parent of the mortgagor in the subject foreclosure.  (This particular language can be interpreted to conclude that the Statute only applies to mortgage foreclosures since it does not reference the “former owner”.)  It shall also not apply if the tenant’s rental agreement is not the result of an “arm’s length transaction”, meaning that there is a special relationship with the former owner.  Additionally, it will not apply if the rental agreement allows the tenant to pay rent that is substantially less than the fair market rent, unless the rent is subsidized by a federal, state or local authority.

HOUSE BILL 643 – TERMINATION OF CONDOMINIUM

Changes are made to Section 718.117 F.S. involving the technical issues involving termination of condominiums, and is effective June 16, 2105.  The technical issues are byond the scope of this article and it is urged that any condominium association considering termination of all or part of the condominium consult with an attorney familiar with these issues.

HOUSE BILL 67 – CONSTRUCTION DEFECTS

Technical changes have been made to Chapter 558 F.S. involving construction defect claims, which are also very technical in nature.  As noted above, the changes are effective October 1, 2015.  It remains recommended for associations to consult with their attorney on the affects of this Chapter of Florida Statutes whenever entering into construction contracts or disputes over construction defects of any kind.

In recent years, legal issues have been raised by third party purchasers at a lender foreclosure sale following the changes in Chapter 720 of Florida Statutes governing homeowners associations, and in particular the provision which makes a new owner liable for a prior owner delinquency in assessments. A large majority of governing documents of homeowners associations contain provisions that exempt any purchaser at a lender foreclosure sale from liability for any prior delinquency on the property. After the changes to Section 720.3085 F.S. in 2007, associations considered such third party purchasers to owe all delinquencies based upon the provisions of the Statute in place at the time these purchasers acquired title to the property and the lower courts have regularly agreed with that conclusion when a challenge was raised. Many such investor-purchasers objected to these claims, suggesting that they should be covered by the exemption in the documents. On May 27, 2015, the Fourth District Court of Appeals answered this question in favor of the position of the third-party purchasers in Pudlit 2 Joint Venture, LLP v. Westwood Gardens Homeowners Association, Inc., Case No. 4D14-1385.

Pudlit 2 Joint Venture, LLP (“Pudlit”) purchased properties within the Westwood Gardens Community from lender foreclosure sales. As many homeowner associations have recently done, the Westwood Association demanded all unpaid assessments which predated the Certificate of Title on the properties, which Pudlit paid “under protest and with full reservation of all rights and remedies,” and then filed a law suit against the Association for a declaratory judgment. Of particular interest in this case was certain particular provisions of their declaration of covenants, which indicated specifically that “the personal obligation for delinquent assessments shall not pass to [a] successor in title unless expressly assumed by [such successor]” and, that in the event of a foreclosure sale, it “shall extinguish the lien of such assessments as to payments thereof which become due prior to such sale or transfer. . .” Pudlit claimed that the effect of these provisions in the declaration wiped out the Westwood claim against them. Westwood claimed that the Statute in place at the time of the foreclosure sale governed their rights and obligations, not the declaration.

The Trial court ruled in favor of the Association, which was appealed here. The Appellate Court reversed in favor of Pudlit, finding that a third party purchaser at a lender foreclosure sale is a “third party beneficiary” to the provisions of the governing documents of the Westwood Association that provided the exemption, notwithstanding the existing Statute on the date Pudlit took title. The Court decided that the Statute crossed the “constitutional” line and impaired the “existing” contract rights of Pudlit, making the Statute unenforceable. The Court further indicated its opinion that the Statute was not retroactive in its intent and, in order for any homeowner association that was in existence prior to the Statute being enacted in 2007 to recover similar claims against a third party purchaser, it must have language in its governing documents that incorporates the changes to the Statute and/or expressly incorporates the provisions of Section 720.3085 F.S. It was the conclusion of the Court that the Declaration of Covenants for the Westwood Gardens Community “expressly creates rights for successors in title,” such as a third party purchaser at a lender foreclosure sale.

The provisions of the governing documents in this case are substantially similar to a large percentage of existing declarations of covenants in Florida. It is recommended to have the association attorney review the current provisions of the governing documents for all homeowners associations and evaluate the exposure of the association to this type of defense and/or claim. To maximize the ability of the association to recover unpaid assessments from third party purchaser at a lender foreclosure sale, amendments to the governing documents should be undertaken by the association as quickly as possible. The amendments that are suggested would minimally include a provision that automatically incorporates changes to Florida Statutes as they are adopted by the Legislature. For greater protection, another amendment can be included which expressly incorporates the provisions of Section 720.3085 F.S., as it may be amended from time to time.