Is association limited on how much it can collect?

By January 22, 2012Articles, News

Q. I am on the board of my condo association and we recently collected past due assessments from a bank that foreclosed. We collected 12 months of assessments and our attorney told us that was the maximum we could collect under Florida law. This does not seem right since the unit was three years in arrears. Further, our legal bills exceeded the amount we collected, resulting in a net loss in our collections efforts. Is this really the law, and could we have done anything differently? — M.W.

A. The law on this issue is subject to tremendous debate between community association lawyers and bank attorneys. There are two approaches that an association can take. First, the association can pursue a route similar to your association, which requires very little work and is the approach we most often see from conservative or inexperienced legal counsel. The Florida Condominium Act guarantees your association a minimum of 12 months of assessments or 1 percent of the mortgage debt, whichever is less. In your case, you probably would have been better off without legal counsel since you collected the bare minimum and spent more on legal services that did not compel payment from the unit owner or yield any positive result for the association.

The second approach is to be aggressive and take advantage of legal options you have. Your association never should have waited three years for the bank to foreclose, and you are lucky the bank finished the job.

A significant number of bank foreclosure cases are now being dismissed for inactivity, leaving the association in a true predicament because the delinquent owner will continue to enjoy the unit and common areas, at your membership’s expense, without any pressure from the bank.

Yes, you can suspend the owner’s rights to use the amenities, but enforcing the suspension is problematic in most communities. Your association should have been advised to foreclose on its lien a couple of years ago.

Often the filing of a lien foreclosure tells the unit owner (and other delinquent owners) that you are serious and intend to take possession of the unit if payment is not made. The majority of defaulting owners pay once the association files a proper lien foreclosure lawsuit, even those who you thought would never pay. If the owner did not pay, your association could have foreclosed on its lien and rented the unit for a couple years, which would have made up for the loss you just incurred, and then some. Further, the law affords your association an opportunity to get aggressive with the foreclosing bank.

The 12-month/1 percent limitation discussed above applies only to qualifying lenders or their proper assigns. Many foreclosing banks do not qualify for this limitation and owe the entire unpaid balance to the association. Failure to catch instances where the foreclosing lender does not legally qualify can cost your association tens of thousands of dollars annually.

If your community has any bank-owned properties that remain delinquent, it is important to have experienced legal counsel advise your board on what amounts can be pursued and collected. At a minimum, your association should have pursued the unpaid attorney’s fees, interest, late fees and costs incurred in the collections process. In our view, which is shared by a significant number of community association legal professionals, Florida law limits the bank’s liability for the unpaid assessments but not for legal fees, late fees, costs and finance charges. This law is equitable, in our opinion, since the vast majority of banks stall the foreclosure for several years, if they even foreclose at all, causing severe financial hardship to the association. Unfortunately for community associations in Florida, the Florida Legislature is considering HB 319, a bill sponsored by Rep. George R. Moraitis Jr., R-Fort Lauderdale, and surprisingly endorsed by the Community Association Leadership Lobby (CALL) www.callbp.com, the lobbying arm of a law firm that is widely known for representing community associations throughout Florida.

If Rep. Moraitis and CALL are successful in passing HB 319, the association will have no ability to collect anything more than 12 months of assessments or 1 percent of the mortgage debt, whichever is less. All of those fees and costs that your association was advised to incur by your attorney will be unrecoverable in most instances, and the association will be left holding the bag.

CALL claims that the new law is not designed to be pro lender, but rather the law is designed to clarify an ambiguity in the law regarding collection fees and costs. If a lobbying group that claims to advocate on behalf of more than 4,000 communities aims to clarify an ambiguity in the law, one would hope the lobbyists would advocate for a new law that protects the associations, and not the banks.

One of CALL’s goals in endorsing HB 319 is to prevent collection agencies from reaping benefits. While there are collection agencies that focus on association collections, effective collection practices can save struggling associations from financial ruin. CALL also seeks to facilitate prompt resale of properties by clarifying exactly what the bank is legally responsible for.

We believe the unintended result is that HB 319 will hurt associations and property values because the new law will significantly limit the association’s recovery on foreclosed properties. Resale of foreclosed properties will not be helped if associations are forced to consider special assessments, or even receivership, because of huge financial losses from foreclosures.

It is doubtful that many community leaders or residents had any input on HB 319. While it may be ideal to clarify what some may consider an ambiguity in the law, unfortunately HB 319 serves to punish community associations that have used aggressive legal strategies in an effort to turn their communities around. Banks will continue to stall foreclosures, and because of the huge advantage for banks contained in HB 319, associations will have less incentive to get aggressive with distressed properties because the costs of doing so will be unrecoverable in a significant number of cases.

In all fairness, CALL has advocated for future changes in the law to increase the amount of assessments that can be recovered from a foreclosing bank. CALL also proposes sanctions against banks that delay foreclosure cases. We agree with those initiatives, but they are not currently part of HB 319 which could become law in 2012. In our opinion, this new law as currently written would be disastrous to any association in Florida that has a collections problem. More information, including the text of the bill, can be found here.

If you want to voice your support or concerns regarding HB 319, you should contact your state representatives and your association’s legal counsel.

Q. My community has many part-time residents, and as a result, our HOA board regularly engages in discussions by email. While email is a great tool and allows us to keep in touch when we are not in Florida, I am concerned that excessive use of emails might violate the Florida Sunshine Laws and the requirement that board meetings be open to all homeowners. What is your suggestion on this issue? — B.R.

A. The use of email has become necessary for the day-to-day operations of the association. It is common for board members and property managers to exchange ideas and comments by email outside of board meetings. Unfortunately, the use of email by board members can be problematic because any gathering of a quorum of board members to conduct association business is legally considered an official board meeting and, therefore, must be noticed and open to the membership pursuant to Florida law.

That being said, the use of email is generally acceptable, provided that board members engaging in email communications do not establish a cyber quorum or take official association action by email vote. Further, even if board members and management are careful to follow these restrictions, it is important to remember than any email authored by a board member to an employee or agent of the association (i.e. property manager) that involves association business becomes an official association record that is subject to inspection and copying by the membership.

Some decisions unfortunately cannot wait until a formal board meeting, and as a result, a decision is made by an email vote, which should be avoided if at all possible. To avoid legal challenges, the board should consider appointing an officer of the board to have decision-making authority on time-sensitive matters such as collections and lease approvals. Alternatively, the board can delegate authority to a committee that has the flexibility to meet with proper notice and make quicker decisions.