Category Archives: Legal Morsels

FEMA Publishes Guidance for Handling Flood Losses

On Tuesday, September 12, 2017, the Federal Emergency Management Agency (FEMA) announced Hurricane Harvey and Irma claim handing process for buildings insured under the Standard Flood Insurance Policy (SFIP), specifically recognizing that catastrophic flooding from those storms demands “fast and accurate payments to all National Flood Insurance Program (NFIP) policyholders. The published guidance is an effort to facilitate prompt post-inspection advance payments to policyholders. The Fact Sheet attached outlines the steps associated with the claims process.  (Click the link for the Fact Sheet nfip_flood_claim_process-003 )

FEMA may authorize advance payments to policyholders before inspection by an adjuster in certain circumstances, emphasizing that advance payments are not available for additional living expenses such as temporary housing after the storm.

Policyholders have an obligation to minimize mold damages as much as possible, however coverage needs to be verified before engaging a mitigation contractor to perform water extraction. Kaye, Bender, Rembaum strongly advises against signing any open-ended or undefined contracts and all contracts should be reviewed by Association counsel before the Board signs off. For water extraction or emergency services in units, associations should ensure there are separate contracts for each unit with a clearly defined scope of work along with associated costs to submit to the owner’s carrier. Community association managers (CAMs) and/or board members must make an effort to contact owners before arranging to perform water extraction or removal of contents.

If possible require the owner to separately contract for these services. If that is not possible, make sure your contract contains limiting language indicating that the association is only signing as an agent for the owner under its emergency powers (§718.1265 and §720.316, Florida Statutes). Please note, however, emergency powers set forth in Florida Statutes are only available for the limited period of time reasonably necessary to protects the health, safety and welfare of those affected and to mitigate further damages or effectuate emergency repairs.

By now you should have already reported the claim if you have suffered a flood loss – it is important to file the claim with the carrier, not simply the agent, although in many cases the agent may submit the notice of claim on your behalf. The NFIP policies generally require policyholders to mitigate (or reduce potential) damages by separating damaged from undamaged property and retaining compromised materials after removal from the home for adjuster inspection. Photographs and video records are extremely helpful in establishing the scope of loss.

Additionally, FEMA reminds those impacted that:

FEMA does not authorize individual contractors to solicit on its behalf. Beware of any individual contractors contacting you directly on behalf of FEMA to sign you up for debris removal or remediation services.

If you have any concerns about individuals representing themselves as FEMA or would like to report fraud, please contact the National Center for Disaster Fraud at (866) 720-5721 or via email at disaster@leo.gov.

Federal and state workers never ask for, or accept money, and always carry identification badges

There is NO FEE required to apply for or to get disaster assistance from FEMA, the U.S. Small Business Administration or the state.

APPELLATE COURT LIMITS ASSOCIATION ABILITY TO STOP OWNER POSTING OF NEGATIVE OPINIONS ON SOCIAL MEDIA

Many community associations throughout Florida have experienced an owner who opposes the board and is vocally negative toward the efforts of the association representatives. With the development of social media and the internet, many have also experienced these disgruntled owners posting their opinions on the internet through blogs, website and the like. Quite often these owners are not expressing accurate information regarding the association and boards look for help from their attorneys to stop what they consider to be abusive and harassing conduct. The Florida Fifth District Court of Appeal has recently issued a ruling that identifies some limits that court action can take in dealing with such disputes and leaving questions regarding other actions that can be taken unanswered.

In Fox. V. Hampton at Metro West Condominium Association, Inc., Case No. 5D16-1822 (July 21, 2017), the Appellate Court was presented the situation in which the Condominium Association had initially brought a legal action against the unit owner to obtain an injunction to stop the owner from what they claimed to be conduct that was harassing, intimidating and otherwise threatening to other owners, and for his on-going publishing of negative claims about the Association and/or the Board on the internet. No trial was held as the parties entered into a settlement agreement that was ultimately incorporated into a final judgment under which Fox agreed to stop certain actions. Soon thereafter, however, the conduct began again and the Association filed a motion for contempt and enforcement of the agreement, claiming that Fox had willfully and intentionally violated the terms of the agreement.

After holding a hearing, the trial court did find Fox in civil contempt for the violations of the agreement and, in addition to enforcing the provisions of the settlement agreement, also ordered Fox to stop posting, circulating, and publishing any pictures or personal information about current or future residents, board members, management, employees or personnel of the management company, vendors of the Association, or any other management company used by the Association, on any website, blog or social media. Fox was also ordered to take down what he had already posted on any of his websites or blogs. The trial court also prohibited Fox from starting any new blogs, website or social media website related to the Association. Fox was also told by the trial court that he could not respond to an inquiry about living at the Community online, but rather could only respond with a telephone call to the inquirer. Fox appealed the added requirements of the trial court that went beyond the original agreement and judgment, claiming that they violate his right to speak freely, and the appellate court agreed as to the added limitations.

In reaching it’s conclusion, the Appellate Court applied the Freedom of Speech provisions of the US and Florida Constitutions, noting that the “penalties” and additional limitations imposed by the trial court beyond the terms of the settlement agreement constituted what is termed “prior restraint” (or censorship) by the government, which is not allowed. This action by the trial court effectively was sufficient “State Action” to trigger the Constitutional protections for the unit owner.

While the Appellate Court notes that freedom of speech does not extend to obscenity, defamation, fraud, incitement, true threats and speech integral to criminal conduct, the conduct of Fox in this case did not reach any of these levels. The Court indicated that it is more legally appropriate to address the conduct of an owner posting or publishing allegedly false statements and/or other actionable statements after the fact rather than before it occurs. Consequently, the Appellate Court decided that the trial court made an error when it prohibited Fox from making any future statements whatsoever pertaining to the Community or the Association without conducting a proper constitutional inquiry first and reversed that part of the trial court decision. However, the Appellate Court did not reverse any aspect of the trial court’s enforcement of the original settlement agreement and final judgment. Only by it adding the “punishment” terms did the Appellate Court conclude that this particular trial court went too far.

This particular case is unusual in that Constitutional protections are being applied to a situation that traditionally has been considered one of private contract. Constitutional concerns apply to actions of the State or government and generally do not apply to private agreements or individuals. Time will tell whether this is a trend that may be starting among the courts or simply an anomaly decision limited to the facts of just this case. This is particularly so in light of the Appellate Court upholding the restraints on the speech of Fox that was set forth in the original settlement agreement and judgment, which also was enforced by the trial court, bringing State action into the situation as well. As with any case of this nature, much will depend upon the particular facts involved as to whether court action may be considered and/or worth pursuing.

2017 Legislative Changes

The 2017 Legislative Session was fairly active with respect to issues involving Community Associations. The following is a brief outline of some of the significant changes that became effective July 1, 2017.

Estoppel Certificates: Senate Bill 398: Applies to Condominium, Cooperative & Homeowners’ Associations.

Content and cost limits for estoppel certificates were issues attempted to be addressed several times in the past few years, but this year, SB 398 passed and substantially changed the content and procedure for responding to requests for information when a unit or property within the community is transferring, as well as setting up specific costs for the information. An “estoppel certificate” is defined to be a signed document establishing certain specific facts related to a particular transaction. In the past the estoppel certificate typically consisted of a basic statement of account, notifying the buyer/lender whether the account was current and identifying upcoming or ongoing financial obligations. The new law has the following affects: (a) reduces the time period for responding to a request for an estoppel certificate from 15 days to 10 business days, and if not delivered within 10 business days no fee can be charged for the estoppel; (b) the association’s website, if it exists, must contain the name and street address or e-mail address of the person to whom requests for estoppel certificates are to be sent; and, estoppel certificates must be delivered by hand, mail or e-mail on the date the estoppel is issued.

The estoppel must contain specific information, as follows:

Date of Issuance;
Name of the owner of the property to which the estoppel information pertains;
The property designation and address;
Any assigned parking or garage space;
Contact information for the association’s counsel if the account is in collection;
The amount of the fee for preparation of the estoppel; and,
Identify the person/entity requesting the information.

Assessment Information required to be included:

Payments required on a periodic basis for “regular” assessments, including the required frequency of payment;
Date through which payment has been received;
The date due and amount of the next “regular” payment;
Itemized list of any amounts currently due; and,
An itemization of the amounts to become due while the certificate is pending.

Other Information required:

Disclose the existence and amount of any capital contribution fee;
Whether there are any open violations;
Whether the governing documents require the buyer to be approved and if so, whether the buyer has been approved;
Whether the association has a right of first refusal and exercised it;
A list of and contact information for any other associations governing the property;
Contact information for insurance verification; and,
Contain the signature of an officer or authorized association agent (management, etc.).

An estoppel certificate is effective for 30 days (35 if delivered by regular mail). The fee for an estoppel certificate may not exceed $250 unless (a) the estoppel is requested on an expedited basis and is delivered within 3 days, in which case an additional fee of up to $100 is allowed, or (b) delinquent assessments are owed in which case an additional fee of up to $150 is allowed. The statutorily set fees shall be adjusted every 5 years based on the CPI.

Condominium Crime & Penalties: House Bill 1237: Applies to Condominium Associations

While portions of the bill have been criticized for “criminalizing” certain activities, these initiatives were largely in response to what has been considered as the scathing Miami-Dade grand jury report issued earlier in the year. The report found tremendous abuse associated with elections, conflicts of interest and association records. Records were purposely withheld in some cases and modified in others. The bill emphasizes that forgery of ballot envelopes or voting certificates is a crime punishable by law. Destruction of or the refusal to allow inspection or copying of an official record of a condominium association within the time periods required by law in furtherance of any crime is punishable as tampering with physical evidence or as obstruction of justice.

Kickbacks are specifically prohibited and could result in criminal penalties if accepted by condominium association officers, director and/or CAMs.

Condominium election ballot and voting certificate forgery could result in criminal penalties.

Theft of condominium funds, and destruction or refusal to allow access to official records of a condominium in furtherance of a crime are all subject to criminal penalties.

New conflict provisions are added. Under the new law the following is prohibited:

An association may not hire an attorney who represents the management company of the association.
A board member, manager, or management company may not purchase a unit foreclosed as a result of the association’s lien (or take title by deed in lieu of foreclosure).
The association cannot employ or contract with any service provider that is owned or operated by a board member or with any person who has a financial relationship with a board member or officer, or a relative within the third degree of consanguinity by blood or marriage of a board member or officer. (This does not apply if the board member or officer [or relative as described] owns less than 1 percent of the equity shares.)
An officer or board member of an association’s contract provider of maintenance or management services is likewise precluded from purchases a unit at the association’s lien foreclosure sale (or take title by deed in lieu).

Cancellation – Majority Ownership Contract
If 50 percent or more of the units in the condominium are owned by a party contracting to provide maintenance or management services to an association managing a residential condominium, (or an officer or board member of such), the contract may be cancelled by a majority vote of the non-interested unit owners.

Disclosure and Termination of Contract
Includes new conflict of interest provisions for directors and officers, and their relatives. Any activity that may reasonably be construed to be a conflict of interest must be disclosed.

A rebuttable presumption of a conflict of interest exists if any of the following occurs without prior notice:

A director or officer, or a relative, enters into a contract for goods and services with the association; or,
A director or an officer, or a relative that holds an interest in a corporation, limited liability corporation, partnership, limited liability partnership, or other business entity that conducts business with the association or proposes to enter into a contract or other transaction with the association.

A proposal for any service in which a director or officer, or a relative to the association must be clearly disclosed on all contracts and transactional documents and those actual documents must be attached to the meeting agenda.

If the board votes against the contract or service, the interested party must notify the board in writing that he/they will not continue to pursue the relationship, failing which the interested director must withdraw from office. If the board finds that an officer or a director has violated this provision, they are automatically removed from office.

Any contract, agreement or other relationship that has not been properly disclosed, is voidable and terminates after written notice from the board of directors supported by the consent (petition) of at least 20 percent of the voting interests of the association.
(For purposes of the conflict of interest provisions, the term “relative” means a relative within the third degree of consanguinity by blood or marriage.)

Records Access – Renters are now permitted access to certain records.

Website for Condominiums with 150 or more Units – Condominium associations with more than 150 units will be required to post (upload) copies of a whole host of documents on websites created for this purpose. The website must requires updating throughout each year. Condominium associations without websites or use of websites, web portals or web pages will need to create them or hire third-parties to do so. Among other documents, the website must contain:

The recorded declaration with all amendments;
The recorded bylaws with all amendments;
The articles of incorporation with all amendments and current rules;
All management contracts, leases or other contracts where the association is a party of which unit owners have obligations;
Summaries of bids for materials, equipment or services;
The adopted annual budget and any proposed budget to be considered at the annual meeting;
The year-end financial reports required by statute;
Each director’s self-certification or evidence of participation in a Division approved educational program;
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;
Conflict of interest disclosures; and,
Notices and agendas for both membership and board meetings.

Condominium associations that operate fewer than 50 units and homeowners associations of less than 50 parcels must comply with the financial reporting requirements based upon the total revenues of the association (although another bill permits the members to waive financial reporting requirements).

Annual condominium financial reports must be provided within 5 days of request by a unit owner, and specific remedies and enforcement by the Division are provided for failure to meet this requirement.

A condominium association, its officers, directors, employees, and agents may not use a debit card issued in the name of the association or billed directly to the association for payment of any association expense. Doing so can be prosecuted as credit card fraud.

A board member of a condominium association may not serve for more than 4 consecutive two-year terms unless approved by an affirmative vote of two-thirds of the total voting interests of the association, or there are not enough eligible candidates to fill the vacancies. (The new law does not contain limitations if directors serve one year terms.)

The recall provisions have been substantially revised – the board will no longer have the obligation or opportunity to vote whether or not to certify the recall. Recalled board members are immediately removed and could challenge the recall by filing a petition for arbitration at their personal expense.

Associations must furnish the Division of Florida Condominiums, Timeshares and Mobile Homes with the names of all financial institutions with which it maintains and accounts on an annual basis.

The right of a condominium association to suspend voting rights of an owner for non-payment of a monetary obligation to the association is limited to a monetary obligation of more than $1,000, and proof of such non-payment must be provided to the unit owner at least 30 days before such suspension takes effect.

Arbitrator qualifications have been strengthened as well as an intent to speed up the arbitration process.

The foregoing is general in nature, not intended to be an exhaustive and complete rendition of all of the legislative changes for 2017, nor should it be considered legal advice. If you have any specific questions regarding any of the items set forth herein, as well as any other legislative change, please contact this office.

Condo Crimes & Conflicts of Interest

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.

 

Appellate Court Extends Association Protection Relative To Third Party Purchasers

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. 4th 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. 4th DCA Jan. 4, 2017) (reported by us after the original decision in October 2016 at http://www.kbrlegal.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.

Appellate Court Reverses Itself On The Issue Of Accord And Satisfaction As A Defense In A Condominium Foreclosure

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.)

4TH DCA Corrects Prior Ruling and Clarifies Limited Application of Quadomain Decision.

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.

Limitations Imposed On Using Criminal Background Information As Basis For Denying A Sale Or Lease Application

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.

Appellate Courts Clarify Statue Of Limitations Affect On Claims To Invalidate Amendments To Governing Documents

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.

Pudlit Revisited: Caution Is Recommended For All, Including Condominium Associations

As previously reported in Legal Morsels in June 2015, (at http://www.kbrlegal.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.