DESPERATELY NEEDED COMMUNITY ASSOCIATION REFORMS

An Opinion By Jan Bergemann
President, Cyber Citizens For Justice, Inc.

Published January 15, 2011

Let's hope that Santa Claus fulfilled a lot of your wishes. But the holidays are past and our associations are facing a grim future -- if our Florida legislators fail to create much needed changes to prevent many of our associations from going BANKRUPT -- causing even more families to lose their homes.

THE MORTGAGE INDUSTRY:

More and more associations are having problems paying their regular daily bills. Many associations, despite violating Florida statutes, used reserve funds to fund the deficits since their members were unable to pay ever increasing monthly dues and special assessments. Many associations have seen their reserve funds -- savings of many years -- dwindle to next to nothing. There are many other reforms that need to be addressed, but the NUMBER ONE PRIORITY is finding solutions to hold banks and mortgage companies responsible for the damage they created due to their irresponsible lending. Add the fraudulent lending practices and failure of banks and mortgage companies to keep proper records plus the inability to follow proper foreclosure procedures and you have a mess that will drag many good families and retirees into a financial chaos with no escape.

Our laws are punishing the citizens who are definitely not to blame for this whole financial disaster: Homeowners and condo owners in community associations, who always paid the bills, property taxes, mortgage payments and association dues. They did everything they signed up for, but they are now the ones being bankrupted by a system that fails to protect the good guys. Instead the system protects the industry that created the whole mess: Mortgage lenders whose irresponsible lending practices caused the real estate market to collapse.

And in case you haven't figured out how serious the situation in our community associations is: There are associations where more than 50% of the units and/or homes have stopped paying dues. In case you don't understand the financial impact, please imagine a county where more than 50% of the owners are not paying their property taxes and nobody is buying the property tax liens. Can you imagine that disaster?

WHY ARE COMMUNITY ASSOCIATIONS IN DIRE STRAITS?

Many homeowners/unit owners have stopped paying dues for various reasons, creating a huge budget deficit in many associations.
Foreclosure proceedings take forever, many banks delay on purpose, trying to avoid paying the association dues.
The banks/mortgage companies are protected by our legislators, who fail to pass laws to hold the mortgage industry liable for the mess they created with their irresponsible lending.
Associations -- meaning the owners who still pay -- are responsible to maintain the homes/units that are empty. Mold is infecting neighboring units.
Last year's bill -- S 1196 -- did very little to help the finances of the associations, despite all the promises made by the legislators. Most provisions are very "attorney-friendly" -- money created by these provisions goes into the pockets of the attorneys, not the associations.
Bulk contracts are backfiring, forcing neighbors to pay for services for neighbors who don't pay! Paying for these bulk contracts "kills" the finances of associations where a high percentage of owners have stopped paying dues.
Restricting use rights may be a feel-good measure, but only works until the owner that stopped paying declares bankruptcy.

These are just the main issues -- and we all know that there is no solution that will cover it all. But our legislators are unwilling to hold responsible the folks that have caused the problem in the first place: THE MORTGAGE INDUSTRY!

Owners have to pay for the budget shortfalls, but owners didn't do the following:

Create guidelines for irresponsible lending practices.
Make millions by approving loans for people with minimum incomes.
Make a mess out of the paperwork.
Hire law firms that created illegal foreclosure filings.
Stall the foreclosure proceedings to avoid responsibility for paying dues.

These owners trusted the promises made to them about easy living in community associations and protection of property values. Do you honestly believe that owners in their right minds would have bought condos or homes in community associations, if they had been been told that they would be personally liable to pay the dues for their neighbors that stop paying?

IF OUR LEGISLATORS WANT TO SAVE MANY OF FLORIDA'S COMMUNITY ASSOCIATIONS AND THE FINANCIAL WELFARE OF FAMILIES LIVING IN THESE ASSOCIATIONS, THE NUMBER ONE PRIORITY HAS TO BE:

FS 718.116(1)(b) The liability of a first mortgagee or its successor or assignees who acquire title to a unit by foreclosure or by deed in lieu of foreclosure for the unpaid assessments that became due prior to the mortgagee's acquisition of title is limited to the lesser of:

1. The unit's unpaid common expenses and regular periodic assessments which accrued or came due during the 12 24 months immediately preceding the acquisition of title and for which payment in full has not been received by the association; or

2. ~~One~~ Two percent of the original mortgage debt. The provisions of this paragraph apply only if the first mortgagee joined the association as a defendant in the foreclosure action. Joinder of the association is not required if, on the date the complaint is filed, the association was dissolved or did not maintain an office or agent for service of process at a location which was known to or reasonably discoverable by the mortgagee.

CHANGE FS 720.3085(2)(c) ACCORDINGLY!

This is a MUST if our legislators want to prevent many more law-abiding, tax-paying citizens from losing their homes -- despite paying all the bills they ever agreed to pay! I have looked in many of the contracts signed by these good homeowners/condo owners. I failed to find any provision that holds these owners liable for the greed of the members of the mortgage industry. These owners are always told: YOU SIGNED A CONTRACT! However, no contract contains provisions that force owners to pay for the problems created by the mortgage industry!

DEVELOPERS

A wide majority of homeowners live in community associations still under developer control. Those homeowners are being dragged into bankruptcy by developers that are trying to AVOID THE UNAVOIDABLE:

DECLARING BANKRUPTCY AND FOLDING THEIR BUSINESS!

Not a week goes by without the news that another developer is bankrupt and out of business. It isn't a big loss for developers, because a corporation is formed as a Limited Liability Company. But homeowners who bought into these communities are stuck and in serious danger of losing all their life-savings. Their homes are collateral for any debts the developer left behind in the name of the association. But before developers disappear into nowhere -- often enjoying the money paid by these owners -- they try to save what can't be saved at the expense of just these owners. Suddenly the owners find out that they are virtually unprotected against abuses of developers who have no problems ignoring Florida statutes -- statutes with no teeth.

These are the major issues homeowners are confronted with when living in communities where developers are grasping at straws by:

Increasing the monthly dues for homeowners.
Ignoring FS 720.308 -- deficit and/or other cash funding requirements.
Levying special assessments only paid by the owners.
Ignoring FS 720.315 by renaming it Supplemental Assessment.
Ignoring FS 720.303 (8), which disallows association funds to be used to defend a civil or criminal action, administrative proceeding, or arbitration proceeding that has been filed against the developer.
Signing last-minute bulk contracts (in order to get the kickbacks), leaving the homeowners in a financial bind to pay for these contracts.

Owners in these communities, already in financial distress caused by the actions of the developer, don't have the finances to fight this abuse of power pushed by the developers with the help of highly paid corporate attorneys.

Even with the developer finally out of the picture (bankruptcy) the financial ordeal of the homeowners isn't over: Banks/mortgage lenders take over their collateral -- all the empty lots, clubhouse, etc. -- and make sure that the bankruptcy judge appoints a "friendly" receiver for the association, adding another financial burden to the already cash-strapped owners. Receivers often feel obligated to the banks and amend the deed restrictions, allowing the bank -- now owner of the association properties -- to pay a lesser share than other owners of the financial burden created by association bills.

Believe me, owners didn't sign up to pay expensive court-appointed receivers for banks, whose irresponsible lending practices to developers caused the overbuilding here in Florida and finally led to the crash of the real estate market.

And finally stop the developers who are under the impression that FS 720 was only created for dummies -- stupid enough to follow the laws. These developers fail to turn over the communities to the homeowners and are using these homeowners as a permanent cash cow to finance the developers’ lavish lifestyles and that of their kids! Florida statutes were not created to provide developers with a life-long source of income!

PREVENT OWNERS FROM BEING DRAGGED DOWN BY BANKRUPT DEVELOPERS!

Make changes to FS 720 to stop this abuse and add teeth to the statutes.

ELECTIONS, ELIGIBILITY AND VOTING RIGHTS!

The DBPR has jurisdiction over Condo and HOA elections and recall disputes; but while the recall provisions in FS 718 and FS 720 are the same, the election provisions differ widely. S1196 added some new election provisions to FS 720. But the language added creates actually only more confusion than solutions. Nobody involved in these issues will ever understand why the provisions regulating condo elections and eligibility to serve as board members used in FS 718 (Condominiums) has not been assimilated into FS 720 (Homeowners' Associations). It has been proposed by many organizations from both sides of the aisle. It was a major issue during the meetings of the HOA Task Force in 2003/2004. However, still no takers in the legislature. Maybe because election disputes in HOAs create a great source of revenue for attorneys?

While the number of election disputes in condos decreases, the number of election disputes in HOAs is increasing, despite the fact that owners face a serious financial risk if trying to dispute the election. While condo language provides many safeguards against election fraud and cheating, HOA language provides none. It actually gives sitting boards the opportunity to be re-elected forever by creating bylaws more or less eliminating competition. And there are no restrictions for eligibility of HOA board members. The HOA statutes as written even allow convicted murderers (I'm not kidding!) to serve on HOA boards.

It's so easy to create good election and eligibility provisions for homeowners' associations:

Replace the language in FS 720.306(8) + (9) with the pertinent language in FS 718.112(2).

SUSPENSION OF VOTING RIGHTS

The many non-paying members in our associations plus the suspension of voting rights for non-paying members have created a new serious problem for elections and recalls. We see more and more associations that have problems holding elections due to lack of quorum, because too many owners are delinquent and their voting rights have been suspended. That gives an unfair advantage to sitting boards that get automatically re-elected, if they fail to establish a quorum at the time of election. Lack of proper notification and/or elimination of proxy-voting are common "tricks" to achieve this goal!

It gets even worse if owners are trying to recall the board. For a successful recall the Owners Voting for Recall need a 50% + 1 majority of valid petitions, using the total number of members in the community to start from. In a community with a high percentage of non-paying members, it is numerically impossible to recall the board. We have here in Florida associations where less than 50% of the original members still have voting rights, making a recall impossible. A small minority of owners can run the association business forever, without the majority having a chance to remove them.

Easy solution for the legislature: In elections and recalls use the number of members still eligible to vote as the basic number -- the number to start from for quorum and recalls. Eliminates this injustice in a heartbeat!

Vague language has to be repaired in the community association statutes, vague language that creates nothing but expensive lawsuits with no winners but the attorneys.

Will our legislators finally see the writing on the wall? Will they enact the necessary laws to prevent the financial collapse of many of our community associations -- before it's too late?

LAST YEAR THE FLORIDA LEGISLATURE PASSED THE ATTORNEY'S AND BANKERS' RELIEF ACT -- THIS YEAR WE NEED TO SEE THE OWNERS' RELIEF ACT SIGNED BY THE GOVERNOR!

Watching for a rebound -- Associations in trouble