Associations -- There is a Better Way!

It's no secret I have been an advocate for homeowners embroiled in disputes with their associations.  I originally went to law school to practice employment law.  I changed directions when I bought my home in a HOA and my welcome to the neighborhood consisted of a volley of "f-bombs" from someone claiming to be the HOA president.

In the past couple of years I have changed direction in my practice of community association law.  Not only did I realize individual owners suing an association is difficult for my clients, both emotionally and financially, but creates a hostile environment for everyone that often lingers even after the dispute is resolved. I now focus my attention on representing the associations.  I figure I can make a difference by helping associations proactively avoid litigation rather than helping the owners litigate.  Not all disputes can avoid litigation. There will always be those one or two homeowners in every community that will be stubborn or even aggressive and want to fight, but litigation should be a last resort.

Let's face it -- if your association has a bad reputation it will affect property values and the resale of homes. Desirable associations attract home buyers.

The ingredients for a good association are education, communication, the right CAM and the right lawyer.

Most homeowners do not intentionally violate the covenants.  Just because the homeowner received a copy of the governing documents, doesn't mean they understand them.  If they did, most members who are past due in their assessments would realize the association can lien and foreclose on their home and would keep the assessments current.  I come across homeowners every day who believe if the bank is foreclosing the association cannot foreclose.  They are surprised when their homes are sold by the association with a bank foreclosure pending.

There is a simple fix to this.  The association should have a website the provisions of the governing documents can be explained, broken down in individual topics, and then promote this website regularly. Make sure new owners receive the web address right away.  Encourage members to review the website before undertaking improvements to property.  There are a number of services out there which help those technology-challenged individuals build a website.  If a website isn't feasible, create a newsletter!  Now you have education and communication!

Another point about communications -- confrontational notices do not work.  It is human nature to become defensive when being harshly reprimanded.  I believe the first notice to a homeowner should be a gentle reminder and an invitation to discuss the issue at a meeting if necessary.  The old saying "you catch more flies with honey" is true. You will get more owner cooperation if you acknowledge they either did not know better or forgot and have a chance to remedy the situation.  Threatening to send them to the association lawyer if they do not obey demands only ends up costing the association and owners more money for legal fees.

The right CAM is important.  Identifying the right CAM is not so easy and there is no one size fits all.  Some associations need the CAM to be very involved and some only need a CAM to collect assessments, pay bills and send out violation notices.  The right CAM will meet your expectations and work well with the association.  The wrong CAM will partner with the lawyer to increase billable hours for both of them by fueling disputes.  The wrong CAM will control the association funds and keep board members out of financial decisions.  The wrong CAM will make board decisions without the board members being involved. The wrong CAM will think it's their job to run the association, not the board.  

The same applies to the lawyers.  The right lawyer will answer the board's questions and encourage the resolution of disputes early.  The wrong lawyer will lead the board to believe they have the ultimate power and cannot lose a dispute. The wrong lawyer will bully and abuse homeowners.

Associations should be proactive when dealing with violations and collections.  Identify the problem areas and work on them proactively.  Make sure your owners know not paying assessments means they risk losing their home and usually quickly.  Let them know the association doesn't want their home, but has a duty to collect assessments from everyone.  Let them know financial hardship is not a defense the courts will entertain.  Offer a payment plan to help out those who are already past due, but be aware that if the association lawyer handles the payment there are outrageous fees to set it up and process payments.  The association can facilitate the payment plan so it stands a better chance of success.  If your association has authority to impose fines, make sure the members know about the process and don't try to rig it by appointing members to the fining committee who are friends and supporters of the board or biased against the owner.  Make it a fair hearing before the fining committee or the association will most likely end up in litigation.  Make sure all members are aware of the process for applying for approval to implement improvements to their property.  Communicate on a regular basis those items that require approval as well as those that do not.  

There is a better way to have an association and not make everyone in it miserable.  It's not easy because most members of the association don't care to be involved or hear about it, but it is possible.

Community Association Managers (CAMs)

Laws Regulating CAMs

Fla. Stat. 468.431 requires a CAM to be licensed when "the association served contains more than 10 units or have an annual budget or budgets in excess of $100,000." The management firm is required to have a license as well. CAMs are limited in what duties they can perform by statute as well as an advisory opinion issued by the Florida Supreme Court. 

The advisory opinion has designated activities which would constitute the unlicensed practice of law, such as drafting amendments to documents, drafting proxies, preparing liens, advising anyone how the law applies to a set of facts or circumstances, interpreting statutes, administrative code, the governing documents of an association or contracts, drafting contracts or drafting legal notices. CAMs are licensed and regulated by the Department of Business and Professional Regulation ("DBPR"). Effective July 1, 2013 laws were enacted to create more regulation of CAMs and penalties for violating the regulations. A CAM can be subject to penalties for any violation of Chapters 718, 719 and 720 of the Florida Statutes.

But the Real Problem Is.....

There seems to be a rise in the number of complaints I hear from associations who state their CAM who make decisions without consulting the Board of Directors ("BOD") or take actions against homeowners without BOD approval. I frequently come across liens and foreclosures for trivial amounts against homes which the BOD will claim they did not authorize. I often expect the BOD is not being honest and is throwing the CAM under the bus, but there have been some instances I have investigated where the lien or foreclosure is not in any meeting minutes and the CAM made the decision on their own. I have heard from several associations the CAM handles all the finances, including which bills to pay and when. I have even come across associations claiming the CAM will not let them have access to the association funds. Even more troubling is when the CAM is making board decisions without input from the BOD. The courts have judicially dissolved associations which delegate the board duties to a CAM. It rarely happens, but has happened. Or worse yet, the court can appoint a receiver, which makes assessments skyrocket. Board members need to know their fiduciary duty is to operate and manage the association, including making financial decisions and signing checks. If no one is watching the checkbook except for the person who gets paid regularly with checks, you are not doing your duty! Don't get me wrong -- there are some wonderful CAMs out there, but the BOD should know what their CAM is doing because the association is responsible for the CAMs actions.

Single Biggest Mistake Is.....

Whenever there is a turnover of board members due to an election or other events, the CAMs are naturally concerned because the new BOD can terminate their contract. All too often I come across CAMs who will continue to work with the former BOD to try and oust the new BOD. I have seen CAMs sabotage records and meetings and provide former board members with privileged documents. I have seen CAMs try to circumvent the election process. Associations need to know if their CAM is engaging in this behavior the association needs to replace the CAM because the potential risk of litigation against the association is high in these situations.

Conclusion

Board members need to communicate with their CAMs at the slightest hint of these problems. Sometimes the BOD is sending mixed signals and the CAM needs clear instructions. Anytime there is a change in board members, the board should meet with the CAM to discuss expectations. If something does happen, the board should provide the CAM with a letter outlining the situation and an opportunity to cure the situation. The BOD-CAM relationship is supposed to be a partnership and not a battle of egos.

Fining Procedures and Fla. Stat. 720.305(2) and (2)(b)

This week I corresponded quite a bit with a homeowner who was experiencing problems with the way his HOA was imposing fines and it's amazing how many holes you can find in a statute that seems pretty clear cut.

The statute, Fla. Stat. 720.305(2) reads:

The association may levy reasonable fines of up to $100 per violation against any member or any member’s tenant, guest, or invitee for the failure of the owner of the parcel or its occupant, licensee, or invitee to comply with any provision of the declaration, the association bylaws, or reasonable rules of the association. A fine may be levied for each day of a continuing violation, with a single notice and opportunity for hearing, except that the fine may not exceed $1,000 in the aggregate unless otherwise provided in the governing documents. A fine of less than $1,000 may not become a lien against a parcel. In any action to recover a fine, the prevailing party is entitled to reasonable attorney fees and costs from the nonprevailing party as determined by the court.

Let's break this down.

"The association may levy reasonable fines of up to $100 per violation....except that the fine may not exceed $1,000 in the aggregate unless otherwise provided in the governing documents."

Right away the debate begins.  The HOA lawyers argue this statute gives all associations the right to levy fines even if it's not in the governing documents.  Other lawyers argue it doesn't because an association cannot engage in any conduct not authorized by its governing documents according to a case called S&T Anchorage v. Lewis.   (I'll leave out the case citations because they are usually meaningless to non-lawyers and this is about keeping it simple or as simple as possible.)

Here's the exceptions.  A case called Cohn v. The Grand Condominium reinforced earlier case law that held while the statutes trump the governing documents of an association if there is a conflict, you have to look to the statute which was in effect when the documents were recorded UNLESS the documents contain language the association was organized pursuant to or subject to a specific statute "as amended from time to time" or similar language.  This language manifests the intent to be subjected to amendments to the statute.

Here's the exception to the exception.  If a statute is curative, remedial, or passed as a matter of public policy, then it does apply.  Now the hard part?  How do you tell if it was passed for one of those purposes? It's not always easy.  If the statute states "the Florida Legislature finds...", then that was clearly a matter of public policy.  Otherwise you have to find the bill that created the statute and read the history and committee notes or find a case that talks about the statute.

Personally, I think this statute could not be remedial or curative because it created more problems then it resolved.  This language has been put in, out and back in of Chapter 720 with subtle but important differences.  The old version clearly stated if the association had the authority to impose fines then the procedures in paragraph 2(a) applied.  The new version gives the impression all associations have the authority.  This is the kind of language that keeps lawyers employed.  The language was removed previously because an association could lien and foreclose on your home for an unpaid fine no matter how small the fine.  The new language requires the fine to exceed $1,000.00.  Did that help homeowners? No, because the associations now make sure every fine is at least $1,000.00!

Now let's look at the second portion that is troubling - Fla. Stat. 720.305(2)(b).

(b) A fine or suspension may not be imposed without at least 14 days’ notice to the person sought to be fined or suspended and an opportunity for a hearing before a committee of at least three members appointed by the board who are not officers, directors, or employees of the association, or the spouse, parent, child, brother, or sister of an officer, director, or employee. If the committee, by majority vote, does not approve a proposed fine or suspension, it may not be imposed. If the association imposes a fine or suspension, the association must provide written notice of such fine or suspension by mail or hand delivery to the parcel owner and, if applicable, to any tenant, licensee, or invitee of the parcel owner.

Let's break this down.

"A fine or suspension may not be imposed without at least 14 days’ notice to the person sought to be fined or suspended and an opportunity for a hearing"

What's missing? Anyone see when the 14 days' notice starts.  Common sense would tell you 14 days from the date the owner receives the notice right?  Common sense and HOA are an oxymoron when used together.  Looking at this from the HOA's point of view, how do you notice a hearing when you don't know when the owner will receive the notice?  Understandable at least, but what happens when the HOA plays games and postmarks the envelope and then holds the letter to make sure the owner doesn't get it until right before the hearing?  This happens a lot based on the number of complaints I have heard from owners.  How hard would it be to use the 5-day mail rule the courts use?  Send a certified letter and notice the hearing for 19 days from the date of mailing, allowing 5-days (which is plenty) for the receipt of the mail.  The other option is to reschedule the hearing if the owner says they received the notice late. This is way too simple to solve if the HOAs were interested in solving it.

Here's the second problem with that section:  "an opportunity for a hearing"

So many HOAs get this wrong.  It's a hearing, not a meeting.  It's not the opportunity to create a public lynching of the owner by noticing it to the community as an open meeting.  If the HOAs really thought it was a meeting why do so many of them not have minutes?  The HOA should have minutes regardless, but they will claim it's a committee and they are not required.  WRONG!!!

Next up:

"If the committee, by majority vote, does not approve a proposed fine or suspension, it may not be imposed."

There is no statute or case law on the issue of the vote being done at the hearing in front of the owner, at the hearing behind closed doors or after the hearing.  Until someone sues on this issue and it goes up on appeal, there are no published rulings from the judges.  Most likely if it ever made it to the judge, a judge would rule based on the most convincing arguments and would have to determine if committee was improperly influenced by the Board of Directors to vote in secret so they could attend. 

The board doesn’t have to meet and ratify the decision, but they can and usually do, unless of course the committee doesn’t vote in their favor – then they don’t want that to get out.

Next:

"a hearing before a committee of at least three members appointed by the board who are not officers, directors, or employees of the association, or the spouse, parent, child, brother, or sister of an officer, director, or employee."

Seems clear enough for the average person, but you would not believe the games HOAs play with this. The board will recruit a committee by asking them if they will impose a fine against a specific homeowner. They will appoint former board member to the committee. Board members will resign to serve on the committee only to be reappointed to the board afterwards. The board will appoint the community association manager (CAM) despite the language above, claiming they are not an employee, but an agent.  The board will appoint their in-laws because the statute doesn't prohibit that.

Now here's the most troubling part of the statute:

"If the association imposes a fine or suspension, the association must provide written notice of such fine or suspension by mail or hand delivery to the parcel owner and, if applicable, to any tenant, licensee, or invitee of the parcel owner."

HOA lawyers have advised the HOAs this means the HOA can throw out all the other procedures and has authority to impose a fine by a vote of the board of directors.  Somehow they are convinced the fining committee is not part of the association.

Back in 2007 fines removed from the statute, so no matter what the HOA docs said they could not fine.  Then in 2010 it was put back in with the $1000.00 limit.  The effect was that now HOAs no longer have to mediate the issue of covenant violations if they impose a fine because monetary obligations are not subject to statutory mediation.  The homeowners lost valuable protections and rights because unless you have deep pockets to litigate, the HOA wins.  Plus, if you stop to think about this it’s cheaper to pay their extortion by fine then to litigate ($1,000 or $150,000).

As we pass more laws, lawyers think of more ways to get around the law.

My advice is pay the fine and then take the HOA to small claims court to get it back.  Remember a dispute over a monetary obligation is not subject to pre-suit mediation; however, a recommend sending the pre-suit mediation offer anyway because the judge will make you mediate first before he looks at the case at the first hearing.

Assessments Current But The Association Insists Assessments Are Past Due - Who Is Right?

What do you do when the association claims you are past due with your assessments and your records indicate you are current?   

Answer:  Address this immediately because the association can lien and foreclose on your property!  

Don't ignore that first Intent to Lien Notice!!  It will not resolve itself or go away.

You need to attempt to resolve this now before a foreclosure gets recorded because even if you win, it still shows up in the public records and court records and cannot be removed. 

Here's the things you need to check for:

The association is required to send you two copies of the Intent to Lien Notice and then, after filing the lien, two copies of the Intent to Foreclose Notice before foreclosing.  Each notice is sent by regular mail and certified mail.  Avoiding signing for the certified mail will do more harm than good because most judges will consider the mail received if you leave it unclaimed.

The notices are sent 45 days in advance for homeowner associations and 30 days in advance for condominium associations.

While you have a good defense if this procedure is not followed, you are risking losing your home.  Better to be proactive and get it resolved rather than waiting for a summons to be served by the sheriff.

Check to see if you were late.  If you were late with any payments, the HOA is entitled to the interest, late fees and attorneys' fees. So while you may think you are paid up to date, if you were ever late and only paid the assessment, you are past due because all the other charges are paid first and the HOA last.  Do not submit the assessment payment to the association thinking you can pay the interest, late fees and attorneys' fees later.  Once your account is with the attorney, you are liable for all of the charges.  State law protects the associations on this issue and provides for payments to be applied to assessments last.

If, after all these issues are considered, you still are certain you do not owe the additional fees, I suggest you pay what they are asking and then sue the HOA. If there is a property manager (CAM) and/or attorney involved, I suggest filing a complaint against their licenses if you are certain you were never liable for additional charges. It's not unusual for HOAs to stand firm even when they are wrong because they figure you can't afford to sue them (it is expensive). 

Time to Pay Assessments - Even If You Don't Receive a Bill

One of the biggest issues my clients have with their associations is past due assessments because they did not receive a bill from the association.   Don't make the mistake of thinking you have a defense if they do not send out a bill.  The state laws protect associations and do not require them to send the bill.

Florida courts have ruled an owner is on notice of assessments due by virtue of purchasing property subject to an association and it is the duty of the owner to make sure those assessments are paid.  If you have not received your bill for your assessments, it is your duty to contact the association to find out if the amount has changed and to remit payment.

Also, remember -- the association is entitled by law to all interest, late fees and attorneys' fees and costs if you are past due.  IF YOU HAVE BEEN TURNED OVER TO THE ASSOCIATION ATTORNEY FOR COLLECTION, SEND PAYMENT TO THE ASSOCIATION ATTORNEY.  Attempting to avoid these fees by sending the assessments to the association directly will only cause you to incur more fees and costs.  The association will either return your payment (even though they are required to accept it) or forward it to the attorney.  No matter how they handle it, by law, the payment is applied to everything but assessments and if there is any leftover then it is applied to assessments.  Until you pay the full amount you will always be past due.

Bottom line -- you cannot get out of paying the assessments because the association may not have sent a bill or, because of mail service, you didn't receive the bill and the association can LIEN and FORECLOSE on your property for non-payment.

New Years' Resolution - Peaceful Living in Community Associations

For years I have represented homeowners in disputes with their associations, whether it is a homeowners' association, condo association, or mobile home park.  These battles are not easy, emotionally, and are very expensive, with costs of more than $100,000 if the matter goes to trial.  Even if the client wins, the end result is misery.  These disputes result in a civil war with the board of directors and their supporters on one side and the homeowners and their supporters on the other side.  Throw in a lawsuit and you have everyone behaving badly because these disputes are very personal and emotional.  The dispute is about the rights of a homeowner to do what they want with their property when they have entered into a contract (the Declarations and Bylaws) waiving some of those rights.  Too often people start engaging in criminal behavior. I have had clients victimized by some pretty violent actions that could have had tragic endings.  Pets disappear, vehicles mysteriously burst into flames, homes are broken into and vandalized, live snakes and dead birds are found in yards and sometimes in homes. It's unbelievable the conduct that goes on once a dispute reaches the level of litigation.

Few people can afford to spend $100,000 or more and even if they can, the stress is another barrier. After all, a typical case can take three or four years to reach trial.  I have come to realize fighting bad associations one lawsuit at a time is not working -- for anyone.

My New Years' resolution is to work for the associations and educate them on the most efficient ways to collect assessments and enforce the declarations.  My goal is to have associations I represent to be self-sufficient and not have to call me frequently and incur high legal bills.  Yes, I'm advocating for my clients to pay me less.  Hopefully I will have more clients and be able to earn a decent living -- not an extravagant living, just a decent living.  How do I plan to do that?  By showing associations that just because they can legally do something doesn't mean that's the most efficient way.  Let's face it -- often associations have the legal power to take certain actions and those actions end up costing the association quite a bit in legal expenses.  Who is it recommending they engage in this conduct?  The very person who will profit from litigation -- the association attorney.  I often wonder who's best interest is being looked after -- the association's or the association attorney's.  

My methods work and I know they work.  I have represented a handful of associations for the past few years and I hardly hear from them.  We had a good bit of work in the beginning, but now they are self-sufficient.  They know the key to collecting assessments is to educate the homeowner.  Most homeowners faced with financial hardships don't realize that the association's assessments, which is usually the smallest bill they have, carries the greatest power.  The association can foreclose no matter how small the amount past due and can foreclose quickly because it doesn't face any of the problems the banks face with mortgage foreclosures.  The homeowners often don't realize financial hardship is not a defense to not paying assessments and the association actually has a duty to aggressively collect those assessments from everyone. Providing this information with an offer to catch up assessments through a payment plan has been a very successful strategy for my associations.  The association is usually viewed favorably in this strategy. Surprisingly a number of homeowners appreciate the association working with them to resolve the problem rather than sending the nasty notices stating the association will lien and foreclose and own their home.

Community living does not have to be a nightmare.  The board of directors have a choice in how they handle disputes.  It doesn't have to end in a civil war.