Tuesday, April 30, 2013

2013 HOA Legislation Highlights

Last week the House of Representatives and the Senate passed Bill 7119 providing many needed amendments to Florida Statute 720, the statute regulating homeowner associations. We are now waiting for the governor to sign the bill into law, which would go into effect July 1, 2013.

One of the most important amendments to the statute removes a director or officer from the Board of Directors of an association if the director or officer has been accused of committing a crime of theft or embezzlement involving the association. The bill also includes an amendment to Chapter 468, which regulates community association managers ("CAM"), and calls for discipline by the Department of Business & Professional Regulation ("DBPR") if the CAM commits violations of Florida Statutes 720, 718 and 719, if the CAM contracts on behalf of an association with any entity in which the CAM has a financial interest without disclosure, obtaining a license or certification by fraud, misrepresentation or concealment, being convicted of or pleading no contest to a felony, violation of any DBPR order or rule, committing gross misconduct or gross negligence, or any other violation of Fla. Stat. 468.436.

Directors and officers of a HOA board, if the bill is signed by the governor, will now be required to certify in writing they have read the Declarations, Bylaws, Articles of Incorporation and any other rules and policy of the HOA or complete a certificate attesting they have completed a state-approved educational course. The bill also requires directors and officers to disclose their financial interest in any entity submitting a bid for a contract with the HOA and if a member objects to the contract, the contract must be put to a vote by the membership for approval. Additional language requires the HOA to insure and bond anyone handling HOA funds prohibits kickbacks. Yes, good old common sense needed to be put into the HOA statutes, but I wonder if those people affected by this law will actually care to stop accepting kickbacks!

Associations would now be required to keep the official records within 45 miles of the community or within the county where the community is located. (I predict we will have some legal battles over the use of the word "or" here.) There should never be a choice in a statute. Associations, at their discretion, can provide the records electronically by posting them on the Internet or allowing members to read them on a computer screen and then requesting a printed copy. If the HOA has a copy machine it must provide the copies if the request is 25 pages or less. The association could still charge 25 cents per page (down from 50 cents) for copies made with the HOA copier or, if the request exceeds 25 pages, the actual cost of copies plus any reasonable hourly fee NOT TO EXCEED $20 PER HOUR) for a vendor or employee to make the copies. No personnel charges are allowed if the request is under 25 pages. The HOA is also required to provide the member with a copy of the vendor's invoice for outside copying services. The new bill requires the HOA to allow members to scan documents with any portable device they may have or otherwise make electronic copies.

The new bill would require a developer to designate reserve funds by components rather than one general fund if the developer provides for reserves.

The new bill would require associations to register with DBPR. This is the first step to future legislation to regulate HOAs. Currently no one knows for certain how many HOAs are operating in the State of Florida.

The new bill would also require associations to provide copies of an amendment to its members within 30 days of recording an amendment.

One provision I do not like is HOAs would no longer be required to allow members to be nominated from the floor at elections if there is a process for nominations prior to the election. The HOAs will not be required to hold an election if the number of candidates is equal to or less than the vacancies. While this would save the HOAs money because of the expense involved, it takes away some of the power of the members if they cannot nominate at the election and they don't realize until the election not enough people stepped forward to be elected. Expect a lot of improper conduct with this one. If ever the members of associations needed to be motivated to be involved with their HOA, this provision of the bill should do it.

The new bill has provisions for forcing the turnover of control of the association to the members if the developer abandons its responsibility to maintain or complete amenities, files for Chapter 7 bankruptcy, loses or gives up title to common areas through foreclosure or pre-foreclosure, or a receiver is appointed. The bill also provides the members the right to elect at least one board member when 50% of the properties are no longer owned by the developer and also limits the rights of the developer to amend the governing documents.

Finally, the bill would not wipe out any past due assessments on a property if the HOA takes title to the property to foreclose its own lien. Any buyer would be liable for the past due assessments; however, any assessments accruing while the HOA has title are the responsibility of the HOA.

If you support this bill, please send Governor Rick Scott an email asking him to sign the bill into law. His email address is rick.scott@eog.myflorida.com.

Saturday, April 20, 2013

Avoiding Trouble with Your Association

A big source of disputes between owners and their associations concerns claims by the association the owner made changes or improvements to their property or unit without permission of the association. The owners often claim they sent an application to the association and after not receiving a response for more than thirty (30) days, proceeded with the changes or improvements, believing approval was automatic if the association failed to respond.

This is a big mistake! At one time there was a statute providing automatic approval if no response was received and many association documents also contain language for the same, but the dispute arises when the association claims it did not receive the application. The owner must be able to prove the application was submitted. This can be done by submitting all applications by certified mail, return receipt in order to track delivery of the request.

Make sure any approval is in writing. Quite often a board member or property manager will give verbal approval only to deny it later when other board members object.

Also, check your Declarations and Bylaws before assuming no response equates to automatic approval. If there is no language granting automatic approval, then you have to take steps to obtain the written approval. This is especially important now that the Florida Legislature has put back the statute allowing associations to lien and foreclose on fines. If your association imposes a fine against you for unapproved changes or improvements, you could lose your home. Even without the language, your association could sue you to obtain an injunction forcing you to return your property or unit to its original state. Even more important, once you are labeled a troublemaker by your association they will make your life miserable. Unfortunately they have a lot of power to do just that.

In summary, always submit an application by certified mail, return receipt and, if you do not hear from the association within thirty (30) days, contact them to find out when your application will be reviewed. Make sure to get the approval in writing and do not rely on verbal approvals.

Wednesday, April 10, 2013

Do Members Get to Speak At Meetings?

One of the most misunderstood statutes governing community associations (homeowner and condo) is the statute giving owners the right to speak at board meetings or members’ meetings.

Members, under Fla. Stat. 720.303 (homeowner associations) and Fla. Stat. 718.112(2)(c) (condo associations) have a right to speak at meetings on any agenda item. The association has the right; however, to adopt “reasonable” rules regarding frequency, duration and manner. There’s that term again – reasonable. I equate reasonable to requiring costly litigation to define the term.

Industry practice has been to allow owners to speak for up to three minutes at the end of a meeting, which was how the statutes read. This is counter-intuitive because the agenda items have been discussed and voted upon by the board. It negates any impact the speaker has in voicing their opinion. The statutes have been changed to be more flexible, but the associations have not.

Playing devil’s advocate, I can understand the need to conduct business this way. Every association has at least one member who could be a filibuster in the Florida Legislature. They will challenge every topic and monopolize the meeting. This means meetings last hours and other owners quit attending.

I urge the associations to adopt rules regarding the owners’ right to speak at meetings and adopt something reasonable. Here’s an idea – any topic that requires the board to vote should allow the owners to speak for three minutes, speak only once on that topic, and the speaker will be timed.

Associations and Attorneys' Fees

A common question asked of me in my practice of community association law is the right of the association to demand attorneys’ fees from members. The law is the same for homeowner associations (HOAs) and condo associations (COAs).

There are three types of situations in which an association will incur legal fees and attempt to pass them on to the owner of property:

1. Past due assessment collection
2. Covenant enforcement
3. Foreclosure litigation

By state law associations are allowed to reimbursement for attorneys’ fees incurred to collect past due assessments even if no litigation is filed in court. The law, in fact, provides any payments tendered will be applied to attorneys’ fees first, interest and late fees next, and assessments last. This means the owner is always past due in the payment of assessments unless the amount demanded is paid in full. Attorneys are paid for every minute of time they spend assisting a client, including telephone calls, emails and faxes. Every attempt to argue the validity of the amount incurs more fees. It’s a no-win situation for the owners, so the best option is to pay the bill in full and then demand a refund if you think the fees are excessive.

There is no state law allowing associations to demand reimbursement of attorneys’ fees for addressing covenant violations. The governing documents of the association may have a provision for this and in such an instance the association can pass the fees on to the owner. The governing documents of an association are a contract between you and the association. You can contract away your constitutional rights. An association cannot; however, engage in any conduct not authorized by its governing documents. Many associations, in response to the repeal of the statute authorizing lien and foreclosure for unpaid fines, amended the governing documents, often illegally, to state any attorneys’ fees for covenant violations would be an individual assessment against the property subject to lien and foreclosure. While I believe this could be defeated in court, I do not recommend clients risking the loss of their home over this and the cost of litigating the issue far exceeds any amount demanded. The associations tend to get their way with their illegal demands simply because the owners cannot afford to litigate. Sooner or later someone will litigate the issue and the associations will suffer the consequences of bad legal advice.

The final category is foreclosure litigation. The associations are named as defendants in a mortgage foreclosure by the banks. This is done to clear title to the property. The associations need to file an answer and affirmative defenses to preserve their right to collect the debt. Often the property is sold at auction by the courts. Any buyer of a property is liable for the past due assessments of the previous owner. The statute does not authorize the association to pass on legal fees, interest or late charges to the new owner. Industry practice is to pass on all the fees and charges. There is no Florida Statute or Rule of Civil Procedure allowing a defendant to pass on the costs of the litigation to another party without a court order. Yet the association attorneys continue this practice and get away with it. Rather than fight with the association on this, a complaint against the attorney is more appropriate.

"My HOA is Governed by Chapter 617, Not 720" - And Other Lies Your HOA Tells You!

Your homeowners’ association tells you it was created a long time ago under Chapter 617 of the Florida Statutes and Chapter 720 does not apply – that they do not need to follow Chapter 720. What they are telling you is partially true. Actually, it is 100% true if they want to declare they are a voluntary association and you are not a mandatory member required to pay them assessments. Voluntary associations are not governed by Chapter 720. Since I doubt they will do so, let’s look at what is true and what is not true.

Chapter 720 did not exist before the year 2000. Certain language in Chapter 720 did exist prior to that in Chapter 617, as sections 617.301 to 617.306, but those sections were not enacted until the mid-1990s.

Your association is correct it was created under Chapter 617. Your association is correct Chapter 617 applies. All associations are governed by Chapter 617, which covers “not for profit” corporations, unless they were organized as a “for profit” corporation under Chapter 607. Both Chapter 720 and Chapter 617 govern homeowner associations and if the two conflict Chapter 720 prevails. Chapter 617 even states in some sections the section does not apply to community associations (homeowner associations and condo associations).

The association is twisting the ruling in a recent case, Cohn v. The Grand Condominium, which reinforces an earlier case, Pomponio v. Claridge of Pompano Condo., Inc., which held Article I, Section 10 of the Florida Constitution prohibits new laws from being applied retroactively to change existing contracts.

Your Declarations, Articles of Incorporation and Bylaws are contracts between homeowners and the association.

This means you must look to the statutes that were in effect the year your association documents were recorded and those statutes are applicable.

But….there’s always exceptions to the rule, especially in the practice of law.

If a statute is passed as a matter of public policy or was enacted as a remedial measure or a curative measure (to fix a problem), the new law is applicable. That covers most of sections 617.301 to 617.306, which were passed as a matter of public policy and with the intent of regulating ALL homeowner associations in the State of Florida. That’s right out of the committee notes when the bill was voted on by the Senate.

So now that we have established your association has told you a big lie, let’s look at the other lies based on the big lie:

• We are not required to provide notice of meetings or have open meetings to allow all members to attend.

TRUTH: Fla. Stat. §720.303(2), which was passed as a matter of public policy, requires all associations governed by Chapter 720 to post notice in a conspicuous place at least 48 hours in advance of a meeting and all meetings must be open to all members. This includes meetings of committees as well as board meetings. If the meeting will include imposing an assessment or discussing rules affecting parcel use, then the association is required to mail notice to each member’s address fourteen (14) days in advance of the meeting and the notice must include a disclaimer of the nature of the meeting.

• We are not required to have elections.

TRUTH: Fla. Stat. §720.303(2) states the association shall hold an annual meeting in accordance with the Bylaws and the election of directors, if one is required to be held, must be held at or in conjunction with the annual meeting. If you read your Bylaws you will find annual elections are required unless your association allows directors to serve more than one year and there are no terms expiring.

REALITY: Voter turnout for association elections is low. If you and your neighbors do not go to the annual meeting to vote, chances are there is no quorum. There must be a certain number of members present to establish a quorum. If no quorum is established the election is canceled and the previous board of directors gets to reappoint themselves or their replacements. THIS DOES NOT MEAN THE ASSOCIATION CAN ASSUME THERE WILL BE NO QUORUM AND IS NOT REQUIRED TO AT LEAST TRY TO HAVE AN ELECTION. They have to at least try!

• We are not required to give you access to our records.

TRUTH: Fla. Stat. §720.303(5) was another public policy statute and requires the association to provide you access to the official records within ten (10) days of receipt of a certified letter requesting access. If you want copies they can charge you a reasonable fee. Pretty much everything is an official record requiring the association to allow you access to view the records. The exceptions are personal contact information for members, social security numbers and certain personnel information (but not wages – wages are not protected from disclosure!!)

• We can have closed board meetings.

TRUTH: Fla. Stat. §720.303(2)(a) allows the board to have closed board meetings if the association attorney is present and the purpose of the meeting is to discuss pending or potential litigation. Not all board meetings attended by the attorney can be closed and any closed board meeting better have the attorney in attendance.

• We can conduct board business by email or telephone.

TRUTH: Fla. Stat. §720.303(2)(a) states any time a majority of the board members gather and discuss board business it is a board meeting that must be noticed and open to the members. Logic will tell you members cannot attend sessions held by email and telephone. Furthermore, Fla. Stat. §720.303(2)(c)(3) states board members cannot vote by proxy or secret ballot. If it’s not cast in front of the members, then it’s being cast in secret!!! This same section states this applies specifically to committees and other similar bodies, decisions on expenditures of funds, and any body with the power to approve or deny architectural decisions.