My Email Regarding HOA Reform Bill and Affordable Legal Representation

I wrote this to Senator Alan Hayes, House Representative Mike La Rosa, Florida Bar President Ramon Abadin and my friend, Jan Bergemann of Cyber Citizens for Justice (www.ccfj.net):

Gentleman,

I am writing to you today, as an attorney who represents both homeowners’ associations and homeowners who are being victimized by their associations. The HOA Reform bill is critical at this point and comes at a time when the president of the Florida Bar, Mr. Ramón Abadin, has pointed out, in the November issue of the Florida Bar Journal, the need for a new business model because the working class cannot afford an attorney and do not qualify for legal aid.  I see this injustice every day in my practice as I have to tell clients the high legal fees and costs they would incur to hire me to protect them from being another HOA victim.  These cases are not the type that are done on a contingency because rarely has someone been physically injured.  I turned down at least one case a day, sometimes as many as five.  Yesterday it was three.   Most firms won’t represent the homeowners because the associations are a “cash cow.” 

The homeowners’ associations are unregulated and the condominium associations have limited regulation with the Dept. of Business and Professional Regulation (“DBPR”) not having jurisdiction over assessments, which is the biggest source of abuse for homeowners.  Even the appellate courts, in a case called Ocean Two Condo. v Kliger, where the Court stated “Because of the statutory lien rights and the power to prosecute the foreclosure action, an association and its attorneys have ample leverage, and the unit owners have very little. Every telephone call, meeting, or hearing regarding the genesis of the dispute and the amount due produces an incremental unit of attorney billings, and every day until resolution of the dispute increases the interest tariff.” 

In my practice I have witnesses law firms that have paralegals do all the work, yet the homeowners are billed attorneys’ fees, not paralegal fees.  I have witnessed a law firm give sales pitches to associations during hiring interviews and state that “95% of the homeowners can’t afford to sue you and the 5% that can will soon learn that money can be used for a vacation, their children’s college, or retirement and will give up.”  Unfortunately, this is true.  I have seen a law firm give homeowners a letter stating they could not call or come to their office to resolve their assessment delinquency, but could fax their credit card or email and then are given the email address of a former staff member.  Once I got involved the charges ballooned from $795 to over $3,600 with the attorney telling me he had to read all those emails the owner sent trying to get a response.  This is outrageous and had I not gotten involved he would have forced the homeowner to pay those ridiculous legal fees.

The industry not only needs more regulation, but more affordable legal representation. Let’s give DBPR jurisdiction to arbitrate assessment disputes.  This is the biggest source of abuse.  Arbitration is less expensive for the homeowner and the threat of arbitration might help tamper the abuse.

Regulation of the homeowners’ associations is needed to help curtail the abuse of out of control board members.

Right now there is a rise in homeowners’ associations setting up their own corporations to perform work normally performed by vendors.   This results in the board of directors putting their family members on the board of these corporations as paid directors, if not themselves in some cases; the board members receiving free services, the members being denied access to see accounting records of these corporations even though their assessments paid to set up this corporation and bought any equipment, furniture or other assets.  Several times I have witnesses where these corporations are either owned or operated by a board member or have contracts with a board member.  Some associations set up these companies to operate a receivership or rental program to take control of homes in foreclosure, which is needed, but instead funnel the rental income to themselves or the corporation without the association getting a dime.

There is also a rise in the community association management firms setting up their own corporations to perform work normally performed by vendors.  These corporations are then paid top dollar and paid promptly with no one given a chance to dispute an invoice.

There is a rise in the number of cases in which deed restrictions have expired under the Marketable Record Title Act but the HOAs continue to operate as mandatory associations and threaten to foreclose on owners who refuse to pay because they know the chances of the owner affording an attorney are slim.

I have witnessed board members targeting homeowners they do not like.  This targeting sometimes includes criminal activity, which is hard to prove.  Any witnesses refuse to get involved because they know they will be targeted.

The Village Condominium Association in Orlando was taken over by a board member who slowly was able to get rid of anyone who did not agree with him and then proceeded to give himself the management contract, the security contract (with armed security despite not having the proper licenses), and the maintenance contract.  This board member marked all the board members’ assessments as paid each month despite no payment.  He was able to take approximately $40,000 a month from the association (which we documented), depleted the reserves and diverted money from insurance claims to his own pocket. A receiver was eventually appointed to take over and the board removed.

I could write a book on the atrocities committed against homeowners, including cars being set fire, fake bombs on lawns, handicapped owners in wheelchairs being refused to attend meetings and harassed, racial discrimination, sex discrimination, discrimination against veterans.  I have witnessed homeowners being evicted from their homes for past due assessments when their home was in a trust and the association demands the rent be paid to them from the “tenant.”  And let’s not forget the Higgins v. Timber Springs case in which Mr. Higgins was foreclosed upon while on active duty in the military.  Our firm was able to get the foreclosure reversed.  We took the case pro bono, one of the few we could afford to handle as a small firm, because Mr. Higgins could not afford an attorney and was trying to deal with this situation while deployed. 

The sad part is when I have to give these homeowners a quote of the fees to litigate they decide it’s easier to sell their home and move, sometimes to another state.

I apologize this email is so long, because I know your time is valuable, but I appreciate the efforts each of you are making in trying to protect the rights of our citizens.  So many of them lose their homes, not because they can’t afford them, but because they upset their HOA, became a victim, and cannot afford an attorney.  Thank you!

Regards,

Barbara Billiot Stage, Esq.

Correct Mailing Address is Critical to Association Living!

Questions about past due assessments, collection fees and liens almost always include a statement the inquirer did not receive notice.  Not having your correct mailing address on file with the association puts the liability on you. Just like not signing for the certified letter is on you and the association will receive it back marked "UNCLAIMED."

If you are going to dispute any charges, here is my advice:

Pay off the lien first and then bring a separate action for recovery of any fees if the association violated your due process rights. Never risk the loss of your property to prove a point or fight over improper fees.

Hire a HOA/condo lawyer  to audit the fees and bring any possible action.  You need someone who is experienced not only in this area of the law, but the industry practices.

Conflicts - What Motivates Board Decisions

No matter how nice your community is now, it doesn't take much to change your little slice of heaven into a nightmare.  A new board of directors, a new property manager, a new association attorney, or the neighbors from hell can all wreak havoc on a community and create misery for everyone.  The misery comes in the form of higher assessments for legal fees, those intimidating covenant violation notices and possible fines, past due assessments which spiral out of control with legal fees, interest and late charges, or what I refer to as "neighbor wars," often fueled by one or the other claiming the association supports their position.

Avoiding conflict is best achieved by understanding the governing documents, understanding how an association functions and operates, understanding the various people managing and operating the association, and understanding common problems that may arise between owners or owners and the association.

The biggest complaint I hear are owners who feel victimized by their associations, the association's attorneys, or the property manager.  While it does happen and unfortunately frequently, knowing what motivates the actions and conduct of your association helps to keep you out of the crosshairs.  Once you have that target on your back there is little chance of ever living in peace.  Even if you are successful in litigation, chances are, unless you move, you won't enjoy living in the community and there will always be animosity. 

It takes all kinds of personalities to make up a community and you cannot not possibly get along with everyone or make everyone like you.  Add to the mix a board of directors of a private corporation with a contract you entered into waiving many of your property rights and you have a recipe for disaster if you are not prepared and informed.

While a have a theory the worst of board members are those who failed at their careers and decided to run your association so they can have their egos stroked, many board members start out with good intentions. Some have what it takes to do a good job without making enemies, but many are just average people with the same stresses in life as everyone else -- jobs, family, finances, mortgages, health concerns, etc.  Board members take on a voluntary job (at least they better not be paid or they are violating state law) and try to manage the community with limited funds.  The association, nine times out of ten, has a revenue stream that is generated by assessments only.  Many owners lose sight of that fact and assume it's a corporation with profits and a fat bank account.  Nothing is further from the truth.  Most associations are non-profit organizations with a limited budget based on the amount of assessments per household and an average of 25% to 40% of those households are not paying the assessments and are in a mortgage foreclosure.  Think of it like this -- what would you do if your paycheck was cut 40%?  Ouch!  On top of that you have everyone in the community complaining assessments are too high and at the same time complaining the pool needs repairs, the clubhouse needs a new roof, the entrance sign needs a face lift -- the list goes on and on. It's no wonder these volunteers reach their burn out level quickly.

Now consider the fact associations are either not regulated at all or have little regulation.  Currently the State of Florida does not regulate homeowners associations except for elections. Hopefully that changes in 2014. The State does regulate residential condominiums, but not commercial condominiums and hotel condominiums.  The regulation that does exist is limited and cannot include claims for personal damages or an assessment dispute.  Add to this lack of regulation a property manager who is required to take 18 hours of class work to get a license, if they have a license.  State law requires the property manager, or community association manager (CAM) and the manager's firm to each be licensed, but there are a number of unlicensed managers in the industry.  I am not trying to bash the CAMs -- there are a number of excellent CAMs out there who are hard working and have high ethical standards, but just like lawyers their profession gets a bum rap for the bad apples in the bunch.

Next added to the mix of things is the association attorney.  Associations want aggressive attorneys because the board members are afraid of being personal sued despite being protected by the Business Judgment Rule.  The Business Judgment Rule protects morons, idiots and those who just make plain honest mistakes. It also protects the association to an extent.  There are some overly aggressive association attorneys who count on owners not having the $100,000 or so it takes to fund a lawsuit.  Without state regulation of the association and a high price tag on justice, its the perfect storm.  Every day I get calls from people who ask me to take their case on a contingency because its a good case, it will generate publicity for me or its extremely unjust.  Its not easy for me to tell them a) I don't have the resources to fund their case and b) unless you have a physical injury that generates big money damages no law firm will take it on a contingency because it just not a good business decision to tie you your working capital with no return on investment, if any.

So how do you avoid the perfect storm?  Let's break it down into two categories:  1) past due assessments and 2) violations.

Most owners do not realize there is almost no defense to not paying your assessments.  Its your absolute duty to pay your assessments, even if you think the association failed to properly notice a meeting to vote on an increase or is misappropriating (stealing) funds.  The only defenses available are if you paid the assessments and can prove it, the association refused your payments, the association did not provide notice before filing a lien or foreclosing, the board met in secret to impose the  increase or the board did not notify the community of the increase.  Even with those defenses it is hard to win against the association.

If you get past due in assessments you will always be past due until you pay the total amount due!

I leave that as a stand alone statement so everyone can understand the importance of this.  By state law any payments are credited to all charges other than assessments first.  Assessments are credited last, so anything less than 100% of the amount demanded means you are past due and the association can lien and foreclose on your home.  There is no minimum amount.  Even though you may owe them $100 and your neighbor owes them $10,000, they can foreclose on you first.  Its all about which owner the association is most likely to recover from with the least amount of legal fees expended.  Or it could be they don't like you, but the court recognizes the association does not have the funds to go after everyone at once and will let them pick and choose who to go after without any consequences for their selections.  Before you jump to any conclusions, look at it unemotionally.  Is it smarter to go after the owner who owes $100, is current in the mortgage, has a job and generally pays any debts or go after the owner who owes $10,000, is in a mortgage foreclosure, has no job and is likely to file bankruptcy?  Even if the association forecloses, if there is a mortgage on the property it is only a matter of time before the bank forecloses on whoever buys the property at the foreclosure auction, which is often the association.  If there is already an active mortgage foreclosure the bank can file a motion and get the property from the association in six to eight weeks where it takes years to get it from the homeowner.

What's the deal with all that interest, late fees, administrative charges and attorneys' fees?  Well, as I said before, the only source of revenue an association has is assessments and there has to be consequences to not paying assessments or everyone would withhold them.  The association cannot waive the attorneys' fees or they are passing on costs you generated to your neighbors and your neighbors could bring a lawsuit against the association.  Assessments can definitely not be waived or the association could be sued for not enforcing the declarations.  Do associations abuse this and over charge these fees?  Yes, but I don't blame the associations themselves as much as I blame the property managers and the lawyers.  Like I said -- its the perfect storm -- an unregulated business where those who do business with the association are guaranteed to get paid.  All the association has to do to pay its bills is increase assessments.  Greed is a problem.  Owners and board members alike have to watch out for property managers working with attorneys to generate billable hours for both.

A word of caution -- don't try to plead financial hardship, death, disability, job loss or any other personal issues.  The courts cannot consider this when they rule on these cases. These claims are not a defense to not paying assessments.  If you want to keep the roof over your head pay the mortgage and the association.  I would rather skip a mortgage payment then the association payment. At least you can negotiate with the bank -- eventually.

Next on the list is covenant violations.  The best way to avoid them is to know the rules! Period!

You need approval of your association to change anything.  If you make that assumption you should stay out of trouble.  Its better to ask for permission and not need it then to not ask and try to get a lawyer's forgiveness.  You can count on the lawyer being involved.

Some of the newer rules, or rather laws of the state:

1. An association cannot prohibit or prevent an owner from installing Florida Friendly Landscaping.  Its a matter of public policy and important to conserving our natural resources.  You are still required to get your association's approval.  No one has figured out how to deal with the issue of what to do when the association denies your application and the law says you can do it anyway.  There are cases pending in court over this.  Some associations have been wise enough to realize their lawyers were probably looking at generating billable hours and its a losing proposition for them -- they dismissed their cases.  Other aren't so smart.

2. You have a right to a hearing with 14 days advance notice of the hearing before you can be fined.  While this part of the statute was passed as a matter of public policy the statute is written as if to imply associations have a right by statute to fine owners.  The previous rule, before this statute was passed, was an association could only fine you if the Declarations, Bylaws and Articles of Incorporation authorized fines.  My position is this is still true and there is no pubic policy reason for imposing fines by statute, but its a lot cheaper to pay the fine than to fight in court and possibly an appeal.  Many associations also believe if you don't show up to for the hearing the fining committee can impose the fine without having the hearing.  Wrong!!!  But again, is it feasible to spend lots of money to fight a fine?

3.  A buyer is liable for the past due assessments of any previous owner.  The statute only addresses assessments and not late fees, interest and attorneys' fees.  While it is industry practice to charge all these to any buyer, there are cases pending challenging this.  Stay tuned.  One pet peeve I do have is charging a new owner the attorneys fees for the association attorney's involvement in a mortgage foreclosure.  Associations are named as a defendant in a mortgage foreclosure because they have a competing lien and the bank cannot claim the 12-month cap on liability if the association is not named.  There is no rule of civil procedure that allows one defendant to assess their legal fees against another.  I would think the Florida Bar would have issues with this as well.  It has also been the industry practice to not write off any past due assessments and other charges after the bank pays their 12-month cap and hold this for the next buyer.  The Third District Court of Appeals ruled against that on August 14, 2013.  It sends a clear message.

4. No stealing by board members!  Finally!!!  If a board member is arrested for a crime involving the association the board member is automatically removed from office as a matter of law.  Did I hear a big "WOOHOO" out of Davenport, Florida?  I am eternally grateful to the Polk County State Attorneys' Office for a job well done.

5. Old law, but important:  before you can sue your association you must engage in pre-suit mediation for homeowner associations and arbitration for condominium associations.  There are exceptions as noted above for assessment disputes and, for arbitration, personal damages.

6. Another old law that's important:  if your board of directors is doing a lousy job you can initiate a recall and remove them.  This is much easier and less expensive than a lawsuit.

Remember pay your assessments and ask permission.  Do those two things and you can avoid a lot of heartache and legal fees.  While it goes against my anti-establishment nature, most association battles are not worth it emotionally and financially.

While I didn't touch on neighbor-on-neighbor disputes, which are virtually impossible to resolve, my only advice is to put yourself in their shoes and ask yourself would you be annoyed living next door to you?

Good luck and next time buy farmland.

Community Association Living [Part 4:Staying Out of Trouble]

My practice consists mostly of representing homeowners against their HOA (single-family homes) or COA (condos) and about half of my clients retain my services because they are being sued or about to be sued by their association. The problem is most homeowners do not understand their associations are in a superior position. Most people do not respond well to the covenant violation notices or intent to lien notices. The first reaction is usually "this can't be legal, this has to be wrong." Unfortunately, common sense doesn't dictate right or wrong in these cases and the law is very much on the side of the associations.

The first step to staying out of trouble with your association is to attend board meetings. Keep an eye on what's going on and what your board of directors are doing. If no one is holding them accountable they will think they can do and get away with anything. Even the most well-intentioned board members can lose sight of reality and what is legal if they are contributing a lot of their time to manage the association and no one cares to question their actions.

So what do you do if you are already in trouble? Do not ignore those notices!!! The problem will not go away. Even if you think the notice is wrong, rarely do the associations say they are wrong, they made a mistake and please forgive them. In fact, some will even tell you not to worry, its a mistake and then file a lawsuit to take your home.

If you have a notice for past due assessments, pay it in full. If you don't have the money, get a loan. If you can't get a loan, consider Chapter 13 bankruptcy. Chapter 7 will not save the home, but if you have income, Chapter 13 will save your home. If the notice came from an attorney, don't try to pay the association directly thinking you can avoid the attorneys' fees. You can't. By law any payments are applied to attorneys' fees first, then late fees and interest plus any other collection costs, and the assessments last!! While the association may accept your payment, the payment will be forwarded to the attorney and you will still be past due in paying your assessments. Even if you are past due $5, legally, the association can foreclose on your home. Trying to call the attorney and set up a payment plan will only incur more attorneys' fees. You can send the attorney a written offer of a payment plan, which is what the attorney will request anyway, but most law firms charge $250 or more to set up the payment plan and around $50 to process each payment. That's a lot of money to add to an already past due bill. Most associations have required the bill to be paid in two to six months, but with the state of the economy, many are considering one year payment plans and some will offer two years. Just keep in mind the extra fees the law firm charges for handling a payment plan. Also remember your association can foreclose even if your mortgage company is already foreclosing.

If you have received a notice of a covenant violation, do not ignore that either. Many times owners receive a notice for something that may have existed, but was recently corrected. Still do not ignore the notice!! Let the association know the condition was recently cured!! If your association is threatening a fine please note you are entitled to a hearing before a three member independent committee (no relation to board members or property managers) and the association has to give you fourteen (14) days notice of the hearing. You will have a chance to present your case and the committee has to vote whether or not to fine you. If they choose not to impose a fine, the board of directors cannot override the decision. If you have not fixed the violation they are accusing you of, then contact the association and let them know how soon you can fix it. Don't make the mistake of thinking they cannot force you to fix it. Most of the time they can.

Finally, always get approval from the association before making changes to your property. This is required in every association and the association has the right to make you restore your property to the original condition.

You have to keep in mind you gave up valuable property rights purchasing property subject to an association. You entered into a contract, even though you may not have known it at the time, and you are bound by the terms of that contract (the Declarations, Bylaws and Articles of Incorporation.)

While you can litigate against your association, it is very expensive and the loser has to reimburse the winner their attorneys' fees. These cases are not the type a lawyer will handle on a contingency because there are no physical injuries that would warrant big judgments. If you find an attorney who says they will take the case on a contingency, there is a high chance they have never handled an association case before. There are many procedural requirements to litigating against associations and a mistake could be very costly.

There are very few defenses to a lawsuit by your association. There is no excuse for not paying assessments, even if the board members are stealing money. The only possible defense is if the assessment imposed is invalid, which is rare. There are few defenses to not obtaining the association's permission before making improvements to your property.

Know the rules, play by the rules and make sure your association plays by the rules. If they don't your best and most inexpensive option is to organize a recall of the board.

Last but not least, pay attention to any bills that are being voted on by the Florida Legislature. Every year several bills are introduced and make their way through both houses. Contact your elected officials and let them know why they should or should not vote for a bill. A good example is the hard work my group of colleagues did years ago to remove the right of associations to lien and foreclose on homes for unpaid fines. The law was re-enacted, with a requirement the fine has to exceed a $1000, a couple of years later because the associations put pressure on the politicians. The change didn't help homeowners because now the associations just make sure your fine exceeds $1,000.

Does this sound all doom and gloom? If it got your attention and made you realize your association has way more power than our Constitution intended, then my job is done. Protect yourself by getting involved. Know what your board of directors is doing and know what your legislators are doing. The only way to stop the abuse is to hold everyone accountable.

HOA & Condo Liens - Saving Your Home

Frequently I am asked to help homeowners settle their past due assessments with their condo or homeowners association. This is a very serious situation because the association can and will foreclose much faster than any mortgage company or bank.

Frequently homeowners make the mistake of assuming that 1) if the mortgage company or bank is foreclosing, the association cannot; 2) if the homeowner pays the past due assessments, but not the interest, late fees or attorneys' fees, the association cannot foreclose; 3) sending a check to the property manager will stop the foreclosure; 4) the homeowner can withhold assessments if the association is not doing their job and 5) the association can waive some of the past due assessments and charges.

These are all incorrect and a big mistake. Trying to get around these issues will only increase the attorneys' fees and other charges the association is entitled by law to correct.

It is very important to note that BY LAW, any payments are applied to attorneys' fees and costs FIRST, interest and late fees NEXT and assessments LAST. Unless you pay the full amount being demanded, you will always be past due in assessments and the association can foreclose.

Your options, if you cannot pay the full amount demanded, are:

1) Negotiate a payment plan;

2) File Chapter 13 bankruptcy.

The first option may not be the ideal solution because many association law firms charge $250 to set up the payment plan and $50 per month to process payments, which adds considerably to the amount due and owing.

Chapter 7 bankruptcy is not an option for saving the home. The discharge of association assessments in a Chapter 7 applies only to assessments that came due prior to filing bankruptcy and only extinguish the debt to the person, not the property. This means the association can still foreclose against the property. Also, the homeowner is still liable for assessments that come due after filing bankruptcy.

If a homeowner wants to avoid the foreclosure of the pre-petition assessment lien, the homeowner will have to pay off the pre-petition debt (either in full or through a settlement with the association) even though that debt has been discharged, or file a Chapter 13 bankruptcy which will allow the homeowner to spread the debt over a five-year payment plan. The association may or may not be entitled to 100% of the charges and if the association fails to file a claim, they will not receive any pre-petition assessments and charges.

The Lien and Foreclosure Process in Florida

The association is required to give notice to the homeowner prior to filing the lien by sending two copies of the notice, one by regular mail and one by certified mail, that includes the amount due and the deadline for payment. For HOAs this is 45 days and for condos this is 30 days. If you missed payments, the lien will include the assessments, interest, attorneys fees, and if the governing documents allow, late fees. Once you are turned over to an attorney for collections any payments are applied to all the fees first and assessments last. 

After the lien is recorded the association must then go through the same process to foreclose before filing to foreclose on your home. Once you receive a summons, you have 20 days to file an answer and affirmative defenses or a motion to dismiss. The association will file a motion for summary judgment, which means there are no disputed facts and the association should get your home without a trial. 

DO NOT ATTEMPT TO HANDLE THIS WITHOUT AN ATTORNEY. Your best option is to negotiate a payment plan or file Chapter 13 bankruptcy to put this in a 5-year payment plan. Chapter 7 will not save the home. 

If you missed any payments, fighting over the amount with the association is useless in almost all instances because it will generate attorneys fees that you are liable for and must be paid to keep your home. The courts will award the attorneys 100% of their attorneys fees if you are at fault, even if it's a small amount and their numbers are wrong. 

The courts are facing having their funding cut thanks to the foreclosure cases clogging up the dockets. In many cases good case law is being ignored to move the cases out of the courts and owners are being denied justice and due process because of budget concerns. This has changed the owners slim chance to virtually no chance, but that's my personal opinion.