Month: October 2013

and Other Interesting and Important News

What do short sales, Florida’s Marketable Record Title Act, construction agreement indemnities, the term, “defalcation”, prevailing party attorney fees, and the implied covenant of good faith and fair dealing have in common? Well, not too much, except that they are discussed in today’s Rembaum’s Association Roundup.

Did you know, generally speaking, that forgiveness of a real estate loan is considered a taxable event by the I.R.S.? For example, say a homeowner owes $400,000 to their lender for their home that, due to market conditions, is only worth $300,000. If the lender allows the homeowner to short-sell the property for the lesser amount of $300,000, then the homeowner has received a taxable benefit of $100,000, meaning the homeowner would be expected to pay income tax on the forgiven $100,000 portion of the debt. Until now there has been legislation in place that acts to prevent the I.R.S. from taxing the homeowner for that portion of their loan that was forgiven by the lender. However, the legislation will expire on December 31st. With that in mind, if you are short selling your home, you might consider doing so prior to the new year or hope that Congress extends this benefit.

The Marketable Record Title Act, or MRTA for short, is set out in Chapter 712, Florida Statutes. MRTA operates to extinguish covenants recorded against real property not sooner than 30 years after the covenant was recorded against the property. While MRTA operates against homeowners’ association declarations, it does not operate against condominium association declarations. In Southfields of Palm Beach Polo and Country Club HOA v. McCullough, a 2013 case, the Fourth District Court of Appeals recently held that an HOA has a duty, which can be enforced by mandatory injunction, to take certain steps to prevent the horrible effects of MRTA from operating against a homeowners’ association. So, if your HOA’s declaration was recorded close to 30 years ago, then time is of the essence to ensure the effects of MRTA don’t begin to render your HOA declaration meaningless.

As to construction contracts, remember that if the contractor promises an unlimited indemnity in the event of damages, the contractor’s promise is absolutely meaningless unless the promise to indemnify contains a monetary cap. We are reminded by the First District Court of Appeals, in Griswald Ready Mix Concrete v. Reddick, a 2012 case, that Florida Statutes, section 725.06 requires the contractor’s indemnity to contain a monetary limitation in order to be enforceable.

In the “Jeopardy” category of words you have likely never heard of … for $500.00, Alex, comes the term “defalcation” (pronounced, dee-fal-kay-tion). It is a term used in Title 11 of United States Code, Section 523 and refers to the failure of a fiduciary to produce the funds entrusted to them. The Eleventh Circuit has held in the matter of In Re Bullock, that to be accused of “defalcation” the person holding the funds need not have engaged in fraud, embezzlement or even misappropriation, but does require more than mere negligence… such as being “objectively reckless” to give rise to a claim for defalcation.

As to a community association seeking prevailing party attorney fees for enforcing the terms of its declaration, in Alorda v. Sutton Place, the Second District Court of Appeals held that if the covenants provide for a legal remedy, and instead the association sued the non-conforming owner for injunctive relief for refusing to comply with the covenants, then even though the association prevailed, it is not entitled to prevailing party fees as to the injunctive relief it won.

Finally, in QBE Insurance Corp. v. Chalfonte Condominium Association, Inc., a 2012 case, the Florida Supreme Court reminds us that Florida contract law recognizes “an implied covenant of good faith and fair dealing” in every contract. “This implied covenant is intended to protect ‘the reasonable expectations of the contracting parties in light of their express agreement’.” Further, it must relate to the performance of a specific term of the contract.

If your association seeks to compel compliance with the maintenance provisions of its governing documents,
before filing a lawsuit the association first needs to ensure that there are clear and unambiguous standards and that the offending owner is not only informed of the violation, but also, informed of the specific steps that must be undertaken to bring the property into compliance.

In September 2013, the Fifth District Court of Appeals rendered its decision in Boyle v. Hernando Beach South Property Owners Association, Inc. (the “Association”) in regard to whether a homeowners’ association was entitled to an injunction against Boyle, a homeowner, for failing to properly maintain his lot. More specifically, it was alleged that his landscaping and trees needed to be trimmed and properly maintained and that the mold on the home needed to be cleaned or removed. The association had filed a lawsuit seeking an injunction to force the owner to comply with the covenants. The trial court agreed and issued an injunction.

The resulting specifically required defendant Boyle to “properly maintain[ ] and trim[ ] the landscaping and trees and clean[ ] or remov[e] the mold on the home.” The injunction further provided that “if Boyle fail[ed] to comply, the Association may enter and maintain the property and place a lien on the property that could be foreclosed if the costs incurred by the Association in bringing the property up to standard are not paid.”

The trial court case was resolved as a result of the “summary judgment” proceedings which are employed as a part of litigation, as we are reminded by the Fifth DCA, “to avoid the expense and delay of trials when all facts are admitted or when a party is unable to support by any competent evidence a contention of fact.” To prevail in such a motion, the moving party must prove that there are no genuine issues of material fact and that the moving party is entitled to judgment in their favor as a matter of law.

During the trial court’s motion for summary judgment hearing, the association presented “affidavits of five officers and directors of the Association stating that, based on their personal knowledge, Boyle ‘failed to properly maintain his lot… Specifically, the landscaping and trees need to be trimmed and properly maintained. Additionally, mold on the home needs to be cleaned/removed.’” The trial court agreed and granted the injunction compelling Boyle to properly maintain his landscaping and clean or remove the mold.

Then homeowner Boyle filed an appeal arguing that there were material issues of fact in dispute, and therefore, the trial court’s summary judgment order was inappropriate and “that the supporting affidavits were insufficient.” Boyle also contended that his affirmative defenses were not properly negated by the Association and “the pertinent part of the [covenants were] vague and ambiguous.” [emphasis added]

On appeal, Boyle argued that the summary judgment evidence in the record did not indicate “how he was in violation of the [covenants].” In regard to the landscaping and trees, the Fifth DCA agreed. In so doing, the Fifth DCA held that the affidavits submitted by the Association merely mirrored the allegations of the complaint filed by the Association reasserting that Boyle’s landscaping and trees were not properly trimmed and maintained. But there were no allegations and there was no evidence presented to show how the landscaping and trees had not been properly maintained and trimmed.

The Court held that given the lack of evidence presented by the Association to establish that Boyle’s landscaping and trees were not maintained “in a neat, clean and orderly condition,” it is unclear how Boyle had violated the covenants and what steps he needed to take to ensure that his landscaping and trees are in compliance.

Interestingly, the Court found that the mold on the house was another matter that did not suffer from the same infirmities as the issue regarding the landscaping and trees because the mold on the house was established by the statements made in the affidavits, which, in the eyes of the Court, left no room for speculation or conjecture. The existence of mold on the subject home was a readily observable fact to the five board members who swore to their personal knowledge, which was not refuted by counter-affidavit or other proof.

In the end, the Fifth DCA reversed the part of the trial court order regarding the landscaping and trees and upheld the part of trial court order regarding the mold. The reported decision of this case evidences that Boyle had refuted the landscaping claim against him, and Boyle had not similarly refuted the mold claim. Had Boyle done so, then perhaps the Fifth DCA would have also overturned that part of trial court’s order, too.

In any event, there is nugget to be gleaned from this case. If an association is going to seek a court order to compel compliance with the governing documents, it first had better ensure there clear standards and that the offending homeowner is informed of the steps that must be taken to bring their property into compliance.