Assessments | Rembaum's Association Roundup

June 18, 2021June 18, 2021

New Requirements for Collection of Delinquent Assessments

Robert Kaye, Managing member of Kaye Bender Rembaum, recently wrote an informative and telling article explaining the new collection procedures mandated to be in effect July 1, as a result of the 2021 legislation. Every board member, manager, and developer needs to be aware of these important changes.

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The Florida Legislature has revised the procedures for collecting delinquent assessments, which add additional steps and delays for the owner to pay before legal action can commence and/or attorney’s fees can be recovered. Senate Bill 56 has revised Sections 718.116 and 718.121 for condominiums; 719.108 for cooperatives; and, Section 720.3085 for homeowners’ associations. With these changes, the collection procedures for all of these types of communities will be substantially the same. The new laws are effective July 1, 2021.

Initially, the new provisions have revised the time for the notices sent by the association attorney for condominiums and cooperatives to 45 days for both the pre-lien first letter and the post-lien notice of intent to foreclose. (Homeowners’ associations were already at 45 days).

The most important and significant addition to this statutory change is the addition of a new notice requirement by associations before they may refer a matter to the association attorney for collection and recover the attorney’s fees involved. This written notice is required to be mailed by first class mail to the address of the owner on file with the association. If the address on file is not the unit or parcel address, a copy must be sent there as well. The association is also required to keep in its records a sworn affidavit attesting to the mailing. The new statute contains a form for that notice which is required to be substantially followed.

As the respective statutory provisions now indicate, associations must incur a minimum of 120 days of collection efforts before a foreclosure action can begin, with a total of three (3) separate required statutory notices. This includes the: (i) initial 30 day notice of the intent to refer the matter to the association attorney (for which no attorney’s fees can be charged to the owner); (ii) 45 days for the pre-lien notice period; and, (iii) 45 days for the pre-foreclosure lien period. As such, in order to best protect the interests of the association, it is recommended that the first 30-day notice be sent at the earliest possible date in the association collection process. This will typically be when the governing documents indicate the assessment to be “late”. Careful review of the governing documents by legal counsel should be undertaken to determine whether there is a specific “grace period” indicated in the documents before the assessment is considered late. Once that determination is made, the board should adopt a formal collection policy that incorporates these new statutory requirements, which will also need to be mailed to all owners. A new provision has also been added that begins with “If an association sends out an invoice for assessments. . .” to unit or parcel owners, such notice is to be sent by first class mail or electronic transmission (email) to the respective addresses for the owners that are in the association official records.

Moreover, if the association wishes to change the method of delivery of an invoice, the new Statute creates specific steps that must be followed precisely in order for the change to be effective. Specifically, a written notice must be delivered to the owner not less than 30 days before the change of delivery method will be implemented. The notice must be sent by first class mail to the address on file with the association. If the address on file is not the unit or parcel address, a copy must be sent there as well. In addition to the notice requirement, the owner must “affirmatively acknowledge” his or her understanding of the new delivery method. The written acknowledgment can be sent electronically or by mail, and must be maintained in the Official Records (although it is not available for inspection by other owners). However, without this acknowledgment, the association may not change the method of delivery. The Statute does not presently include a time frame for the owner to provide that acknowledgment or offer any remedy to the association if none is forthcoming. This can be particularly daunting or problematic when the association changes management companies, when the new company’s procedures differ from the prior company.

Before the association attorney can commence any collection work for an association, it will be necessary for the association to provide all of the backup documentation of the compliance with each of these new statutory requirements, as well as the information previously required (such as a current account ledger). If any of the documentation is missing with the initial turnover information, there will be delays in the collection process, which can be detrimental to the association operation. It is therefore imperative that these new procedures are fully integrated into the association operation without delay.

We recommend that you contact your Association counsel with any questions on the new procedural requirements to ensure compliance.

September 30, 2020January 25, 2021

Association Publication of Deadbeat List & Third-Party Purchaser Assessment Liability

Two New Cases Board Members and Managers Need to Know About

CASE No. 1: On June 12, 2020, the Florida’s Fifth District Court of Appeal (“5th DCA”) entered its opinion in Latheresa Williams, On Behalf Of Herself And All Others Similarly Situated v. Salt Springs Resort Association, Inc., and Bosshardt Property Management, LLC., Case No. 5D18-3913 (Fla. 5th DCA 2020), The holding of this case echoes advice I have all too often provided to board members and managers to NOT publish what is commonly referred to as a “deadbeat list.” This type of list is posted in the community and identifies each debtor’s name and sometimes the assessment balance past due, too. No good ever comes from publication of such a list. In fact, the Florida Consumer Collection Practices Act (the “FCCPA”) forbids it if such publication of the deadbeat list is to harass and/or annoy the debtor.

More specifically, section 559.72, Florida Statutes, provides in relevant part that “[i]n collecting consumer debts, no person shall… [p]ublish or post, threaten to publish or post, or cause to be published or posted before the general public individual names or any list of names of debtors, commonly known as a deadbeat list, for the purpose of enforcing or attempting to enforce collection of consumer debts.”

In this case, the plaintiff was seeking class action status for all others similarly treated. This could lead to tremendous liability should discovery later evidence that the association and/or its management company regularly published deadbeat lists. At trial, the court had granted a motion to dismiss filed by the association based on a prior case, Bryan v. Clayton, also a 5th DCA case dating back to 1977 where the Court held that maintenance assessments were not “debts” for purposes of the FCCPA. In order to re-consider the prior Bryan decision, all of the 5th DCA sitting appellate judges participated in the Williams case, a process legally known as an “En Banc” style of review.

The Court in Williams took note that the FCCPA is designed to protect consumers and does not limit unlawful activities only to “debt collectors,” but rather to “all persons” involved in the collection of a debt. By way of contrast, the Federal Fair Debt Collection Practices Act (FFDCPA) applies only to debt collectors, which excludes the association and arguably its management company, and not to “all persons” involved in the collection of a debt, as in the FCCPA.

Under the prior Bryan holding, a past due assessment obligation was not even considered a “debt” for purposes of the FCCPA and the FFDCPA. In the recent Williams case, the Court went to great lengths to explain that, in fact, an association assessment obligation “is a debt which arose out of an obligation by a consumer out of a money, property, insurance or services transaction which is primarily for personal, family, or household purposes” and is therefore subject to FCCPA.

Thus, the Court remanded the case back to the trial court for further proceedings. While, its unknown how the plaintiff’s attempt for a class action certification will resolve, it is extremely likely that one or more defendants will be found to have violated the FCCPA for having published the “deadbeat list.” The takeaway from the Williams case is to never, ever publish a list of association debtors. This does not at all mean that the board cannot be provided a list of those members delinquent in their assessment obligations. However, it does mean such a list should not be made readily available to the membership by posting or mailing, etc.

CASE No. 2: On May 20, 2020, Florida’s Third District Court of Appeal entered its opinion in Old Cutler Lakes by the Bay Community Association, Inc. v. SRP SUB, LLC, Case No. 3D19-528 (Fla. 3d DCA 2020) regarding the liability of a third-party purchaser at a mortgage foreclosure sale for assessments that came due prior to the third-party acquiring title to the property. The Court’s holding in this case is in line with its prior holding in the case of Beacon Hill Homeowners Association, Inc. v. Colfin Ah-Florida 7, LLC, 221 So. 3d 710 (Fla. 3d DCA 2017), which based its decision on the landmark case decided by Florida’s Fourth District Court of Appeal in Pudlit 2 Joint Venture, LLP v. Westwood Gardens Homeowners Association, Inc., 169 So.3d 145 (Fla. 4th DCA 2015).

In the Old Cutler Lakes case, SRP SUB, LLC (“SRP”) was the successful bidder at a foreclosure sale on a first mortgage held by Wells Fargo. After obtaining title by a certificate of title, SRP filed an action for declaratory relief seeking a determination as to its liability for assessments that accrued prior to the issuance of the certificate of title. In relevant part, the Declaration of Covenant and Restrictions of Old Cutler Lakes by the Bay (“Declaration”) provided the following:

The sale or transfer of any Lot pursuant to the foreclosure or any proceeding in lieu thereof of a first mortgage meeting the above qualifications, shall extinguish the lien of such assessments as to payments which became due prior to such sale or transfer.

This language is similar to the language contained in the declarations in the Beacon Hill and Pudlit 2 cases. In these cases, the courts applied a constitutional principal prohibiting the impairment of contracts in deciding that the statutory safe harbor did not control over the provisions of the declarations where the statute did not require such application and the declarations did not contain “Kaufman” language, which has the effect of making amendments to the Florida Statutes automatically applicable to a declaration as they are “amended from time to time.” As the provisions of the declarations expressly created rights for third-party purchasers, the third-party purchasers are “intended third-party beneficiaries” to such provisions which rights cannot be impaired pursuant to the constitutional principal prohibiting the impairment of contracts. In following the holdings of the Beacon Hill and Pudlit 2 cases, SRP was found not liable for any of the past due assessments that accrued prior to the issuance of the certificate of title. Thus, as with many declarations which have not been amended since their creation by the community’s developer, these, as yet to be amended, declarations may provide for a complete wipe out of all assessments that accrued prior to the transfer of title as a result of a mortgage foreclosure action or by deed in lieu of foreclosure.

The takeaway from the cases discussed above emphasizes the importance of reviewing and updating the association’s declaration, with the guidance of your association’s legal counsel, to ensure that it provides for necessary and available protections for the association and its members, including the use of “Kaufman” language, if appropriate to collect as much overdue assessment revenue as possible.

(Reprinted with permission from the August 2020 edition of the Florida Community Association Journal)

February 4, 2013

Assessments and Association Owned Units

Everyone is talking about it, the meaning of the Third District Court of Appeal’s January 23, 2013 opinion in Aventura Management, LLC v. Spiaggia Ocean Condominium Association, Inc. This ground-shattering, ill reasoned case will negatively affect thousands of community associations throughout Florida. For years, we have known that the winning bidder at a lender’s foreclosure sale (other than a first mortgagee lender entitled to the safe harbor protection, meaning the lesser of one-percent of the initial mortgage or 12 months back assessments) remains fully liable to the association for past due assessments. Maybe, not anymore.

This case, one of the worst rulings in years, favors investors and lenders, over the already financially cash strapped associations throughout the state. To make matters worse, it is already being misconstrued by winning bidders of foreclosure sale auctions who wrongly assert that, based on the Aventura case, they have no liability for past due assessments. With that in mind, let us begin our analysis by looking at what the Third District Court of Appeals did NOT say. The Court did not proclaim that every third party bidder who acquires title to an association unit as a result of a lender’s foreclosure auction has no liability at all for past due assessments. Rather, it merely reversed the trial court’s summary judgment order initially issued in favor of the Association.

In the Aventura case, the Association foreclosed its assessment lien before the first mortgagee foreclosed its mortgage, and as a result, the Association owned the unit for a while, subject of course, to the first mortgage. Soon after, the first mortgagee lender foreclosed its interest in the unit which divested the Association of its title to the unit in favor of the third party winning bidder at the court ordered foreclosure auction. Afterwards, the Association, relying on the joint and several liability provisions set out in Section 718.116, Florida Statues, demanded all of the back assessments from Aventura Management, the third party bidder and auction winner. While the trial court had agreed with the Association at summary judgment, the Third DCA reversed the trial court’s order in favor of the third party bidder. This means, the matter at issue is anything but fully decided as either side can file a renewed motion for summary judgment. Moreover, it will be some time before the matter is heard at trial.

Upon closer examination, the Third DCA reversed the trial court’s summary judgment ruling which required Aventura to pay past due assessments that included the period of time the unit was owned by the Association. However, nowhere in the Aventura opinion did the Third DCA order that a third party purchaser has no prior assessment liability, whatsoever. Rather, by reversal of the trial court’s summary judgment, the Third DCA, pointed out that Aventura, as the winning bidder was not liable to the Association for the amounts due as claimed by the Association.

Importantly, the Third DCA also pointed out that the Association’s lien still survives, but failed to explain the practical effect of the lien’s survival. This is a very important distinction that leaves open the possibility that an association who owns a unit as a result of its assessment foreclosure, in addition to being able to sue the prior owner(s) for assessment deficiencies, may still be able to make demand upon the third party winner of the lender’s foreclosure auction so long as past due assessments, late fees, and interest that came due during the period of association ownership of the unit are omitted. Of course, there are a great many other considerations to take into account such as the amount in controversy and the association’s risk tolerance which should be discussed with the association’s legal counsel, in advance.

The Aventura decision is not binding until the 30-day deadline to appeal has past. If neither party appeals then, unless a different district court of appeal issues a contrary opinion to Aventura, or the legislature enacts a new law to stifle its effect, we are stuck with this decision, but, at least in the short term, ONLY as applied to situations that mirror the facts of the Aventura case.

May 26, 2012

Use Right Suspensions and Fining, and Protesting Board Action Through Non-Payment of Assessments

Not too long ago, both condominium and homeowners’ associations were provided legislative gift. Regardless of whether or not your community’s declaration provides for use right and voting right suspensions, and fining provisions, the Florida Legislature provided for them for you. They even provided the procedural mechanism to enact them, too. In so far as a member’s monetary delinquent obligation that is greater than 90 days delinquent is concerned, the board of directors has the power to suspend use rights of common areas and common elements, suspend the delinquent member’s voting rights, and can even levy fines. Comparatively, as it relates to all other types of violations, a committee of members not related to or living with board members must initially decide to enact a suspension or fine and recommend that board adopt the committee’s findings before they can be levied against the offending member. If the board does not agree, the fine or use right suspension cannot be enacted. While in the context of delinquent monetary obligations, the board makes its decisions at a properly noticed board meeting, which requires 48 hours notice to the community of all items on the agenda, the “covenant enforcement committee” is required to provide the offending member at least 14 days notice and an opportunity for hearing prior to their meeting.

At times I am asked, “how can that be? Can the legislature really just overwrite our governing documents like that?” Well, yes it can… (sort of). The answer depends on whether or not the issue under consideration is a “substantive right” as compared to a “procedural” matter. As often discussed in this column, the declaration of covenants is, at its essence, a contract between the members and their association. While the legislature cannot impair existing contractual rights, it can create new procedures which are binding upon their effective date.

To add some clarity, let’s more closely examine a first mortgagee’s assessment liability after foreclosing its mortgage. As you are undoubtedly aware, for the most part, the successful 1st mortgagee, upon taking title to a unit as a result of their own mortgage foreclosure, is responsible to pay the lesser of 1% of the initial mortgage or 12 months back assessments. More specifically, in the HOA context, the 1st mortgagee safe harbor only applies to mortgages entered into after the effective date of the legislation, that being July 1, 2008. Therefore, if a mortgage was entered into prior to July 1, 2008 the provisions in the declaration control. The reason is because the legislature cannot impair existing contractual rights. Because the lender made its loan in detrimental reliance upon the terms of the declaration, the legislature could not interfere with the rights created prior to its legislation. Comparatively, in examining use right and voting suspensions along with fines, the Florida Legislature’s recent adoption of new laws in this regard is of a “procedural” nature. Therefore, all condominium and homeowners’ associations must follow the procedures the Florida Legislature has created to enact use right and voting suspensions and the levy of fines, too.

In 2011, in “Tahiti Beach HOA v. Pfeffer”, the 3rd DCA affirmed the trial court’s partial summary judgment in favor of homeowners who were contesting their association’s foreclosure action filed against them based on what tuned out to be an improperly levied fine for a violation of the governing documents. The association had adopted its fining rules in the early 1990s. In explaining their rationale for supporting the trial court’s decision, the 3rd DCA held that the fining provisions enacted in 1995 by the Florida Legislature were not followed by the association. Procedural changes in the law apply to all associations retroactively because they do not impair existing contractual rights. In other words, the association failed to follow the then existing procedural laws when it enacted the fine which formed the basis of the association’s foreclosure. The moral of the story is don’t get caught in the trap of thinking that just because your community’s declaration provides a different use right and voting suspension and fining regime that you can ignore Florida law. If you do, you’ll suffer the same consequences as the Tahiti Beach HOA.

On a different note, it’s hard to fathom that there are still some association members who believe they can withhold payment of assessments as a form of silent protest taken against board action. Do not under any circumstances do that! Rather, correct way handle the situation is to pay any assessments due. Then, you can separately challenge the board’s action that led to the assessment. In “Coral Way v. 21/22 Condominium Association”, the 3d DCA held that unit owners who argue that their board breached their fiduciary duty could not refuse to pay assessments because of the alleged unauthorized acts. The Court held that a member’s duty to pay assessments is conditioned solely upon unit ownership and whether the assessment complies with the governing documents. The remedy for an upset owner must be brought as an independent claim. Protesting board action through non-payment of assessments has been repeatedly rebuked by the courts.