2012 Legislative Session
November 11, 2012 - The Florida Supreme Court has delegated to The Florida Bar, as an official arm of the court, the duty to investigate and prosecute allegations of unauthorized practice of law (UPL). One statewide Standing Committee on Unlicensed Practice of Law supervises circuit committees (which investigate reports of unlicensed practice and report their findings to the statewide standing committee). It also issues formal advisory opinions on whether specific conduct constitutes the unlicensed practice of law which are then filed with the Supreme Court of Florida.
|FLORIDA SUPREME COURT|
On March 28, 2012, Chairman George Meyer of the Real Property, Probate and Trust Law Section of The Florida Bar (RPPTL Section) sent a request to the Standing Committee on the Unauthorized Practice of Law of The Florida Bar to determine whether certain activities constitute the unauthorized practice of law when performed by Community Association Managers. Mayer was seeking an update. In 1996, the Florida Supreme Court affirmed an earlier advisory opinion issued by the Committee in “The Florida Bar re: Advisory Opinion-Activities of Community Association Managers, 681 So.2d 1189 (Fla. 1996).”
Since then, Florida Courts have deemed that the following actions - if undertaken by a licensed CAM Manager - constitute the unauthorized practice of law: I) drafting a claim of lien; drafting a satisfaction of lien; II) preparing a notice of commencement; drafting a frequently asked question and answer sheet; preparing amendments to the declaration, articles of incorporation, or the bylaws; III) determining the timing, method and form of giving notices of meetings; IV) determining the votes necessary for certain actions by community associations; V) addressing questions asking for the application of a statute or rule; and VI) advising community associations whether a course of action is authorized by statute or rule. The Court further identified a “grey area” which involved activities that may or may not constitute the practice of law depending upon the relevant facts.
“What's the big deal?” To begin with, UPL is a criminal offense in the State of Florida – a misdemeanor of the first degree, which is punishable by up to one year in jail and a fine of up to one thousand dollars for each violation. Additionally, insurance or contractual indemnification provisions that might ordinarily shield management personnel are often inapplicable to criminal activity. A CAM Manager could also forfeit the license that puts food on the table.
Responding to Mayer’s request, the Committee examined 14 specific activities for prospective infractions. Following a June 22, 2012 public hearing in Orlando, a phalanx of Community Association advocates, board members and unit owners expressed conflicting opinions about: the actual findings, the impact on association budgets, and the underlying rationale for this review, given the negligible abuse reported by the DBPR. Thinly veiled intimations of turf protection linked all the recorded feedback, as each contributor diplomatically danced around a brazen conflict of interest beclouding the Committee’s motives.
Community Advocacy Network (CAN) Executive Director Donna Berger exclaimed that the issues being considered demonstrate a “real disconnect between what constitutes ‘practicing law’ and what constitutes ‘following the law’.” Opposed to creating “an arbitrary or petty list of activities or decisions” that must have a legal opinion; Berger said that some of the attorneys promoting these changes were guilty of “overkill or territorialism.” Miffed by the Committee’s arbitrary decision to hold a single public hearing to elicit input from 60,000 Community Associations that employ 15,600 CAM Managers in all parts of the state, Community Associations Institute (CAI) CEO Thomas Skiba cynically inquired “What is the basis for these concerns and could it be perceived as simply related to billable hours and fees?”
Marginalizing complaints about nest feathering, the Committee’s “peers” in the Florida Bar’s Real Property, Probate and Trust Law (RPPTL) Section observed “No evidence has been presented to support a conclusion that the cost will be so large as to penalize a community, especially considering the cost of correcting problems resulting from the unauthorized practice of law.” Resorting to an upscale version of the nursery school enigma “I know you are but what am I,” newly seated RPPTL Chair William Fletcher Belcher reduced the issue to a sophomoric whizzing contest between managers and lawyers, announcing “In response to the argument raised by some that the Section’s request is designed to increase our attorney revenues, one might just as easily say that Licensed Community Association Managers’ comments are motivated by their own financial interests.”
|CAI CEO THOMAS SKIBA|
Unconcerned about civility or collegiality, comments by angry Board members, officers and unit owners were exemplified by East Lake Woodlands resident Alan F. Gomber – an insulin dependent diabetic whose condo lost 50% of its value in 4 years – who noted “I’m already at the point where I have to make a daily decision on whether to eat or take my medications. And now your money-grubbing ‘fraternity’ wants to hammer us with a policy that will result in further severe economic hardship. What a joke--hope y’all can sleep well knowing how much pain and suffering all that extra money in your bank account is going to bring upon us peons. As William Shakespeare wrote, ‘Kill all the lawyers--kill ‘em tonight!’ AMEN.”
On September 21, 2012, after voting to submit the final advisory opinion to the Florida Supreme Court, the Committee waffled, adding that it might later vote to not to submit their handiwork. During the meeting, the Committee determined whether a manager performing each of the following 14 activities is or is not engaged in the unlicensed practice of law (UPL). They range from the obvious to the ridiculous.
Preparation of a certificate of assessments due once the delinquent account has been turned over to the association’s attorney (committee determined this IS NOT UPL).
Preparation of a certificate of assessments due once a foreclosure against the unit has commenced (committee determined this IS NOT UPL).
Preparation of a certificate of assessment due once a member disputes in writing to the association the amount alleged as owed (committee determined this IS NOT UPL).
Drafting amendment (and certificates of amendment that are recorded in the official records) to a declaration of covenants, bylaws, or articles of incorporation when such documents are to be voted on by the members (committee determined this IS UPL).
Determination of the number of days to be provided for a statutory notice (committee determined this IS UPL).
Modification of limited proxy forms promulgated by the State (requires further clarification – depends on the definition of “modifications” and whether they are ministerial – typos, etc. – or require legal opinions.
Preparation of documents concerning the right of the association to approve new prospective owners (requires further clarification – Specifically, whether the drafting of forms to be completed by prospective owners constitute UPL.)
Determination of affirmative votes needed to pass a proposition or amendment to recorded documents (committee determined this IS UPL).
Determination of owners’ votes needed to establish a quorum (committee determined this IS UPL).
Drafting of pre-arbitration demand letters required by 718.1255, Fla. Statutes. (although not considered in 1996, the Committee will refer to the 1996 opinion for guidance)
Preparation of construction lien documents – such as a notice of commencement, lien waivers, etc. (committee determined this IS UPL).
Preparation, review, drafting, and/or substantial involvement in the preparation or execution of contracts, including construction contracts, management contracts, cable television contracts, etc. (committee determined this IS UPL).
Identifying, through review of title instruments, the owners to receive pre-lien letters (also not considered in 1996, whether or not a manager could/should review title instruments will presumably be addressed at a future Committee meeting)
Any activity that requires statutory or case law analysis to reach a legal conclusion (committee determined this IS UPL).
Although not yet scheduled, the next meeting of the Standing Committee on the Unauthorized Practice of Law of The Florida Bar is expected to take place sometime in mid-February 2013. Although the process is technically closed to further input, since many attorneys have divergent opinions about the necessity or advisability of pursuing this effort, if and in what form the opinion is ultimately submitted to the Florida Supreme Court is a crap shoot.
While the opinion targets Community Association Managers, board members who perform tasks and actions considered by the Florida Supreme Court as the unauthorized practice of law aren’t exempt from legal consequences. The significant training and experience that CAM Managers bring to the table prompted Dr. Anthony B. Spivey, Executive Director for the Regulatory Council of Community Association Managers at the DBPR, to oppose some committee decisions and support a manager’s performance of items 1, 2, 3, 5, 7, 8 and 9 without reservation. Requiring a lawyer to determine the number of votes needed for a quorum or the number of days required for notice, as described in the governing documents, is a blatantly self-benefitting fiscal abuse.
|DR. ANTHONY B. SPIVEY - DBPR|
CAM REGULATORY COUNCIL
Conversely, since most Board members are marginally qualified, the Committee’s findings become far more credible when applied to volunteer directors who tender legal opinions for their associations. Although they don’t risk a professional license, Board members whose frivolous legal decisions drive up association costs could reasonably be perceived as violating their fiduciary responsibility. As with a manager’s contractual protections, the directors’ and officers’ insurance that fortifies the indemnification provisions in the association’s governing documents may not protect directors found culpable of criminal activity. A word to the wise...
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A Constitutional Junkyard
11 Amendments on the 2012 Florida Ballot
October 23, 2012 - Of the five methodologies available to amend the Florida Constitution, citizen initiative petitions and legislative Joint Resolutions (SJR, HJR) are the most common. When stonewalled by lawmakers, citizens can place an amendment on the ballot by collecting petition signatures equal in number to 8% of the votes cast in the last Presidential election and sourced from at least one-half of the State’s Congressional Districts. In the November 2010 election, 63% of the voters successfully used this format to fit the Florida Constitution with new redistricting standards that replaced nearly two centuries of cultural reassignment, racial gerrymandering and partisan vote dilution with district lines based on factors unrelated to party and incumbency.
Other vehicles for placing amendments on the ballot are a Constitutional Convention, a Constitutional Revision Commission and the Taxation and Budget Reform Committee. If approved by a simple majority in an election, voters can call a Constitutional Convention to consider and propose amendments. The Constitutional Revision Commission is comprised of the State Attorney General, 15 members selected by the Governor of Florida, 9 each by the Statehouse Speaker and Senate President and 3 by the Chief Justice of the Florida Supreme Court. The 37-member panel meets every 20 years (last in 1997) to consider and propose amendments.
Created in 2007 to adapt tax strategies to the deepening recession and also convened every 20 years, Taxation and Budget Commission meetings are staggered with those of the Constitutional Revision Commission, providing a reliable opportunity to amend the Florida Constitution every 10 years. Of the 25-member Commission, which includes no sitting lawmakers, 11 are selected by the Governor, 7 each by the Statehouse Speaker and Senate President, who also each select 2 legislators (one from each side of the aisle) to serve as “ex officio” members.
Since many Florida Legislators view constitutional dictums as personal playthings, the reforms in Amendments 5 and 6 drove many incredulous elected officials into a blended state of apoplexy and depression. No longer able to preselect who could vote in the districts where they planned to run, politicians were suddenly forced to leave election outcomes to voters, often for the first time in their public service careers. While outraged lawmakers complained bitterly about a process that allowed ordinary people to mess with their career paths by leveling long-twisted playing fields, legislative leaders explored plans to give the arrogant public a taste of its own medicine.
This year, Republican legislators cobbled together several failed bills that repeatedly collapsed under Committee Review or public scrutiny. Using partisan pressure to eke out a two-thirds majority in both houses, they prepared 11 Joint Resolutions for ballot eligibility. Since the legislative ballot process involves negligible public participation, politicians could promote or support openly anathematic issues with little fear of political reprisal or constituent backlash. Few voters would check to see which officials created the amendments, much less who voted for them.
To shield highly controversial amendments from suffering the same fatal public scrutiny that buried the snake-bit bills from which they were sourced, they were added to a fistful of sympathetic yet poorly timed tax exemptions and a few amendments so fatuous that Constitutional watchdogs on both sides of the aisle concede them as “filler”. Pumping out almost a dozen garrulous amendments would insure that impatient voters would tick off “yes” or “no” based on little more than a deliberately misleading ballot title.
Since you will doubtless be preoccupied with selecting a President, a U.S. Senator, a Congressperson, a Florida Senator, a Statehouse Representative and some Judges when finally faced with a ballot, by reading the following summary, you’ll be able to whiz through the 11 prospective changes to Florida’s Constitution – without inadvertently emptying your wallet.
Amendment 1: Health Care Services
- Amendment 1 seeks to prohibit the government from requiring individuals or employers to purchase health insurance. (SJR 2 – sponsored in 2011 by Sen. Mike Haridopolos, R-Merritt Island, and Rep. Scott Plakon, R-Longwood)
- Since the U.S. Supreme Court on June 28, 2012, upheld the constitutionality of the “individual mandate” (i.e. ObamaCare), passage or defeat of this amendment will have no impact on the Florida Constitution. When federal and state laws conflict, the Supremacy Clause of the U.S. Constitution affirms the federal government as “supreme law of the land,” relegating Amendment 1 to a partisan dog and pony show.
- By the way, Florida has the second highest rate (24%) of uninsured citizens in the United States. That’s citizens – not undocumented workers (“illegals”). When taken ill, the emergency rooms they turn to for treatment cost an average $1318 per visit. If insured, the same treatment in a doctor’s office costs an average $188 per visit. Either way, we pick up the tab.
Amendment 2: Veterans Disabled Due to Combat Injury; Homestead Property Tax Discount
- Amendment 2 would provide disabled veterans who were not Florida residents prior to entering military service with a discount on their property taxes. A 2006 amendment that provides the exemption to veterans who lived in Florida prior to joining the military would be expanded to those who moved here later in life. If passed, this amendment would cost local governments $15 million over the first three years of implementation. (SJR 592 – sponsored by Sen. Mike Bennett, R-Bradenton, and Rep. Doug Holder, R-Sarasota)
- This is the first of five amendments constructed around the same formula – disparate groups of sympathetic homeowners are fitted with an assortment of property tax exemptions. Since local governments burned through their reserves in the past few years and have already cut services to the bone, there is no more “low hanging fruit” available to offset deficits. For those amendments that tug on your heart strings, you must decide whether you want to pay for them before casting your vote. Although everyone appreciates our veterans, while we are forced to close parks and libraries may not be the best time to invite them here from all over the country and subsidize their living expenses. YOU will pay the tax burden created by the shortfall.
Amendment 3: State Government Revenue Limitation
- Amendment 3 would base an annual state revenue limit on a formula that considers population growth and inflation instead of the current method that uses personal income to calculate the revenue limit. While this alternative cap would supposedly lower revenues, it comes with a built-in set of legislative loopholes that exempt certain revenue streams or completely circumvent the cap – defeating the amendment’s objective. Rejected in many states across the country, the only state where this schizophrenic formula was implemented is Colorado, where lawmakers were later forced to dump the restrictions when they threatened essential public services such as health care, transportation and education. Economists agree that the formula is inherently unworkable because it precludes the State from funding new growth. However, it’s perfect if the objective is simply to crowd the ballot with junk amendments. (SJR 958 – sponsored in 2011 by Sen. Ellyn Bogdanoff, R-Fort Lauderdale, and Rep. Steve Precourt, R-Orlando)
Amendment 4: Property Tax Limitations; Property Value Decline; Reduction for Non-homestead Assessment Increases; Delay of Scheduled Repeal
- Amendment 4 would reduce the maximum annual increase in taxable value of non-homestead properties from 10 percent to 5 percent; provide an extra homestead exemption for first-time home buyers; allow lawmakers to prohibit assessment increases for properties with decreasing market values. (HJR 381 – sponsored in 2011 by Sen. Mike Fasano, R-New Port Richey, and Rep. Chris Dorworth, R-Lake Mary)
- No amendment more dramatically demonstrates the zero-sum nature of tax policy. Revenues lost to local governments by lowering the cap for non-resident property owners (snowbirds), landlords and businesses from 10% to 5% will trigger a sizable tax increase or serious service cuts.
Of far greater consequence is a startlingly generous additional exemption (up to $150,000 added to the existing $50,000 homestead exemption) for anyone who hadn’t applied for a homestead exemption in the prior 3 years. The exemption would equal 50% of the median just value of a property and diminish by 20% each year over a five year period. However, instead of attracting more first time home buyers, Bob Wolfe of the Broward County Property Appraiser’s Office (BCPA) warned that unscrupulous speculators could easily milk the poorly drafted freebie by making acquisitions in the names of unpropertied family members. Intimately familiar with the kind of regulatory language that invites tax fraud, Wolfe laments the decision by lawmakers to muddy the Constitution with obtuse piecemeal tax policies instead of making balanced statutory changes to the tax code.
|BOB WOLFE OF BCPA|
- Generally misconstrued as an eerie glitch in the tax code, despite plunging valuations, thousands of properties (71,000 in Broward this year) were tagged with miniscule tax increases resulting from the statutory “Save our Homes” (SOH) Recapture Rule, which this amendment would eliminate. As expressed by Wolfe, this reasonable change was added to sweeten the wallet-crushing parts of this amendment.
- Buried in this Rube Goldberg exemption grab bag is an embarrassingly fat tax increase. While zapping the Recapture Rule may only cost a few $million in revenues, the amendment’s other major giveaways will add over $1.7 billion to local government deficits within four years, forcing up local millage (tax) rates or cuts to critical services.
Amendment 5: State Courts
- Amendment 5 would provide the Senate with approval power over Supreme Court justices appointed by the Governor; gives lawmakers power to change rules governing the court system by a simple majority in both houses instead of the current 2/3 majority; enables lawmakers to repeal Judicial Nominating Commission and Judicial Qualifications Commission rules by a majority of those legislators “present” instead of an actual legislative majority; direct the Judicial Qualifications Commission, which investigates judicial misconduct complaints, to make its files available to the Speaker of the Florida House of Representatives whether or not the request is specifically related to impeachment consideration. (HJR 7111 – sponsored in 2011 by House and Senate Judiciary Committees, and Rep. Eric Eisnaugle, R-Orlando)
This is a bald-face attempt to make Florida’s Judiciary subservient to its Legislature, fatally skewing the traditional balance of power. Although the U.S. Senate confirms Supreme Court nominees, federal justices receive lifetime appointments. Since state justices are subject to merit retention votes, requiring Senate approval simply erodes Judiciary independence and Executive appointment powers.
- Dropping the currently required two-thirds majority to repeal court rules adopted by the State Supreme Court to a simple majority will empower a majority political party to unilaterally engineer control over the courts. This amendment is actually a summary of screwball changes filed in 2011 by House Speaker Dean Cannon (R-Winter Park), who originally proposed adding three justices to the Supreme Court and then split the court into two five-member panels, respectively hearing criminal and civil cases. Cannon saw no problem with Florida being the only state without a viable Judiciary. The Chief Justice could always sell fajitas in the gallery.
Amendment 6: Prohibition on Public Funding of Abortions; Construction of Abortion Rights
Amendment 6 would make the existing federal ban on public funding for most abortions part of the state constitution. It would narrow the scope of a state privacy law that is sometimes used in Florida to challenge abortion laws. (HJR 1179 – sponsored in 2011 by Sen. Anitere Flores, R-Miami, and Rep. Dennis Baxley, R-Ocala)
|AMENDMENT SPONSOR OCALA REPRESENTATIVE DENNIS BAXLEY|
- Whether or not one agrees with the federal law that affirms the reproductive rights of women, this attempt to thwart established law by submarining a 1980 voter mandated privacy rights constitutional protection is a dangerous slippery slope. Although Sponsor Rep. Dennis Baxley stated that he was primarily concerned about the cost of taxpayer-funded abortions, he spent more on one ad explaining the amendment than the total $534.60 paid for abortions with tax dollars in fiscal year 2009-10. Being forced to sacrifice constitutionally guaranteed rights to fight terrorism is a tough pill to swallow. Sacrificing those rights in order to monkey wrench legal abortions borders on the ridiculous.
Amendment 8: Religious Freedom (Originally known as Amendment 7 until a legal challenge forced the Attorney General to redraft the ballot language, after which it was reinstated on the ballot as Amendment 8 – thereby accounting for the mysterious absence of an Amendment 7.)
- Amendment 8 would remove the prohibition in Florida’s Constitution that prevents religious institutions from receiving taxpayer funding. (HJR 1471 – sponsored in 2011 by Sen. Thad Altman, R-Melbourne, Rep. Scott Plakon, R-Longwood, and Rep. Steve Precourt, R-Orlando)
- Previously removed from the 2008 ballot, Amendment 8 would eliminate a long-established tenet underscoring the separation of church and state, the constitutional pillar upon which the Country’s “Founding Fathers” grounded religious freedom. By reversing a 126-year old prohibition against Florida lawmakers using tax dollars to fund institutions that propagate their personal religious beliefs – lawmakers map a slippery slope to a de facto “Theocracy”. Claims that deserving institutions that provide valuable social or healthcare services are unfairly deprived of public funding are bogus, since many nonprofit organizations affiliated with religious groups (i.e. Catholic Charities) already receive public funding under the current law – provided they do not promote their religion. Using language from failed voucher bills, lawmakers plan this as a thinly veiled vehicle for diverting public education funds to private schools that espouse and promote the lawmaker’s own religious beliefs. Naming the Amendment “Religious Freedom” is roughly akin to the congressional deregulation bills that stripped away air and water quality standards while cynically entitled “The Clean Air Act” and “Saving our Waterways Act.” The cherry on top of this wingding is an enigmatic absence of accountability. A $50,000 allocation to the Messianic Tabernacle of the Hairy Eyeball can be used to stock up on AK-47s – without impact.
Amendment 9: Homestead Property Tax Exemption for Surviving Spouse of Military Veteran or First Responder
- Amendment 9 would grant a full property tax exemption to the surviving spouses of military veterans who die while on active duty and to those of first responders who die in the line of duty. Since State law already granted this property tax exemption to eligible military spouses in 1997, the amendment extends the exemption to the surviving spouses of law enforcement officers, correctional officers, firefighters, emergency medical technicians and paramedics who die in the line of duty and enshrines the benefit in the Florida Constitution. Taxpayers would have to cough up an additional $600,000 annually ($2.4 million over four years) to offset the loss of revenues to local governments ($300,000/year) and schools ($300,000/year). (HJR 93 – sponsored in 2012 by Sen. Jim Norman, R-Tampa, and Rep. Shawn Harrison, R-Temple Terrace)
Amendment 10: Tangible Personal Property Tax Exemption
Amendment 11: Additional Homestead Exemption; Low-Income Seniors Who Maintain Long-Term Residency on Property; Equal to Assessed Value
- Amendment 11 would give an additional property tax exemption to low-income seniors who have lived in their home for more than 25 years. (HJR 169 – sponsored in 2012 by Sen. Rene Garcia, R-Hialeah, and Rep. Jose Oliva, R-Hialeah/Miami)
- Seniors who meet income criteria and own homes valued under $250,000 can fully exempt their properties from all but school taxes. The Amendment would cost local governments $27.8 million over 3 years.
Amendment 12: Appointment of Student Body President to Board of Governors of the State University System
- Amendment 12 would change the way the state selects the student representative on the state university system’s Board of Governors, which oversees the university system. (HJR 931 – sponsored in 2012 by Sen. Bill Montford, D-Apalachicola, and Rep. Matt Gaetz, R-Shalimar)
- The president of the Florida Student Association (FSA) currently serves on the State University System’s 17-member Board of Governors. This amendment would create a new council composed of student body presidents, and the chair of that council would replace the current FSA representative on the Board of Governors.
- You should be wondering “What in hell is this?” A sour grapes amendment by Florida State (FSU), since FSU chose not to participate in the Florida Student Association, creating a new panel will give it a shot at power. While clearly more appropriate to a campus fraternity survey sponsored by the Political Science Department, it also serves to clarify that the lawmakers who formulated these amendments opted to ignore the nature and purpose of a State Constitution.
Hoping to maneuver the electorate into endorsing causes that resonate with party leaders, our Republican lawmakers buried an evisceration of privacy rights in an anti-abortion amendment and mischaracterized an amendment that blots out the separation between Church and State as “Religious Freedom”. Since approval of an anti-“Obamacare” amendment would theoretically place in the Florida Constitution an endorsement to violate federal law, which is unconstitutional, it only serves to take a swing at the incumbent Presidential candidate. Finally, an amendment that provides the Legislature with additional power over the Judiciary specifically places that power in the hands of the majority party.
To distract attention from these thorny ideological blisters, the majority leadership merged them with amendments bloated with tax exemptions for questionably deserving sub-groups of highly sympathetic segments of our population. These giveaways would be far more appropriate if offered when State and local economies weren’t clawing their way out of a recession. By forcing local governments to hand out new or expanded financial gifts to veterans from other states, landlords, wives of first responders, vacation homes, seniors, and virtually anyone that doesn’t already have a homestead exemption, they will also force local public officials to pay for this by increasing tax rates and transferring the additional financial burden to YOU! Alternatively, they could always close more parks and libraries.
Topping these off with inane amendments creating a new student council and a spending cap that was either rejected by or failed in every state where it was considered speaks to the absence of any legitimate reason to affix them in our Constitution. If you are concerned about becoming confused when finally facing a ballot filled with indecipherable political doubletalk, simply ask yourself “Do I want to pay for this?” Make no mistake – we will!
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October 12, 2012 - An eclectic group of sleaze bags logged in substantial overtime this summer. Each of the following scams either threatened or victimized Galt Milers during the stickiest June through August in years. Thousands of cash-strapped utility customers were stung by a low-tech nationwide fraud using a hook based on the weather, the political climate, Facebook and the “allure of the freebie”. Another scam targeted the men and women who manage our homes, threatening their license and livelihood. The last one, conceived by our clever Governor, will insure that the State of Florida maintains its squirrelly reputation as the nation’s mortgage fraud “Olympian” while the Venice of America perseveres as “Fraud Lauderdale.”
Obama Utility Scam hits South Florida
A new twist on an old sting recently cut a coast to coast swath of victims. In late spring, the Better Business Bureau (BBB) issued a nationwide fraud warning about a scam imputing that “President Obama will pay your utility bills through a new federal program.” First reported on the BBB website on June 15th, these highly organized crooks used fliers, social media and text messages to assert that President Obama sponsored a bailout to relieve the fiscal strain placed on homeowners by serial heat waves and a struggling economy. Upon registering for the program by submitting their social security and bank routing numbers, consumers received a Federal Reserve Bank routing number with which they could pay their utility bills using the company’s automated payment service. Of course – the routing number was a fake.
Every year, variations of this scam bag a few hundred self-deluded prayer warriors. This year was different. Exploiting a confluence of disparate events, the perpetrators tweaked the traditional hoax, significantly ramping up returns. The early summer heat waves, bloated utility bills, a flat lining economy and the slime-packed nationwide campaign tripe pumped out by Romney and Obama supporters gave the scam teeth. To enhance the scam’s credibility, the crooks carefully researched standard utility payment protocols. When a bogus routing number is fed to a power company’s automated payment service, the utility will initially acknowledge the bill as paid. Of course, when they discover that the account is vapor, the charges are reinstated.
Unlike similar scams that wholly rely on digital delivery, this was distinguished by a complementary human element. While a target community is flooded with emails, tweets and Facebook messages about the fictitious program, agents hired by the scammers go house to house, handing out leaflets and posting flyers that encourage potential marks to register for the non-existent federal credits. Planned with military precision, scammers moved quickly through a neighborhood. By the time victims – and the local utility – learned about the scam, the crooks were off to a new playing field – often in another state. To frame the hoax with realistic production values, paid solicitors wore utility company uniforms. Fast evolving variations of the scam offered similar “credits” to pay cell phone charges, credit card debt and cable television bills. Spokesperson Katherine Hutt for the Better Business Bureau’s national office in Washington, D.C. explored the possibility that the solicitors who were hired by the crooks were ignorant of their complicity in a rip-off.
The current incarnation of this fraud seems to have begun in Texas, when Dallas-based Atmos Energy reported that customers were first hoodwinked in mid-May. In New Jersey, Public Service Electric & Gas (PSE&G) later reported that 10,000 customers were stung by the scam. In early July, 2000 TECO Energy customers in Tampa were swindled. The grifters also worked communities in North Carolina, Pennsylvania, Utah, California, Indiana, and multiple jurisdictions in New England and Florida. Florida Power & Light spokesman Neil Nissan estimated that 30,000 of FPL’s 4.5 million customers had fallen victim by Independence Day. Upon learning that their customers were victimized, affected utilities added fraud warnings to their automated telephone payment systems and customer websites for online bill payments. To help cushion those already stung, utilities in Tampa and New Jersey agreed to waive late fees and postpone service interruption. Other victims may not be as lucky. Thousands of other utility customers who remain unaware of the rip-off may first learn about it when their electricity is suddenly disconnected. Surprised by the scam’s unanticipated traction, TECO spokeswoman Sylvia Wood commented “We see scams once or twice a year, and a handful of people fall for them. But this is crazy.”
Another reason for the scam’s explosive impact was its instant popularity as a social media cherry. Convinced that they were beneficiaries of a legitimate government grant, victims enthusiastically told family, friends and neighbors about the easy money. When a reasonably skeptical Galt Mile woman who learned about the bogus program from a friend’s tweet called in the accompanying bank routing number to FP&L, the utility’s automated service confirmed her balance due as zero. Overnight, thousands of Facebook pages featured glowing accounts of the President’s consumer utility bailout. Fooled by the scam’s well-scripted “hook”, Pro-Romney websites condemned President Obama for wasting scarce federal resources on “social entitlements.” Thousands of tweets bore witness to the imaginary governmental largesse, as duped customers circulated hundreds of fake routing numbers they just fed to FP&L, Metro PCS, National Grid in New England, TECO, Duke Energy, and dozens of other utility vendors.
Upon receiving an emailed invitation to register, even savvy web-surfers who ordinarily trash marketing spam were hooked by the tweeted “success stories”, eagerly joining the fast-growing list of victims. Describing how social media ebullience added fuel to the prospect of getting a free ride, PSE&G spokeswoman Bonnie Sheppard said “Once it morphed into the social media thing, it just kept getting passed on from friend to friend to friend.”
The scam left three classes of victim in its wake. Marks who “registered” by handing over their Social Security and Banking data not only took a fiscal hit, but must run a painful gauntlet to reclaim their identity. Although they aren’t at risk for Identity Theft, those who paid bills with fake routing numbers lifted from Twitter or Facebook pages may still have to cough up some late fees while recovering from mildly bruised egos. Additionally, victims who mistakenly believe that their bills are paid may awaken to a refrigerator filled with rotting food.
While generally applicable, PT Barnum’s classic observation that a sucker is born every minute doesn’t explain why so many people suddenly decided to ignore the well-publicized dangers of divulging their Social Security and Banking data in return for a month-long respite from their utility bills.
Unlike wildly lucrative digital thefts wherein crooks programmed invasive computer malware to strip corporate databases of $billions in sensitive financial information, this low-tech operation relied on tactical familiarity with internet marketing strategies, corporate protocols, large group dynamics, and social networking. Timing the scam to target utilities during a heat wave amid a tough economy was no accident. By camouflaging a bogus federal entitlement as a campaign enticement, the scammers provided an eminently credible hook. Flexible and mobile, before corporate security or law enforcement authorities could get a fix on events, the scammers evaporated overnight and resurfaced in the next city or state.
Snopes.com, a website devoted to exposing and categorizing hoaxes, credits the scam’s success to the fact that “It seems to work,” referring to the payment confirmations offered by utilities after initially processing a customer’s fake check routing number. They also offer examples of the social media entries that helped turn a mildly destructive scam into a nationwide blight. What seems to most tantalize fraud “editorialists” is the carefully scripted human element – the decision to seal the deal with door to door dupes.
Concerned that scam victims who read their website may suffer from denial, after affirming the existence of government programs that assist low-income households with their utility bills, Snopes.com bursts the balloon, “There is no government program that provides blanket grants to cover everyone’s utility bills in full for a whole month.”
Galt Mile CAM Managers Placed on Alert
On October 6, Community Advocacy Network (CAN) Executive Director Donna Berger emailed an alert to Galt Mile Associations. The popular Association Attorney’s notice was reprinted from the Department of Business and Professional Regulation (DBPR) website. Evidently, another group of moderately ambitious scammers are targeting license holders. On the Galt Mile, that means the men and women who oversee the daily operation of our homes – Community Association Managers. As compared to the well-oiled Obama hoax, this soggy donut borders on the insipid.
An unsolicited email which appears to be from the Department warns of some pending disciplinary action against license holders. The email directs the recipient to “call a Department investigator at a toll-free number and provide personal identification information.” One local property manager said “Since trained managers are familiar with Identity Theft, I seriously doubt they found many victims, especially along the Galt Mile. Frankly, anyone who falls for this transparent scam isn’t qualified to manage an Association.” DBPR Secretary Ken Lawson isn’t so sure. He circulated the warning to hundreds of companies and advocacy organizations representing scores of fields licensed by the Agency.
Tom Grady – The Fraud Friendly Hatchet
It shouldn’t come as a surprise that Florida leads the nation in mortgage fraud. Incredibly, Florida Governor Rick Scott decided to address the state’s blackened reputation by decimating the state agency that fights mortgage fraud. On August 2, 2011, Governor Scott strolled down the block from his Naples home to visit neighbor Tom Grady, a millionaire securities lawyer and stockbroker who served in the Florida House from 2008 to 2010. A few days later, Scott named Grady Commissioner of the Office of Financial Regulation (OFR) with marching orders to gut the Agency.
Two weeks later, Grady praised an investigator in the agency’s Pensacola office who helped crack a $3 million mortgage fraud scheme. After telling reporters “Thanks to (her) leadership, the OFR is doing its part to put bad guys behind bars,” Grady closed the Pensacola office at 4900 Bayou Boulevard and gave her the boot. In short order, Grady canned 81 other OFR investigators and support personnel while closing regional offices in Fort Myers, Jacksonville, Pensacola and Fort Lauderdale. Ironically, the Venice of America has served as ground zero to so many financial scams that it has long been known to State and Federal investigators as “Fraud Lauderdale”
|TOM GRADY AND LT. GOV. JENNIFER CARROLL PARTY|
WITH ANN SCOTT, THE WIFE OF GOV. RICK SCOTT
Grady wasn’t finished neutering the State’s primary bastion against fiscal fraud. Seeking to groom his future replacement at the Agency, Grady dumped a veteran Division Director and installed Greg Hila, a Naples Chiropractor turned Real Estate Agent and one of Scott’s golfing buddies. Since state law mandates that the OFR commissioner have some minimal experience with securities and finance, when Grady left OFR, the Financial Services Commission barred Hila from filling his shoes. Instead, former Financial Institutions Director Linda Charity was named Interim Commissioner. The fact that this unqualified Chiropractor is currently the Agency’s Deputy Commissioner is an inside joke in Tallahassee.
|OFR DEP. COMM. GREG HILA|
With a severely crippled regional outreach and amateurs loyal to the Governor managing damage control in Tallahassee, Grady needed a dog and pony show. He would replace the ousted enforcement professionals with an all-volunteer panel of securities attorneys and charge them with detecting securities fraud. In a news release, Grady said that these private sector lawyers would be “our eyes and ears throughout the state … to help put bad guys behind bars and help good guys succeed.” To co-chair the panel, Grady named Tampa Attorney Peter King and Scott Link, a partner in the West Palm Beach law firm of Ackerman, Link & Sartory. As explained by Link in a subsequent interview, “We’re not regulators and can only refer matters to state regulators – not investigate, subpoena or arrest anyone.” In short, the panel is window dressing.
|ATTORNEY PETER KING|
|ATTORNEY SCOTT LINK|
After King and Link recruited 12 colleagues, on March 2, 2012, Grady announced the formation of his 14-member “Advisory Council.” Other than some telephone contacts, the panel has never met. When apprised of Grady’s amateur fraud-busters, independent Miami banking analyst Ken Thomas commented “This is unbelievable. Grady is going to use lawyers to be his eyes and ears on the ground? What do you do if one of his eyes and ears is representing Rothstein, Madoff or Stanford (convicted legendary scam artists Scott Rothstein, Bernard “Bernie” Madoff and Allen Stanford)?”
|BANK ANALYST KEN THOMAS|
Thomas was referring to “Attorney-Client Privilege”, a legal concept that protects certain communications between clients and their attorneys and keeps those communications confidential. A crook need only hire one of the private-sector Attorneys on the Advisory Council to preclude them from sharing privileged evidence of guilt, thereby turning the Office of Financial Regulation into a get-out-of-jail-free card. Satisfied that the dismantled Agency could no longer threaten “entrepreneurs” like Rothstein, Scott asked Grady to do a repeat performance at Citizens Insurance. Four days after announcing the bogus Advisory Council, Grady was named interim President at Citizens. After watching Grady run up $10,000 in travel expenses in five weeks, including stays in Bermuda and Amelia Island, an embarrassed Citizens Board pink slipped the gubernatorial hatchet two weeks later.
|FORMER OFR COMM.|
When Scott first approached Grady about taking a wrecking ball to the OFR, he had a problem. Six years earlier, Grady and Tampa Attorney Guy Burns were hired by the State Board of Administration (SBA) to sue the New York money management firm Alliance Capital Management for losing $300 million in State Pension Funds they invested in Enron, the failed energy company. When a jury found for Alliance, the SBA signed a pact with Alliance agreeing that neither side would appeal the decision.
|TAMPA ATTORNEY GUY BURNS|
With the action retired by a jury, Grady and Burns billed the SBA for $1.4 million in questionable fees for travel and lodging, computer research and copier services (as per court documents). The SBA refused to pay the unconscionably excessive fees, citing a contingency clause in their legal contract requiring a “favorable” courtroom result for payment of legal services. Five years later, days before the statute of limitations would expire, the lawyers sued the State.
Since Scott, CFO Jeff Atwater and Attorney General Pam Bondi serve as Trustees for the State Board of Administration; Grady had to assign his stake in the case to co-plaintiff Burns in order to camouflage the conflict and snag the $133,000 job. Announcing Grady’s appointment, Scott said “He has demonstrated a high standard of integrity in all he has done and holds a deep commitment to serving the people of Florida.” He didn’t mention that Grady was also suing the people of Florida.
Grady claimed that no one would notice the State’s crippled enforcement capabilities because the economic downturn has diminished the number of companies writing mortgage loans. A July Report by LexisNexis Risk Solutions confirms that Florida still leads the nation in mortgage fraud, with an increased incidence rate since Grady’s departmental massacre. Spokesperson Jennifer Butts of LexisNexis commented “I think Florida’s shutdown of regional offices goes against the grain,” and prompted the need for “many other regulators outside Florida to increase scrutiny.”
|LEXISNEXIS JENNIFER BUTTS|
To elicit legislative approval for disemboweling the only State Agency fighting mortgage fraud, Grady told lawmakers that “the number of open investigations has fallen 58 percent since the end of 2010.” The tricky doggie omitted having received 502 fraud complaints in OFR’s fiscal year 2011, up from 416 the year before. Federal investigators, the BSO and the Broward State Attorney’s Office expressed disbelief and frustration over the Administration’s willingness to manufacture data in furtherance of a policy that shields mortgage and securities fraud, crimes that are particularly devastating to Florida’s fixed-income retirees.
Understandably fearful of Administration reprisals, State law enforcement officials walk on eggshells because of the Governor’s personal experience with government fraud investigators, many of whom were among those recently “downsized” by his axe man. Rick Scott presided over healthcare goliath Columbia/HCA when the FBI raided his offices in 1997 as part of a Medicare and Medicaid fraud investigation. In the largest case of healthcare fraud in U.S. history, the Justice Department fined Columbia/HCA $1.7 billion for 14 felonies, while Scott got a pass for stepping down as Chairman and CEO. Six days before announcing his gubernatorial candidacy, Scott lied to regulators when deposed in a case investigated by the Florida Department of Law Enforcement (FDLE) wherein his new company, Solantic Urgent Care centers, defrauded Medicare. After curing the violations with his checkbook, state sleuths were still investigating discrimination charges against Solantic when Scott slid into the Governor’s Mansion and sold the company to New York investment group Welsh, Carson, Anderson & Stowe – who partnered with healthcare executive Michael Klein to rebrand Solantic as Care-Spot Express Healthcare and relocate its headquarters to Nashville.
The record number of complaints filed by the SEC in 2011 ranks Florida second behind New York in federal prosecutions of securities and investment fraud while perennially topping the list for mortgage fraud, identity theft, auto insurance fraud, Medicare and Medicaid fraud and money laundering enforcement actions. Also, the Federal Dodd-Frank Wall Street Reform and Consumer Protection Act raised the investment advisor registration requirements from $25 million in accounts to $100 million, placing the onus on State regulators to monitor money managers handling accounts of up to $100 million. Although State and Federal financial regulators who questioned the administration’s rationale for savaging Florida’s mortgage and securities watchdog have been systematically stonewalled, the Governor’s motives are no secret to the zombies that broker power in the State Capitol. In his remake of the film noir classic “Man on Fire,” Denzel Washington remarked, “Revenge is a dish best served cold”.
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April 4, 2012 - Although Florida’s foreclosure filing spree has cooled, the knee-deep case load it created is choking Florida courts. The state’s 1.7 million vacant homes are considered stones around Florida’s economic neck. The huge backlog of Florida foreclosures mired in judicial limbo clouds surrounding communities with eroding structures while banks are left holding portfolios filled with bad paper. Since major lenders like Citibank and Bank of America often lack legitimate documentation, they have little incentive to pursue a speedy judgment after they clear the mortgage from their books as a loss. As a result, foreclosures in Florida take almost two years (676 days) to perfect, more than twice the national average.
Naples Representative Kathleen C. Passidomo’s House Bill 213 was intended to prod lenders into reviving stalled cases and hopefully lift 368,000 Florida foreclosures out of hopelessly clogged dockets and into the market. Florida lenders have turned foreclosure delays into an art form by playing hide and seek with the presiding Judge.
|REP. KATHLEEN PASSIDOMO|
Filed by Passidomo and Sarasota Representative W. Gregory Steube (co-sponsored by Ormond Beach Representative Fred Costello and District 91’s George Moraitis), the bill sought to equip condos, co-ops and HOAs with an expedited option available only to lenders under current law. Streamlining a cumbersome 1993 process to fast-track foreclosures, Passidomo wanted to arm associations with the right to file an “Order to Show Cause,” demanding that a Judge review the file of a frozen foreclosure and set a hearing within ninety (90) days of the order.
|REP. W. GREGORY STEUBE|
In the context of this bill, the order would mandate that the parties explain to the Judge why a final judgment shouldn’t be entered immediately. Passidomo’s handiwork severed one of two required hearings from the process and raised the bar on defendants, who can currently thwart a fast-track foreclosure just by showing up. If lenders failed to respond, the bill would allow the association to file default motions that push the foreclosure to final judgment and sale. To help establish progress deadlines, the bill would also enable associations to request case management conferences for the express purpose of creating a fixed timetable.
To hang onto their homes, it isn’t unusual for delinquent borrowers to renegotiate mortgage terms with the lender. If they can arrive at an acceptable accommodation, everybody wins. The homeowner stays put and avoids a crushing fiscal upheaval. The lender gets paid, albeit not as much and/or more slowly than originally anticipated. Unfortunately, both homeowners and lenders have also exploited this tactic solely to delay the process.
By securing a court-approved extension to supposedly modify loans they stopped paying long ago, homeowners who engineered strategic foreclosures can squeeze a few more months of rental income from properties on the chopping block. On the flip side, banks have used this ostensibly altruistic maneuver to postpone taking title, delaying their statutory “safe harbor” financial obligations to struggling associations. When the property is part of an association, parties on both sides of this loophole force association members to finance the delays.
To plug this license to extort, the bill provided that attempts to extend the foreclosure timetable must be accompanied by arrangements to pay applicable condominium, cooperative or homeowners’ association assessments. Notwithstanding whether an extension was requested by the homeowner or the lender, unless the association is paid any assessments that accrue during the settlement period, the deal is off. If the parties claimed they were trying to settle a case, either the homeowner, the bank or both had to pay assessments throughout pendency.
A licensed Real Estate attorney, Passidomo is intimately familiar with the practice of “staying without paying.” One week after five of the nation’s largest banks agreed to pay $25 billion to settle civil claims arising from robosigning and other illegal foreclosure practices, on February 17th, San Francisco assessor-recorder Phil Ting released the results of a foreclosures audit concluding that 84% of the foreclosures reviewed reflect lender fraud and/or faulty documentation.
|SAN FRANCISCO ASSESSOR-RECORDER PHIL TING|
Yale Law School professor Ray Brescia, an expert in housing law commented, “This number around 80 percent is not a number we have not seen before,” referencing similar reports nationwide that underscore the stunning number of mortgages that didn’t belong to the foreclosing lender. When Register of Deeds Jeff Thigpen of Guilford County, North Carolina, examined 6,100 mortgage documents last year – from loan notes to foreclosure paperwork – 4,500 showed the telltale signature irregularities of documents that were illegally “robosigned”. When mortgage instruments were repeatedly repackaged for investors, loan ownership was often relegated to guesswork.
|YALE LAW SCHOOL|
PROFESSOR RAY BRESCIA
To insure that the fast-tracked mortgages excluded loans plagued by uncertain ownership, Passidomo’s bill required the plaintiff to provide documentation that proves entitlement to a foreclosure judgment, such as an original promissory note or documents establishing that a note was subsequently lost.
|GUILFORD COUNTY REGISTER|
OF DEEDS JEFF THIGPEN
The bill drives certain consumer advocates bonkers. They believe that any diminution of due process is a slippery slope en route to disaster. On February 29th, two busloads of property rights advocates and homeowners in foreclosure descended on the Capitol and conducted demonstrations protesting the bill. They were joined by Orlando Representative Darren Soto, who railed against it on the House floor.
|REPRESENTATIVE SOTO SPEAKS AGAINST HB 213|
Later that day, HB 213 passed a full House vote by 94 yeas vs. 17 nays. It was sent to the Senate on March 5th and referred to the Senate Judiciary Committee and the Senate Banking and Insurance Committee, where it was ghosted while awaiting consideration by the Senate. Its companion legislation – Senate Bill 1890 filed by St. Petersburg Senator Jack Latvala – had been parked on the calendar since March 2nd, after passing the Judiciary Committee on February 20th by a vote of 5 yeas vs. 2 nays and struggling through the Senate Banking and Insurance Committee on February 27th by a vote of 6 yeas vs. 4 nays. Despite the legislation’s popularity with associations, its potential for kick starting somnolent properties and its perceived benefit to Florida’s economy, HB 213 was marked for death by the omnipotent lending lobby.
|SENATOR JACK LATVALA|
Before the bills died, there was a last gasp attempt to piggy back the order to show cause language onto Senator Jeremy Ring’s Senate Bill 670 (and accompanying House Bill 671), legislation regarding residential liens. The order to show cause language was never approved for placement in either of the two bills. In fact, after being placed on the Special Order Calendar on March 7th, they were also ignored by the Senate. The alternative legislation was supposed to be considered on March 9th. It wasn’t.
|SENATOR JEREMY RING|
Tallahassee’s most influential trade organization refused to allow passage of a provision believed to be the bill’s most important consumer protection. Under current law, lenders have five years to seek a deficiency judgment – payment for any outstanding loan balance in excess of the property’s value. The bill would have reduced that period to one year. When executive vice president of government affairs for the Florida Bankers Association, Anthony DiMarco, disapproved of the provision after its passage in the Statehouse, Passidomo might as well have packed her bags and headed back to Naples. The jig was up.
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Lawmakers OK Construction Defects
House Bill 1013: Contractors Load up on Crazy Glue
March 13, 2012 - In 2012, Bradenton Senator Michael Bennett and Miami Statehouse Representative Frank Artiles sponsored one of the most openly abusive legislative scams of the past decade. To shield their benefactors in the building trades from liability, the two lawmakers were recruited to redefine construction defects as a blameless side effect of life in the Sunshine State. With Governor Scott grinding out enigmatic administrative anomalies and panicky lawmakers looking for an edge to survive in newly redrawn districts, construction industry trade associations launched a plan to prohibit common law implied warranties of fitness, merchantability and habitability from applying to residential construction. What does this mean to us? In short, if the pipes carrying water to your new home turn out to be hardened silly putty, consider it one of life’s lessons.
|HOUSE & SENATE SGTS-AT-ARMS END 2012 AT 'SINE DIE'|
For centuries, caveat emptor, “let the buyer beware,” was an interplanetary rule of commercial law. It presupposed the equal footing of buyers and sellers in a marketplace. Buyers could protect themselves by exercising reasonable caution and inspecting a product prior to purchase. In today’s real estate market, most new residential construction occurs in planned communities. Whether a single subdivision with roads, sidewalks, drainage and sewers or a larger master community with multiple subdivisions, containing hundreds or thousands of lots and homes with appurtenant roadways, underground piping, retention ponds, drainage areas and utilities, these common area improvements are necessary in order to utilize the residential dwellings for their intended purpose. Since home buyers have neither the access nor acumen to meaningfully inspect roads, catch basins, culverts, drainage facilities, street lighting or underground utilities that critically impact a home’s habitability, they are forced to rely on developer representations that these complex common appurtenances are fully functional, code compliant and free of defects.
Unsuspecting buyers who purchased their dream homes in the Lakeview Reserve, a residential Winter Garden subdivision in Orange County, Florida, awoke to a nightmare. The roadways, retention ponds, underground pipes, and drainage systems throughout the subdivision were plagued by defective construction. When the Lakeview Reserve Homeowners Association sued Pittsburgh-based Maronda Homes in 2007 over the pitted streets and drainage problems, the trial court blamed homeowners for not somehow checking the underground utilities, measuring the slope gradients applied to retention ponds, testing the aggregate mix used for neighborhood roads and performing other feats of engineering wizardry that clearly exceed the purview of a professional home inspection.
On October 29, 2010, Florida’s Fifth District Court of Appeal took issue with the lower court’s conclusions, ruling that home buyers and homeowners’ associations are entitled to recover damages for Breach of Common Law Implied Warranties from the builder or developer who saddles them with substandard construction. Maronda wouldn’t bring the defective common elements up to code unless the 159 homeowners chipped in $3,800 per house to re-engineer and repair problems in the west Orange County subdivision. Why shouldn’t Maronda get paid for correcting substandard offsite appurtenances they marketed as fully operational? Contractors working for South Florida school districts and local governments get paid twice all the time.
The developer argued that since these elements aren’t physically part of the home’s structure, marketing materials indicating that homes were in “move-in” condition and available for immediate occupancy weren’t fraudulent or misleading. The court disagreed, stating that certain types of basic off-site common element improvements were necessary to live in a home, and that a home buyer is forced to “rely on the expertise of the builder/developer for proper construction of these complex structures”. The case – “Lakeview Reserve Homeowners v. Maronda Homes, Inc., No. 5D09-1146 (Fla. 5th DCA)” – went to the Florida Supreme Court.
While community association advocates supported the appeal court’s decision, construction industry associations filed amicus briefs in opposition to implied warranties. When the court first ruled against Maronda, the Florida Home Builders Association (FHBA) and National Association of Home Builders (NAHB) dropped in on Bennett and Artiles to hedge their bets. Despite its pendency before the Supreme Court of Florida (which heard oral arguments on December 6th), on December 7th they decided to buy some insurance in the legislature.
They didn’t choose Bennett and Artiles by accident. Bennett is an electrical contractor and Artiles is a State of Florida licensed general contractor, real estate agent and public adjuster. According to state records, of the $376,000 Bennett raised for his last Senate campaign (in the 2008 election cycle); $87,886.91 came from construction or real estate sources. With Bennett and Artiles on board, developer lobbyists began lining up committee support.
|SENATOR MICHAEL BENNETT|
In his Senate Bill 1196, Senator Michael Bennett protects developers who sell properties afflicted with critical common element construction defects by squelching their common law exposure to implied warranties. Artiles filed his identical companion bill, HB 1013, in the Statehouse. Although their legislation concedes that homeowners should be confident that their new homes aren’t riddled with defects, similar expectations for drainage systems, roads and interred utilities “goes beyond the fundamental protections that are necessary for a purchaser of a new home” and “creates uncertainty in the state’s fragile real estate and construction industry.” After all, you can always use bottled water for drinking and washing, build a manually maintained outhouse in the back yard and you can still walk to your house along roads that are impassible to vehicles.
Bennett and Artiles have been spinning these bills as indispensable to safeguarding future development in the State of Florida. Incredibly, they’ve identified implied warranties as the primary deterrent to a resurgence of new construction, not the inability to secure financing due to the housing glut and the well-publicized lack of demand. While the assertion borders on the idiotic, it resonated with lawmakers who benefitted from the building lobby’s largesse, including some key vetting committee chairs.
In fact, when Artiles’ HB 1013 was scheduled for a February 2nd hearing by the House Business and Consumer Affairs Subcommittee chaired by Representative Doug Holder – where anti-consumer bills buy a boatload of bad press, lobbyists got the bill re-referenced to the Judiciary Committee, its final pit stop in the Statehouse and the parent body of the Civil Justice Committee, where the bill was passed out three days earlier.
|REP. DOUG HOLDER|
Vowing commitment to a real estate recovery, the two lawmakers believe that scamming thousands of Florida homeowners is a small price to pay for the confidence their bills would instill in developers, magically stimulating their promised housing comeback. In short, more developers would risk entering the shaky market if they weren’t penalized for performing substandard or defective construction. Using Crazy Glue instead of rivets appreciably improves the bottom line.
Bennett’s bill doesn’t only apply to HOAs. Since it was drafted to target anyone buying a home, its limitations would victimize homeowner associations, condominiums, co-ops, timeshares and mobile home parks. The legislation infers that condo and co-op owners in new developments who discover that the building’s drainage system fills the kitchen sink with sewage should have run a diagnostic on the interred utilities before buying their units. Bennett refers to these construction disasters as “off-site improvements” and disputes that they diminish a home’s habitability.
The Fifth District Court set this simple test to ascertain whether any residential construction element is eligible for implied warranty protection, “In the absence of the service, is the home habitable?” Construction Law Specialist Sanjay Kurian (Becker & Poliakoff, P.A.) holds that since these common area improvements are necessary in order to utilize the residential dwellings for their intended purpose, they are part and parcel of the sale and purchase of a residential dwelling in Florida. In fact, a developer couldn’t even qualify for a Certificate of Occupancy absent these improvements. Since association members are assessable for repairing or correcting defective common elements, the bill shifts liability for a developer’s negligence to associations and their members.
Remarking that his bill will preserve property values, Artiles cynically asserted, “The legislation is good for consumers.” He added, “Florida homeowners and HOAs have a number of appropriate alternative remedies to resolve problems,” referring to a bill provision that states “This section does not alter or limit the existing rights of purchasers of homes or homeowners’ associations to pursue any other cause of action arising from defects in offsite improvements based upon contract, tort, or statute.”
|REP. FRANK ARTILES|
What a kidder! Artiles is well aware that purchase contracts disclaim any and all warranties and causes of action other than those allowed by statute (ss. 718.203 and 719.203, F.S.), which currently excludes offsite defects for condos and co-ops and doesn’t even exist for HOAs. Upon HB 1013 becoming law, the only legal recourse will be a private cause of action for breach of the building code under section 553.84. For selling a non-functional neighborhood drainage system and/or spontaneously collapsing roads, the developer might pay a modest fine. It’s less than clear how this will benefit consumers.
After whizzing through the 106 yeas vs. 10 nays House vote on February 23rd and the 36 yeas vs. 4 nays March 8th vote in the Senate, House Bill 1013 was enrolled and awaits a trip to the Governor’s desk. If our unpredictable chief executive signs it or does nothing, it will kick off a new era of sloppy workmanship and substandard construction. Although its effective date is July 1, 2012, the legislation will apply “to all cases accruing before, pending on, or filed after that date.” Upon enactment, protecting potential victims from construction defects will exclusively become the province of local building code authorities. In the absence of implied warranties, every homebuyer should automatically demand that the developer’s boilerplate sales agreement be amended with a contractual warranty for off-site common area construction elements.
While most association advocates are unsure about Scott’s intentions, he is, in fact, a wild card. In the past year, the Governor has quashed programs that he initially proposed and voted to enact policies that he roundly disparaged – often without offering a marginally credible explanation.
By all means, email the Governor and let him know how you feel about rewarding substandard construction in a state where hurricanes can line up like pinballs. You might remind him that a functional drainage system is as critical to a home’s habitability as the indoor plumbing that’s currently warrantied by statute. Click Here to email Governor Scott. He likes getting emails.
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Safe Harbor Scam
Banks Buy Box Seat in Association Bill!
March 3, 2012 - After decades of mounting futile challenges to the lending industry’s air-tight control over Florida’s banking laws, association attorneys in the early nineties exploited a chaotic economic environment and created what’s known today as the lenders’ Safe Harbor provision. This has recently become a flashpoint for controversy and split support for the 2012 Omnibus Association bill by Representative George Moraitis.
|REPRESENTATIVE GEORGE MORAITIS|
From 1986 to 1995, the number of federally insured savings and loans in the United States declined from 3,234 to 1,645. When simultaneous slowdowns in the finance industry and the real estate market lured thrifts into unsound real estate investments, the subsequent chain reaction of insolvencies prompted creation of the Resolution Trust Corporation (RTC). The U.S. Government-owned asset management company was charged with liquidating assets - primarily mortgage loans - held by insolvent thrifts. The RTC closed or otherwise resolved 747 thrifts with total assets of $394 billion.
Temporarily distracted by the Savings and Loan Crisis, Florida bankers preoccupied with liquidating local mortgage assets were suddenly amenable to any plan that could help rid them of inadequately secured loan portfolios. Until then, no Florida law required lenders to address obligations that accrued before they assumed title to a property. Banks had no statutory responsibility for pre-foreclosure assessments.
|SAVINGS AND LOAN|
When a collateralized asset was liquidated, its value was parsed according to lien priority. If a borrower defaulted on an obligation, the order in which creditors were paid depended on when their lien was filed against the asset. The legal concept known as “first in time, first in right” assured bankers of the first, and often only, bite at the apple. After the first mortgagee was made whole, any residual asset value would be passed to the second, third and other lienholders until it was fully liquidated.
In 1992, association advocates cut a deal with lawmakers and lenders to introduce a statute based on two legal theories called the “relation back doctrine” and the “limited priority super lien”. Enacting the “relation back doctrine” would allow an association’s lien to relate back – for priority purposes – to the date that the condominium was first established. This legislation made association liens superior to judgment liens, second mortgages and other liens that were recorded earlier in time. However, since banks needed to preserve the superior status of first mortgage liens as a precondition for financing any real estate, the association’s new right to lien superiority didn’t extend to first mortgages. The parties agreed to an alternative formula to spell out the bank’s financial obligation when foreclosing association properties. The following language was added to the statute.
“The mortgagee [shall not] be liable for more than 6 months of the unit’s unpaid common expenses or assessments accrued before the acquisition of title to the unit by the mortgagee or 1 percent of the original mortgage debt, whichever amount is less.”
During the “Safe Harbor” period, this modest amount would help offset the income lost to associations from defaulting members while the bank presumably recycled the foreclosed unit for resale. A successful outcome presupposed the availability of homebuyers or investors willing to purchase the property. When real estate boomed, properties flipped overnight. During periods of economic downturn, lenders saddled with foot-thick portfolios of negative-equity properties faced massive losses.
When the housing market tanked and left thousands of property owners with mortgage debt that exceeded their property’s value, banks were suddenly awash in foreclosures. The prospect of paying statutory safe harbor obligations of every unit for which they assume title chilled the banking industry. As the Florida Bankers Association circled the wagons to deflect waves of governmental and public blowback, lenders ill-equipped to pay the maintenance expenses for tens of thousands of toxic properties opted to delay the process and forestall their obligations. To minimize the fiscal wreckage, lenders needed time.
|HOUSING MARKET TANKS|
It takes time to selectively renegotiate homeowner mortgage terms or reduce property prices and patiently await “short sale” investors who specialize in squeezing small profits from bulk sales. It also takes time to snatch tax deductions from burnout write-offs without flagging an audit. Each passing month forced associations to further burden members with funding an increasing shortfall. If the remaining membership was unable to weather the additional financial strain, the association was placed in receivership before finally crumbling. For thousands of associations, survival depended on finding workable vehicles for collecting past due assessments – from defaulting unit owners, their tenants or the foreclosing lenders.
In 2010, then Representative Ellyn Bogdanoff’s Omnibus Association bill (SB 1196) contained a provision that extended a foreclosing lender’s liability from 6 to 12 months of assessments or 1 percent of the original mortgage debt, whichever amount is less. Bogdanoff ascended to the Florida Senate in 2011, winning the District 25 seat vacated by Jeff Atwater when he was elected Florida CFO. Representative George Moraitis replaced Bogdanoff as District 91’s voice in the Statehouse. His 2011 Omnibus Association bill (HB 1195) equipped associations with access, use and voting rights restrictions to help thwart strategic delinquencies and rental income from tenanted units in default.
|BOGDANOFF EXPLAINS SB 1196|
When associations took dilatory lenders to court, the resulting decisions served as a primer, providing guidance about the effectiveness of various legal strategies. Palpable gains came slowly, as favorable court decisions were often reversed on appeal (Tadmore). By filing show cause orders and targeted motions, association attorneys gently pushed lenders to proceed with foreclosures. Exploring alternative legal strategies, some associations with inferior liens decided to unilaterally foreclose anyway, enabling them to realize incremental rental income until the bank took title.
Exposed by the robo-signing scandal, lost or fatally flawed mortgage documents provided some associations with salvation. In an action brought by Vintage East Condominium Association in Miami Beach, a judge ruled that JP Morgan lost its claim to the $144,000 mortgage more than four years after the owner stopped making payments. The association took control of the unit by foreclosing their inferior lien on the owner for $24,000 in unpaid dues. The subsequent claim against the bank stated that the non-performing loan restricts the association’s right to sell the property because the mortgage is worth more than the home. The bank defendant was a trustee for the loan that was sold into a mortgage-backed security, a legal structure that usually leaves the party responsible for a mortgage unclear. Ben Solomon, a Miami Beach attorney whose Association Law Group won the “Mortgage Terminator” suit for the Vintage East association, said “The lenders are stalling foreclosures. Our complaints say the banks abandoned their interest and either need to accept responsibility for the title or walk away.” When the mortgage was voided, the association put the apartment on the market for $87,500.
In a similar action closer to home, Deutsche Bank forfeited its right to a unit with a $149,300 mortgage to the Palm Aire Gardens Condominium Association Inc. in Pompano Beach, Florida. Although listed as trustee, Deutsche Bank admitted that loan servicer Litton Loan was responsible for all foreclosure activity relating to the loan. Palm Aire Gardens also won title to a unit with an $184,410 mortgage after Wells Fargo failed to mount a defense. A transfer that wasn’t reflected in property records proved that the bank didn’t even own the loan. While a few associations hit home runs and others benefitted from minor legislative and judicial victories, those on the brink of dissolution needed immediate financial relief.
|ATTY BEN SOLOMON AT PALM AIRE GARDENS|
Their critical need fueled a cottage industry of specialized collection firms and attorneys willing to push the legal envelope when confronting foot-dragging lenders. While the statute detailed lender assessment obligations triggered by the assumption of title, it didn’t speak to how legal expenses and collection fees must be addressed. Throughout history, favorable court decisions regularly included repayment of these outlays. Instead of tailoring legal actions to the limits set forth in the safe harbor provision, they brought actions against lenders to recover years of past due assessments, every outstanding fee and the costs of their aggressive collection strategy. Although legally untested, the strategy was unexpectedly successful. So successful that many cash-strapped associations abandoned their more conservative legal representation and hired firms that offered a significantly improved chance of survival.
Companies like Tampa based L.M. Funding advanced payments to associations in exchange for the lien rights on delinquent accounts. By researching each account, they uncovered recording irregularities or compliance failures that rendered the bank ineligible for the safe harbor protections. LM Funding president Frank Silcox described a Miami Beach condo case where they collected $52,000 in late fees, 18 percent interest and collection costs instead of the $3000 due if the bank had been entitled to the statutory limits.
|LM FUNDING PRESIDENT|
Some association strategies were somewhat less than groundbreaking legal maneuvers. In certain instances, when the lender finally brought a buyer to close on a unit, the association held the estoppel certificate hostage to full payment of all assessments, fees and charges due on the account – ostensibly violating s. 718.116(1)(b), F.S.. Some banks paid while others passed. Although banks have been successfully blackmailing associations for years, the courts are unlikely to view associations returning the favor as a fairness issue.
They also took a page from the lending lobby playbook. Whenever lawmakers came close to passing legislation considered dangerous by the Florida Bankers Association, the Tallahassee juggernaut would whisper in the ears of the legislative leadership that the bill posed a threat to future common interest financing. Within 24 hours, the bill died in committee. Flipping the script, association lawyers leaked to offending local banks that an unfortunate loss of good will may drive their association customers to their many local competitors. Suddenly, $2000 settlements in line with statutory requirements mushroomed to more than $10,000 and included everything short of a free Dustbuster.
In Representative George Moraitis’ 2012 offering (HB 319), he broadens the relief provided by last year’s bill. It eliminates compliance deadlines for elevator master key retrofits, enables hurricane protection alternatives, details the suspension of access or voting rights for delinquencies, brings long neglected cooperative rights more in line with those applied to condominiums, documents maintenance requirements for official records and clarifies another litany of statutory contradictions (glitches).
Among the bill’s supporters are hundreds of independent Neighborhood, Homeowner and Community associations as well as advocacy groups such as the Community Advocacy Network (CAN) – which is sponsored by association law firm Katzman Garfinkel Berger (KG&B) – and the Community Association Leadership Lobby (CALL) – which is sponsored by legal powerhouse Becker & Poliakoff (B&P). Not surprisingly, these competitors for Florida’s sizable association law trade have managed to bump heads over the bill’s content. In a nutshell, CALL (Becker Poliakoff's advocacy stepchild) drafted an amendment confirming that banks are only obligated to pay the lesser of 12 months’ past due assessments or 1% of the original mortgage debt. Added to Moraitis’ bill on December 7, 2011 while being vetted by the House Civil Justice Committee, it would preclude an association from collecting the interest, administrative late fees, attorneys’ fees, and other costs incurred by the association before the bank took title.
A majority of the bill’s supporters were stunned. Why was this pro-bank provision incorporated into the Omnibus Association bill? Apparently, Moraitis asked both firms to draft a provision that would “clarify” the current statute. CAN Executive Director Donna Berger refused, exclaiming that associations should make their own informed choices. CALL Executive Director Yeline Goin supported the amendment. She launched into a full scale tirade about the cottage industry of law firms and collection specialists that are profiting by pursuing banks on behalf of associations. She professed moral outrage over the fact that much of the money isn’t going to the associations, but to the lawyers and collection agencies. Beset by skeptical association officials from all parts of Florida, Goin was later joined by B&P peers Lisa Magill and Joe Adams on the firm’s Florida Condo & HOA Law Blog, who amplified her argument that confusion over what associations should or should not expect from lenders, will further delay the foreclosure process.
The bill’s vocal association supporters didn’t agree that protecting banks from the consequences of their delays will speed things along. Aware of the exploding rancor, Senator Ellyn Bogdanoff, who sponsored the legislation’s companion bill in the Senate (SB 680), didn’t include the controversial provision in her bill until February 22, when it was vetted by the Judiciary Committee.
Goin has an elephantine credibility problem spared to Berger. Since KG&B’s client roll is limited to Associations, their motives aren’t clouded by conflicting loyalties. In a February 17, 2012 letter opposing the “clarification” as “an attempt to modify state law to the benefit of foreclosing banks,” the Miami-based Association Law Group pointed out that B&P is currently representing clients Bank of America and HUD in actions against associations.
Goin repeatedly insisted that the provision is necessary to stop lawyers from collecting more fees and that she would rather see the money go to associations. Her statements were confusing since late fees and interest do go to associations. While the collection costs go to attorneys and collection agencies, the B&P-drafted provision will only prevent unit owners from passing those costs to the bank. Not surprisingly, Goin issued a cryptic warning against the consequences of not echoing the safe harbor language in HB 319, threatening that “the lending industry may decide to curtail borrowing in Florida or make it much more expensive to obtain a loan.” It was the same mantra used by the Florida Bankers Association lobbyists to intimidate lawmakers.
Other association law firms – like the Association Law Group – have characterized this provision as another bank bailout. They contest B&P’s claim that the provision only confirms existing law. While the current safe harbor provision does detail what lenders must pay toward a foreclosed unit’s unpaid assessments, it doesn’t limit what a court can award in interest, administrative late fees, collection costs and reasonable attorney fees incident to collection. Additionally, safe harbor limits currently only apply to condominiums and HOAs. Cooperatives have always freely passed these fees, interest and collection charges to banks. This provision will deprive co-ops of this right going forward.
Moraitis decided to add the provision after learning that certain banks brought legal actions against a few associations that exceeded the safe harbor limits in their claims against lenders. Recent actions include a claim filed by HSBC against a Tampa condominium association and a lawsuit filed by Pennymac Loan Servicing LLC against a Miami-Dade HOA. Upping the ante, CAN’s Donna Berger admonished, “Depending on the cause of action a bank may bring, they may have years to go back after associations for amounts previously collected from them contrary to the Safe Harbor threshold as well as their attorney’s fees and costs.”
Less skittish was association attorney Mark Adamczyk of Goede & Adamczyk. The Naples lawyer observed that of the thousands of foreclosure actions handled by his firm, only a dozen involved lender “safe harbor” liability. “These lawsuits often involve a lender that lacks standing to pursue the ‘safe harbor’ and is filing suit to bully the association,” commented Adamczyk, who questioned the wisdom of allowing an association to go bankrupt because a lender may sue years later for amounts previously paid on estoppels.
|MARK E. ADAMCZYK|
In the February edition of the Florida Community Association Journal, Donna Berger revealed the results of a survey in which thousands of board members, CAM managers, association residents and attorneys were polled about whether they support the safe harbor cap being “clarified” in HB 319. Almost 82% said no, 6% were undecided, 5% needed more information and 7% thought it was a good idea. When she asked if the respondents’ associations ever pursued a lender for more than the safe harbor amounts, 59% said yes and 41% said no. Berger soon announced that she would support the language anyway. Her seemingly contradictory behavior is neither hypocritical nor anathematic. She and Moraitis are attorneys. They know what it takes to win statewide class action suits. In short, the bankers have more.
Whether they are greasing the wheels for client lenders or trying to protect naïve associations from the legal repercussions of an aroused banking lobby with virtually unlimited resources, both law firms and Moraitis seem to have arrived at the same conclusion. If we are nice to the banks, maybe they won’t kill us.
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Threatens to Feed Beach Associations to
Surplus Lines Sharks
Windstorm Rates Could Jump 450%
January 20, 2012 - In December, Florida Insurance Agents launched a campaign to inform some beachfront condo and cooperative clients that their rates are about to explode (quadruple). The Agents were compelled to warn their customers about the unavoidable impact of an item on the December 14, 2011 meeting agenda of the Citizens board. It addressed capping coverage at $1 million for buildings where more than 25 percent of units are rentals. Currently little more than an informal guideline that has been arbitrarily applied for the past few months, its official enactment would force a difficult choice on beachfront associations peppered with short-term rentals.
|CITIZENS BOARD MEETING|
When his minions in the legislature failed to pass an insurance bill that would have reduced the state’s liability by arbitrarily vacating Citizens coverage for tens of thousands of homeowners, Florida Governor Rick Scott turned his efforts to pressuring the Citizens Property Insurance Corp. board into dumping policies. At a November 1, 2011 Cabinet meeting, Scott surmised that policyholders wouldn’t contribute the 45% additional premium they would ordinarily have to pay if hit by what’s known as a “100-year storm”. Scott said “If policyholders can’t afford it, they will lose their insurance and their home.” Scott’s resolution revived an element of his campaign plan to deregulate the insurance industry. One month after appointing two allies to the Citizens Board, Scott told the board to devise a plan that will reduce the company’s size and risk by December.
After the incredibly destructive 2004-2005 Hurricane Seasons, Florida’s commercial insurance players took control of a decades-long regulatory two-step they traditionally performed with the legislature and State regulators. If they weren’t given a free hand to raise rates at will – they would leave the State. When lawmakers responded with “damn the torpedoes” sound bites and refused to accede, the carriers hit the road. In their wake, Australian insurer QBE remained behind. As the only game in town, they could wade through the carnage and cherry pick their way to insurance immortality.
Since Florida lawmakers wouldn’t remove the quid pro quo that required carriers selling other Florida policies to also offer windstorm to homeowners, QBE simply issued new eligibility requirements. They would insist that prospective policyholders meet the code requirements for new construction. To qualify for windstorm coverage, Associations could no longer rely on the legally grandfathered exemptions that were historically acceptable. Instead, they had to provide proof of a hardened, fully mitigated exterior shell. While a few associations raced to comply by securing rooftops and garage entrances as well as fully encapsulating their structures with code compliant shutters or impact glass on doors and windows, a vast majority drifted into a coma. Although they could still buy coverage from Citizens, the few dollars they saved by not installing code compliant storm protection was absorbed long ago by annually increasing premiums. What could happen next qualifies as torture.
If beachfront associations housed in structures valued at $50 million, $100 million, $200 million and more are limited to buying $1 million in coverage from Citizens, they will have to explore the insurance industry’s seedy underbelly - the mind-numbing world of surplus lines. In this largely unregulated den of thieves, exploitive insurers base their rates on the look in their customer’s eye. By suddenly denying coverage to thousands of beachfront buildings, Citizens will simultaneously stimulate the salivary gland of every surplus lines pirate. To be fair, there are some strong surplus lines carriers, although a pathetic minority. If the Governor actualizes his plan, impacted associations that hope to avoid insurance hell will have to scramble to harden their building shells and pray that it passes muster with some sympathetic admitted carrier (now there’s an oxymoron).
Alternatively, they can dig out their Governing documents and revise the sections regulating rentals. Depending on where these guidelines are located in the documents, affected associations hoping to dodge the Citizens eligibility torpedo may have to hold a difficult full membership vote to alter the rental regulations and sharply limit the association’s percentage of tenanted units. Unless the association’s board is populated by diehard megalomaniacs, they will look to the association attorney to deliver the goods without violating contract rights or constitutional protections. The problem with any of these reactive resolutions is that while associations hop from one foot to the other, the Citizens board can continue to indiscriminately churn out eligibility requirements that randomly abandon ad hoc groups of homeowners. While some board members are working to minimize the adverse consequences of depopulating the client roll, those answerable to the Governor measure success by how quickly and how many policies are dumped, not whether prospective former policyholders are provided with a remotely viable alternative.
There remains a glimmer of hope. Citizens’ officials are divided over this issue. The Vice President of Insurance Services at BB&T Bank in Tampa, Carol Everhart was appointed to the Citizens board in March of 2007. At a November 2011 meeting of the Citizens’ Actuarial & Underwriting Committee, she advised the panel “I don’t think our beaches can bear that right now,” referring to a premium increase she pegged at 450 percent. Opposed to throwing homeowners to the wolves amid a fragile economy and a struggling real estate market, Everhart pleaded with committee members to postpone the proposal. Unfortunately, Everhart ran into John Rollins.
|CITIZENS BOARD MEMBER CAROL EVERHART|
Appointed to the Citizens Board of Governors by Scott on September 20, 2011, Rollins echoes Scott’s message whenever afforded the opportunity. An outspoken member of Citizens’ Actuarial committee, Rollins characterized beachfront condos as the “riskiest risks” covered by the State’s insurer of last resort, adding that “these rates are among the most inadequate rates that Citizens has anywhere.” Shedding the bureaucratic hat of an actuary for the flaming sword of a crusading lobbyist, Rollins blasted beachfront community associations that “enjoy a massive subsidy in rate level by sitting on the beach in the most risky areas of Florida and sitting in the assessment account, ultimately, of every Floridian.” Not surprisingly, the panel sent Everhart packing and immediately tagged the issue for consideration by the full board.
|CITIZENS BOARD MEMBER|
When lawmakers failed to pass bills that would have reduced Citizens’ 1,472,391 policy client roll (as of December 31), Scott refocused the gubernatorial jackhammer on the bureaucrats that create and enforce policy at Citizens. After exclaiming “I consider this an integral part of the package of changes that we can make on a non-statutory basis to limit Citizens’ probable maximum loss,” Rollins made evident Scott’s hand in his crusade, stating that the plan was “consistent with the governor’s direction to take the lowest hanging fruit.”
|GOVERNOR RICK SCOTT|
Although the 25% rental rule had been intermittently applied and arbitrarily enforced since late 2011, it was never included in the manual for wind-only insurance policies or any other official Citizens document. Last year, the Citizens Board wanted the legislature to increase the annual 10% cap on rate hikes and allow carriers to pass reinsurance costs through to property owners. When angry constituencies forced lawmakers to shelve the bill, Citizens staffers decided to string together the failed legislative proposals into a package of eligibility guidelines designed to dump disparate groups of policyholders (i.e. “the lowest hanging fruit”).
To qualify as a target, the group only needed to be a sizable consumer of windstorm coverage. Since politicians from north and central Florida jurisdictions love to demonize South Florida beachfront associations anyway, targeting those that permit a substantial number of short-term rentals was almost intuitive. Other groups targeted by staffers share some unique structural vulnerability and/or an absence of political clout. For instance, they are also hoping to dump policy holders whose property features a screen enclosure or carport as well as certain wholly detached structures. A maximum $10,000 sublimit will be applied for damage to floors.
In a monument to contradiction, after admitting that the units in the targeted beach area buildings were mostly owned and occupied by elderly longtime state residents, Rollins described them as “substantially commercial enterprises” that are often owned by out of state investors whose profits are subsidized by artificially low insurance rates. While most Galt Mile residents would agree that Rollins’ contention is self-serving blather, there are frighteningly real problems with the transformation of Citizens’ mandate as the insurer of last resort to functionally serving as the State’s self-insurance vehicle. In fact, Condos play a major role in the company’s actuarial turmoil.
|CITIZENS JACKSONVILLE HEADQUARTERS|
In an attempt to lower tax burdens and insurance premiums, many associations annually understate their property’s value. Of the 26,600 wind-only policies written by Citizens for condominiums, the premiums only cover 20% of their combined $100 billion replacement value. If slammed by a major hurricane, when Citizens taps out, a three–tier assessment process would snap into effect. The first backup money would come from a surcharge on Citizens’ policyholders. If that’s insufficient, every other carrier would be tagged to pick up the slack. In turn, the carriers would pass the cost to their policyholders – anyone that holds any type of insurance in the state of Florida. The third backup is a final levy on both Citizens and private policyholders. Not in the statutory line of fire but arguably on the hook are taxpayers in general. In short, Citizens officials are desperately trying to dump policy holders to lighten the company’s liability.
Property owners in parts of the state less vulnerable to windstorm damage - along with their elected officials - understandably resent their place in the liability line for high risk properties near the ocean (of course, when one of their homes is gobbled up by a sinkhole, we are suddenly blood brothers with an obligation to share the risk). According to their own statistics, 45% of the policies written by Citizens cover properties in Broward, Miami-Dade, Palm Beach and Monroe counties. While these South Florida jurisdictions represent 52% of the carrier’s exposure, they also provide Citizens with 58% of its premium income.
Everhart and other opponents of implementing the rule are livid over the Governor usurping the Board’s mandate to create policy. They also object to the arbitrary enforcement of a rule that was casually approved and never officially documented. Lamenting “the way underwriting has been conducting itself for the last year,” Everhart told the committee “I don’t agree with what we’re doing in business practice right now.” She pointed out that a rate explosion would kill the slowly recovering condo market, add to the glut of units and send property values crashing statewide. As to the broader economic consequences, the unavoidable skyrocketing rents that would follow would poison the huge tourist market segment that avails itself of rental properties.
The icing on the cake: after forcing associations to satisfy their statutory insurance requirements in the surplus lines swamp, there is a better than even chance that the coverage will prove worthless. A local insurance agent whose clients include several Galt Mile associations remarked, “It’s one thing to pay premiums to a company that admits a major storm may require additional assessments to policyholders and taxpayers, it’s quite another to pay four times as much to a company that will evaporate before the storm passes."
On December 14, 2011, the Citizens Property Insurance Corp. board of directors did what their actuarial committee refused to do - postpone dropping the hammer on beachfront associations. At the board meeting in Orlando, Citizens Board Chairman Carlos Lacasa said “I sense this is one of those kinds of issues where we could confront a backlash at all levels and we have to really thoroughly consider it.” Despite the delay, board members support the staff plan and will divest itself of liability wherever possible. Having asserted that they delayed the anticipated action to provide the public and real estate professionals with an opportunity to vent, the Citizens board rescheduled the issue for consideration at their next meeting on February 4, 2012.
|CITIZENS BOARD CHAIRMAN|
Although the Governor doesn’t care who gets the axe, Citizens officials are supposed to. While community associations with liberal short-term rental policies seem like a tempting target, they belong to one of the few groups whose political bite is worse than its bark. As fate makes for strange bedfellows, along with the real estate industry, this issue has allied beachfront community associations with the same lending industry that they’ve been fighting with over foreclosures.
Since bloated bureaucracies tend to stall when faced with controversy, no one knows when or how this issue will play out. The Citizens Board would like to crimp the institution’s exposure by 7% or $1.5 billion by the February 4th meeting. To kick off their depopulation and privatization effort, in their January presentation to the Financial Services Commission, they state that “17,000 policies are scheduled to be removed from Citizens on February 14, 2012.” Of these, about 7,500 cover coastal properties. However, after the last meeting, Citizens President and CEO Scott Wallace commented “In decisions at the previous board meeting, the point was made that efforts to return Citizens to an insurer of last resort would require both initiatives from Citizens itself and statutory changes.” If lawmakers wouldn’t take the heat for statutory changes, why should he?
|CITIZENS PRESIDENT AND|
CEO SCOTT WALLACE
Citizens’ three-tier assessment process has recently fueled an enigmatic controversy. Private carriers have been lobbying to remove the second step, wherein they pay Citizens and recoup from their policyholders. To support enabling legislation (HB 1127) filed by Rep. Ben Albritton, R-Wauchula, the same lawmakers and lobbyists that predict insurance Armageddon is one storm away have been offering proof to review committees that Citizens has never been more financially sound and could weather a repeat of the 2004-2005 eight-hurricane scenario without breaking a sweat. With a $6 billion reserve and a sterling credit rating, they could easily pay the $7.3 billion in claims. In fact, if faced with a Hurricane Andrew-level disaster, in which claims would translate to $13.5 billion in today’s dollars, they demonstrated that Citizens would only have to draw $4.2 billion from its $6 billion kitty, $6.5 billion from the CAT Fund, $600 million in private reinsurance and $400 million in tier 1 policyholder surcharges. The remaining $1.8 billion, only 13% of the damages, would be billed to private policies.
|REP. BEN ALBRITTON|
To explain why lawmakers like Rep. Doug Broxson, R-Gulf Breeze, have been pounding the Governor’s line that “We’ve created a monster in this state” on the house floor, Senator Mike Fasano, R-New Port Richey, states that Lawmakers and insurance lobbyists typically focus on this worst-case scenario to press their real agenda, to eliminate a second tier responsibility that requires them to pay Citizens immediately and recoup from policyholders. Fasano claims that scaring the public is unnecessary, since the legislation will actually help restore a viable Florida insurance market. As exclaimed by company spokeswoman Christine Ashburn, “Any potential negative impacts relating to cost of additional financing and those types of things are outweighed by the positives which relate to helping the barriers to entry” for new private insurers.
|SEN. MIKE FASANO|
To avoid another political head lock from Governor Scott (and perceived complicity with scare tactics that push the ethical envelope), Wallace gave notice on January 10th (effective on April 6). After guiding the company through its largest expansion in history, he declined to sit idly by as Scott tries to dismantle Citizens with a sledgehammer instead of a scalpel, threatening to leave hundreds of thousands of homeowners twisting in the wind.
Three days later, state regulators gave Citizens the green light to lower its coverage cap from $2 million to $1 million for homes and condominium units, based on the combined dwelling and contents replacement cost. Effective on February 1 for new policies and May 1 for renewals, it applies to wind-only policies and multi-peril policies that include wind coverage. Over the next 12 to 16 months, the new cap will sever $17 billion from the carrier’s worrisome total exposure of $512 billion. In May, a mandatory 10% deductible applicable to payouts for collapsing sinkholes will whittle exposure by $6.7 billion and a reduction in personal liability coverage from $300,000 to $100,000 will clip exposure by a whopping $161 billion.
On February 13, Citizens incentivized condos with replacement values of at least $10 million to look elsewhere for multi-peril coverage. Effective March 1 (April 1 for renewals), a 21% increase in associations’ non-windstorm rates will likely be passed to unit owners. Of the 403 multi-peril policies Citizens wrote for high-rise condominiums, more than 80% are in Miami-Dade, Broward and Palm Beach counties. Although other carriers provide non-windstorm coverage, since most of them key their rate structure to that of Citizens, South Florida condo owners should lay in a supply of Rolaids.
Citizens plans to continue implementing the balance of 30 Actuarial Committee recommendations until 665,000 policies are excised from its client roll and its exposure is trimmed by $194 billion. While several circulating bills may cushion the carnage, most of the properties abandoned by Citizens will be fed to surplus lines wolves. No longer threatened with competition from the state subsidized carrier, this is the point in the fairy tale where legitimate commercial carriers return to establish a viable Florida insurance market. Don't hold your breath.
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A Tale of Two
December 30, 2011 - While association bills abound at the outset of every legislative session, the committee vetting process soon reveals each bill’s intent, beneficiaries, supporters and opponents. The wide range of filings are sorted into categories and identified as productive for or damaging to associations and/or their members.
Anti-association bills are generally propelled by one of three motivations; money, politics or ignorance. Individual businesses or entire industries that envision an opportunity to financially exploit common interest communities will call in a meticulously cultivated marker in order to lay some statutory groundwork for their agenda. The lawmakers that carry their water seek to repay past or future campaign funding largesse by relieving associations (and/or their members) of whatever rights or protections that their clients perceive as obstacles to an anticipated windfall.
In 2012, Bradenton Senator Michael Bennett and Miami Statehouse Representative Frank Artiles volunteered as waterboys for some extremely generous construction industry trade organizations. This comes as no great surprise, since Bennett is an electrical contractor and Artiles is a State of Florida licensed general contractor, real estate agent and public adjuster (what conflict?).
|SENATOR MICHAEL BENNETT|
After hearing the case “Lakeview Reserve Homeowners v. Maronda Homes, Inc., No. 5D09-1146 (Fla. 5th DCA)” on October 29, 2010, Florida’s Fifth District Court of Appeal ruled that home buyers and homeowners’ associations are entitled to recover damages for Breach of Common Law Implied Warranties from the builder or developer who saddles them with defective roadways, drainage systems, retention ponds and underground pipes. The developer asserted that since these elements aren’t physically part of the home’s structure, marketing materials indicating that homes were in “move-in” condition and available for immediate occupancy weren’t fraudulent or misleading. The court disagreed, stating that certain types of common element improvements were necessary to live in a home, and that a home buyer is forced to “rely on the expertise of the builder/developer for proper construction of these complex structures”. The case went to the Florida Supreme Court.
While community association advocates supported the lower court’s decision, construction industry associations filed amicus briefs in opposition to implied warranties. When the court first ruled against them, the Florida Home Builders Association (FHBA) and National Association of Home Builders (NAHB) paid a call on Bennett and Artiles to hedge their bets. Despite its pendency before the Supreme Court of Florida (which heard oral arguments on December 6th), on December 7th they decided to buy some insurance in the legislature.
In his Senate Bill 1196, Senator Michael Bennett seeks to protect developers who sell properties afflicted with critical common element construction defects by squelching their common law exposure to implied warranties. Artiles filed an identical companion bill, HB 1013, in the Statehouse. Their legislation would undermine homeowner rights and remedies for common area construction defects.
|REP. FRANK ARTILES|
Exclaiming that he is a friend to the struggling Real Estate market, the Senator believes that thousands of hoodwinked homeowners are a small price to pay for the confidence his bill would give to developers, thereby stimulating the housing economy. In short, more developers would risk entering the shaky market if they could avoid legal entanglements for performing substandard or defective construction. After all, using scotch tape instead of nails appreciably improves the bottom line. Then again, why should we care about the fate of homeowners’ associations or their members?
Bennett’s bill doesn’t only apply to HOAs. Since it targets anyone buying a home, the limitations would victimize homeowner associations, condominiums, co-ops, timeshares and mobile home parks. The legislation infers that condo and co-op owners in new developments who discover that the building’s defective drainage system spits sewage into the master bath or that their roof is made of sponge should “suck it up”. Bennett refers to these construction disasters as “off-site improvements” and disputes that they diminish a home’s habitability.
The Fifth District Court set this simple test to ascertain whether any residential construction element is eligible for implied warranty protection, “In the absence of the service, is the home habitable?” Construction Law Specialist Sanjay Kurian (Becker & Poliakoff, P.A.) holds that since these common area improvements are necessary in order to utilize the residential dwellings for their intended purpose, they are part and parcel of the sale and purchase of a residential dwelling in Florida. In fact, a developer couldn’t even qualify for a Certificate of Occupancy absent these improvements. Since association members are assessable for repairing or correcting defective common elements, the bill shifts liability for a developer’s negligence to associations and their members. With our support, association advocates hope to euthanize Bennett’s bill, thereby depriving the FHBA and the NAHB of the elephantine negligence loophole they helped finance.
While most anti-association bills thinly veil a mercenary game plan to sell out homeowners, some are filed by misguided lawmakers trying to fix complex problems they don’t fully understand. It’s no secret that associations appeal to career-minded politicians in search of a sizable statewide constituency. Often more concerned with cultivating a politically productive relationship with the State’s two million association members, their proposed bills suffer from a superficial knowledge of association issues. Their legislation’s simplistic resolutions would wreak havoc on the same people they aspire to befriend.
In an action that appeared out of character for some ordinarily progressive local legislators with laudable records, Fort Lauderdale Senator Chris Smith filed Senate Bill 706 on October 26th. A friend and Broward Legislative Delegation colleague, Representative Hazelle Rogers filed companion bill HB 713 in the Statehouse. The bills threatened to catapult associations plagued with foreclosures into fiscal limbo. In his handiwork, Smith proposed adding the following language to Section 718.115 of the Condominium Act: “The share of the common expenses of a unit in the condominium which is in foreclosure may not be assessed against other units in the condominium.”
|SENATOR CHRISTOPHER SMITH|
When a unit no longer contributes to the association, every other unit owner is forced to make up the shortfall to address association expenses. While nobody likes it, the alternative - losing employees, utility cut-offs, neglecting pressing maintenance or repairs, or otherwise sacrificing critical services - is a recipe for disaster. An association with 30% of its units in foreclosure would be consigned to paying 70% of its bills or beg reluctant lenders for high-interest bridge financing. This enigmatic time bomb is a clumsy, short-sighted attempt to address the foreclosure Catch-22 that currently burdens associations and their members.
|REP. HAZELLE ROGERS|
Since Senator Smith and Representative Rogers have reputations for integrity, association officials presumed that they were simply unaware of the catastrophic consequences threatened by their “solution”. Surmising that the bills inadvertently exemplified those good intentions that pave the road to hell, after association advocates met with Smith and Rogers on December 8th, the cooperative lawmakers agreed to pull the plug and send the bills to the cornfield.
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2012 Omnibus Association Bill
Bogdanoff and Moraitis Help Condos and Co-ops
|REPRESENTATIVE GEORGE MORAITIS|
December 13, 2011 - The Omnibus Association bill in 2012 is House Bill 319 (HB 319) – filed by District 91 Statehouse Representative George R. Moraitis. Building on the legislative momentum initiated by then Representative (now Senator) Ellyn Bogdanoff in 2010 (SB 1196) and Representative Moraitis last year (HB 1195), this year’s incarnation impacts Condominiums, Cooperatives and Homeowner Associations. Its sister bill in the Senate was filed by our District 25 Senator Ellyn Bogdanoff. Although Senate Bill 680 (SB 680) began as an identical twin to HB 319, vetting committees will selectively purge each bill’s provisions that conflict with the interests of their key members.
|BOGDANOFF EXPLAINS SB 1196|
A majority of the legislative content was provided by two powerful Florida law firms via corporate appendages created to cultivate client relations in the flourishing field of “Community Association Law.” A longtime friend to the Galt Mile community, association attorney Donna Berger directs the Community Advocacy Network (CAN) for Katzmann Garfinkel & Berger (KG&B) while former Department of Business and Professional Regulation (DBPR) Senior Attorney Yeline Goin directs the Community Association Leadership Lobby (CALL) for Becker & Poliakoff (B&P). The economic symbiosis that fuels these two organizations offers Florida associations efficient communication networks and viable lobbying vehicles while providing the two legal powerhouses with a client supermarket.
Actually, this protocol provides Becker & Poliakoff with a second income stream. Casual scrutiny of Moraitis’ 2011 and 2012 association bills reveals some provisions that only benefit management companies, such as B&P client Continental Management (one for you, one for me, one for you, two for me, etc.). Although Moraitis objected to the law firm’s adulteration of his bill, he needed the combined political capital of both firms to guarantee its survival. Moraitis enhanced his bill’s stability by incorporating provisions drafted by the DBPR and the Florida Bar.
While these advocacy groups helped Florida associations realize legislative progress for three consecutive years, equally responsible for this productive window are the players that carry the water in Tallahassee. Were it not for Jeffrey Atwater, Ellyn Bogdanoff and George R. Moraitis, South Florida would still be the State’s legislative laughingstock – as partisan bickering and self-serving agendas splintered Palm Beach, Broward and Miami lawmakers for two decades.
Although their efforts responded to a statewide outcry by associations, members of Galt Mile associations live in the districts that sent them to the Statehouse and Senate in Tallahassee. After bringing a high profile association bill to fruition during his rookie year, Moraitis met with constituents on the GMCA Advisory Board to solicit their legislative agenda. Along with a list of statutory glitch repairs, the retrofit deadline for elevators and foreclosure issues, GMCA officials pointed out the longstanding legislative tendency to neglect cooperatives while addressing association obstacles. Moraitis and Bogdanoff included the GMCA recommendations in their legislation. As the bills embark on their journey through House and Senate committee gauntlets, the following is a summary of the provisions that impact Condominiums and Cooperatives (Hat tips to Donna Berger, Yeline Goin, Lisa Magill and Michael Bender).
Section 1 – Elevator Retrofit (F.S. 399.02 – Condominiums & Cooperatives)
- Elevator Retrofit - The bill opens with a provision that eliminates the 2015 compliance deadline for retrofitting association elevators with Phase II Firefighter Service, an adaptation that enables Firefighters to control all of an association's elevators with a single master key instead of several keys that respectively control each cab. While the retrofit could conceivably save the couple of minutes it might take to sort out the few keys that control the elevators, there has never been a single case in Florida history wherein a death or injury was attributed to non-compliance with this mandate. The bill postpones the retrofit until an association opts to modernize its elevators, at which point the installation costs for Phase II service would drop to nearly nothing.
Section 2 – CAM Home Addresses (F.S. 468.433 – Condominiums & Cooperatives)
- CAM Home Addresses on DBPR’s Website - Inexplicably, lawmakers reserve their most brazenly besotted legislative blunders for community association bills. Some raving genius felt the public interest would best be served by publishing the names and addresses of association managers on a state website. Since managers issue board-mandated warnings or fines to unit owners for violating association rules, it is not uncommon for irate, tenuously balanced scofflaws to threaten a manager’s grizzly demise. Providing borderline sociopaths with the manager’s home address is tantamount to painting a target on their perceived nemesis. Enabling screwballs to harass an association employee at home is malicious, if not dangerous. Since the home address of every Florida licensed community association manager (CAM) is also available through the formal public records request system (which at least leaves a paper trail if abused), the bill amends Section 468.433(5), F.S., ordering the DBPR to yank them from their website.
Section 3 – Bylaw Glitch Repairs and Clarifications (F.S. 718.112 – Condominiums)
- Unit Owner Meetings – By inadvertently fumbling the phrases “in lieu of” and “in addition to”, last year’s Omnibus Association Bill (HB 1195) mandated associations to broadcast notices 4 times every hour notwithstanding the notices physically posted on association property. The bill fixes this “notice overkill” glitch.
- Board Member Certification Records – Amends Section 718.112(2)(d)4.b., F.S., providing that an association must keep board members’ certification records for the duration of their uninterrupted tenure or five (5) years (whichever is longer).
- Election Challenges – Creates Section 718.112(2)(d)4.c., F.S., providing that condominium election challenges must commence within 60 days after the announced election results.
- Recall of Board Members - Amends Section 718.112(2)(j), F.S., providing that:
- Recall Arbitration Deadlines – Under this change, the Division would not accept recall arbitration petitions if there are 60 or fewer days until the member being recalled is up for reelection; or 60 or fewer days have passed since the board member being recalled has been elected.
- Unit Owners – This language would permit unit owners to file a petition challenging the board’s failure to duly notice and hold a board meeting to certify the recall or the board’s failure to file a petition for arbitration if it refuses to certify the recall. The DBPR is limited to determining if the recall petition was properly served on the board and whether the written agreements or ballots are valid.
- Board Members – This measure would enable recalled board members to challenge the validity of the recall by filing a petition within 60 days following the recall certification.
Section 4 – Hurricane Protection (F.S. 718.113 – Condominiums)
- In addition to hurricane shutters, impact glass, or other code-compliant windows, this measure allows a majority of the total voting interests to approve installation of “code-compliant doors” and “other types of hurricane protection.” No upgrade vote is required if the association maintains, repairs and replaces any of these code-compliant hurricane mitigations. A board may not prohibit a unit owner from installing these protections if they conform to board-approved specifications.
Section 5 – Hurricane Protection (F.S. 718.115 – Condominiums)
- This measure provides that a unit owner who installs code-compliant protections must be credited with a pro-rata share of the assessed installation cost for protections that are subsequently approved by the association.
Section 6 – Joint and Several Liability for Assessments (F.S. 718.116 – Condominiums)
- Liability for Fees Associated with Delinquent Units – When a third party purchaser (other than a bank) takes title to a property at a foreclosure sale, this provision amends Section 718.116(1)(a), F.S., thereby requiring any third party purchasers and the previous owners to share in the liability for all late fees, interest, costs and reasonable attorneys’ fees associated with collection efforts against the delinquent property.
- Master and Sub Association Liability – Under this proposal, whether the master association or the sub association acquires title, one would not be liable to the other for unpaid assessments, fees, interest or attorney’s fees and costs that came due prior to taking title. This measure will relieve the reluctance of master and sub associations in large communities to foreclose delinquent properties for fear of triggering liability for past due assessments. By amending Section 718.116(1)(b)2., F.S., it corrects a drafting glitch in last year’s bill that restricted this protection to sub associations.
Section 7 – Suspension of Rights (F.S. 718.303 – Condominiums)
- Governing Document Violations – Intended to address another technical glitch in last year’s bill, this provision amends Section 718.303(3)(a), F.S., clarifying exceptions to suspended common area and facilities use rights for unit owners (and/or a unit owner’s tenant, guest or invitee) due to violations of the association’s governing documents (the declaration, bylaws or reasonable rules and regulations of the association).
Like common area use rights suspended for delinquency, the suspensions don’t include access to limited common elements that uniquely service that unit (i.e. balconies), common elements needed to access the unit (i.e. entry and egress), utility services provided to the unit, parking spaces or elevators.
- Suspension of Voting Rights – This measure amends Section 718.303(5), F.S., clarifying how the suspended voting rights of delinquent members impacts the constitution of a quorum. Subtracting the number of unit owners whose voting rights were suspended from the number of unit owners ordinarily required for a quorum yields the new number of unit owners required to constitute a quorum. For example, if 50 unit owners are ordinarily required to constitute a quorum and the voting rights of 10 delinquent unit owners were suspended, the revised requirement for a quorum is 40 (50 - 10 = 40).
Section 8 – Phase Condominiums (F.S. 718.403 – Condominiums)
Section 9 – Condominiums within Condominiums (F.S. 718.406 – Condominiums)
- Frequently referred to as “hotel condominiums” or “condos in a condo”, although Florida Statutes provide for a single commercial structure comprised of a master or “primary” condominium and one or more sub-condominiums or “secondary” condominiums, various legal and operational aspects of these entities were neglected when originally enacted.
The bill creates Section 718.406, F.S., providing guidance in authorizing owners of the primary condominium to exercise rights on behalf of subdivided unit owners, establishes the relationship between the board representing the primary condominium and its counterpart for the secondary condominiums, provides for the collection of assessments by the primary and secondary associations, provides that the owners of secondary units are subject to the provisions of both the primary and secondary condominium declarations, provides when owner and mortgagee consents are required to create a secondary condominium, establishes that the primary association can dictate specifications for hurricane or other building protections and establishes insurance requirements and obligations of the associations managing and operating both primary and secondary condominiums (consistent with Section 718.111(11), F.S., of the Condominium Act).
Section 10 – Condominium Ombudsman Staff Employment (F.S. 718.5011 – Condominiums)
- This provision amends Section 718.5011, F.S., removing a prohibition from “actively engaging in any other business or profession” for full-time Condominium Ombudsman staffers, as long as a secondary position does not directly or indirectly relate or conflict with their responsibilities in the State’s Condominium Ombudsman’s office.
Section 11 – Bulk Buyers & Bulk Assignees (F.S. 718.707 – Condominiums)
- By shielding purchasers of 7 or more condominium units (bulk buyers) from the tough standards and liabilities enacted for developers, the “Distressed Condominium Relief Act” was passed in 2010 to expedite sales of the glut of unsold condominium units in newly built and recently converted communities. While the Act spurred sales, its July 1, 2012 expiration date deprived lenders, bulk purchasers, unit owners and associations of adequate time to realize the anticipated benefits. To remedy this unrealistic time constraint, the Florida Bar drafted this provision that amends Section 718.707, F.S., which extends the Act’s sunset date from July 1, 2012 to July 1, 2015.
Section 12 – Official Records (F.S. 719.104 – Cooperatives)
- Personal Information – This measure amends Section 719.104(2)(c), F.S., providing cooperative owners with the same personal privacy safeguards that currently protect members of condo and homeowner associations when the association responds to a records request.
Unless a cooperative owner consents to waive this right in writing, a records request would exclude any Social Security Number, Driver License Number, credit card numbers, e-mail addresses, telephone numbers, emergency contact information and any address other than the addresses required for the association’s notice obligations. In short, the only personal identifying information that will be made available is the owner’s name, unit designation, mailing address and property address.
- Personnel Records – Already provided for in condominiums, this measure would prohibit member access to the personnel records of association or management company employees, including but not limited to, disciplinary, payroll, health, and insurance records. Since they aren’t considered “personnel records,” written employment agreements with an association employee or management company will remain accessible to unit owners, as will budgetary or financial records indicating the compensation paid to an association employee.
Section 13 – Lender/Mortgagee Consent Requirements (F.S. 719.1055 – Cooperatives)
- The bill creates Section 719.1055(7), F.S., duplicating a 2007 provision adopted in the Condominium Act. After the legislation’s effective date, cooperative association documents would be precluded from requiring a lender’s consent for amendments that don’t affect the lender’s rights or interests. For mortgages entered into prior to this date, the bill proposes clear protocols for boards to obtain lender consent and provides that any lender who fails to respond to an association‘s request for approval within 60 days after the date mailed shall be deemed to have consented to the amendment.
Section 14 – Bylaw Glitch Repairs and Clarifications (F.S. 719.106 – Cooperatives)
- Election Challenges – Amending Section 719.106(1)(d)1.a., F.S., it provides that cooperative election challenges must commence within 60 days after the announced election results.
- Board Member Certification – As currently applied to Condominium board members, this measure creates Section 719.106(1)(d)1.b., F.S., providing two options for certifying cooperative association board members. A Cooperative director can either 1) sign a statement certifying that he or she has read the association’s governing documents and policies and agrees to uphold them to the best of his or her ability or 2) complete an educational course approved by the State and submit the certificate of completion to the Board Secretary within 90 days of election or appointment to the board. Certificates earned up to one year before they are submitted are still valid.
- Board Member Certification Records – This provides that an association must keep board members’ certification records for the duration of their service or five (5) years (whichever is longer).
- Recall of Board Members – Amends Section 719.106(1)(f), F.S., providing that:
- Recall Arbitration Deadlines – Under this change, the Division would not accept recall arbitration petitions if there are 60 or fewer days until the member being recalled is up for reelection; or 60 or fewer days have passed since the board member being recalled has been elected.
- Unit Owners – This language would permit unit owners to file a petition challenging the board’s failure to duly notice and hold a board meeting to certify the recall or the board’s failure to file a petition for arbitration if it refuses to certify the recall. The DBPR is limited to determining if the recall petition was properly served on the board and whether the written agreements or ballots are valid.
- Board Members – This measure would enable recalled board members to challenge the validity of the recall by filing a petition within 60 days following the recall certification.
Section 15 – Suspension of Rights (F.S. 719.303 – Cooperatives)
- Governing Document Violations – Intended to address another technical glitch in last year’s bill, this provision amends Section 719.303(3)(a), F.S., clarifying exceptions to suspended common area and facilities use rights for unit owners (and/or a unit owner’s tenant, guest or invitee) due to violations of the association’s governing documents (the declaration, bylaws or reasonable rules and regulations of the association).
Like common area use rights suspended for delinquency, the suspensions don't include access to limited common elements that uniquely service that unit (i.e. balconies), common elements needed to access the unit (i.e. entry and egress), utility services provided to the unit, parking spaces or elevators.
- Suspension of Voting Rights – This measure amends Section 719.303(3), F.S., clarifying how the suspended voting rights of delinquent members impacts the constitution of a quorum. Subtracting the number of unit owners whose voting rights were suspended from the number of unit owners ordinarily required for a quorum yields the new number of unit owners required to constitute a quorum. For example, if 50 unit owners are ordinarily required to constitute a quorum and the voting rights of 10 delinquent unit owners were suspended, the revised requirement for a quorum is 40 (50 - 10 = 40).
Section 20 – Effective Date (Condominiums & Cooperatives) – If passed by both the Senate and the House and signed by the Governor, the provisions in HB 319 will become effective July 1, 2012.
On December 7, 2011, the House Civil Justice Subcommittee added 5 amendments to HB 319. One amendment clarified that condo election procedures do not apply to timeshare condominium associations while another provided for how a majority of condominium unit owners can approve creating a “condo within a condo.” A third amendment related to HOAs.
Catering to extremely lucrative client relationships with Florida banks, a Becker & Poliakoff attorney and a contracted lobbyist supported the inclusion of an amendment that openly benefits lenders at the expense of associations. Existing law states that mortgagees only have to pay 12 months of accrued base assessments prior to acquiring title or 1% of the original mortgage – whichever is less (aptly termed a “safe harbor” provision), other purchasers must share in the prior owner’s debts (collection costs, attorney's fees, etc.).
The amendment extends the bank’s “safe harbor” protection to successors in title, despite the fact that they aren’t party to the defaulted mortgage. The provision also expands the safe harbor lender protections by additionally shielding them from paying “interest, administrative late fees, reasonable costs and attorney fees and any other fee, cost or expense incurred in the collection process.” If the association takes a foot-dragging lender to court to push a deliberately stalled foreclosure to fruition and enable a sale (thereby recycling the unit into a productive contributor), this pro-lender provision would stop the court from forcing the lender to reimburse court costs and fees to the association.
When asked why B&P inserted this pro-lender measure into an association bill, CALL Executive Director Yeline Goin answered “It would go a long way toward assisting in clearing out the backlog of distressed inventory.” By insuring that banks don’t have to pay court costs for intentionally delaying foreclosures, it will somehow speed things along??? In short, this Voodoo provision should precede a requirement to click your heels together three times and whisper “There’s no place like home!”
The Committee also approved an amendment conforming laws governing cooperative associations more closely to those governing condominiums. The bill provides for co-ops to hold closed board meetings to discuss personnel matters, to impose a deadline for challenging elections, to require board member education or self-certification and otherwise mirror portions of the Condominium Act.
Moraitis’ HB 319 has yet to navigate the Judiciary Committee and the Business & Consumer Affairs Subcommittee in the Statehouse before it’s out of the woods. In the Senate, Bogdanoff’s companion bill, SB 680, must wade through the Regulated Industries, Judiciary and Budget committees. When the bills make it past the home stretch, they will become law… if the Governor can find his pen.
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