A couple weeks ago, the West Palm Beach HOA Examiner was invited to attend the PM-EXPO Mardi Gras at the South Florida Fairgrounds. This event, which attracted hundreds of board members, property managers, and companies who are involved with associations, gave all who attended the opportunity to attend various courses intended to inform the assembled masses about developments that could affect the way that community associations are run.
In more than one of these seminars, a court case was discussed that could very easily have far reaching implications on the ways that both condominiums and HOAs are able to recover from delinquent accounts, also referred to as bad debt.
"It’s another bad break for community associations and who knows what the upcoming legislative session with bring with it," stated Mitch Drimmer, Vice President of Association Financial Services.
On January 23, 2013, the Florida Third District Court of Appeal released its opinion in the matter entitled Aventura Management, LLC v. Spiaggia Ocean Condominium Association, Inc. This decision has important implications for condominium associations throughout Florida’s Third District and likely throughout the state.
In general, the Court of Appeal found that pursuant to Section 718.116(1)(a) of the Florida Condominium Act, a condominium association that becomes a unit owner by foreclosure or otherwise, becomes jointly and severally liable with the previous owner(s) for all unpaid assessments that came due up to the time of the transfer of title.
The practical result of the Aventura Management ruling is that if an association becomes an intervening owner of a unit (by foreclosure or otherwise), one could argue that a subsequent third party owner would not owe any of the past due ledger amounts (including delinquent assessments, accrued interest, late fees and costs of collection) to the association that accrued prior to the third party’s purchase of the unit. The dim silver lining is that according to the opinion of the majority of the Court, the association still retains the right and ability to seek the past due debt from the previous owner that was foreclosed upon. In reaching this conclusion, the majority of the Court unambiguously rejected the association’s equitable argument that the sole purpose for the foreclosure of its lien was protection of its interests, potentially allowing the association to rent the unit in order to reduce amounts due to it by the prior owner.
Based upon this ruling, a revision to association collections strategy is warranted. Specifically, this ruling significantly limits an association’s incentive to protect its rights through a legal foreclosure process because its ability to collect even the statutorily provided safe harbor from a first mortgagee may be eviscerated. Therefore, foreclosure by an association is only warranted when taking title makes clear economic sense to the association.
This would be the case when the unit is in rentable condition (or can be put into rentable condition fairly quickly and at an out-of-pocket cost acceptable and affordable to the association),there is a market for rentals in the community that will allow the association to recoup more from renting the unit than under the safe harbor provisions of the Florida Statutes, and the first mortgagee has not yet commenced a foreclosure proceeding or is just starting the process.
Although many attorneys and managers do not agree with the Court’s ruling, for the time being, it is most conservative that if your association is located in a county other than Miami-Dade and Monroe, it should follow this same practice. This is certainly an area worth discussing with an attorney. As always every association should consult their attorney specializing in community association law regarding this matter.
"I have very strong opinions about such foreclosures," added Ward Lucas of NeighborsatWar.com. "My bottom line is that members of Homeowers Associations almost universally don't realize that they've surrendered virtually all their rights under the U.S. Constitution. No HOA (de facto government) should have the ability to deny these rights to homeowners. Most HOA members unintentionally signed away their rights to a really sneaky and corrupt movement."
After consulting with your attorney in regards to how your association stands in terms of debt collection, perhaps you should make another call that might just help to alleviate some of the stresses involved in trying to get paid the money that you are rightfully owed.
Association Financial Services, headquartered in Miami, Florida, has just rolled out a new collections program that has been crafted to serve the entire country. Known as Simplified Nationwide Association Platform or SNAP Collections they are bringing an enterprise level collections service to community associations in all fifty states. "This program's goal is to bring a high level of collections service to community associations" said Mitch Drimmer, Vice President of AFS. "The services that are provided by SNAP Collections do not require the associations to come out of pocket and eliminate the costs involved in recovering association money. We are managing a collections process NOT a legal process and in the end the association walks away with more money recovered and that is the object of this endeavor. SNAP Collections will be sold through management companies which are crucial to successful collections."
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