January 29, 2008

Donna Berger Talks about Changes in Condo Law

Donna Berger Talks about some of the recent Condo Law changes Regarding the collection of delinquent assessments in a homeowner’s association HOA. Donna Berger also points out that not only the HOA need to be made aware of the new law but also the homeowner’s as well.  

Senate Bill 1844 sponsored by Senator Jeremy Ring (D-Parkland) recently was signed by Governor Crist and becomes effective today, July 1, 2007. This bill makes some sweeping changes as they relate to the collection of delinquent assessments in a homeowners’ association. This bill does NOT impact condominium, cooperative or other common interest ownership associations. It is important to remember, however, that changes made to one common ownership statute typically wind up being implemented in the other statutes as well so it is advisable for owners in every type of community association to know about and understand these changes.

Prior to this bill becoming law, the collection of delinquent assessments in a homeowners’ association was, for the most part, dictated by the terms and provisions of the association’s governing documents. This new law makes the following changes to Chapter 720 (the HOA Act):

1. Assessments and installments on assessments that are not paid will bear interest from the date due until paid at the rate provided in the Declaration or Bylaws of the association. If those documents do not provide for an interest rate, the interest shall accrue at 18% per year. (This is the same language that is currently found in the Condominium Act);

2. The association may charge an administrative late fee in an amount not to exceed $25.00 or 5% of the amount of each installment if th eDeclaration or Bylaws authorize the association to do so. (Again, this is language that was transported over from the Condominium Act. HOA’s that currently don’t have this provision in either their declaration or bylaws should consider amending those documents to provide for this authority);

3. Any payment received by an association shall be applied first to any accrued interest, then to any administrative late fee, then to any costs and reasonable attorney’s fees incurred in collection, and lastly to the delinquent assessment. This application of payment schedule shall apply regardless of any restrictive endorsement on the back of the check to the contrary. (This language again emanates from what is already found in the Condominium Act and prohibits a delinquent owner from avoiding responsibility for the payment of interest, late fees and attorney’s fees and costs);

4. An HOA may not file a claim of lien against an owner without first giving a 45-day advance written notice which must be sent by registered or certified mail, return receipt requested, AND by first-class United States Mail sent to the owner at his or her last address reflected in the association’s records. If the owner’s address is outside the United States then first-class mail notice alone is sufficient to comply with this portion of the statute;

5. A foreclosure action may not be brought without first giving the delinquent owner advance 45-day notice of the intent to foreclose. (This 45-day notice is in addition to the required 45-day notice before an association can file a claim of lien, thus bringing the statutory notice requirements to 90 days before foreclosure can be effectuated. Please note that an association’s individual governing documents may require even more notice from the association before sending the file over to an attorney for collection so, in light of these new statutory notice requirements, an association may wish to amend its documents to tighten up its internal notice framework so as to not duplicate the statutory notice and thus, unnecessarily extend the time before effective collection can be commenced);

6. Once a summons on a complaint to foreclose the association’s lien has been served on the delinquent owner, the owner may serve and file with the court a “qualifying offer” at any time before the entry of a foreclosure judgment so long as the lot in question is not the subject of a mortgage foreclosure or a tax certificate sale and/or the delinquent owner has not filed bankruptcy proceedings;

7. The qualifying offer must be in writing and the delinquent owner must agree to pay all amounts secured by the association’s lien plus interest accruing during the pendency of the qualifying offer. The owner may make only ONE qualifying offer during the pendency of the association’s foreclosure action. (Basically, tendering a qualifying offer stays the association’s foreclosure action for 60 days. If the owner breaches the qualifying offer, the stay is lifted an the association may proceed to obtain a foreclosure judgment. Remember, however, that in the most expedited action when a qualifying offer is made, the association is still delayed 150 days or 5 months from obtaining resolution on a delinquency which further reinforces the need for associations to be mindful of delinquencies and to not allow them to languish);

8. A parcel owner, regardless of how his or her title to the propery has been acquired, including via purchase at a foreclosure sale or by deed in lieu of foreclosure is liable for all assessments that come due while he or she is the parcel owner. Moreover, a parcel owner is jointly and severally liable with the previous parcel owner for all unpaid assessments that came due up to the time title was transferred. (The practical reality of this language is that lenders who take title to lots in HOA’s as a result of a mortgage foreclosure action are responsible for all past-due assessments on that lot. Unlike the Condominium Act which limits lenders’ liability for past-due assessments to 1% of the original mortgage debt or 6 months past-due assessments, Sen. Ring’s bill contained no such caps on lender liablity. This loophole will certainly be closed next Legislative Session with an insertion of lender liability cap similar to what is currently found in Chapter 718 of the Florida Statutes.

It is important that all HOA owners know and understand these changes and that HOA boards speak to their legal counsel about these new procedures and review their internal collection protocol to avoid unnecessary replication of these new statutory requirements.