Condo Pub.

Some 86 percent of Florida condominium and homeowners associations expect foreclosures and delinquencies to stay the same or increase next year, creating additional revenue shortfalls for their associations.

A survey conducted by the Community Association Leadership Lobby, or CALL, a group that lobbies state legislators on behalf of condominium and homeowners' associations.

"While economists and Realtors try to read favorable signs into national home sales data, frustrated Florida community association owners foresee 2010 actions ranging from potential community bankruptcies at one extreme, to deferred maintenance, amenity cuts and a lowering of association standards that further threaten property values," the CALL report said.

Part of the financial strain involves lenders that are taking their time when it comes to foreclosing on homes and condos.

Once lenders formally take over a property, they are responsible for paying the association dues from that point forward. Until they do, however, the dues generally go unpaid for months or even upwards of a year or two, causing shortfalls for association budgets and putting increased pressure on the remaining homeowners.

Under current Florida law, once a bank takes possession through foreclosure, it is responsible for paying a certain amount of back assessments. But that amounts to only six months' worth for condos, or up to 1 percent of a unit's value. Lenders have to pick up a year's worth of back assessments for single-family homes.

But the CALL report found that "bank foreclosure delays of 12 to 24 months" were frequently cited by those surveyed, and that "bank failures to pay maintenance fees and assessments on distressed units continue to draw the ire of many respondents."

The report found that 6 out of 10 of those surveyed said budgetary gaps created by foreclosures and delinquencies resulted in assessments for everyone in the community being hiked over the past year to plug the shortfall.

Nearly 7 out of 10 of those surveyed said that the percentage of units or homes that were 60 days delinquent or more on their assessments had gone up compared with a year ago.

Sixty percent of condo associations also reported having to "postpone major capital investments in upkeep or repair," while 46 percent of homeowners' associations said the same.

"These survey results clearly show the so-called 'ripple effect' of the mortgage foreclosure crisis has in too many cases become a tsunami, wrecking havoc on the finances of Florida's common-interest ownership communities and undermining their ability to deliver services, safety and amenities to the millions of people who reside in condos, HOAs and other community associations statewide," said Sarasota attorney David Muller, CALL's co-executive director.

As we have previously advised you, HB 995 was filed by Representative Robaina and included many of the suggestions made by the Select Committee on Condominium and Homeowners Association Governance. The bill is a priority of the House leadership and Representative Robaina, who chaired the Select Committee and it was approved by the House of Representatives last Friday by a vote of 110 to 0.

The good news is that by working with the bill sponsor and the House leadership, CALL was able to suggest a number of changes to the bill, which were made and which will lessen the impacts on condominium associations.

For example, the previous version of the bill would have eliminated staggered terms. CALL advocated for the ability of associations to retain staggered terms for directors. The bill was changed to permit staggered terms of no more than 2 years if permitted by the bylaws and if approved by a majority of the voting interests.

Another example of a positive change made to the bill involves the section requiring an inspection report by an architect or engineer every 5 years for buildings more than 3 stories attesting to required maintenance, useful life, and replacement costs. CALL advocated for an opt-out provision and one was included. Associations will be permitted to "opt-out" by a vote of a majority of the owners present in person or by proxy. Such meeting and approval must take place prior to the end of the 5 year period and is only effective for that 5 year period.

In addition, two provisions from the "CALL bill" (HB 1349/SB 2470) were added to HB 995: (1) emergency powers for Boards; and (2) an important "glitch fix" to the material alteration provisions in the condominium statute.

Also, CALL advocated against a number of amendments that were presented on the floor of the House during debate. One of the amendments would have prohibited someone from serving on the board unless that person was a "full-time resident" unless more than 50% of the residents were not full-time. Another amendment would further regulated rental restrictions. These amendments were ultimately withdrawn.

The bill is now headed for a full vote of the Senate. The following is a summary of the bill passed by the House of Representatives:

Chapter 468: The bill will require community association management firms to be licensed if the firm manages more than 10 units or a budget of $100,000 or more.

718.111(1)(b): Provides that a director who abstains from voting shall be presumed to have taken no position with regard to the action taken.

718.111(1)(d): This section includes a standard of care for directors similar to the standard of care imposed on directors of a not-for-profit corporation pursuant to Section 617.0830, Florida Statutes, (governing not-for-profit corporations). Will require directors to act in good faith and in a manner that he or she reasonably believes is in the best interest of the association. Also provides that directors will be liable for money damages if the director commits a crime, if the director derived an improper personal benefit, either directly or indirectly, or if the act constitutes recklessness, bad faith, with a malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety or property. This liability provision is similar to the provision in the not-for-profit statute, 617.0834.

718.111(12)(a)11. and 718.112(12)(c): States that anyone who knowingly and intentionally defaces or destroys accounting records required to be maintained by the statute, or knowingly or intentionally fails to create or maintain accounting records required by statute, is personally subject to a civil penalty.

718.111(12)(b): Requires that all official records must be maintained for at least 7 years and within 45 miles of the condominium or within the county where the condominium is located. Gives the association the option to maintain and provide the records to the owners in an electronic format.

718.111(2)(c): Provides that social security numbers, drivers' license numbers, credit card numbers and other personal identifying information are not accessible to unit owners.

718.111 (13): Requires the Division to adopt additional rules regarding information to be included in financial report such as a summary of the reserves including information as to whether such reserves are being funded at a level sufficient to prevent the need for a special assessment and, if not, the amount of the assessments necessary to bring the reserves up to the level necessary to avoid a special assessment.

718.111(13): Permits the vote to waive the financial report to be taken before the start of the fiscal year.

718.112(2)(c): Provides that if 20 percent of the voting interests petition the board to address and item of business, it must be considered by the board and its next regular meeting or at a special meeting, but not more than 60 days after receipt of the petition.

718.112(2)(c ): States that notice of any meetings at which regular or special assessments will be considered shall specifically state the nature, estimated cost, and description of the reasons for assessment.

The current law requires that the notice of meetings at which "regular" assessments will be considered contain a statement that assessments will be considered and the nature of the assessment. The proposed change requires this information also for "special" assessments and would also require that the notice include the estimated cost and description of the reasons for the assessment.

718.112(2)(d)1.: Require that the annual meeting be held at the location provided in the bylaws, and if the bylaws are silent, must be held within 45 miles of condominium.

718.112(2)(d)1.: All board members must stand for election at annual meeting. However, if the bylaws permit staggered terms of no more than 2 years and if a majority of the total voting interests approve, the directors can serve for 2 year staggered terms. Also states that if no one is interested in or demonstrates an intent to run, such person whose term has expired is automatically reappointed and does not have to stand for election.

718.112(2)(d)1. Co-owners in condos with more than 10 units cannot serve on the board at the same time.

718.112(2)(d)1.: Provides that a person who has been suspended or removed by division , or is delinquent in the payment of assessment as provided in s. 718.112(2)(n) is not eligible for board membership. Also provides that if a person has been convicted of any felony is not eligible to serve on the board until 5 years after his or her civil rights have been restored.

718.112(2)(d)3.: Requires candidates to certify, on a form provided by the Division, that they have read and understand "to the best of their ability" the condominium documents, statute, and applicable rules. The form must be submitted along with the notice of intent to run for the board.

718.112(2)(d)8.: Provides that in order to "opt-out" of voting and election procedures in the statute, the condominium must consist of only 10 units or less.

718.112(2)(f)1.: The current law states that the budget shall show "common expenses." The proposed change states that the budget shall show "estimated revenues and expenses."

718.112(2)(f)4.: Requires that proxy questions to waive or reduce reserves or to use reserves for other than the purposes for which they were intended must contain the following statement in capitalized, bold letters, in a font larger than used on the face of the proxy: WAIVING OF RESERVES, IN WHOLE OR IN PART, OR ALLOWING ALTERNATIVE USES OF EXISTING RESERVES MAY RESULT IN UNIT OWNER LIABILITY FOR PAYMENT OF UNANTICIPATED SPECIAL ASSESSMENTS REGARDING THOSE ITEMS.

718.112(2)(n): Provides that directors who are 90 days delinquent in the payment of regular assessments shall be deemed to have abandoned the office, creating a vacancy in the office to be filled according to law.

718.112(2)(o): Provides that a board member who is charged with felony theft or embezzlement involving the association's funds shall be removed from office, creating a vacancy in the office to be filled according to law. If the charges are resolved without a finding of guilt, the director shall be reinstated for the remainder of the term, if any.

718.1124, 718.117(7)(a), and 718.127: Revises procedures for the appointment of a receiver.

718.113(2)(a): Includes the language: "This provision is intended to clarify existing law and applies to associations existing on the effective date of the act."

This is a "clean-up" amendment to include language that was inadvertently left out when amendments to this section were previously adopted.

718.113(5) and 718.115(1)(e): Provides that Board can install hurricane protection that complies with or exceeds applicable building codes (in addition to hurricane shutters). A vote of the owners is not required if the hurricane protection to be installed is the maintenance, repair, and replacement responsibility of the association. The cost to install the hurricane protection is a common expense if the hurricane protection to be installed is the maintenance, repair, or replacement responsibility of the association. In such case, owners who have previously installed code compliant hurricane protection will receive a credit on the assessment.

718.113(6): Requires an inspection report by architect or engineer every 5 years for buildings more than 3 stories attesting to required maintenance, useful life, and replacement costs. Also provides for an "opt-out" vote by a majority of the owners present in person or by proxy. Such meeting and approval must take place prior to the end of the 5 year period and is only effective for that 5 year period.

718.113(7): Provides that an association cannot refuse an owner a reasonable accommodation for the attachment on the mantle or frame of the unit door a religious object not to exceed 3 inches wide, 6 inches high, and 1.5 inches deep.

718.121(4): Requires 30-day notice before filing a lien and requires service by certified mail and regular first-class mail. However, if the address of the owner is outside the United States, the notice must be sent by first-class mail to the unit address and to the last known address by regular mail with international postage. Alternatively, the notice can be served as authorized by Chapter 48 and the rules of civil procedures.

718.1224: Prohibition against "SLAPP" suits. This provision is nearly identical to the "SLAPP" suit provision in the Homeowners' Association Act (Chapter 720).

718.1255: Removes language from "arbitration" section of statute stating that courts are becoming overcrowded with condominium and other disputes.

718.301(1): Will require turnover to occur if the developer files for bankruptcy or if a receiver for the developer has been appointed and has not been discharged within 30 days after such appointment.

718.301(4)(p): Will require the developer to prepare and turn over to the association a report, under seal of an architect or engineer, attesting to the maintenance, useful life, and replacement costs of a number of items including roof, elevator, heating and cooling systems, seawalls, etc.

718.3025(1)(f): States that no written contract providing for maintenance or management services shall be enforceable unless the contract discloses any financial or ownership interest a board member or any party providing maintenance or management services to the association holds with the contracting party.

718.3026: Changes the ability of associations to "opt-out" of this section. Would permit only associations with 10 units or less to opt-out.

718.3026(2)(a)2.: Currently, this section states that contracts executed before January 1, 1992, and any renewal thereof, is not subject to competitive bidding requirements. The bill removes this language. Therefore, even if contract was entered into before January 1, 1992, the renewal must be subject to competitive bidding.

718.3026(3): This is a new provision addressing contracts between the association and one or more of its directors of any corporation, firm, or entity in which one or more of its directors are financially interested. Will require certain disclosures to be made and the contract must be approved by two-thirds of the directors present at the meeting. Also permits the contract to be canceled at the next regular or special meeting of the members. Upon motion of any member, the contract shall be brought up for vote and may be canceled by a majority vote of the members present. Should the members cancel the contract, the association shall only be liable for the reasonable value of goods and services provided up to the time of cancellation.

718.303(3): State that fining committee members cannot be board members or persons residing in a board member's household.

718.501(1): Changes jurisdiction of Division. If turnover has occurred, Division only has jurisdiction over financial issues, elections and access to records.

Note that there has been another bill filed (HB 7101) which will reduce the fees paid by unit owners to the Division from $4 per unit to $2 per unit. Presumably, the reduction in fees is related to the change in jurisdiction.

718.501(1)(a)2.: Permits the Division to issue orders against additional persons including developer-designated members of the board or officers, developer-designated agents or assignees, community association managers, and community association management firms.

718.501(1)(a)3.: Permits the Division to bring an action in circuit court against a developer who fails to pay any restitution determined by Division to be owed to association. Also permits Division to temporarily revoke its acceptance of developer's filing to which the restitution relates until payment of the restitution.

718.501(1)(a)4.: Permits the Division to order the removal of an individual as an officer or from the board and may prohibit such person from serving as an officer or board member for a period of time.

718.501(1)(a)5.: States that if a unit owner presents the Division with proof that the unit owner has twice and the association has failed or refused to provide access, the Division shall issue a subpoena requiring production where the records are kept.

718.501(1)(j): Requires the Division to providing educational programs (in addition to training programs), which may include web-based, electronic media and live training and seminars. Also provides that the Division shall have the authority to review and approve education and training programs offered by providers and to maintain a current list of such approved programs and providers.

718.501(1)(n): Requires board members, employees, developers, managers and management firms to reasonably cooperate with the Division in its investigation. Further, the Division shall refer to local law enforcement authorities any person who the Division believes has altered, destroyed, concealed, or removed any record, document or thing required to be kept or maintained by this chapter with the purpose to impair its verity or availability in the department's investigation.

718.5012(9): Gives the Ombudsman's office the power to assist with resolution of disputes between unit owners and the association or between unit owners when the dispute is not within the jurisdiction of the division to resolve.

718.50151(1): Changes Advisory Council to "Community Association Living Study Council." It is appointed every 5 years for 6 months starting on July 1, 2008.

718.503: Requires sellers to provide prospective purchasers a "governance form" adopted by Division.