A Lawyer in Time Saves Nine... BY KATHY DANFORTH TTHE SHAME LIST I can t tell you the number of times that a board thinks that what they re doing is permitted by law only to learn that it really isn t, shares Matthew Zifrony, attorney with Tripp Scott Law Firm. Typically, I m asked to become involved after the board is threatened due to its his month lawyers across the state were asked about likely legal blunders committed by associations. Each responded with a different concern; not to cause consternation, but there is ample potential for missteps. Their observations can, however, help boards be on the alert for common pitfalls. 42 December 2013 FLCAJ www.flcaj.com
actions. An example is the use of a shame list. A board, with good intentions to assert pressure on delinquent owners, may decide to post their names as a way of getting them to pay. I ll learn about the board s actions after one of the delinquent owners threatens the board. One way that a board can protect itself against these types of situations is to hire an experienced property manager who has a basic understanding of what the law permits and prohibits. Another is to establish a good relationship with the association s attorney so that a quick call can be made to the attorney before the board takes any action. A lot of attorneys won t charge the association if an answer to the association s question takes very little of the attorney s time. SCREENING YOUR SCREENING Lisa Magill, attorney with Becker & Poliakoff, comments, The investigation, review, and approval (or rejection) of new tenants or proposed purchasers is a highly-charged area of community association operations and law. Many boards of directors do not fully understand the purpose of the transfer approval process in the governing documents and are not aware of the limits of their authority. First, not every association has the right to screen and approve new tenants or new purchasers. The governing documents must contain a transfer approval procedure and, more importantly, provide the seller with protection in order to justify the association s right to intervene. Under most circumstances, if the association wants to reject a transfer by sale, it must purchase the property or find someone to purchase the property under the same terms and conditions as the original deal. This is known as a right of first refusal or a right of substitution. Florida case law holds that if the documents set forth a transfer approval procedure, the association can reject any sales transaction on a non-discriminatory basis, so long as it exercises this right of first refusal or furnishes a substitute buyer. On the other hand, association documents that contain screening and approval provisions without a corresponding obligation to purchase or substitute a purchaser are practically always invalid and unenforceable. The practical problems here are readily apparent. In most cases, associations either do not have or do not wish to raise the money to buy a unit and typically cannot secure an alternate purchaser within the required time frame. It is important to remember the authority of the association largely depends upon the language of the transfer approval provision itself. SOMETHING NEW... C. Glen Ged, attorney with Ellis, Ged & Bodden, P.A., cautions, An estimated two million homes in Florida are regulated by a homeowners association. But those organizations never had to register with the state, until now. Among several changes Florida lawmakers enacted recently that will affect everyone in the industry, homeowners associations now fall under the jurisdiction of the Florida Department of Business and Professional Regulation (DBPR). The new law requires that every HOA register with the DPBR by Nov. 22. That means, every community association manager, all community association management firms, and homeowners associations that don t have managers must report certain business information about their associations by that deadline. The report must include the association s legal name, federal employer identification number, mailing and physical address, total number of parcels, and total amount of revenues and expenses from the association s annual budget. For developer-controlled associations, the report must also include the developer s legal name, mailing address, and total number of parcels owned on the date of the report. The DBPR s new HOA office, paid for with an estimated twodollar annual fee to be charged to homeowners, is designed to eliminate HOA conflicts and structure how HOAs are run, according to Ged. To register, you must create an online account at www.my floridalicense.com/dbpr/hoa.html. ADDRESSING TERMITE DAMAGE Pete Cardillo, Managing Partner, of the Cardillo Law Firm advises, Under Florida law, condominium board members have a fiduciary duty to protect the property from termite infestation and damage. If termite damage is suspected, an authorized board member should take action immediately. The statute of limitations expiration is often used by pest control companies to avoid liability. You may have two avenues of recovery: the pest control company and your insurance carrier. Gather copies of your current contract and any previous pest control contracts, inspection and treatment reports, and insurance policies or ask for them. But remember, you re not yet making a claim, just gathering information. www.flcaj.com FLCAJ December 2013 43
See if you have a repair guarantee or repair promise/ bond. If so, repairs are covered while this contract is active. Do not cancel or allow your contract to lapse. Never sign a release with your termite company without reviewing it with an attorney. It will effectively end any chance you may have to recover money. While most property insurance policies exclude termite damages (typically called insect damage ), nearly all policies include a pledge to pay for collapse. Any significant termite-related structural damage means the structure may be in a state of collapse. Now you re ready to make a claim. If the claim is denied, consider consulting an attorney. LET THE COLLECTORS COLLECT Michael Ungerbuehler, attorney with The Association Law Firm, comments, One of the most frequent missteps we experience involves boards directly communicating and negotiating with delinquent owners regarding a collections matter that s already being pursued by the association s law firm. Often, such direct communication results in the association losing money it did not intend to waive. It can even cause the association to lose the ability to properly pursue collection efforts. When the direct communication and negotiation is done without the knowledge of the association s law firm, the board may inadvertently waive an owner s liability for additional attorneys fees and costs that will be incurred, thereby resulting 44 December 2013 FLCAJ www.flcaj.com
in the association having to pay fees and costs without reimbursement from the delinquent owner. Additionally, if the attorneys are unaware of the pending settlement and, thus, continue to pursue collections, the association s position in a pending lien foreclosure could be jeopardized or the association could become liable for damages due to a violation of Florida and/or federal collection practices laws. Even when the association s law firm is made aware of direct settlement negotiations but is excluded from such negotiations, problems arise. The end result is that owners will often claim the board agreed to certain terms or waivers of amounts that the board insists it never accepted. The matter becomes a classic he-said/she-said argument, and the association may incur far more in attorneys fees and costs just to prove what was actually accepted. LIFE AFTER DAMAGE: PURSUIT OF INSURANCE Donna Berger, Founding Partner with Katzman Garfinkel & Berger, has found the road to insurance reimbursement to be fraught with obstacles and provides Garfinkel s Guidelines for Avoiding Common Insurance Blunders to help associations navigate that challenging time. Do not misunderstand your insurance agent s true role. Your agent has no decisionmaking authority regarding if or when insurance proceeds are awarded to you and the amount of those proceeds. www.flcaj.com FLCAJ December 2013 45
46 December 2013 FLCAJ www.flcaj.com Always get a second opinion. The job of the insurance company s adjuster is to ensure that your damages never exceed your deductible. Your job as a board is to hire an independent expert to review the property and determine the cost of covered damages. Properly document your community s condition. Datestamped photographs and videos regarding maintenance and repairs should be retained for a minimum of 10 years. Having photographic proof of your property s condition helps you avoid the insurance company s trap of asserting that all damage was either pre-existing or as the result of improper maintenance. Always follow the Buyer Beware principle. When hiring a Public Adjuster (PA), have the contract reviewed by your association attorney and insist that the PA is only entitled to an agreed-upon percentage of any recovery if the PA specifically obtained that money for you. As for contractors, address only your immediate needs such as protecting the building from further water intrusion and wait to sign the full restoration contract until after you have had a chance to vet the contractor and have your attorney fully negotiate the contract terms. Use an attorney right out of the starting gate to file a proper insurance claim. While the trick is knowing that you are leaving the starting gate, the cliché pile can include that an ounce of consultation is worth a pound of litigation for most communities; these are points of consultation worth observing!