By Kevin Chiu
A new law that forces banks to pay up delinquent homeowner association fees, could signal the beginning of a national movement.
The new state law, known as the Distressed Community Association Relief Act was signed by Florida Governor (R) Charlie Christ and is intended to help condo and homeowner associations that are plagued by financial problems as a result of the housing crisis. Florida has the third highest number of foreclosures in the nation, and has more vacation homes than any other state in the country.
“Other states facing a similar foreclosure crisis, including Nevada , California , and Arizona , should follow Florida ’s lead,” said Miami, Florida real estate attorney Amir Isaiah. Isaiah is the Director of Fiduciary Services for Kaufman, Rossin and Company, one of the nation’s top Certified Public Accounting firms and has participated in federal and state government investigations for the FBI, Security and Exchange Commission and several other state and federal government agencies.
The new law affects condominium associations and other homeowner associations, where owners co-own a percentage of the property and other amenities like swimming pools, parking spaces, common areas and golf courses.
“One important provision in the new law allows for financially challenged condominium and homeowner associations to collect rents directly from the tenants of delinquent unit owners to pay down the past due assessments,” said Isaiah. Associations must inform delinquent owners in writing before forcing banks and other mortgage lenders to pay-up.
“Unit owners who are renting their units and failing to pay their assessments will no longer be able to reap a financial windfall or unjust enrichment,” said Isaiah. To ensure effective enforcement on the part of tenants of delinquent unit owners, the law enables associations to evict tenants who fail to comply by paying rent to associations. The new law goes into effect in Florida July 1st.
“Some people, particularly delinquent unit owners and the attorneys who represent them, may argue the new law gives associations too much power,” said Isaiah. But owners of condos and others who are members of co-ownership associations disagree since they are often burdened by higher costs to make up for fees that are not paid by owners who have defaulted on mortgages.
“They argue that associations should be provided with greater authority, including the ability to rent out vacant or abandoned units. The new law is an important step, but additional steps are needed,” said Isaiah.
A provision of the legislation affects lenders that have acquired title to units through foreclosure or by having mortgage owners sign a deed in lieu of foreclosure instead. The law increases the mortgage liability cap for delinquent assessments from six to twelve months, but it also retains a one percent cap. Mortgage lenders will now have to pay the lesser of 12 months worth of unpaid assessments or one percent of the mortgage debt.
Although an association will not be permitted to suspend use of limited common elements, including parking spaces, elevators, utility service, or prevent access to and from units, the law does allow for suspension of usage of other common areas such as recreational facilities like swimming pools and golf courses.