Question: We are about to close on a short sale in a condominium association. We understand that many of the condos in this building are available on a short sale status. We have heard that on our unit the bank is negotiating with the builder on back HOA unpaid fees. Reading your column regularly, we see that the builder should have made efforts to foreclose on the delinquent units. Now we are concerned that, when the property moves from the builder to the association, all these short sale units that are not sold will be pending unpaid liabilities for the community. Can you help us to understand what the situation might be? -- G.A. / Naples
Answer: You ask an important question for today’s economic problems. The unfortunate answer is that most of the delinquent amounts will be lost. The question is: Can the developer survive the downturn in the market? The short sale has nothing to do with the delinquent amounts except unpaid fees will be lost. When a unit is sold short, you will now have a buyer that will start paying fees and that is good. The sooner the units are sold, the faster the association will begin to collect fees and you will have fewer delinquent accounts. If you purchased the unit you like for a discounted price, be happy but expect a few months of hard economic times.
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Question: Hundreds of condominium associations are experiencing cash shortfalls and increasing assessments to make up shortages. As a board member, I read every article and constantly request updates from our attorney and management company for existing liens. Your recent article stated “you can ask the mortgage holder to take title to the unit…” is misleading to owners in lieu of today’s banking crisis. Most units are heavily mortgaged with value below the first mortgage so banks are dragging their feet to foreclose or canceling auctions. Liens can be filed, but to spend additional cash associations do not have for foreclosure proceedings in this scenario appears fruitless, yet you don’t mention this alarming situation. -- H.A. / Tampa
Answer: You have a valid point. I strongly suggest fast and final action including the expensive action of foreclosing for the following reasons. In my opinion, your objective is to get the unit paying as fast as possible or generating income and you will need an attorney’s guidance for the legal actions. A bank will drag their feet and their foreclosure can take sometime over two years while the association can foreclose in a few months. Once the association has title, they can rent the unit, sell the unit (possibility a short sale), or transfer the unit to the bank if they will accept title. Why would a bank take the title? Foreclosure action is expensive. They can receive title and can cut their losses. You are correct in that many banks will not accept title and will not agree to a short sale. You may be the lucky one and the bank will be happy to cut their losses and allow a short sale or receive the title. Just last week I received a question from a reader who said they had a unit where the owner vacated the unit. The board advised not to start a foreclosure action because the bank was in process of foreclosing. Then for no valid reason, the owner moved back in the unit and declared bankruptcy. Neither the bank nor the association could apply any legal action to force the owner out of his residency. The question asked what the association could do. Well it was too late to take any legal action because of the bankruptcy. Now the owner was living in his home free of any debt obligation. If the board had taken fast action, they would have title to the home and could have stopped the past owner from moving into the home.
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Question: The president of our condominium has made a policy that any unit owner who wishes to meet with the employee association manager must do so with board members present. The manager concurs with this ruling. What can we do to stop this egregious practice? -- S.A. / West Palm Beach
Answer: The duties of the association manager are often misunderstood. The manager is hired by the board of directors to assist them in the business and operations of the association. The manager has duties assigned by the board of directors. Usually those duties are assigned in the form of a contract, approved policies, and/or board motions. Managers have no responsibility to the members, association, or board. A manager must be licensed and has fiduciary duties similar to the directors’ fiduciary duties. Understand that the association manager has no powers to solve owners’ problems unless the board allows the manager to solve problems. If an owner needs to report a situation or wants an answer to a question, that owner should put the request in writing and address it to the board of directors. Members elected the board to operate the association and it appears that your president want to know all problems to effectively perform his/her duties.
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Question: I am the treasurer of a small HOA. We have a fund for contingencies. Homeowners are responsible for their property and the HOA maintains common areas for lawn mowing, fertilizer and pest control. We are not a gated community but do have a large wall that requires some maintenance and painting. We presently have five board members. We have been in existence for 20 years and, thus far, have never had any problems with members questioning the annual budget and any other problems. Our Director and Officers (D&O) policy is coming up for renewal as of Oct. 31 with $1 million coverage. The premium is about $825.00. Do we really need D&O insurance, and if so do we really need $1 million in coverage? -- T.E. / Homosassa
Answer: I would not serve on a board as a director or officer if they did not have this insurance coverage. You never know of an accident or an event that could trigger a lawsuit. If the board does not have this coverage, the directors and officers may be personally responsible. You need to talk to your insurance agent and your attorney about not having that coverage. The members of the association owe you the right of paying for such coverage for your services. Otherwise, you could expose yourself for a loss.
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Richard White is a licensed community association manager in Florida. Questions should be mailed to him at 6039 Cypress Gardens Blvd. # 201, Winter Haven, Fl. 33884-4415; e-mail CAMquestion@cfl.rr.com. To be considered, questions and comments should include the author’s name and city. Questions should be about association operations, not legal matters.