Story Behind Florida’s Epidemic of Hostile Condo Takeovers

guest blog by Deborah Goonan

In a previous blog, I explained CAI’s conflicted stance on private property rights of condo owners. In this blog, I provide the back-story.

Prior to 2007, if owners wanted to terminate the condominium regime, Florida law stated that 100% of owners – and lien holders – had to agree to the termination and a specific plan for liquidation of all assets. (Governing documents could specify a lower threshold, but few did.) The main problem with unanimous consent was that, following some of Florida’s hurricanes which damaged a significant number of condo buildings beyond repair, it was difficult or nearly impossible to locate and obtain consent from every unit owner, thus delaying termination and redevelopment.

In 2006, the Florida Legislature passed a remedy to this problem by amending Statute 718: allow dissolution of condominium with 80% member vote of approval OR less than 20% disapproval, in the aftermath of a disaster that destroys a building beyond repair, as well as in the event of optional or voluntary termination. Governor Jeb Bush vetoed that bill, citing concerns about less than unanimous approval, and the likelihood of unintended consequences in the event of optional terminations.

In a letter from the former Governor dated Jun 7, 2006, Jeb Bush (R) states:

“Among the potential unintended consequences is that the bill would permit one owner (such as a developer) to purchase 80 percent of the units in a condominium and seek termination, with the ultimate goal of redevelopment, in the absence of economic waste or impossibility. A possible remedy to this situation would be to require one vote per person, regardless of the number of units owned.”

The following year, in 2007, the Legislature was presented with a slightly modified version of the bill, written with the assistance of West Palm Beach attorney and CAI member, Michael Gelfand. Senator Steven A. Geller (D) presented the Senate version of the bill. Public records indicate that Geller was selected as CAI FL’s Legislator of the year in 2002. The former Senator is now a shareholder at Greenspoon Marder Law, a firm that specializes in Land Use, Zoning, Lobbying and Gaming. Representative Elaine Schwartz (D) presented the House version. Schwartz’s husband, Marty is a prominent real estate attorney and partner in the law firm of Bilzin Sumberg Baena Price and Axelrod, LLP.  The 2007 version allowed for optional termination by 80% vote of approval, as long as less than 10% objected to termination. The bill also diluted rights of lien holders to approve the termination plan, based upon appraisals presented by the majority voting for termination.

Despite continued objections from parties who continued to be opposed to optional termination by less than unanimous consent, the bill was not modified to remove the possibility of optional termination under these terms. Nor did the Legislature allow for allocation of votes per person rather than per unit. The bill passed the Legislature with near unanimous approval (just one vote against), and with the “strong support of the Real Property Section of the Florida Bar.”

Prior to the bill being signed into law by then-Governor Charlie Crist (at the time, a Republican), Sarasota attorney Dan Lobeck, also a CAI member attorney, expressed concerns in a May 2007 article in the Herald-Tribune,  stating that the Voluntary (optional) Termination portion of the approved bill:

“…is simply a property grab by developers with assistance of the state.”

In the same report, Jack McCabe, CEO of McCabe Research & Consulting LLC, stated:

“If this [bill] goes through, we are going to see developers go in and be much more successful in acquiring existing condominium properties, especially on the waterfront,” and “some of those properties that are now more affordable will be leveled and very expensive multimillion-dollar units will be built on those sites. It will effectively render it impossible to find affordable condominium units in waterfront locations in Florida in the future.”

Of course, Developers and investors began to take advantage of the new Statute almost immediately.

It’s not as though the CAI and Real Estate industry proponents of this flawed statute provision, and the Legislature that overwhelmingly voted in favor of the bill, could not have foreseen such “unintended consequences.” The curious observation is that CAI’s member attorney firms are clearly divided on the issue of consent for Optional Termination of condominiums in Florida – and have been from the start -representing developers and investor-controlled Associations on one side, and individual owners on the other.

References:

http://www.becker-poliakoff.com/Files/7525_cu_2007_archive.pdf

http://www.ccfj.net/PB06SB1556veto.pdf

http://www.heraldtribune.com/article/20070511/BUSINESS/705110303

http://www.becker-poliakoff.com/Files/8934_cu_2014_v06.pdf

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About

Ward Lucas is a longtime investigative journalist and television news anchor. He has won more than 70 national and regional awards for Excellence in Journalism, Creative Writing and community involvement. His new book, "Neighbors At War: the Creepy Case Against Your Homeowners Association," is now available for purchase. In it, he discusses the American homeowners association movement, from its racist origins, to its transformation into a lucrative money machine for the nation's legal industry. From scams to outright violence to foreclosures and neighborhood collapses across the country, the reader will find this book enormously compelling and a necessary read for every homeowner. Knowledge is self-defense. No homeowner contemplating life in an HOA should neglect reading this book. No HOA board officer should overlook this examination of the pitfalls in HOA management. And no lawyer representing either side in an HOA dispute should gloss over what homeowners are saying or believing about the lawsuit industry.

2 thoughts on “Story Behind Florida’s Epidemic of Hostile Condo Takeovers

  1. Nila Ridings

    Could it be possible that Jeb Bush was smart enough to foresee a possible negative consequence and by putting it in writing he planted a seed?

    It seems odd that with the first condo takeover an emergency amendment was not proposed. Or was it?

    I don’t live in Florida but my HOA is one that needs this type of takeover so these poor miserable townhouse owners can get out of here and the land can be redeveloped into something worthwhile.

    Reply
    1. Deborah Goonan

      I have read several reports, and only a handful of condo takeovers since 2007 have been done for “economic waste or impossibility.” Of the 235 takeovers, 217 were of the Optional varety. In other words, the building structures were in good condition – they were not severely damaged by storms or fire, and not riddled with defects or many years of neglect. Everyone generally agrees that takeover can be a good thing when the condo structures are beyond the point of repair.

      But what we see now in Florida is investors (or the original developer) taking control of units that remained unsold following the market bust, which coincidentally happened right before this bill was signed into law. Many that were apartments converted to condos are now terminating the condominium and converting back to apartments. These projects are economically not viable because of the high number of unsold units, so termination is not unreasonable, BUT…

      Because the termination is Optional, the flaw in the Statute as written is the allowance for non-unanimous consent. Allowing termination with 80% approval opens the door for the developer or new investors to buy unsold units in bulk, and unilaterally create dissolution terms in their own favor. The majority developer chooses the appraiser, who understates the fair market value of units, and creates terms whereby unit owners lose their down payments and lien holders are left with outstanding mortgage debts that will probably not be paid. Would YOU pay a mortgage on a condo you no longer own? You would probably choose to live with a bad credit history for several years, and during that time, you would not be able to purchase another home. Many of these owners, particularly retirees, will be unable to save up another down payment, and may never be homeowners again.

      The original purpose of unanimous consent in an optional termination was to balance power between fellow owners seeking to sell to a BUYER. However, in these cases, the majority of unit owners (80%) are actually BUYERS who happen to be developers or investors! Of course opportunistic investors and developers want to prevent one or two “holdouts” from insisting on more favorable terms of sale, or from negotiating favorable alternate housing arrangements. The bulk buyer is often able to intimidate existing owners to sell at a low price, and once they reach the 80% threshhold, they stage the takeover. When the building is in good shape, their investment in improvements will not be significant.

      Low buying costs + low improvement costs + no mortgages to assume or pay off = more profit for developers and investors.

      This is entirely different from unit owners voting to dissolve the Condo Association after a hurricane. Indeed, the bill was sold on the premise that, if you were one of the 80% of owners (sellers) wanting to cut your losses, you would not want a single holdout standing in your way.

      This was a case of trying to pass a controversial amendment at the same time as passing an amendment that most people wanted.

      Reply

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