Tag Archives: HOA corruption

Here is a prime example of why State Legislatures cannot always be trusted to serve the best interests of its constituents when it comes to regulation of common interest communities, including homeowners’ associations and condominiums.Take a look at this excerpt from the attached Tampa Bay Times news article (see link below):

“Rep. Chris Sprowls and Sen. Jack Latvala, both Pinellas County Republicans, have filed identical bills requiring that owners who object to termination be compensated for 110 percent of the purchase price or the fair market value, whichever is greater.

At Grande Oasis [condominium], owners who have read Sprowls’ bill say they are concerned about one particular section. As they interpret it, a “bulk buyer” like Grande Oasis Investments would not have to pay compensation if it disclosed in its termination plan that it intended to sell the newly converted apartment complex.

“The whole purpose of this (Texas) investor coming in is to convert to apartments and then turn around and sell again,” said Silviya Gregory, a nurse from Bulgaria. “So all they have to do is state that they intend to sell and all of those so-called protections don’t apply.”

Indeed, I agree with Ms. Gregory. Here’s what the bill says in its current version amended Mach 13, 2015:

“Unless the terminated condominium property is sold as a whole to an unrelated third party, the plan of termination is subject to the following conditions and limitations::

But that’s just one glaring loophole in a bill that has more holes than Swiss cheese.

Other loopholes: (my emphasis added in BOLD)

“(3) OPTIONAL TERMINATION.—Except as provided in subsection (2) or unless the declaration provides for a lower percentage, the condominium form of ownership may be terminated for all or a portion of the condominium property pursuant to a plan of termination approved by at least 80 percent of the total voting interests of the condominium if no more than 10 percent total voting interests of the condominium have rejected of termination by negative vote or by providing written objections, subject to the following conditions:”

What this says is that whoever controls the Board — in this case investor groups seeking a termination and de-conversion to rental property — can change the percentage of approval for termination to an amount even LOWER than 80%.

“The total voting interests of the condominium include all voting interests for the purpose of considering a plan of termination. A voting interest of the condominium may not be suspended for any reason when voting on termination pursuant to this subsection.”

Now read between the lines. This sounds like it is prohibiting the Board from suspending voting interests of members who may not be in good standing with the Association, and that is a good thing. (in fact this ought to be the law in ALL cases – no HOA should EVER be able to suspend voting rights) But what this also says is that all voting interests of the investors count, too, no matter how many units they happen to own.

“This subsection also does not apply to any condominium created pursuant to part VI of this chapter until 7 years after the recording of the declaration of condominium for the condominium.”

Part VI of this chapter refers to Conversions of apartments to Condominiums.

According to the Bill Analysis, this is saying that, after waiting 7 years beyond a condo conversion, optional termination is A-OK – but before that point a termination could not occur at all. But what about condominiums that were created from new construction, and that have never been converted from apartments?

“If the condominium association is a residential association proposed for termination pursuant to this section and, at the time of recording the plan of termination, at least 80 percent of the total voting interests are owned by a bulk owner:?

Hold on a minute. Read the attached Tampa Bay Times article carefully. The investor group does not yet own 80% of units, but they own more than 50% of units and therefore they control the Board. Now this Board need only arrange for several of its allies to purchase additional units as individuals (not classified as bulk-buyers) – just enough to hit that 80% threshold to approve the termination. But since the bulk-buyers will not own at least 80% of the units at the time of recording the plan of termination, NONE of what follows will apply, including the requirement to compensate owners at 110% of what they paid for units at the height of the market, and the requirement that their mortgages be paid off.

And the fact that the investor-controlled Board has already used its voting interests to grant the HOA right of first refusal guarantees that the only new buyers will be allies that will vote FOR termination, and probably make a nice little profit on their individual units in the process. Call it “hush money.”

“For purposes of this paragraph, the term “bulk owner” means the single holder of such voting interests or an owner together with a related entity that would be considered an insider, as defined in s. 726.102, holding such voting interests.”

So I looked up FL Statute 726.102
“(8) “Insider” includes:
(a) If the debtor is an individual:
1. A relative of the debtor or of a general partner of the debtor;
2. A partnership in which the debtor is a general partner;
3. A general partner in a partnership described in subparagraph 2.; or
4. A corporation of which the debtor is a director, officer, or person in control;”

Well, this is quite easy to work around. Just line up allies such that a court cannot prove that they are relatives, partners, or Board members of the investment group. Easy-peasy.

So would a domestic partner, a best friend, or business colleague that does not happen to fall into any of those categories qualify as an “insider?” I don’t think so!

In apparent response to concerns pointed out by condo owners such as Ms. Gregory, the most recent draft of the bill includes disclosure requirements in the plan of termination, plus the following:

“If the members of the board of administration are elected by the bulk owner, unit owners other than the bulk owner may elect at least one-third of the members of the board of administration before the approval of any plan of termination by the board.”

Well, so what? If the Board consists of two-thirds self-interested investors, they can amend the documents in any way they wish. In this case they gave themselves first right of refusal on condo purchases. But they can also simply reduce the percentage needed for approval of termination to 67%.

Further down in the current version of the bill, the Legislators have added that the proceeds of termination to a unit owner can be reduced by not only the outstanding mortgage owed, but any and all fees or assessments owed to the Association, plus any interest, collection costs, or potentially unlimited attorney fees.

So what if the investor-controlled Board suddenly decides to issue a special assessment in the thousands of dollars just prior to termination? Or perhaps there will be rule changes and violation notices issued against owners, resulting in fines, and if unpaid, interest and attorney fees. These are a common tactics used to get owners to sell to the Association or to allow the Association to foreclose prior to they vote for termination. This is, of course, how the investors are able to purchase even more units at rock-bottom prices.

And with all of these costs – real or manufactured – to set off against proceeds of termination, what will the owner be left with? Perhaps nothing! Which makes the following provision meaningless:

“Any former unit owner whose unit was granted homestead exemption status by the applicable county property appraiser as of the date of the recording of the plan of termination shall be paid a relocation payment in an amount equal to 1 percent of the termination proceeds allocated to the owner’s former unit.”

Back to grade school math: 1% of nothing is nothing. That’s right, the owners who have lost the most money in this travesty would not even get enough money to relocate their belongings after being kicked to the curb.

And just to make absolutely sure that owners have little to no recourse to fight this injustice, we have the following proposed provision:

“A unit owner or lienor [sic] may only contest the fairness and reasonableness of the apportionment of the proceeds from the sale among the unit owners, that the first mortgages of all unit owners have not or will not be fully satisfied at the time of termination as required by subsection (3), or that the required vote to approve the plan was not obtained.”

In other words, owners cannot contest the termination itself, or the underhanded methods that have been used to obtain the required vote. They can contest the amount of money they receive, but only if they can afford to hire an attorney, after losing a great deal of money in what amounts to a hostile corporate takeover of their homes.

The mortgage holders’ interests are protected, of course, no doubt due to pressure from Florida’s powerful banking lobby.

SB 634 will be unlikely to help owners, given all the loopholes that would have to be closed prior to its passage.

So how about this suggestion: scrap SB 643 and create a new statute requiring that votes for termination plans may only be cast by non-bulk/non-investor owners — or actual homestead owners? Let the small number of homestead owners decide whether they are willing to either increase assessments while remaining units are being sold OR decide among themselves if they are willing to entertain OFFERS for a buyout from interested investor groups? That would put homeowners in control instead of greedy investors and lien holders.

(link to Tampa Bay Times Article)

(Florida House Staff bill analysis:)

(SB 643 bill can be tracked here:)