Court case could increase cost for homeowners associations

Feb 27, 2014 | Media


A pending opinion from the Florida Supreme Court could dramatically increase operating costs for thousands of homeowner associations statewide and substantially drive up condo owners’ expenses.

The looming decision is connected to a recent Florida Bar opinion that, if enacted, will force community association managers to hire attorneys to handle various administrative duties now done primarily in-house.

Bar officials say the changes will strengthen the roughly 26,000 community associations in Florida by ensuring that complex issues are handled by legal professionals.

But trade groups fear the proposed changes could instead cripple recession-battered homeowner associations that are struggling financially because of foreclosures, delinquent dues and widening budget shortfalls.

In response, they are lobbying for new bills — now gaining momentum in the Florida Legislature — that would keep the associations in charge of the administrative tasks.

“It’s a classic solution in search of a problem,” said Aaron Gordon, corporate general counsel for LM Funding, a Tampa company that collects debts for homeowner groups.

“This is a big deal that could entirely change what community associations deal with, and how they do business.”

The Florida Bar was asked to review the duties of community association managers to see if any bordered on the unlicensed practice of law — a third-degree felony in Florida punishable by up to five years in prison, five years’ probation and a $5,000 fine.

The Bar came with up 14 proposed clarifications to laws established in 1996 that are now pending before the State Supreme Court, which has no deadline to rule.

If approved, the changes will require associations to seek legal assistance for things like drafting liens, sending demand letters to noncompliant homeowners and collecting debts, in some cases.

Many smaller homeowner groups now handle such services themselves for much less than a traditional lawyer would charge.

Homeowner groups have attacked the Bar’s revisions as a power grab by attorneys eager to establish a beachhead for financial gain.

They fear, too, that such a policy might put as many as 18,000 Florida community association managers out of work.

“The troubling part of this is that all of these services that have traditionally been done by community association managers now would have to be done by lawyers — and I have never met a lawyer willing to work for the cost of a community association manager,” Gordon said.

“A lot of people live in communities governed by homeowners associations, and this will directly affect them.”

By hiring an attorney, community groups may avoid litigation and costly mistakes, lawyers contend.

Bar officials also say the changes are not as extreme as opponents have made them out to be.

“This really doesn’t change much from 1996, just reinforces the status quo,” said Lori Holcomb, director of client protection for the Florida Bar.

A lot of these issues “could result in public harm if done incorrectly — so you need a legal professional doing it, or to be at least involved in the process.”

Two bills have been proposed for the 2014 legislative session that would dilute the Florida Bar’s opinion and possibly that of the State Supreme Court.

One bill, in particular, has gained traction in the Florida House of Representatives’ Civil Justice Subcommittee.

Members of that subcommittee said the Bar’s proposal could ultimately increase the cost to Florida homeowners at a time when most can ill afford an increase.

That potential law has two committee stops remaining in the House — the Business and Professional Regulation Subcommittee and the full Judiciary Committee, before a full vote can be taken.

“I became very concerned that the approach taken by the Florida Bar would ultimately require community associations to retain attorneys for ministerial tasks at significantly increased cost,” said Rep. Dana Young, R-Tampa, who sits on the Civil Justice Subcommittee and is also a lawyer.

“The last thing we should do is increase financial burdens on our Florida homeowners without any measurable benefit.”

Real estate analysts also worry that higher association dues as a result of the changes could become another factor that derails Florida’s housing recovery.

Coupled with other expected cost increases, they fear these additional expenses would push retirees toward other states where it’s cheaper to own a multifamily or other home.

“We’re seeing all of these costs coming down on owners now, and it would have a compounding effect,” said Jack McCabe, a Florida real estate consultant.

“And it would affect everything down the food chain. It would be extremely damaging.” Copyright © 2014 — All rights reserved. Restricted use only.