Article Courtesy of The Tampa
By Susan Taylor Martin
November 30, 2015
The confetti was flying Oct. 23 at NASDAQ
headquarters in Manhattan as LM Funding America became Tampa Bay's
newest publicly traded company.
By the end of the day, the firm's initial public offering had raised $10
million — peanuts by Wall Street standards but "absolutely
exhilarating'' to chairman and CEO Bruce Rodgers.
LM Funding — whose pitch is "We buy problems'' — pays homeowners
associations for the right to collect delinquent fees. The associations
use the funds for maintenance and repairs while the company makes its
money through what it calls "aggressive'' debt collection.
Since it started seven years ago, LM Funding has contracted with 500
associations in Florida, Colorado and Washington state. With more than
320,000 community associations nationwide, the potential for profit is
LM Funding draws good reviews from some of its client associations. But
there have been hiccups, too.
Several lawsuits have been filed against the company and the Tampa law
firm that handles much of its debt collection — Business Law Group,
founded by Rodgers. The suits accuse them of violating consumer
protection laws including the Fair Debt Collection Practices Act.
Some homeowners say Business Law Group has dunned them for amounts they
didn't owe. One condo owner said she got a letter demanding $36,688
although association records showed she was only $1,675 in arrears.
LM Funding and the law firm, which share office space in Tampa, also
have been accused of failing to disclose their close ties.
Rodgers' wife, Carrollin Gould, is paid by both LM Funding and Business
Law Group. Both firms have been the target of lawsuits alleging that
while Business Law Group appeared to be working on behalf of the
associations, it really was acting in the best interests of itself and
The law firm collects "debts from (homeowners) in a manner that
maximizes both attorneys fees and returns for LMF investors rather than
to mitigate loss and bring condominium accounts current,'' according to
a suit filed this year in federal court in Tampa.
Rodgers, who divested his interest in Business Law Group the day before
LM Funding went public, says such allegations are unfounded and give an
"inaccurate depiction'' of the firms' relationship.
"They've always been independent,'' he said. "Until the law firm
collects the proceeds and the money resides in the law firm's trust
account, LM doesn't have any claim to the accounts."
Litigation is hardly a surprise in a business dealing with thousands of
people who could lose their homes unless they pay their HOA fees.
Community associations rely on the fees to maintain common areas like
swimming pools and playgrounds.
After the real estate crash, many associations in Florida and other
hard-hit areas of the country struggled with upkeep because so many
owners defaulted on their fees. Therein lay what Rodgers and Gould saw
as a business opportunity.
Before the crash, "I had a nice run doing (legal work) on private equity
deals and multifamily projects — that's what got me familiar with the
condo statutes, '' Rodgers said. "I got hurt in 2007, lost money in the
real estate market and then we created the funding model'' for community
Founded in 2008, LM Funding typically pays the association a sum equal
to what it would receive by law if the condo was sold — 12 months of
delinquent assessments or 1 percent of the mortgage value, whichever is
LM Funding then hires a law firm — Rodger's Business Law Group has been
the main one — to bill the delinquent homeowners. After collecting the
debt, the law firm keeps part of the money to cover attorneys fees and
costs and gives LM Funding the interest, late fees and an amount equal
to what it paid the association.
Whatever is left goes to the association.
Under this business model, the risk to LM Funding comes if the debt is
not collected. The company then is out whatever it paid the association
plus the legal fees it paid the law firm to try to collect the debt.
Still, "we do very well recovering that money," said Sean Galaris, the
Tampa attorney Shawn Brown has represented several condo associations
that contracted with LM Funding early on and came to regret it. Business
Law Group was so slow in its collection efforts, Brown said, that the
associations experienced serious cash flow problems after the money they
got from LM Funding ran out.
"When someone gives you $50,000, it helps you limp along for six months
but when you're in Year Three it's long gone,'' Brown said. "It really
created financial issues because associations signed the contract in
2009 and they still had outstanding accounts with (LM Funding) in
That's what happened with Grand Reserve Condominiums at Tampa, a
386-unit complex in Carrollwood.
During the recession, so many owners defaulted on their fees that at one
point the complex couldn't pay a $30,000 water bill. In 2012, board
members assigned the association's delinquent accounts to LM Funding for
But that proved too little to cover all of the ongoing repairs and
upgrades needed at an aging complex. In 2013, with a new board in place,
the association declared bankruptcy. It sued to rescind the 2012
agreement so Grand Reserve could collect future assessments on 75 units
for whose accounts LM Funding still held the rights.
The company had administered the agreement "in a bad faith fashion that
is economically beneficial to LMF and economically disastrous to Grand
Reserve,'' the association alleged.
LM Funding, in turn, claimed that the bankruptcy filing was part of a
scheme by certain board members to drive down prices and buy units to
rent or resell at personal profit.
In August, a judge dismissed the bankruptcy case but LM Funding is still
working with new board members to resolve Grand Reserve's financial
"We've done business with 500 different associations,'' Rodgers said,
"and this is the one that went bad for us."
Because it is difficult to know when debts will be collected, LM Funding
started a "New Neighbor Guaranty" program. That pays the fees every
month on each delinquent account.
With money coming in on a regular basis, "what that does is allow an
association to set a budget," Rodgers said.
In 2009, Itopia, a condo community in St. Petersburg, assigned LM
Funding the rights to about $230,000 in delinquent accounts. Two years
ago, the association switched to another program in which LM Funding
pays the monthly fees when a homeowner becomes delinquent by $5,000 or
"Our experience with LM Funding has been very good," said Rosey Badwal,
president of Itopia's condo association. "The first program helped us
get out of the economic slump and then we renewed to a better program
and we're still getting benefits from it."
In the course of dealing with so many financially strapped associations
and unit owners, LM Funding has acquired several dozen condos.
Although some are still subject to first mortgages and could be
foreclosed by the bank, the company plans to rent them out as long as it
Before going public, "we didn't have sufficient capital to rehab, which
is about $5,000 per unit,'' Rodgers said. "Now we have the capital, and
if the scale is enough, it would produce a nice flat revenue for us.
With the collection business we can't tell when revenues are going to
come in but with rents we can.''
Since its initial public offering last month, the company's share price
has stayed around $10 in very light trading. Rodgers and his wife own 80
percent of the shares — they had to buy $2 million worth themselves at
the last minute to meet the minimum requirements for the offering.
"The deal almost blew up that morning,'' he said. "I had to fill in $2
million out of my pocket but I'm in for the long haul anyway so what's