Article
Courtesy of The Real Deal
By Lidia Dinkova
Published March 16, 2024
Florida lawmakers boosted repercussions against community
association board members and managers who go rogue, including criminalizing
kickbacks and hiding records.
This session, the House and Senate passed two condo and homeowners
associations bills. They require Gov. Ron DeSantis’ signature to become
final.
Aside from criminalizing various types of wrongdoing, the bills target
issues that residents at communities governed by associations have alleged
for years. This includes opaque financial records, steep assessment hikes
and retaliation against those who speak out.
The homeowners associations legislation, or House Bill 1203, is a “direct
response” to the issues at the Hammocks community in West Kendall, said
attorney William Sklar, an HOA and condo law expert.
At the Hammocks, home to about 18,000 residents and one of Florida’s biggest
HOAs, four former board members and the spouse of one of the board members
were charged in 2022 over a massive scheme to divert funds from association
coffers. Although criminal investigators originally outlined a roughly $2
million fraud, forensic accounting by the Hammocks receiver alleges a much
deeper fraud of at least $4 million. The five arrested have pleaded not
guilty.
The condo legislation, House Bill 1021, includes stricter rules on
management firms for recordkeeping, and mandates they disclose to the
association conflicts of interest with vendors.
Some of the criminal penalties in the two bills are identical:
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It is a second-degree misdemeanor if a board member
or manager does not turn over requested records or fails to maintain
them for seven years with the intent of harming the association. This
applies to repeat offenders who violate records requirements at least
twice in a 12-month period.
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It is a first-degree misdemeanor to intentionally
deface and destroy accounting records and to not create and maintain
these documents with the intent harming the association.
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It is a third-degree felony if an association
resident “willfully and knowingly refuses to release or otherwise
produce association records with the intent to avoid or escape
detection, arrest, trial, or punishment for the commission of a crime,
or to assist another person with such avoidance,” the bill says.
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It is a third-degree felony for a board member or
association manager to solicit or accept a kickback.
Florida lawmakers passed the bills after they stripped a
different set of proposed legislation aiming to strengthen oversight and
impose criminal penalties during last year’s session. Last year’s bills were
watered down following lobbying by trade organizations representing
association managers, according to a South Florida Sun Sentinel report.
This year’s bills didn’t suffer the same fate, said Sklar, of Carlton
Fields.
“There’s teeth to it [the bills] and it’s enforceable, and there are
penalties,” he said. “That is very significant.”
Here is a deep dive into the new bills:
HOAs
At the Hammocks, the Miami-Dade State Attorney’s Office alleges the arrested
board members’ pushback to records subpoenas slowed the investigation. After
providing one set of documents, the board eventually decided to stop turning
over more records, claiming it wasn’t paid for the first batch. The bill
says HOAs have to provide subpoenaed records within five business days. “An
association must assist a law enforcement agency in its investigation to the
extent permissible by law,” the legislation says.
The bill also explicitly says board members and association managers who use
HOA debit cards for spending other than what is legally allowed commit
theft.
Association managers, which are firms hired by HOAs under agreements for a
flat fee and, sometimes with additional charges for extra work, now must
provide copies of their contracts upon request and include the contracts in
associations’ governing documents. Aside from a 10-hour annual continuing
education course needed to renew their state license, management firms now
also have to complete a five-hour course every two years specifically on
HOAs, including three hours on recordkeeping. Within 90 days of being
elected, board members have to complete a state-approved educational course,
including on financial literacy and transparency, fines, recordkeeping and
meeting notices. Directors of HOAs with fewer than 2,500 homes have to
complete four hours of continuing education annually, and directors of HOAs
with more than 2,500 homes have to complete eight hours annually.
The bill says that HOAs have to maintain records, including board meetings’
minutes, ballots, tax returns and vendor contracts, for at least seven
years. By Jan. 1, HOAs with at least 100 homes have to post records on their
websites or an app, including governing documents, vendor contracts, the
lists of bidders for work at the communities, budgets, current insurance
policies, and income and expense statements that will be considered at an
upcoming meeting. Board meeting agendas have to be posted at least 14 days
in advance, and contracts the board will vote on must be posted at least
seven days in advance.
At the Hammocks, the arrested board members allegedly hired bogus
contractors that did no work on the 3,800-acre property. When the HOA paid
the contractors, some of those arrested diverted a portion of the funds to
themselves, according to an arrest affidavit. In lawsuits and interviews,
residents also have alleged the former board imposed a 300 percent
assessment increase and retaliated against those who spoke out by, among
other things, levying fines and suspending homeowners’ use of some
amenities. The bill now targets these issues.
Boards can’t issue a suspension, including for the use of amenities or of
homeowners voting rights, for minor infractions such as leaving trash bins
out 24 hours before or after the pickup time or leaving holiday lights up
for longer than allowed under HOAs‘ governing documents. Also, fines for
violations of the governing documents that are less than 1 percent of a
home’s just value can only become a lien if 75 percent of homeowners
approve. Under an appeals process for fines, homeowners also can dispute the
“reasonableness” of attorney fees tied to fines, the bill says. Fines for
traffic infractions and for violations of the governing documents related to
lawns, landscaping and grass can’t become liens.
The bill caps year-over-year increases of regular assessments to 10 percent,
except for assessments for insurance premiums. Special assessments can’t be
more than 5 percent of the budgeted HOA expenses for a fiscal year, unless
60 percent of voting members approve a bigger special assessment. HOAs can’t
levy compound interest on overdue assessments.
Condo bill
A common complaint among unit owners is that they are slapped with
cease-and-desist letters and lawsuits accusing them of defaming board
members. Residents argue that they merely questioned boards’ decisions and
inquired about suspicious activity.
In Florida, lawsuits aimed at silencing those who speak out against
authority, or Strategic Lawsuits Against Public Participation, are banned.
However, some courts have ruled that the SLAPP ban does not extend to
associations. The bill extends the anti-SLAPP protection to condo
associations and also bans retaliation such as discriminatory increases in
assessments and defamation suits, as long as the resident who spoke out
acted in good faith. Unit owners who can claim they are being retaliated
against include those who participated in a residents’ organization, filed a
complaint with law enforcement or a civil investigative authority, and made
public statements critical of the day-to-day management.
Although the HOA statute for years has criminalized voter fraud, the condo
bill for the first time includes a similar provision for condos. The bill
says that preventing a unit owner from voting, using threats to influence a
vote, buying votes, and aiding voter fraud are now first-degree
misdemeanors. Also, a board member charged with ballot forgery, embezzlement
of association funds, obstruction of justice and destruction of records must
be removed from office.
The condo legislation also increases education requirements for board
members. They have to complete a four-hour course, including on condo
inspections, structural integrity reserve studies, elections, recordkeeping,
levying of fines, financial literacy and transparency, and notice and
meeting requirements. Board members elected prior to the approval of the
bill have until June 30 of next year to meet the requirement and submit to
the state their educational certification.
Also, board members are to complete at least an hour of continuing education
annually. This marks a higher requirement, as until now board members could
have simply submitted a written statement that they read the governing
documents and vow to uphold the policies.
Tamara Reyes, who runs a South Florida organization that helps residents
investigate association corruption, previously told The Real Deal that with
the turnover of association managers, records could get lost, making it
difficult to track spending and investigate fraud allegations.
The bill aims to curb this issue. After a condo association management firm
is terminated, it has to turn over all records it had in its possession
pertinent to the property within 20 days. If the firm doesn’t provide the
records, it creates a presumption, which the management company can dispute,
that it didn’t provide the documents on purpose. The firm also could lose
its license and face a $1,000 daily fine for 10 days if it fails to turn
over the records.
Other provisions in the bill include: Aside from the governing documents and
other records associations have to maintain, they now also have to keep
invoices, receipts and deposit slips. Meeting agendas have to include vendor
contracts. Within 45 days of completing a state-mandated structural
integrity reserve study, the association has to provide a copy of the study
to each unit owner and also alert a state condo division that the study was
completed. Associations have to notify unit owners their voting rights are
suspended due to overdue fees at least 90 days prior to the election.
By Jan.1, the state division overseeing condos has to create a database on
its website of the associations that have completed their structural
integrity reserve studies. The studies were mandated following the deadly
Surfside condo collapse in the summer of 2021.
The bill also allocates $7.4 million and 65 full-time employees, at a total
salary of $3.2 million, in this fiscal year’s budget for the Florida
Department of Business and Professional Regulation to implement the bill.
The funding likely would be allocated to the Florida Condominiums,
Timeshares, and Mobile Homes Regulation, an arm of DBPR that oversees condo
associations.
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