Un-American Condo Termination Law Needs To Be Changed
By Helio De La Torre
Front view of insurance agent sitting at his desk with papers and documents ready for his clients to sign them. Focus on a pen. Gaj Rudolf
Strong property rights are fundamental to our country's capitalist system of free enterprise. In The Founder's Constitution in 1787, President John Adams wrote: "Property is a right of mankind as surely as liberty. The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence."
In light of the importance of property rights in our society, it has come as a shock to many that the condominium termination law, which was amended by the Florida Legislature in 2007, is now being used successfully throughout the state by real estate developers to take over communities and force unwilling homeowners to sell their residences at prices that are often well below their original purchase price, and in many instances, below their remaining mortgage debt.
The new changes to the condominium termination law were enacted in response to the hurricanes of 2004 and 2005, which ravaged many condominiums throughout Florida. Scores of these condominiums could not afford the repairs, so they were abandoned and languished. As a result, in 2007 the legislature amended the state's condominium laws in order to lower the thresholds for terminating condominiums so that they could be sold to developers with the option of converting the entire community to rentals. I have helped homeowners as well as business owners in office and warehouse condos to contest these takeovers and forced sales, and I have also represented the owners in a community that was severely damaged by a hurricane to terminate their property's condominium designation in order to entice redevelopment.
The 2007 amendments allowed the condominium form of ownership in a community to be terminated with the approval of at least 80 percent of the unit owners, and the change could be blocked only if 10 percent or more of the owners objected. Before this change, state law required the unanimous approval of the unit owners to terminate a condominium designation, unless a lower percentage was specified in the community's governing documents. Some communities completed prior to 2007 were unaffected by the amendments because their governing documents do not incorporate new changes to the condominium laws. However, the amendments still pose an enormous threat to many communities in Florida.
The lawmakers extended these new termination guidelines to undamaged properties, reasoning that it would help to accommodate the redevelopment of old communities that had essentially become obsolete. This has enabled real estate developers and investment groups to acquire foreclosed units from lenders as well as distressed units from owners in a community in order to achieve 80 percent ownership. Once achieved, they could then apply the law to force the holdouts to sell at prices that are dictated by today's market value, which is often well below what the owners paid as well as what they continue to owe to their lender.
The holdout owners then face the prospect of losing their investment, even if they are current on their mortgage and wish to continue living in their residence, and they are likely to end up owing their lender for the remaining mortgage debt after the forced sale.
State Rep. Carl Zimmermann, D-Palm Harbor, filed a bill in this year's legislative session that was aimed at giving those owners an opportunity to recover their investment, but the bill died in committee. It now appears that such a bill would have the support of Florida's next governor, regardless of who prevails in the November gubernatorial election. Gov. Rick Scott has asked state regulators to determine what could be done to stop the abuses of this law, and a spokesman for Charlie Crist has indicated that the former governor now believes the law needs to be changed.
Zimmermann's proposal was to require developers to pay at least 110 percent of the original purchase price, or 110 percent of the fair market value, whichever is greater. Another option was proposed by former Gov. Jeb Bush, who vetoed the condominium termination amendment in 2006. He suggested only allowing for a single vote per person/entity, regardless of the number of units owned. A third option would be to change the law so that it applies only to properties with significant hurricane damage as opposed to allowing it to be applied for undamaged complexes.
All of these options should be considered by the Florida lawmakers during the next legislative session, as a remedied version of this law continues to make sense for condominium communities that are badly damaged by hurricanes and need to be renovated or converted. However, as it now stands, the law is allowing for unintended consequences that have effectively wiped away the property rights of some Florida homeowners.
Helio De La Torre is a partner with the Coral Gables-based law firm of Siegfried Rivera who focuses on representing condominium and homeowner associations in community association law.
Reprinted with permission from the “September 26, 2014 edition of the “Daily Business Review”© 2014 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, [email protected] or visit www.almreprints.com.