2007 LEGISLATION AFFECTING COMMUNITY ASSOCIATIONS
1. ISSUES REQUIRING IMMEDIATE ATTENTION BY HOMEOWNERS' ASSOCIATIONS:

Provisions contained within two bills which were signed by the Governor on June 19, 2007 become effective on July 1, 2007, and require immediate attention by homeowners' associations. The first of these bills is critical to all homeowners' associations who exercise architectural control in regard to exterior changes that are made in the community. The second hill relates to collection of past-due assessments, which only impacts some associations.

A. ARCHITECTURAL CONTROL:

A new Section 720.3035 has been added to the Florida Statutes as this relates to homeowners' associations. This legislation indicates that the authority of an association or any committee to review and approve plans or applications for the location, size, type, or appearance of any structure or improvement, or to enforce standards for the external appearance of any structure or improvement, "shall be permitted only to the extent that the authority is specifically stated or reasonably inferred as to such location, size, type, or appearance in the Declaration of Covenants or other published guidelines and standards authorized by the Declaration of Covenants".

In my opinion, there must be detailed architectural standards contained in the Declaration, or in Rules or Architectural Guidelines which are authorized by the Declaration,and which have been adopted by the Board or an architectural committee (depending on the governing documents), in order to regulate alterations to properties in homeowners' associations.

First, homeowners' associations should make sure that they have authority for ACC, ARC or similar rulemaking, and if not to attempt to adopt an amendment immediately for this purpose.The associations also need to immediately attempt to develop detailed architectural standards for the location, size, type andappearance of any structures, improvements, or alterations.

The statute goes on to say that if the Declaration or any published standards or guidelines provide any options for the use of materials, or for the size of structures or improvements, or the design or location of the structures or improvements, the association or the committee cannot restrict the right of an owner to select from any of the options provided. Another change is to clarify that only one front setback may exist on a parcel, even if it is bounded by a roadway or easement.

The next subsection of this statute indicates that the rights of the owners to make improvements or alterations, subject only to the published guidelines and standards, is not to be unreasonably infringed upon or impaired by the association or any committee, and if such an infringement does take place, the adversely affected owner shall be entitled to recover damages, including costs and attorneys' fees, if it can be shown that the association unreasonably or willfully impaired the rights of the owners to make improvements or alterations.

The final subsection recognizes that standards and guidelines cannot be inconsistent with the Declaration of Covenants, so Declarations need to be reviewed to ensure consistency between any guidelines and the specific restrictions contained in the Declaration.

This requires that each homeowners' association review their Declaration and all of their written criteria in regard to architectural control, as well as the amendment procedures for the Declaration, and the authority to adopt rules and regulations. Any homeowners' association which needs legal input on this critical new law needs to contact their association attorney.

I strongly recommend that associations adopt a temporary "stop-gap" resolution or motion at a Board, ACC, or ARC meeting as soon as reasonably possible. We have wording we can suggest for this purpose.

Also, in some Declarations the architectural committee has the authority to adopt standards, rather than the Board. Boards need to consider assuming control of this process, if permitted by the documents, by designating the Board of Directors as the committee which will have the authority to adopt standards and approve future applications. The committee can be utilized as an advisory committee to assist the Board in developing standards and reviewing applications.

Equally important, but not part of the legislation, is how applications that do not meet your criteria need to be handled.

Some of the examples of architectural criteria which may need to be developed by homeowners' associations to the extent that these are not specifically spelled out in the Declaration include: paint colors (a specific palette of paint colors is recommended); locations for satellite dishes and antennas; criteria for fences; requirements for mailboxes; criteria for any improvements on patios or balconies, including screening or enclosures; and numerous other criteria and standards which include any potential exterior modifications or additions which an owner may wish to make.

This is a very challenging and burdensome new law which requires immediate attention for all homeowners' associations who wish to retain the right to exercise architectural control.

B. SENATE BILL 1844 — NEW COLLECTIONS NOTICE REQUIREMENTS FOR HOMEOWNERS' ASSOCIATIONS:

This is another significant change relating to homeowners' associations. A new Section 720.3085 has been created in the Florida Statutes which regulates the collection process for homeowners' associations, in regard to a number of issues. Among the changes included in this new statute is one which requires immediate attention.

In order to attempt to prevent premature foreclosures against homeowners, some new notice requirements have been added. The statute now requires that before a claim of lien may be filed against the lot or unit, a written notice or demand for past-due assessments and other amounts owed must be sent to the owner at least 45 days prior to the time that a claim of lien is filed. Any such demand must be sent by registered or certified mail, return receipt requested, and also by first-class United States mail,to the owner at his or her last address as reflected in the records of the association. If the address shown in the association's records is one other than the address of the unit or lot in the community, a copy of the demand needs to be sent to both the property address and the off-site address, by both regular and certified mail. The cost of the mailing can be included in the amount claimed in the letter. It is very important that associations keep proper records in connection with any such notices. This preliminary notice can either he sent by the association, before referring the matter to its attorney for collection, or otherwise the first notice from the attorneys' office will now need to be a 45-day demand letter, indicating that a claim of lien will be filed if payment is not made. It is suggested that associations or their management companies provide a final 45-day notice before referring the matter to the attorneys' office so that the attorney can then proceed with a claim of lien and another final demand letter. However, if associations prefer, the initial 45-day demand letter can he sent fromour office.

The statute also includes a requirement that no foreclosure suit may be brought until notice has been provided of the intent to foreclose, at least 45 days prior to the time that a foreclosure suit is filed. This means that there are now two 45-day notices which are required (one prior to the filing of a claim of lien, and one prior to a foreclosure suit). In order to prevent significant delays in collections for homeowners' associations, attention will need to be given to these time frames, and coordination between the association and the attorneys' office will need to be verified.

Finally, as to current delinquent accounts, a lien can be filed before July 1, 2007 without requiring a new 45-day notice; and a foreclosure suit can also be filed before July 1, 2007 without providing a new 45-day notice. For this purpose, all homeowners' associations should review the status of their delinquent accounts and determine whether they wish to file any liensor foreclosure actions prior to July 1, 2007.

OTHER LEGISLATION:

A. SENATE BILL 902:

Essentially, this same bill was passed by the Legislature last year, but was vetoed by Governor Bush since it contained some other provisions which were found to be objectionable. The new bill omitted the most objectionable provision, and this bill was signed by Governor Crist on June 19, 2007. There are several very significant changes which affect homeowners' associations, and one relating to condominium associations.

CONDOMINIUMS:

(1) LENDER CONSENT -- Section 718.1 10(1 1) of the Florida Statutes was amended, as this relates to condominium associations, to provide a more reasonable procedure for obtaining lender consents when these consents are needed to amend condominium documents. The legislation provides that as to any mortgages which are recorded after October 1, 2007, any requirement for lender consent is only applicable to changes which affect the priority of the mortgagee's lien or which otherwise materially affect the rights and interest of the mortgagees. As to mortgages recorded before October 1, 2007, existing provisions in the condominium documents are enforceable, but in connection with obtaining consents or joinders from lenders, the association is entitled to rely upon the public records to identify the holders of-outstanding mortgages, and they can use the address provided in the original recorded mortgage document or any assignment, unless a unit owner has other information. The association is required to write the owners and request the name and address where payments are currently being made. Therefore, notices are either to be sent to the address provided by the unit owner, or to the address shown on the public records if the unit owner does not provide alternative information. Notices are to be sent by a method that establishes proof of delivery (certified mail), and any mortgagee who fails to respond within 60 days from the date of mailing will be deemed to have consented to the amendment.

Any amendment adopted without the required consent of the mortgagees shall he voidable only by a mortgagee who is entitled to notice and an opportunity to consent, and any action to void such an amendment is subject to a five-year statute of limitations.

Finally, the legislation provides that notwithstanding any other provisions of this legislation, an amendment may be adopted to conform a Declaration of Condominium to the insurance coverage provisions in Section 718.11 1(1 I) without lender consent.

As to all condominium associations which have provisions in their documents which require lender consent for amendments, the Association may wish to consider the adoption of an amendment at this time. This legislative change makes it much easier for associations to obtain lender consent. One approach that we have taken previously for these types of Declarations is to change the procedure for future lender consents, so that only a majority of those lenders who provide contact information to the association need to consent, instead of 100 percent of the

lenders. It is also possible to modify the issues which will require lender consent in order to delete those types of amendments that the lenders are not concerned with. If your association has any requirements for lender consent for amendments, please contact your association attorney to discuss this further and to determine what action might be taken to take advantage ofthis new statutory change.

HOMEOWNERS' ASSOCIATIONS:

in addition to the new laws relating to architectural control which are discussed above, numerous other changes were made to the laws governing homeowners' associations by this bill, effective July 1, 2007. Some of these changes are as follows:

(I)COMMITTEES — Section 720.303 of the Florida Statutes was amended as this relates to committees. This merely confirms that committees must conduct their business in the same manner as a Board of Directors when a final decision will be made regarding the expenditure of Association funds, or with respect to a committee that has the power to approve or disapprove architectural decisions.

(2) FEES FOR PROVIDING INFORMATION -- An amendment was made to Section 720.303(5)(d) which authorizes homeowners' associations to charge a reasonable fee to a prospective purchaser or a lien holder in regard to providing information about the subdivisionor the association. This information is generally requested by lenders or title companies in connection with financing or real estate closings. The fee which is charged can be up to $150.00,in addition to the cost of photocopying, and any attorneys' fees incurred by the association in connection with the response. Remember that you can include attorneys' fees if you need your attorneys to review any response, or any particular questions that have been asked.

(3) BUDGETING AND RESERVES — A very significant change has been made to the budgeting provisions relating to homeowners' associations found in Section 720.303(6). This addresses reserve accounts for capital expenditures and deferred maintenance. Once an association provides for reserve accounts which are governed by the new statute, the association is to thereafter determine, maintain and waive reserves in compliance with these requirements. The legislation indicates that "an Association shall be deemed to have provided for reserve accounts when reserve accounts have been initially established by the developer or when the membership of the Association affirmatively elects to provide for reserves".If reserve accounts were not initially provided for by the developer, the membership of the association may elect to do so upon the affirmative approval of not less than a majority of the total voting interests of the association, either at a duly called meeting or by written consent. The approval is to indicate that reserve accounts will be provided for in the budget, and to designate the specific components forwhich the reserve accounts are to be established. Once the members have approved this, the Board must thereafter provide for the required reserve accounts in the budget each year thereafter. The reserves are to be computed based upon the estimated remaining useful life and estimated replacement cost or deferred maintenance expense of each reserve item.

Once reserve accounts are established which are governed by the new statute (it appears that membership approval is required to the extent that reserves were not established by the developer, regardless of whether the Board has subsequently funded reserves), then there is also an opportunity for the membership to vote (by a majority of members present at a meeting, in person or by proxy, provided that a quorum is attained) to waive reserves or to provide less reserves than required by the calculations.

There is also an option to have reserves calculated based upon a pooled analysis of two or more of the required assets, similar to condominiums. There is also now some statutory guidance providing that reserve funds, and any interest accruing on the reserve funds, must remain in the reserve accounts unless they are used for other purposes approved by a majority vote of the membership as described above.

For those associations which are not subject to the requirements for reserves (where the developer has not established reserves or where the Board does not submit this issue to the membership in order to determine which components of reserves should be funded in accordance with the statutory formulas and procedures), homeowners' associations can continue to utilize reserve funds, and provide for reserve funds in their budget, in accordance with the procedures which previously applied to these issues in the governing documents. There were no statutes which previously addressed the manner in which homeowners' associations were to fund or utilize reserve accounts. so this is an issue that would he controlled by the governing documents.

It is very important to address this issue in connection with the upcoming budget season, in order to determine whether the Board wishes to have the membership vote on the issue of establishing certain reserve accounts pursuant to the statutory formulas, or to otherwise determine the extent to which the new law affects the budget and reserve process

There is also an inherent complication in the new law since it requires some associations to fund reserves, but it recognizes that the funding is subject to any maximum increases which may be permitted for the budget of the association. Many homeowners' association documents do not provide limits on budget increases, while others do provide limits as to how much the budget can be increased each year, and the procedures which must be followed to exceed these limits. Unlike the condominium law relating to budget increases, reserves are not excluded in determining the increase in the budget for homeowners' associations, and this will undoubtedly cause some confusion in regard to the interplay between mandatory reserves and related limitations on budget increases. Membership votes will be required in most cases where the new law on reserves applies to a particular association.

(4) FINANCIAL REPORTING The financial reporting provisions for homeowners' associations have also been revised and these are now consistent with the condominium statute, providing for a report to be prepared within 90 days from the end of the fiscal year and to be provided to the members within 120 days after the end of the fiscal year or

such other date as provided in the Bylaws. Prior legislation established financial reporting requirements for homeowners' associations, so that financial reporting requirements are now very similar to condominium associations.

(5) ATTORNEYS' FEES – A minor change was made in regard to attorneys' fees in connection with an owner who prevails in a suit against an association. The statute has been adjusted to indicate that any owner who prevails is not only entitled to recover fees that he or she incurred, but also to be reimbursed for any assessments that the owner was required to contributeto in connection with the funding of the litigation.

(6) DEVELOPER AUDITS – There has been a change which requires developers to provide an audit from an independent CPA at the time of turnover, similar to that which is required for condominium associations. This applies only to associations which are incorporated after December 31, 2007.

(7) DEVELOPER GUARANTEES – There has also been wording added to Section 720.308 of the Florida Statutes to provide detailed criteria for guarantees of assessments in a homeowners' association.

(8) PRE-SUIT MEDIATION REQUIREMENTS – A significant change has been made which will make it easier to enforce violations in homeowners' associations, since the pre-suit mediation requirements have been changed. Instead of being required to file petitions with the State of Florida, an association now is required to make a written demand on the unit owner,indicating that if the owner fails to agree to participate in the mediation process within 20 days from the date of the letter, then the association may proceed with a lawsuit. There arc detailed provisions as to the type of wording which must he included in all letters. There are also provisions for the association to recover costs and attorneys' fees incurred in the pre-suit mediation process; time requirements within which the mediation process must be completed; and other provisions which should make it easier to attempt to utilize mediation prior to lawsuits,without incurring the unnecessary costs and delays which have been experienced in the mediation program administered by the State of Florida.

B. SENATE BILL 1844 – OTHER CHANGES RELATING TO COLLECTION OF ASSESSMENTS BY HOMEOWNERS' ASSOCIATIONS:

In addition to the new notice requirements for collections by homeowners' associations, outlined above, a number of other changes have been made which will impact the collection of past-due assessments by homeowners' associations. These are contained in Senate Bill 1844, also effective July 1, 2007.

(1)A provision has been added whereby a new owner is jointly and severally liable with the prior owner for all unpaid assessments that came due up to the time that title was transferred. It is not clear as to whether this applies to a purchaser at a foreclosure sale.