The 411 on Condo's and HOA's

The 411 on Condo's and HOA's

Association Management Blog

Blanket Receiverships. Blessing or Curse.

Many condominium associations saw themselves in serious financial distress starting in 2008. The real estate bubble burst and many unit owners walked away from their mortgages. They also walked away from their responsibility as members in a common interest condominium association. As a result, many associations experienced 40, 50 and even 60% assessment delinquency rates. Condo Associations were willing to try anything in order to get some much needed relief.

The concept of Blanket Receivership is the legal concept developed by a prominent Miami Attorney. It helped many condominiums at the time. Blanket Receiverships in a nutshell work in the following way. The Board of Directors of the association would instruct the association attorney to prepare an order in which the court would appoint a receiver to take possession of any vacant unit currently owing over 90 days of assessments. The “Blanket” portion of the concept came about due to language contained in the order which made it possible for any unit that fell under the parameters listed above to be automatically placed under the receivership order without need of having to go back to court to have the each unit assigned at a hearing. The receiver would change the locks make the unit habitable, lease the unit on a month to month basis and the funds collected by the receiver would be used to offset the delinquency of the unit. A receivership fee plus any expense made in preparing the unit for leasing would be deducted from the funds generated by the lease.   

Judges all over the State of Florida felt confident in the concept and the respective receivers. The Boards of Director were requesting not only the receivership but in most cases would even request a particular receiver. Most judges would grant the particular receiver requested by the association. What no one was able to foresee was how this system could be corrupted and taken advantage of by charlatans.      

In early 2013, a group of companies and industry professionals decided to ban together and target distressed condominiums. A management company would successfully be retained by the Board of Directors of the distressed condominium. They would promise a windfall of money to the association if the Board followed their procedures and plan. The management company would then bring in a “friendly association attorney” who would file a motion in the court for a blanket receivership allegedly requested by the Board of Directors. These board members did not know what the order contained. Most of the time they would not read about the broad authorities the receiver was requesting. Most of these orders contained provisions regarding voting rights. They contained many other authorities normally granted to receivers but the concept of voting rights being granted to the receiver assured that the receiver would have absolute control of the election process and result. The receiver would submit ballots on Election Day for all of the units they had “taken possession of”. In many cases the unit owners would have no way of confirming exactly how many units the receiver legally took possession of since the receiver would not timely submit reports to the court as required by the order. The unit owners becoming suspicious of these folks running the association would request that the DBPR assign a Monitor of Elections. The reports these monitors would file post election were detrimental to the election process and the receiver however, since the “association attorney”, and “receiver’s attorney” would hand the election monitor the receivership order executed by the circuit court Judge. They would refer to the section pertaining to the voting rights authority. The election monitors would be forced to accept the receivership ballots and discard the ballots of the legitimate unit owners. Thus the elected board would always be a group friendly to the receivership group.  The “chosen receiver” was always someone friendly to the management company and the association attorney. The receiver would retain a ‘friendly attorney” to represent its interest. The receiver would also hire a “friendly receivership collection company” to perform all of the duties the receiver assigned. All of these companies and professionals were to be paid from the funds generated by the leasing of units in receivership. Obviously anyone with basic arithmetic skills can surmise that the amount of money left over after all of these folks mentioned above were paid would be of very little consequence. In fact most of the associations who fell victim to this scam began to see their cash flow situation get much worse than it was prior to requesting the receivership in the first place. Seriously overdue water & sewer bills and dangerously differed building repair and maintenance became common patterns in these associations.

My firm is currently following the operations of six associations in Miami-Dade County in which this scam is currently taking place. The patterns in all of the six associations are remarkably similar. Enormous water & sewer bills, upset membership over fraudulent elections and liens filed for questionable receivership charges. Lack of transparency also appears to be commonplace among the associations in which this group is in control. Lastly, the receiver not timely filing reports with the court was also commonplace.  

On November 18, 2014 we learned of the first victory against this “receivership group”.

CASE # 12-00690 CA 42:  Judge Victoria Sigler of Miami- Dade County’s 11th Judicial Circuit removed the receiver assigned by her to International Park I Condominium Association. Caridad Ortega was removed as receiver with cause. Among the causes listed by Judge Sigler were the posting of fraudulent court orders, changing the locks constituting severe misconduct in violation of law and the Courts order and the most important, the non-disclosure of a conflict of financial interests. In the scathing order by Judge Sigler, she writes “An appointed receiver must make a complete and accurate disclosure of any conflict of financial interests. This requirement is a matter of great importance to stakeholders and all business dealings should be sufficiently open and deliberate to refute any appearance of unfairness or conflict of interest. The Court notes that the receiver’s designated vendors, Gables Professional Management Co., Community Rental Partners LLC and APG Partners are all registered companies of the property manager, Rogelio Cainzos, and have substantially profited from the receivership estate.”

The point of this article is to inform you as the consumer or industry professional. Be very careful the service and vendors you present to your respective community associations. Thoroughly investigate them. This particular concept had its time and place. In July 2014 the Florida legislature enacted laws empowering the associations to do much of what the receivership concept could do without the risk of having to hire unscrupulous vendors.  This rendered the Blanket Receivership concept useless.

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