Welcome to the website of the law office of Steven D. Rubin.  Mr. Rubin is licensed to practice law in the State of Florida and his office  is located at 200 West Palmetto Park Road, Suite 301, Boca Raton, Florida 33432. He is admitted to practice before all of the State Courts in Florida, as well as various federal courts, including the United States Supreme Court, and is a Florida Bar Board Certified Real Estate Attorney.

Case Law Update

REMEDY LOST: THE ADVERSE CONSEQUENCE OF AN AMBIGUOUS DESCRIPTION OF LAND IN THE CONTRACT FOR SALE

A written contract for the conveyance of real property must contain all of the essential mutually agreed upon terms. One essential element is the agreed upon description of the real property to be conveyed. If the description of the land described in the contract cannot be determined by a surveyor reading the contract, with or without the use of extrinsic evidence (e.g., looking at a plat is extrinsic evidence), then the description is patently ambiguous (i.e.,  the surveyor cannot identify the property in the contract to the exclusion of all other property). Oral testimony of the parties at trial (parol evidence) is not permitted to resolve a patent ambiguity of the description of the land in the contract. The consequence of a patently ambiguous description of the land in the contract is the likelihood that the buyer will not be able to compel the seller, by court action, to convey the property to the buyer (i.e., by an action for “specific performance”), even if the seller has unjustifiably breached the contract by refusing to close.

Which of the following descriptions of land in a contract have been determined by the courts to be patently ambiguous?
1. “Approximately 20,000 square feet in the 31 story building.”
2. “A survey to establish the exact legal description of the property to be conveyed…per the sketch of the general area which is attached to the contract.”
3. “Property adjacent to the Mardi Gras, a Daytona Beach business, having a minimum of 50 frontage feet on the Boardwalk, and sufficient land to build a 7500 square foot building.”
4. Only (1) and (3) above.
5. All of the above.

See Boardwalk at Daytona Beach Development, LLC v. Paspalakis, 41 Fla.L.Weekly D2605 (Fla. 5th DCA, November 18, 2016). The correct answer is (5).

THE CAPACITY TO DETERMINE THE MENTAL INCAPACITY OF A GRANTOR IN A DEED

A natural person must be mentally competent to legally convey real property by deed. That is not a novel or surprising proposition. Suppose a woman in her nineties is selling her home and she attends the closing to sign the deed and other closing documents. She is not represented by an attorney, and she arrives in a wheelchair with her aide. The settlement agent, having met the seller for the first time, starts a conversation with her and pleasantries are exchanged. The seller responds appropriately and signs all of the closing documents, including the deed. The transaction closes in the ordinary course. However, three months later, the seller’s son files a petition to determine the seller’s incapacity, the court finds that the seller is incompetent, and the son is appointed as the guardian of the person and property of the seller. The son now alleges that the deed his mother signed three months prior is invalid because she was incompetent and he asks the court to set aside the deed (because the home was supposed to remain in his mother’s estate for distribution to the son upon her death). Should and will the deed be set aside?

In the ensuing litigation, the son will have the burden of proof to overcome “the strong presumption in favor of the validity of deeds “by clear, strong and convincing evidence,” as reaffirmed in the recent case of Marcinkewicz v. Quattrocci, 41 Fla. L. Weekly D2094a (Fla. 3d DCA 09/06/16).  The mother’s “mental capacity as grantor is presumed and must be overcome by a preponderance of the evidence”. Saks v. Smith, 145 So. 2d 895, 896 (Fla. 3d DCA 1962). The Court stated that the focus in any challenge to a grantor’s mental capacity is on the grantor’s capacity at the time the deed is executed:

“The burden rests on those seeking to set aside a deed on the ground of incapacity of the grantor at the time the instrument was executed. For it is the capacity of the grantor at the time the deed is executed and delivered that is controlling and his subsequent incapacity will not affect the deed. Parks v. Harden, 130 So. 2d 626, 628 (Fla. 2d DCA 1961).”

In Marcinkewicz, the Third District Court of Appeal reversed the trial court’s judgment which set aside the deed because the burden of proof was not met to establish that the grantor lacked the mental capacity when she signed the deed in July, 2013, despite evidence that:

1. In 2010, 3 years before she had signed the deed, the grantor was adjudged incompetent and her daughter was appointed the guardian of her person and property;
2. In January, 2012, 16 months before she had signed the deed, the guardianship was dissolved, but a limited guardianship remained over her person (see Florida Statutes Section 744.331(6) which gives the guardianship court the authority to specify which rights a person is mentally incapable of exercising, and apparently, the right to contract was not one of those rights the grantor could not exercise in the Marcinkewicz case); and
3. The grantor’s testimony at the trial convinced the trial judge that she lacked the mental capacity to sign a deed as of the trial date ( November, 2014; 18 months after she had signed the deed).

The only evidence that was presented at trial which was relevant to the grantor’s mental capacity when she had signed the deed was the testimony of the grantor’s attorney who had prepared the deed and witnessed her signing it in July, 2013. The attorney stated under oath that the grantor “knew what she was doing. . . .She had her faculties. . . I have known [her] for ten, 15 years…. [and] she wasn’t under any mental weakness of any kind.”

At a closing, who has the capacity to determine whether the grantor has the mental capacity to sign the deed, and how is that determined? A name search of the grantor would show a recorded order of incompetency but not a pending proceeding. A court records search might disclose any pending incompetency litigation. A discussion of substance with the grantor could be undertaken to evaluate her understanding of the pending transaction. The grantor’s physical condition might also give some clues about her mental capacity. Should or must a settlement agent hire a psychiatrist to attend all closings and require the parties to submit to a mental examination before the closing papers are signed!?

These are not easy questions to answer, and the law recognizes this practical difficulty by imposing the presumption of validity of deeds and requiring the party challenging the grantor’s mental capacity to prove the grantor’s mental incapacity at the time the deed is signed. The challenger should not solely rely upon a prior or subsequent adjudication of the grantor’s incapacity, even though that might appear to be very strong circumstantial evidence of incapacity at the time the deed was signed.

FLORIDA IS REAFFIRMED AS THE PLACE TO GO FOR DEBTOR PROTECTION

The Florida Constitution exempts every Florida resident’s homestead from “forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon”, except for “the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted for house, field, or other labor performed on the realty.” See Art. X, Section 4, Florida Constitution. In general, a “homestead” is the Florida resident’s permanent home, and land surrounding the home, provided the total area is not more than a half acre if the home is located within a municipality, and not more than 10 acres if the home is located in an unincorporated area. There is no monetary limit for the value of the homestead exemption. For example, pursuant to this Constitutional homestead protection, if a homeowner negligently injures another person and that person obtains a $5,000 judgment  against the homeowner, the injured person cannot collect the $5,000 personal injury judgment against the homeowner by forcing the sale of the homeowner’s homestead real property, even if the homestead has a value in excess of $5,000,000.

What if the homeowner sells the homestead residence after the injured person obtains the judgment against the homeowner? Can the injured person collect the judgment from the sale proceeds of the homestead because under those circumstances, the homestead is not sold “forcibly” by the Sheriff, but instead voluntarily by the homeowner? In 1962, the Florida Supreme Court answered this question and ruled that the sale proceeds from the homeowner’s voluntary sale of the homestead are still protected from the creditor’s attempt to collect its judgment, provided:
“1. There must be a good faith intention, prior to and at the same time of the sale, to reinvest the proceeds in another homestead within a reasonable time;
2. The funds must not be commingled with other monies; and
3. The proceeds must be kept separate and apart and held for the sole purpose of acquiring another home [homestead].” See Orange Brevard Plumbing & Heating Co. v. La Croix, 137 So. 2d 201 (Fla. 1962).

As a practical matter, how does the homeowner keep the sale proceeds “separate and apart” and for the “sole purpose” of acquiring another homestead? Typically, when the sale of a home occurs, the seller is paid at the closing either by attorney’s trust account check or wire transfer. How does the homeowner have to “keep” the proceeds – put the check in a folder labeled “for new homestead only”; wire or deposit the funds into a separate non-interest bearing bank account; or cash the check and put the money in a jar under the bed until it is used to purchase the new homestead (an example used by the Florida Supreme Court)? Prior case law established that placing the proceeds into a separate interest bearing bank account was sufficient. That sounds reasonable, even though the proceeds are technically “invested” in the bank, as opposed to a new homestead, and the homeowner receives a return on his bank investment (the interest). It has also been held that the homeowner/seller can take back a note and mortgage instead of cash when the homestead is sold, and the note and mortgage will qualify for the homestead exemption, provided they are eventually used to reinvest in the new homestead.

What if the sale proceeds are placed into a separate brokerage account labeled “homestead account”, and the funds are used in the interim to purchase mutual funds and unit investment trusts? Are those “investments” for the “sole purpose” of buying a new homestead? Yes they are, says the Florida Supreme Court. In JBK Associates, Inc. v. Sill Bros., Inc. (41 Fla.L.Weekly S189 (Fla.04/28/16), the Court held that such investments were “safe”and an alternative to today’s bank accounts which do not “garner any significant amount of interest earnings”, and they do not “demonstrate an intent so different from reinvestment in a new homestead within a reasonable time.” In JBK Associates, the debtor did in fact reinvest the proceeds into a new homestead within a reasonable time after the sale which prevented the judgment creditor from collecting its judgment.

Unanswered questions remain for future resolution, and they will be decided on a case by case basis. For example, how long is a “reasonable time” from the date of sale of the homestead to reinvesting the sale proceeds into a new homestead? One court has stated ten years is too long, and although the opinion in JBK Associates does not state the precise amount of time that had elapsed, it was at least four months. Are the profits generated by the homeowner from the interim stock and mutual fund investments also protected from forced sale? What constitutes a “safe” investment, and does a “safe” investment vary depending upon the interest that can be generated by depositing the sale proceeds into a federally insured bank account? One question was definitely answered unequivocally: Florida Courts will continue to construe the homestead exemption very liberally in favor of homeowners, which makes Florida a very friendly and welcoming destination for the Nation’s debtors.

THE MANY HATS OF THE REAL ESTATE CLOSING ATTORNEY – SOME HATS CAN BE WORN AT THE SAME TIME, BUT OTHERS MAY NOT

In a typical real estate transaction, an attorney may owe duties to the client, the lender, the title insurer, and the other party to the purchase and sale. For example, in Palm Beach County, an attorney could simultaneously be the escrow agent who holds the deposit, the title agent who examines evidence of title and issues the title policies to the buyer and lender, the closing agent who prepares the settlement statement and disburses the funds, and the attorney for the seller. The law imposes a variety of duties on the person who acts in these various capacities, and each representative capacity forms the basis for a potential conflict of interest. If an actual conflict of interest arises,  withdrawal from the representative capacity is required.

The various duties owed to the parties in a real estate transaction are created by both  law and  contract. An attorney has a fiduciary duty to her client and must provide legal representation in a non-negligent manner, with honesty and in good faith (see e.g. Mallard v. Dowell, 528 So.2d 512 (Fla. 3DCA 1988), rev, denied 539 So.2d 475 (Fla. 1988). A title agent has the duty to comply with the title insurance Statute and Regulations, and the contractual duties imposed by the title underwriter. The lender in a transaction will require the title or settlement agent to indemnify and hold the lender harmless if the agent breaches the lender’s closing instructions or commits a fraud.  The escrow agent holding the funds has a fiduciary and contractual duty to the buyer and seller to disburse the funds as directed by the parties’ contract (see e.g., United American Bank of Central Florida v. Seligman, 599 So.2d 1014 (Fla. 5DCA 1992). The closing agent has a fiduciary duty (with some exceptions) to the buyer and the seller to conduct and supervise the closing in a non-negligent manner, and with honesty and in good faith (see e.g., Askew v. Allstate Title & Abstract Co., Inc., 603 So.2d 29 (Fla. 2DCA 1992) and Gerson v. Broward County Title Co., 116 So.2d 455 (Fla. 2DCA 1959).

In the recent case of Moreno v. First International Title, Inc., 40 Fla.L.Weekly D1834 (Fla. 3DCA August 5, 2015), the purchaser, after the closing, sued the closing agent (who was not an attorney) alleging that it had breached its fiduciary duty because it did not clearly communicate to the purchaser that the County had imposed code enforcement liens against the property in the amount of $64,000 (presumably because the seller or the seller’s predecessor had constructed additions to the home without obtaining the necessary permits). The purchaser did not speak or read English. Before the closing, the closing agent required the purchaser to sign an acknowledgement of the existence of the code enforcement liens and a hold harmless agreement which attached a copy of each lien. The purchaser did not have an attorney, and even though she could not speak or read English, she signed the documents. Did the closing agent breach its fiduciary duty to the purchaser by closing the transaction, notwithstanding the existence of the code enforcement liens  and the purchaser’s inability to read or speak English?

The Court upheld the trial court’s summary judgment order in favor of the closing agent. The Court concluded that there was “no fraudulent inducement to sign, purposeful or negligent misinformation, or any other action on the closing agent’s part to prevent the buyer from reading the documents and inquiring about the contents.”  Fair enough – the closing agent advised the purchaser of the liens and code enforcement proceedings, and the purchaser was then able to decide, based on full knowledge of the facts, whether to close (query whether the title agent included the liens as exceptions in the title policy and whether the real estate contract disclosed the liens and required the purchaser to accept title subject to the liens).  In Moreno, the closing agent conducted the closing electronically, and presumably  the agent was not present at closing and did not know the purchaser could not speak or read English. Had the closing agent known those facts, would the result have been different? It is further noted that litigation continues against the real estate agent and the realty company.

To further complicate an attorney’s consideration of what duties she may owe to the  parties in a real estate transaction, if the attorney is representing one party to the transaction, then she must decide what she needs to explain  about  the transaction to the unrepresented opposing party to avoid an ethics complaint against her. As stated by the Florida Supreme Court, when there is  an elderly, unsophisticated opposing party and the terms of the transaction are very favorable to the attorney’s client,   “[f]irst, the attorney must explain to the unrepresented opposing party the fact that the attorney is representing an adverse interest. Second, the attorney must explain the material terms of the documents that the attorney has drafted for the client so that the opposing party fully understands their actual effect. When the transaction is as one-sided as that in the present case, counsel preparing the documents is under an ethical duty to make sure that an unrepresented party understands the possible detrimental effect of the transaction and the fact that the attorney’s  loyalty lies with the client alone. R. Regulating Fla.Bar 4-1.7.” Florida Bar v. Bellville, 591 So.2d 170 (Fla.1991).

However, compare what the Fourth District Court of Appeal has said about an attorney’s legal duty (as opposed to an ethical duty) to the unrepresented opposing party in a real estate transaction. In the following case, the attorney represented the seller and allegedly negligently prepared the closing statement which caused the unrepresented buyers to pay too much money at the closing. The Court affirmed the dismissal of  the buyers’ claim against the seller’s attorney and stated:

“The question is whether the attorney owed sufficient duty to the buyer so as to require him to account to the buyer for his negligence, if any. We think not. The attorney was hired by the seller to be his attorney, no representations were made that the attorney was representing both parties (which indeed he is not permitted to do, EC 5-14, Code of Professional Responsibility), and the buyer was quite free to hire his own lawyer if he was unfamiliar with preparing for real estate closings. The buyers cannot hold the sellers’ attorney liable for negligence in preparing a closing statement. The attorney’s allegiance was solely to the sellers and there is no allegation the attorney intentionally misled anyone in the matter.” Adams v. Chenowith, 349 So.2d 230 (Fla. 4DCA 1977)

These cases are  good examples of why a party to a contract for the sale and purchase of real estate should retain a Florida Bar Board Certified Real Estate Attorney to represent that party’s interests in the transaction. A Board Certified attorney is an expert in the area of law for which he has been certified, and has special skills, knowledge, and competence to handle the matter with the highest degree of professionalism and ethics.

BRIGHT LINE MRTA EXTINGUISHMENT RULE DIMMED

The primary purpose of Florida’s Marketable Record Title Act (“MRTA”) is to extinguish title claims that predate the root of title. MRTA eliminates ancient claims and defects in title and, as the Act’s title indicates, promotes the marketability of title (i.e., title that is free of stale claims, defects, and adverse interests). The “root of title” is usually a deed, and it must be of record at least 30 years prior to the date of the current title search. There are limited exceptions to the extinguishment of claims which predate the root of title. Among them, is the following:

“Estates or interests, easements and use restrictions disclosed by and defects inherent in the muniments of title on which said estate is based beginning with the root of title; provided, however, that a general reference in any of such muniments to easements, use restrictions or other interests created prior to the root of title shall not be sufficient to preserve them unless specific identification by reference to book and page of record or by name of recorded plat be made therein to a recorded title transaction which imposed, transferred or continued such easement, use restrictions or other interests; . . .” Florida Statutes Sec. 712.03(1).

This provision was understood to mean that unless the claim is referenced by official record book and page in the root of title deed itself, or in deeds subsequent to the root of title, it is extinguished by MRTA. As an example, a deed typically contains the phrase: “Subject to easements, restrictions and reservations of record”. This phrase would presumably constitute a “general reference” to such restrictions, and would not preserve them because the official record book and page of the recorded restrictions are not stated.

Recently, the 5th District Court of Appeal had the opportunity to decide whether a reference in a deed to HOA covenants not identified by official record book and page was a “general reference” and therefore the covenants were extinguished by MRTA because they were recorded before the root of title deed. The Court, in Barney v. Silver Lakes Acres Property Owner’s Ass’n. Inc., 159 So. 3d 181 (Fla. 5th DCA 2015), held that the phrase in the root of title deed:

“Subject also to the obligations of the owners of each lot of Silver Lakes Acres s/d to the Silver Lakes Acres Property Owners Association, their successors and assigns, which said obligations Grantee assumes and agrees to pay”,

was NOT a “general reference”, and therefore, the covenants were preserved, even though the  book and page of the covenants were not stated in the Deed. Was it the fact that the Grantee assumed the obligations that convinced the Court that the reference was something other than a “general” reference because “[a]ppellants simply cannot claim something was hidden in the chain of title to their lots.” Barney, supra? Would the result have been different if the assumption language were absent? It is unclear from the facts stated in the Case whether the assumption language was contained in all of the deeds in the subdivision. If not, the covenants may have been extinguished with respect to those lots which did not have the assumption language in the root of title deeds.

The HOA covenants in the Barney case were recorded, albeit, before the root of title, so the covenants were not  “hidden” as the Court suggests. A person has, at minimum, constructive knowledge of recorded instruments, and it is only the application of MRTA that would extinguish them. If the test for extinguishment were  whether the lot owner had “actual or constructive knowledge” of the claim, MRTA would be impossible to apply without a judicial determination of that fact in every title examination. In my opinion, that type of analysis defeats the purpose of the bright line rule which is stated in the MRTA Statute itself – if the claim is not referenced by  book and page in the deed, then it is extinguished.The Court might have reached the same result and at the same time have confirmed the bright line rule by holding that the HOA covenants were extinguished by MRTA, but the Grantees waived  extinguishment, they were equitably estopped to deny their existence, or they became contractually bound to comply with the covenants, because the Grantees expressly acknowledged their existence and  assumed the obligations in the deed.

What was a bright line rule has now been dimmed, and each restriction in a root of title deed (and subsequent deeds) must be interpreted to determine whether the claim “is or is not hidden”, and whether the claim is a “general reference”, or something else, when the  book and page of the referenced instrument is not stated in the deed. It will now be problematic for title examiners and title insurers to determine marketability of title and to insure title, without a judicial determination of whether a restriction, estate, interest, or easement in a root of title deed is “general”, or otherwise, when no record reference for them is stated. Future grantees should expect to see more exceptions to title in title policies and claims made against title as a result of this case. It is noted that the case was not appealed to the Florida Supreme Court and rehearing was denied.

HOMESTEAD REMINDER – WILL YOUR SPOUSE AND FORMER SPOUSE LIVE TOGETHER IN YOUR FORMER MARITAL HOME AFTER YOUR DEATH?

We are all familiar with the Florida constitutional homestead protection against the forced sale of real property. Pursuant to Article X, Section 4, of the Florida Constitution, a natural person can claim a homestead exemption from forced sale on 160 acres of land if located outside a municipality, and one-half acre of land if located within a municipality, provided the land constitutes the residence of the owner. In addition, the homestead protection extends to the residence of the owner’s “family”. Upon the owner’s death, the owner’s surviving spouse or heirs of the owner can retain the exemption to prevent the deceased owner’s creditors from forcing the sale of the owner’s homestead property, and the owner’s surviving spouse and lineal descendants may have protected distribution rights in the homestead property. Generally, if a decedent is survived by a spouse or  a minor child, the homestead real property cannot be devised, and the surviving spouse takes a life estate,with a vested remainder to lineal descendants.

In Friscia v. Friscia,  39 FLaLWeekly D1810a (Fla. 2dDCA  August 27,2014), we were reminded about the need to determine who is residing in the real property, even if the owner is not, to determine whether it may still be homestead property. In Friscia, Mr. Friscia owned a home with his wife. They divorced, and Mr. Friscia moved out of the marital home and subsequently remarried. However, Mr. Friscia’s minor sons continued to reside with his former wife in the former marital home, and Mr. Friscia provided financial support for his sons. Mr. Friscia died, and his son and second wife claimed that the former marital home was Mr. Friscia’s homestead, and therefore not subject to the extensive creditor claims filed against the estate. The trial court concluded that even though the former wife was awarded the exclusive use and possession of the former marital home, because Mr. Friscia provided financial support to his two sons and the two sons resided in the former marital home, the former marital home was entitled to Mr. Friscia’s homestead exemption as his “family’s” residence (but only to the extent of Mr. Friscia’s one-half interest in the property  – one-half because he and his former wife each then owned an undivided one-half interest as tenants in common, as divorced owners of a prior tenancy by the entireties).  Mr. Friscia’s interest in the former marital home was thus not subject to the creditor claims against his  Estate.

As a consequence of this ruling, the second wife, who by law acquired a life estate in one half of the former marital home (due to the restriction on the devise of homestead property), then argued that as a life tenant she was entitled to reside in and enter the former marital home on an unrestricted basis (which was then occupied by the former wife and Mr. Friscia’s children), even though the marital settlement agreement signed by Mr. Friscia granted the former wife exclusive use and possession of the former marital home. The second wife also argued that the former wife could not sell the marital home when the oldest child reached the age of majority, even though the marital settlement agreement contained a provision requiring the sale of the marital home if the former spouse had not exercised her option to buy out Mr. Friscia’s one half interest in the property. The trial court lamented about the “untenable consequences associated with the implementation of this Court’s order.” I suppose the trial court was imagining the former spouse and second wife sitting down at the dinner table each night for a “friendly” discussion of the day’s events,  and sleeping in the same house together for the indefinite future!

Not to worry. The Appellate Court affirmed the trial court’s order, but also concluded that although the marital settlement agreement was not a waiver of the homestead exemption, its terms were binding on Mr. Friscia’s heirs. Thus, the second wife would not have any use of the former marital home while the former wife was residing there (because the marital settlement agreement granted the former wife the exclusive use and possession of the home), and the former spouse could still require the sale of the former marital home after the oldest child reached the age of majority.

SUCCESSOR OWNER NOT LIABLE FOR PREDECESSOR’S CONSTRUCTION OF BUILDING WHICH IS INACCESSABLE BY PERSONS WITH HANDICAPS

The Federal Fair Housing Act (42 U.S.C Section 3604) (“FHA”) prohibits discrimination against persons with handicaps. The Florida Civil Rights Act contains similar provisions (F.S. Section 760.23). One provision of the FHA prohibits discrimination in connection with the design and construction of dwellings (42 U.S.C. Section 3604(f)(3)(C)). Applicable dwellings must be readily accessible to and usable by handicapped persons. Examples include wheelchair accessibility – wider doors, maneuverability in the kitchen area, and accessible light switches and electrical outlets. A violation of the FHA could lead to the award of actual and statutory damages, punitive damages, and attorney’s fees and costs, as well as injunctive relief in favor of an aggrieved private plaintiff.

If a building is designed and/or constructed in violation of the handicap accessibility guidelines, but the building is then sold, is the new owner of the building liable for the violations, or obligated to remedy the violations, which were created by the prior owner who designed and constructed the building? The 11th U.S. Circuit Court of Appeal recently held that the legislative history of the FHA and the FHA’s clear meaning impose liability exclusively on a defendant who was involved in the design and construction of the building. If the subsequent owner had no such involvement, then it cannot be held liable. The Court commented that if the FHA were interpreted to impose liability on subsequent owners, the “potential owners would need to thoroughly investigate compliance with the guidelines prior to purchasing a covered dwelling or risk liability.” The Court had sympathy with the plaintiff, but not enough sympathy to expand the scope of the FHA beyond Congress’ intent. See Harding v. Orlando Apartments, LLC, 24 Fla. L. Weekly Fed. C1245 (11th Cir. April 14, 2014).

 

COMMON LAW AUTHORITY TO APPOINT A RECEIVER

What remedies does a unit owner have if the condominium association fails to collect assessments and pay the bills? Perhaps the owner could sue each director for breach for fiduciary duty or sue the association to compel it to comply with its duties under the governing documents and Chapter 718. Another remedy might be the appointment of a receiver for the association. A receiver is a person or corporation who is disinterested and is given the authority to collect income and pay expenses for the association in lieu of the board of directors. The receiver accounts to the court and the association for the income received and expenditures made, and is entitled to reasonable compensation for its services.

However, statutory authority for appointing a receiver for a not for profit condominium association does not include the circumstance of a mismanaged association. Chapter 718 authorizes the appointment of a receiver only  if the association fails to fill vacancies on the board, or to conclude the affairs of the association after a natural disaster. Chapter 617 authorizes the appointment of a receiver only  to wind down the affairs of the corporation.

In Florida,  common law can be applied  by a court to determine the outcome of a legal dispute,  unless its application is otherwise restricted or prohibited by statute or the constitution. “Common law” is the non-statutory law developed over the ages in England and passed down to the courts of the United States when England colonized North America. It consists of some of the most basic principles of law which evolved over time as the courts decided cases, and the older cases became precedent for more recent ones. For example, you will not find a statute which defines what the legal elements of a binding Florida real estate contract are. Instead, a review of Florida case law is required to make this determination. If there is no Florida case on point, you could look at case law in other common law states as persuasive authority on the issue presented.

In the recent case of Granada Lakes Villas Condominium Association, Inc. v. Metro-Dade Investments Co,     So.3d    (Fla. 2013), the Florida Supreme Court reaffirmed  the applicability of common law in Florida if it has not been prohibited or restricted by statute. With respect to receiverships, common law permits the appointment of a receiver in cases of fraud, self-dealing, and waste, and a court has wide equitable discretion to appoint a receiver under those circumstances.

The Florida Supreme Court concluded that there is nothing in Florida Statutes Chapter 718 or 617 which restricts or prohibits the court’s equitable common law  power to appoint a receiver for reasons other than those enumerated in the Statutes. Thus, a Florida court does have the  common law authority to appoint a receiver when there is condominium association mismanagement which causes waste, for example, if an  association fails to pay certain maintenance and utility expenses causing “health nuisances on the property”.

THE COURT GIVETH AND THE LEGISLATURE TAKETH AWAY

When a person buys a new home, the contract for sale and purchase with the developer typically contains construction warranties for the major structural components of the home. If the home is located in a subdivision, the developer also usually constructs and installs essential subdivision infrastructure to make the home habitable, such as roads for ingress and egress, sewer lines for disposing of waste, electrical conduit for electricity, and drainage to remove rainwater. The issue arose whether there are any implied warranties of fitness and merchantability for subdivision infrastructure improvements installed by the developer, even though the contract for sale between the developer and purchaser only contains warranties for the home itself, and if so, can a homeowners association bring suit against the developer on behalf of the homeowners for breach of the implied warranties for defective subdivision improvements. Two Florida District Courts of Appeal came to opposite conclusions and the Florida Supreme Court had to resolve the conflict.

In Maronda Homes Inc. of Florida v. Lakeview Reserve Homeowner’s Association, 38 Fla.L.Weekly S859(Fla. November 21, 2013), the Florida Supreme Court sided with the Fifth District Court of Appeal and held that a homeowner’s association can bring an action for breach of implied warranty of fitness and merchantability against the developer for defects in subdivision infrastructure which directly impact the homes and provide services essential to the habitability of the residences. In Moranda, there was  inadequate drainage which caused flooding of retention ponds and negatively impacted the habitability of the homes by creating child safety issues, mosquito infestation, and other “dangerous conditions.” Based upon the association’s allegations, the Court ruled it did state a valid cause of action for breach of implied warranty of fitness and merchantability.

But the Court had to consider one final issue. During the pendency of the case,  in 2012, the Florida Legislature adopted Florida Statute Sec. 553.85 (the “Act”), effective July 1, 2012.  The Act essentially states that there is no implied warranty of fitness or merchantability for subdivision infrastructure improvements when there is no damage to the home itself (or under or on the lot), and the  improvement does not immediately and directly support the habitability of the home. The Act states that “it applies retroactively  . . .to all cases accruing before, pending on, or filed after” July 1, 2012.  If the Act applied retroactively to the Maronda case, the association’s cause of action could be barred by the Act. The Florida Supreme Court concluded that even though the Legislature intended the Act to be applied retroactively, it could not be applied retroactively  because of the constitutional prohibition against the impairment of vested contract rights.

Thus, what the Florida Supreme Court  giveth to  a  homeowner who purchases a new construction home, the Florida Legislature taketh away (at least to the extent of any cause of action accruing on or after July 1, 2012).

WHEN IS A NON-FINAL ORDER A FINAL ORDER?

The Florida Rules of Appellate Procedure designate all post-final judgment orders as “non-final” orders for purposes of an appeal. The Florida Rules of Civil Procedure only authorize motions for rehearing of “final orders”. Can a post-final judgment order  simultaneously be a “final order” under the Rules of Civil procedure so that the trial court can rehear the matter,  and be a “non-final order” under the Rules of Appellate Procedure, or is every post-final judgment order a “non-final order” which is not subject to rehearing?  In the recent case of Popescu v. Laguna Master Association, Inc., 126 So.3d 449 (Fla.4th DCA 2013),  the Court held that a post-final judgment order can be a “final order” under the Rules of Civil Procedure subject to a valid motion for rehearing, if it adjudicated  separate and distinct rights of the parties that arose subsequent to the entry of the final judgment.  Thus, such a “final order” is subject to rehearing by the trial court under the Rules of Civil Procedure even though the same order  is classified as a “non-final order” under the Rules of Appellate Procedure.

In Popescu,  a homeowner’s association obtained a final judgment of foreclosure on a claim of lien for unpaid assessments.  However, after the final judgment of foreclosure had been entered but before the foreclosure sale occurred, the lot owner sold the lot to the buyer in a short sale transaction.   The association was paid off (a redemption),  but due to mistake, accident, or clerical error, the foreclosure sale was not canceled. The foreclosure sale was conducted by the Clerk of Court, the lot was sold to a third  party bidder, and the certificate of title was issued.

Thereafter, the association requested the trial court to vacate the foreclosure sale and certificate of title based upon the redemption and mistake. The trial court denied the motion to vacate and  the  association requested the court to rehear the motion to vacate to correct the court’s erroneous ruling.   The trial court reconsidered its denial of the motion to vacate, and set aside the order denying the motion to vacate and granted rehearing. The Appellate Court denied the foreclosure sale purchaser’s attempt to prevent the trial court from rehearing the motion to vacate. The Appellate Court held that because the redemption and mistake occurred after the  final judgment was entered, the order denying the motion to vacate  qualified as a “final order” under the Florida Rules of Civil Procedure and was subject to rehearing, notwithstanding the fact that is is classified as a “non-final order” under the Florida Rules of Appellate Procedure.

[Note: Mr. Rubin successfully represented the Appellee Association on appeal in this reported Case. On remand, the trial court vacated the foreclosure sale and certificate of title based on the pre-sale exercise of the right of redemption (i.e., the right of redemption was exercised by  the short sale purchaser when the short sale closed). See Popescu v. Laguna Master Association, Inc., 184 So.3d 1196 (Fla. 4th DCA 2016, rev. den. ___ So.3d ___(Fla. 2016).]