Blanket receiverships: blessing
or curse
Pazos
Robaina Association Management
Miami Florida
29 Nov 2014
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.
target distressed condominiums
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.
voting rights
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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