Thursday, March 27, 2014

Law Enacted to Prevent Significant Flood Insurance Rate Increases


Late last week the President signed into law a bill that will provide relief to millions of homeowners whose flood insurance premiums were expected to soar through the roof.  A portion of the Biggert-Waters Flood Insurance Act of 2012, designed to help the national flood insurance program (NFIP) get out of debt, required the Federal Emergency Management Agency (FEMA) to implement increased insurance rates that reflected the true cost of flood risk and put an end to subsidies on existing properties at the time of sale.  The planned increases, due to take effect next year, would have jeopardized the financial stability of homeowners across the nation.

In response, Congress passed the “Homeowner Flood Insurance Affordability Act of 2014,” which sets a cap on flood insurance premium increases, restores grandfathered rates, retains subsidized rates and provides for reforms to flood mapping procedures.  Briefly, the Flood Insurance Affordability Act requires FEMA to implement the following measures:     

Affordability:
•    Flood insurance premium rate increases for the NFIP will be capped at 18% annually;1
•    Reinstate flood insurance subsidies on existing properties at the time of sale;2
•    Reinstate grandfathering for property owners mapped into higher risk areas; 
•    Refund homeowners who overpaid premiums;3
•    Institute monthly installment payment options;
•    Strive to minimize annual premiums that exceed one-percent of total coverage provided;
•    Complete a study on how to keep the NFIP affordable. 

Flood Mapping:
•    Notify, coordinate and cooperate with communities during any mapping or map updating;
•    Provide funding to reimburse successful appeals to FEMA flood maps;
•    Provide communities credit for non-federal levees and locally funded flood mitigation procedures in new flood maps.

The Community Associations Institute (CAI) petitioned Congress on behalf of community associations that purchase flood insurance policies to adopt this law to avoid the specter of grossly increased premiums, which would have an impact on monthly maintenance fees.  We are pleased to see that the efforts of CAI have paid off with the adoption of the Flood Insurance Affordability Act. If you have any questions regarding the Flood Insurance Affordability Act or the national flood insurance program in general, please consult with your attorney. 

1. To fund subsidized rates, a $25 surcharge fee will be applied to most homeowner policies and a $250 fee will apply to non-residential or non-primary residence properties
2. Properties in compliance with previous flood maps cannot be hit with large increases when new maps show  greater risk of flooding
3. For example, to owners who purchased after Biggert Waters became law and later learned that a change in ownership ended subsidized flood insurance premiums


Thursday, March 6, 2014

To Receive Or Not To Receive, That Is The Question: Legal And Accounting Principles For Board’s And Associations To Consider When Contemplating A Request For Appointment Of A Rent Receiver

Undoubtedly, in the current economic climate, many community associations and boards are faced with the dilemma of dealing with and managing units that are vacant and have been abandoned by the owners. Generally, these units are burdened with significant debt and maintenance arrears that continue to accrue each month. Additionally, these units are commonly in the process of being foreclosed by the lender. However, the lender is usually not acting expeditiously to advance the foreclosure proceeding to a sheriff’s sale. As such, associations and boards have become interested in requesting the court to appoint a rent receiver with authority to obtain a tenant and to rent and to lease the unit and to apply the income received to pay down the arrears. Oftentimes, this may be the only opportunity an association will have to achieve some sort of monetary recovery against an absent and or judgment proof owner.

Since an application must be made to the court, expenses and legal fees will necessarily be incurred and a decision also needs to be made to select a qualified entity or individual who will be approved by the court to be the appointed receiver.   

Some of the legal issues to consider are as follows: First, there is no guarantee that the application will be granted. The relief requested is equitable in nature and the court has discretion to grant or deny the application based on the facts. Currently, there is no statutory basis or specific legal precedent that affords associations the absolute right to have a receiver appointed. The decisions on these applications vary by court and by judge.

Most courts and judges will require that the foreclosing lender be served with notice of the application and the lender will generally submit an objection and opposition to the application based on protection of the alleged superiority of its first mortgage and security interest.

Please click here to read the entire article which appeared in the January 2014 edition of Community Trends.

Wednesday, March 5, 2014

The FDCPA and Debts That Can Cause Despair: Issues Implicated in Connection with Debt Collection for Communtiy Associations

The Fair Debt Collection Practices Act (15 U.S.C. § 1692) commonly known and referred as the FDCPA is a federal statute that regulates the conduct of debts collectors in connection with activity to collect consumer debt on behalf of creditors.

Although normally associated with and discussed in the context of credit card debt collection and other similar types of consumer debt, it is undisputable the FDCPA applies to action undertaken by attorneys to collect past due condominium and homeowner association maintenance fees and related charges.

As such, attorneys and law firms engaged to collect maintenance fees on behalf of association clients must be vigilant to comply with the requirements of the FDCPA and be aware of the damages that can be awarded for a violation. Penalties for violations include compensation for actual damages or $1,000.00 per violation as well as awards for attorneys’ fees to a successful plaintiff.

As such, FDCPA compliance will be taken into consideration at the time a law firm is engaged to collect past due maintenance fees by a community association. Typically, a retainer agreement will contain an indemnification provision advising that the association agrees to indemnify its counsel in the event the association or its management company provides counsel with a misstatement of the amount due that results in attorney liability under the FDCPA.

For more information, please read my recent article in the July, 2013 issue of Community Trends, Published by CAI New Jersey.