The Powers of a Receiver Appointed Over Condo Associations and HOAs
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Whether due to economic hardships, mismanagement, unforeseen circumstances, or even fraud and breach of fiduciary duty, a condo or homeowners association may find itself in desperate need of help. Additionally, properties that have been neglected may also be running afoul of local code compliance regulations or may be so far indebted to vendors, that they find themselves in court. This may ultimately result in the institution of receivership proceedings and the establishment of a court-appointed receiver.
Florida’s Associations Law & Receivership
Both the Florida Condominium Act (Chapter 718, Florida Statutes) and the HOA Act (Chapter 720, Florida Statutes) allow for a court-appointed receiver to oversee an association’s affairs in certain situations. When appointed, a receiver will have authority to act as the association’s board pursuant to the court’s order appointing that receiver. A receiver’s authority can be broad and difficult to challenge absent an abuse of power. Court-appointed receivers can also manage the finances of an association facing financial difficulties with its creditors. As this blog post will discuss, receivers appointed over a condo association or HOA may be given broad powers depending on the nature of the association’s stability, including full authority to collect assessments, even through lien filing and foreclosure. If it is determined that the common elements of an association are so far gone or vendor liabilities are of a sufficient amount, courts have been known to allow receivers to levy special assessments against the association’s members.
A receiver is a “disinterested person appointed by a court or by a corporation or other person, for the protection or collection of property that is subject of diverse claims.” Granada Lakes Villas Condominium Ass’n, Inc. v. Metro-Dade Investments, 125 So.3d 756, 758 (Fla. 2013). The Florida Statutes expressly provide for situations where a receiver may be appointed, such as when an association fails to fill vacancies on its board sufficient to constitute a quorum. See Fla. Stat. § 718.1124; Fla. Stat. § 720.3053. This has also been seen when developers fail to properly compile a board upon completion or partial completion of apartment-to-condo conversion projects. In these situations, any member of the association can apply for receivership through the circuit court. But members are not the only ones who can seek a court-appointed receiver to run an association’s affairs.
The Powers of a Receiver
If an association gets itself into financial difficulties, a creditor of that association can also seek the appointment of a receiver. Additionally, when a judgment is entered against an association, and that judgment remains unsatisfied, the judgment-creditor may file a motion with the court to have a receiver appointed to oversee the association’s financial affairs. Courts have sided against associations when such an appointment is challenged. According to Florida’s courts, the Florida Statutes “do not . . . restrict a trial court’s broad, equitable authority to appoint a receiver.” Metro-Dade Investments, Co. v. Granada Lakes Villas Condominium, Inc., 74 So.3d 53, 595 (Fla. 2d DCA 2011).
In Buckley Towers Condominium, Inc. v. Buchwald, the court appointed a receiver, ordered the sequestration of the association’s funds and also ordered the distribution of those funds to the association’s creditor. 340 So.2d 1206, 1208 (Fla. 3d DCA 1976).
More recently, in City of Jacksonville v. The Preserve at St. Nicholas Investments, LLC, the City of Jacksonville sought appointment of a court-appointed receiver to manage a failing association that had numerous code compliance violations and a judgment rendered due to a failing sewage lift station facility. In this case, no actual association board was ever created and the receiver was given broad authority to manage all of the association finances, retain and/or discharge vendors, including property management, appear before the City’s code compliance Special Magistrate, solicit investors to acquire available condo units, and other basic day-to-day operations of the association. The receiver was also given the authority to manage the collection of monthly condo dues and to seek recover by way of lien filing and foreclosure.
In sum, a court can appoint a receiver to (1) manage an association’s finances, including assessment collections, (2) act on behalf of the association’s board regarding those finances, and (3) distribute funds to pay the association’s debts. This begs the question of whether a court-appointed receiver can also levy a special assessment on the members for paying the association’s debts. The answer is yes, so long as the association’s declaration allows for the levying of special assessments and the court order approves of this action.
Associations, Chapter 617, F.S., and Receivers
Associations, as non-profit corporations, are also governed by Chapter 617, Florida Statutes, which is known as the Florida Not For Profit Corporation Act. This act explains that, “The court shall describe the powers and duties of the receiver or custodian in its appointing order . . . among other powers the receiver (1) may dispose of all or any part of the assets of the corporation wherever located . . . and . . . the custodian may exercise all of the powers of the corporation, through or in place of its board of directors or officers, to the extent necessary to manage the affairs of the corporation in the best interests of its members and creditors.” Fla. Stat. § 617.1432(3). (Emphasis added.) Stated another way, if an association’s governing documents allow its board to levy special assessments, then a receiver, appointed to act on behalf of the board, would have that same power.
Although a receiver may have this power by virtue of an association’s governing documents, a court would be closely involved in any such action by a receiver to ensure the levying of a special assessment is fair and equitable. Section 617.1432(3), Florida Statutes, makes clear that a receiver has only those powers and duties described in the court’s order appointing that receiver. Therefore, it can be argued that even if an association’s governing documents would allow a receiver to levy a special assessment, that receiver could not do so absent a court order authorizing such action. A court would have the ultimate say in structuring the amount, timing and frequency of any special assessment levied by a receiver to satisfy the debts owed by an association.
Court Hurdles and Costs
Lastly, if a court has determined that the status of an association is of such poor condition that a receiver is necessary, the court is also likely to require detailed reporting of the receiver’s progress in re-establishing the sustainability of the association itself. This can mean that while an association shows potential improvement, the receiver may be used by the court as a tool to ensure full compliance with local codes, full satisfaction of any existing judgments and full self-sufficiency of the association and its board. This can take a significant length of time depending on the obstacles the association faces and the nature of its previous struggles. Not only will the approval of the court be required to terminate or modify a receivership, the other parties in the underlying suit or judgment creditors will be given an opportunity by the court to be heard as to their interests being satisfied in whole or in part.
Obviously, this can all be a time consuming and expensive process for an association. But the ultimately goal of receivership is to correct previous mistakes or deficiencies of the association and re-establish the board and the related community as an economically viable and operational entity.
Please see our firm’s condominium law blog for other articles involving issues faced by Florida condo associations and HOAs.