Inflated Estoppel Letters and Defamation Claims

By Michael J. Gelfand, Esq. / Published October 2019

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stoppel Letters: hogs get slaughtered

Associations are frequently requested to provide an estoppel letter certificate for closings, loan refinancings, and foreclosures. What happens when an estoppel letter inflates the amounts due? Can the owner sue the association for damages? Possibly.

In a decision that could have significant implications for Florida condominium, cooperative, and homeowners associations, an appellate court recently allowed a lawsuit to proceed which claimed that an estoppel letter was intentionally inflated. The facts in Laptopplaza, Inc. v. Wells Fargo Bank, 44 Fla. L. Weekly D 1555 (Fla. 3rd DCA, June 19, 2019), indicated that the Bank sent a property owner a notice of default letter. In response to a request for an estoppel letter, the Bank sent a letter stating that more than $1.3 million was due, which included $100,000 in legal fees!

The owner objected to the legal fees and paid the remaining $1.2 million. The Bank rejected the money. The owner sued the Bank, alleging that the legal fees were grossly overstated and unreasonable. The trial court granted the Bank’s motion to dismiss the complaint for failure to state a cause of action.

The Florida appellate court reversed and directed that the owner be allowed time to file claims alleging that the Bank’s estoppel letter was deliberately inaccurate in the amount of legal fees sought, and that the owner suffered monetary damages as a result of the inaccuracy.

The Florida Condominium Act and the Florida Homeowners Association Act have provisions similar to the law interpreted by the court. Both Acts require that Florida associations provide an estoppel certificate upon request from either an owner or mortgagee. If a summary procedure is brought to compel compliance with the statute, then the prevailing party is generally entitled to recover its attorney’s fees. To paraphrase the court, the Legislature contemplated that claims could be made for breaching the duties required by the law.

Estoppel letters, especially inflated estoppel letters, can have adverse repercussions. Sales may fall through. Loans may be rescinded. Money may be lost.

To help avoid these types of claims, it is imperative for associations to ensure that estoppel requests are promptly responded to and that they do not intentionally inflate amounts due. The best way to avoid problems is for ledgers to be kept up to date and, when owners are in lien or litigation, for association counsel to prepare the estoppel letter. In addition, associations should confirm that their estoppel letters contain all the elements required by law.

Defamation Claims: Loose Lips & Emails

What should your association do when there seems to be evidence that an ex-officer might have misappropriated association funds? An internal investigation is a likely option. Sometimes there may be public accusations. Incriminating statements, talk, and emails may lead to innuendo and rumors. What is next? It is not unusual for the accused to fight back with a defamation claim.

Recently, a Florida appellate court ruled that it was up to the jury to decide whether a former employer defamed a former president when the former president was accused of misappropriating funds. The facts in Kieffer v. Atheist of Florida Inc., 44 Fla. L. Weekly D 1129 (Fla. 2nd DCA, May 1, 2019), indicate Kieffer was sued by his former employer regarding the alleged misappropriation.

Kieffer then countersued for defamation. The claim was based on statements that Kieffer misappropriated funds. The statements regarded two payments to the employer, the first totaling $5,045, which Kieffer deposited into a newly created bank account, and the second for $18,000 and payable to an attorney.

Interestingly, Kieffer was found to have committed “conversion” of the first amount, the $5,045. The second payment was not determined. The trial court then granted summary judgment for the employer on Kieffer’s defamation claim, finding that the statements regarding misappropriation were substantially true. Kieffer appealed the judgment as to the defamation claim.

The Florida appellate court agreed with Kieffer and disagreed with the trial court’s summary judgment. When dealing with defamation, the “substantial truth doctrine” applies, meaning that a statement does not have to be “perfectly” accurate so long as the “gist” of it is true. In other words, the court “overlooks minor inaccuracies and concentrates upon substantial truth.” Here the finding of Kieffer’s “conversion” did not include any determination of wrongful intent.

The former employer’s accusation of “misappropriation” created the issues. It will be up to a jury to decide whether that term “misappropriation” conveyed wrongful intent. Perhaps if the former employer only said “con-version,” the result would have been different.

For Florida community associations, obviously a claim of misappropriation of funds must be treated very seriously and investigated. But just as important, representatives of the association, officers, directors, and employees must be careful about making accusations regarding misappropriated funds. The last thing you would want is to face a defamation lawsuit because you used the wrong word, for example “misappropriation” instead of “conversion.”

Frequently, because public statements do not help meet the goal of recovering monies, the best option is not to say anything in public, especially avoiding emails! 

Michael J. Gelfand, Esq.

Senior Partner of Gelfand & Arpe, P.A.

Michael J. Gelfand, Esq., the Senior Partner of Gelfand & Arpe, P.A., emphasizes a community association law practice, counseling associations and owners how to set legitimate goals and effectively achieve those goals. Gelfand is a dual Florida Bar Board Certified lawyer in Condominium and Planned Development Law and in Real Estate Law, Certified Circuit and County Civil Court Mediator, Homeowners Association Mediator, an Arbitrator, and Parliamentarian. He is a past Chair of the Real Property Division of the Florida Bar’s Real Property, Probate & Trust Law Section, and a Fellow of the American College of Real Estate Lawyers. Contact him at ga@gelfandarpe.com or (561) 655-6224.