What Is an Association to Do?

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

Association Rental Theft: Do Not Pass Go, Do Not Collect Rent, Penalties Loom!

     The Great Recession triggered a rise in Florida community association lien foreclosure actions. One consequence was that from time to time associations obtained title to units and lots. To recoup their assessment losses, associations would rent the units and lots they owned.

     This rental business concept was relatively short term. At some point in time, a first mortgage would be foreclosed, and title would transfer to a foreclosure sale buyer, divesting the association of ownership and the right to rent.

     What happens if the association continues to rent a unit or lot the association no longer owns and keeps the rental income? The association may find itself liable for a special type of theft, “civil theft” and conversion!

     Recently, a Florida appellate court addressed some of the problems that follow when a former owner of property kept the rent paid after the property was sold at a foreclosure sale to a new owner. The facts in Orozco v. McCormick 105, LLC, 44 Fla. L. Weekly D 1774 (Fla. 3rd DCA, July 10, 2019) indicate that Orozco had owned property which he rented to a tenant. The monthly rent was directly deposited into Orozco’s bank account.

     After the lender foreclosed on the mortgage and the property was sold at foreclosure sale, title was transferred to McCormick 105 LLC on October 25, 2013. In March 2014, McCormick sued Orozco for civil theft and conversion, alleging that Orozco obtained the November rental payment in the amount of $6,196, when Orozco knew that Orozco no longer owned the property! In his defense, Orozco claimed that the money that was transferred into his bank account was not for the November 2013 rent but was for past due rent because the tenant was in arrears. The trial court granted final summary judgment for McCormick.

     The Florida appellate court reversed the decision of the trial court. The court noted that the elements of the theft claim under Section 812.014, Fla. Stat. (2013) are:
           knowingly obtaining or using or endeavoring to obtain or to use, the property of another with the intent to either temporarily or permanently deprive that person of his or her right to the property or a benefit from the property, or appropriate the property to the defendant’s own use or to the use of a person not entitled to the use of the property.

     As to conversion, McCormick had to show that Orozco “exercised a positive, overt act or acts of dominion or authority over the money or property in question, which was inconsistent with and adverse to the rights of the true owner.”

     The appellate court ruled that there was a genuine question of material fact as to whether the tenant owed Orozco any past due rent. Thus, with a conflict, a trial was required.

     The decision does not mean that Orozco avoided liability for civil theft and conversion. Unless he can prove the tenant was in arrears, presumably he will be liable to the new owner.

     This case points out the perils that can exist when payments are directly deposited into a bank account. Also, when a Florida community association rents property, the association should keep accurate accounts of the money, not just to satisfy the Condominium Act or Homeowners Association Act official records requirements, but also to document the right to the money if a purchaser seeks to recapture rents.

     Of course, once property rented out by an association has been sold and the association is no longer the owner, as printed on the Monopoly game board, “Do not pass go and do not collect $200.”

Cease and Desist Letter: Defamatory?

     It is not unusual for an attorney or manager for a Florida community association to send a demand letter to an owner, tenant, or vendor. Frequently, a copy of the letter is sent to the association’s board of directors. Does transmittal to a client or customer of a copy of a demand letter result in a defamation claim? Not so fast!

     In Hoch v. Loren, 44 Fla. L. Weekly D 1493 (Fla. 4th DCA, June 12, 2019), a Florida appellate court addressed the issue of whether a condominium association attorney’s cease and desist letter to a unit owner was “published” for defamation claim purposes when the attorney sent a copy of the letter to his client, the association.

     The association hired an attorney to deal with an owner who was unhappy about association decisions. The attorney sent the owner a cease and desist letter, with a copy to the board. The unit owner sued the attorney for defamation. The trial court dismissed the case.

     The Florida appellate court agreed with the trial court decision. The appellate court noted that defamation is “the unprivileged publication of false statements which naturally and proximately result in injury to another.” To sue for defamation, the defamatory matter must be communicated to a third person.

     However, there is no publication to a “third person” when the party seeing or hearing the purported defamation is so closely connected with the plaintiff or defendant that they merge into a single entity. An attorney usually serves as agent for his or her client and the attorney’s acts are the acts of the client. Thus, there is no publication to a third party because the communication of the attorney to the client is the principal “talking to itself.”

     In other words, when the attorney sent a copy of the cease and desist letter to the association client, there was no “publication” under the law of defamation. The letter was not published outside of the attorney-client relationship. No publication privilege is violated if the client disseminates the letter.

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.