A few years ago a
client sought to purchase a small cooperative unit on Palm Beach at a price far
south of $100,000.00.It was a cash purchase by a very successful independent
contractor. The contract was summarily
rejected by the Cooperative Association without any written explanation. When pushed, they said it was an income
issue, they had just completed a large project with high monthly unit expenses,
and they were concerned that my client did not have sufficient “regular income”
to pay the estimated $1,300 extra per month.
My client amended
the contract to add her daughter as a purchaser, and resubmitted the
application, showing that the daughter, a salaried employee made six figures a
year. The revised contract was also
summarily rejected by the Cooperative Association, again without any written
explanation. At this point my client
called me and after threatening the Association with a lawsuit, they agreed to
approve the sale, subject to our client maintaining a three year escrow of
assessments of nearly $40,000. While
there was a suspicion of animosity toward my client due to her religion, it was
never proven and she has had no further issues.
This story
illustrates a growing problem for certain buyers and tenants looking to buy or
rent in many communities in South Florida.
Communities are increasingly adopting tighter rules regarding ownership
and occupancy, in order to improve their communities and to reduce the number
of investors and renters in favor of family owners who will reside in the home
full time.
The tools adopted
by Associations relate to criminal history, credit, employment and past
history. The starting point for any
Association is having the actual power to restrict ownership and leasing. This power must be in the Declaration of
Covenants or Declaration of Condominium.
Absent enabling power to regulate sales and leases, the use of simple
Board level rules is suspect at best and most likely unenforceable if challenged
in court.
Assuming the
power to regulate ownership and leasing is granted in the Declaration, the
Board has authority to establish rules regarding such powers (as long as such
rules are not unreasonable, discriminatory or exceed the authority granted in
the Declaration).
To enforce these
rules, Associations require all applicants for ownership/residency to submit a
detailed application about their past living and employment history as well as
an applicant’s agreement to submit to a credit and criminal background check.
Fees for the application may be charged and are capped by the Condominium Act
at $100 per person (husband and wife are considered one person). Most Associations also charge for the
criminal/credit check, which can run $30-$70 per person.
Many Associations
have adopted outright bans on any applicant with a criminal history, regardless
of the length of time since the act or the nature and severity of the criminal
act. These restrictions have been challenged
successfully based on the grounds that such bans are discriminatory in nature
since many felonious applicants are minorities.
The US Housing
and Urban Development has issued guidelines regarding this issue, after a study
showed that the recidivism rate for felons was no greater than non-felons after
seven years and the Supreme Court allowed challenges to rental restrictions
based on past criminal behavior. This
means that banning someone for a felony more than twenty years ago would, on
its face, be deemed discriminatory in most cases. In addition HUD requires Associations to
adopt reasonable rules regarding those with criminal backgrounds, including
whether a conviction was obtained, was the criminal conviction for a violent or
non-violent crime, how long ago was the crime committed, how old was applicant
at the time of the crime and other factors to show that the Association is
using the least discriminatory policies possible.
At least two
exceptions exist with regard to the foregoing limitations, a criminal act
relating to a felony conviction for drug manufacturing and distribution and a
felony conviction as a sexual predator.
It appears that lifetime bans for these actions may be reasonable and
enforceable by an Association.
In my next post I will address the Associations review relating to credit, employment and life
history, and address possible compromises to assist owners and tenants in
obtaining approvals.
