Hurricane strips owners of rental rights

DEAR BENNY: I purchased a condo in Florida in 1990. I lived there for 17 years, and then moved with the assumption that I would be able to rent it, as was the case all the time. After Hurricane Charlie, the board said that the insurance company was going to charge too much of a premium if we had rental units. Only if your unit was rented at the time of this ruling could you rent it, and when the leases ran out, it could be rented for only four months in a calendar year. Is this allowed for original owners? We knew circumstances might change in our life, and that is why we bought it. Your opinion is greatly appreciated. --Kathleen

DEAR KATHLEEN: Generally, I do not like to identify the state in which the question came from, since my column is general in nature. In this case, however, I have to reference the state of Florida, because of the hurricane. My response is applicable to any situation where the insurance company tries to dictate policies and procedures to the association board of directors.

If your legal documents permit renting, the board can impose some restrictions. For example, the board can require that a tenant give a copy of the lease to management, and can require that the tenant be required to adhere to the legal requirements of the association. However, if the bylaws allow renting for not less than one year, the board cannot impose a requirement that leasing must be for not more than four months.

That's my legal interpretation. But I understand the board's position -- if they ignore the requirements of the insurance carrier, they may lose coverage. What is the board to do? My suggestion is that the board should hold an open meeting for all owners and explain the situation. Tell the unit owners that although the bylaws allow renting, the board does not want to lose its insurance coverage, and accordingly will have to go along with that requirement.

Of course, the ideal approach is to try to amend the bylaws, but that always takes a super-majority vote. And such a vote does not come easy in most community associations.

This is a difficult issue, but transparency -- full disclosure -- to all members is the key to resolving this problem.

DEAR BENNY: We recently refinanced our 30-year loan. However, when the lender completed the initial escrow account disclosure statement for our closing, it miscalculated the annual amount for county property taxes at $398, rather than the correct amount of $2,788.

Needless to say, no one at closing noticed the error and our monthly escrow account payment has been short by $197 each month. Now, after the first year with the new mortgage, we have received the first annual escrow account disclosure statement from the lender and learned that our escrow account has a $1,839 negative balance. The lender now wants us to either pay the entire negative balance or make an additional monthly escrow payment of $496.

Since the negative escrow account was not our error, do we have any legal recourse or options against the lender or the title agency? --Terry

DEAR TERRY: I am afraid you are out of luck. When you went to settlement (escrow in some parts of the country) you signed a large number of papers. One of them was an agreement that should there be clerical errors, you agree to allow those errors to be corrected by the lender.

I suspect that you signed a similar document in favor of the title or escrow company.

You state that this was not your error. While you are correct, there is a valuable lesson to be learned from your experience: When you go to closing, don't sign any documents until you have fully reviewed -- and understand -- them. To some extent, you were just as much at fault.

But, although you will have to repay the escrow, perhaps you can use the error as leverage in order to negotiate a more comfortable payment schedule -- say two years instead of one.

DEAR BENNY: I live in a 16-unit condominium, of which around half of the owners rent out their units. The absentee owners are never involved, resulting in a few owners doing all of the board work, etc. Can the association vote and elect to charge the absentee owners -- as a class -- higher monthly dues to help cover the true cost of properly running things? Or on the other hand, do we all have to pay equally more dues and hire a management company to do everything? It seems like involved owners are penalized either way. --John

DEAR JOHN: The general rule of law in community associations is that you cannot treat one owner different from another. All owners have to pay assessments based on the percentage interest of their unit. This percentage interest is generally found in your legal documents at the end of the declaration. ...CONTINUED

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