The Real Deal Miami

Q & A with attorney Mark Grant, who helped prepare the Distressed Condo Relief Act

By Jennifer LeClaire | December 30, 2009 02:58PM

With no end in sight for the region’s housing crisis, South Florida’s condo associations are being forced into Chapter 11 at an ever increasing rate. The real estate industry continues to search for solutions to jump-start the market and bring back stability, and it’s now looking for a stimulus, of sorts, from state government.

Florida House Rep. Julio Robaina entered the Distressed Condo Relief Act into the House registry late last month. If passed, it would amend the Florida law to protect bulk buyers and assignees from developer liability. In simple terms, it means that the way the state defined a developer would be changed, and that would make it easier for bulk buyers of the region’s huge condo inventory to come in and make their purchases, putting in a market floor and getting some momentum going.

Robaina worked closely with Ruden McClosky attorney Mark Grant and Stearns Weaver attorney Charles Brecker, to prepare the bill. The lawyers believe the law would help the market absorb excess inventory and prevent struggling condo associations from going bankrupt.

The Real Deal caught up with Grant to discuss the need for an amendment and how it would trickle down through to bulk buyers, lenders and condo associations to bring positive changes to South Florida’s real estate market.

Why do we need to amend current Florida law?

The condominium law was written in the 1970s and no one anticipated a crash like this. The problem is the way the term “developer” is defined. Under the law, a developer is any person or entity that sells or leases condominium units in the ordinary course of business. If you buy more than seven units, you are considered a developer. The developer is responsible for the warranties on the units in the building. If somebody comes in and buys 75 percent of the units, for example, they could be responsible for 100 percent of the roof if it needs to be fixed during the warranty period. There are also condo association reserve responsibilities.

How would the bill protect bulk buyers and assignees from developer liability?

This bill protects bulk buyers from those potential liabilities for a two-year [period]. It’s a stimulus to get people to buy condos by eliminating the liabilities for a short period of time. This change in the law would not be retroactive and on July 1, 2012, this protection would go away.

How would the bill encourage lenders to foreclose on distressed properties and resell unsold units? Why is that a good thing?

Lenders are exactly in the same category as bulk buyers because when a construction lender forecloses or takes a deed in lieu of foreclosure, they also would be deemed to be a bulk buyer. Lenders would get these same protections. Many lenders are afraid to take title to the properties now because of these potential liabilities. Of course, once they take title to the units, they have to pay their share of assessments. The bill doesn’t fix that, but at least it eliminates warranty obligations and reserve funding requirements.

How would the bill strengthen the footing of condo associations?

Condo associations of distressed properties are feeling the pain right now. Many are at risk of bankruptcy because there is no money to collect on empty units. By fueling the sale of these units, condo associations would be put in a much better position to maintain property and manage amenities.

How would this bill impact the overall health of the market?

It will encourage people to come in and start buying up these properties. Once the properties are bought up, it helps establish a base for pricing. Also, people will be in the units and paying their real estate taxes. They will be paying their assessments. They will pay for the insurance and all the other things that have to be paid for in the building.

Who opposes this bill and why?

Perhaps association lawyers that want to know where unit owners are going to get their warranties from if we protect the bulk buyers. But unit owners have already lost their warranties. The developer is gone and if we don’t get somebody in there paying assessments, people could wind up losing their homes because they can’t afford to carry the building on their own.

When are you expecting this to go to a vote?

This probably won’t be heard until the spring when the regular session is in. Most of these laws get adopted sometime in June and become effective on July 1. It’s not going to be a silver bullet, but I believe it will help.