- End of the Line - No Extension Of The Florida Distressed Condominium Relief Act
- March 19, 2012 | Author: Alexander Dobrev
- Law Firm: Lowndes, Drosdick, Doster, Kantor & Reed Professional Association - Orlando Office
Well, the Regular Session of the Florida legislature is now officially over, and as the dust settles, among the bill-body count are HB 319 ("dead" in the Regulated Industries subcommittee on the House side) and SB 680 ("dead" on the Sentate's Special Order Calendar).
Both bills contained a provision extending the sunset of the Distressed Condominium Relief Act by three years, to July 1, 2015.
As it stands, however, the Relief Act will automatically expire on July 1 of this year.
What does this mean?
The parties that will be impacted most by this expiration include foreclosing lenders and investors in distressed condominium properties on the one hand, and sellers of these properties seeking to maximize the value of these assets on the other. The reason? An increase of actual and perceived risk associated with the ownership of the distressed asset following the transfer of title to the new owner, be it investor or lender.
The current Relief Act creates two "limited liability" classifications that can apply to both foreclosing lenders and investors - "bulk buyer" or "bulk assignee". These classifications explicitly protect the acquirer (whether a lender enforcing its loan rights or a third party investor) against some significant liabilities which could be inherited from the original developer (a.k.a. "successor developer" liabilities), while allowing the new owner to retain certain useful and valuable rights with respect to the development, operations, and eventual disposition of the assets.
With the Relief Act set to expire July 1, liability concerns relating to statutory warranties on units and common elements, unfunded reserves, past due assessments or deficit funding obligations, the acts and/or omissions of the prior developer's board of directors, and the like, will come back in the picture and will likely add downward pressures on the still distressed condominium market.
Of course, that does not mean that come July 1 a distressed condominium investor or foreclosing lender will have no choice but to inherit all successor developer liabilities. There will still be a variety of options available to minimize the risks involved, they will just require more thoughtful and careful planning on the front end.