It’s time to rein in predatory HOA collection attorney fees

By Deborah Goonan, Independent American Communities

Updated February 17, 2020

In 2017, a newly-elected condo board at Palm Aire Country Club Condominium II (PACC2) vowed to end predatory litigation and to reform the aggressive condo assessment collections practices enabled by its predecessors. Toward that end, the board voted to file a lawsuit against the association’s former attorneys, Lawrence and Tamar Shendell.

Today, a PACC2 unit owner faces foreclosure of an assessment lien in excess of $35,000, after she fell behind on condo fees. Sadly, more than half of that balance — $18,755 — would reimburse the condo association for attorney fees racked up by the Shendells.

Election dispute creates 10 months of turmoil

As previously explained here on IAC, in March 2016, despite numerous obstacles, PACC2 owners elected a new board.  However, following the advice of the Shendell & Associates law firm, the ousted board members refused to yield control. Instead, they chose to file a legal challenge, and managed to convince a judge to allow the board to continue to serve while the courts considered the outcome of the election dispute.

After the March 2016 election, the condo association’s new legal team at Kaye Bender Rembaum (KBR) began working with the new board to obtain full accounting records from the association’s previous condo board as well as the Shendells.

According to the lawsuit, Larry and Tamar Shendell were not cooperative. In fact, through the remainder of 2016, the law firm continued to invoice PACC2 for its collection services.

Incredibly, the old board continued to pay the Shendells’ legal fees.

Then, in December 2016, after 10 months of internal political turmoil, a judge finally ruled in favor of the duly-elected March 2016 board. The ‘holdover’ board was finally ordered to step aside.

A new beginning for PACC2?

Shortly thereafter, in January of 2017, the new board of PACC2 officially dismissed Shendell & Associates law firm, and instructed the Shendells to turn over a full financial accounting of its services, as well a list of collection accounts.

The KBR Bar Complaint

In February 2017, Attorney Robert Kaye filed a complaint against Lawrence and Tamar Shendell with the Florida bar. In his complaint, Kaye called attention to the the Shendell law firm’s collection of ‘in excess of $400,000” while fighting to retain a condo board that no longer had the legal right to manage PACC2.

As Norman Arnoff Esq. explained,

The Florida Bar Complaint filed by Robert Kaye Esq. on February 13, 2017 overlapped in its core facts and allegations with the pleadings he and his co-counsel filed in the action.

Kaye, in his  complaint, cites numerous professional conduct violations that he refers to as “egregious,” putting in serious question whether more than a cursory review was conducted by the Florida Bar.

KBR FL bar complaint against Shendells

Robert Kay of KBR filed several serious complaints, alleging that the Shendells engaged in the following behaviors:

  • unauthorized lawsuits and legal action taken without board approval
  • suddenly and drastically increasing their hourly rates from $175 per hour to $450 per hour.
  • filing foreclosure liens against six unit owners, without authorization, including the lawsuit against J.G.
  • According to the bar complaint, the Shendell law firm generated more than $400,000 in billable hours between March and December of 2016.
Screenshot of KBR 2017 bar complaint

The lawsuit against the Shendells

In 2018, on behalf of PACC2, Attorneys Norman B. Arnoff and John J. Phelan III filed an amended claim against the Shendells. (Reference: Case number CACE-17-017479 (09))

The complaint alleges malpractice and breach of fiduciary duties to the association, particularly from April though December 2016, when the Shendells had worked under the direction of an illegal condo board.

The Plaintiff seeks money damages in excess of $230,000 and $450,000 on the malpractice and breach of fiduciary duty claims, respectively. PACC2 also asks the court to order the Shendells to provide a full accounting of charges, particularly in relation to collection activities prior to January 2017.

That case is still pending. A link to the complaint is available in the Reference section of this post.

 

Unit owner expected to pay $18K lien for Shendell’s “excessive” fees

In November 2019, Arnoff obtained a copy of an account statement of PACC2 to one of its unit owners, on the letterhead of its new counsel, Kaye, Bender and Rembaum.

For more than four years, J.G. has been trying to catch up on past due condo assessments. But, as of February 7, 2020, although she has paid $24,403.54  in  assessments aggregating  a total  of  $25,522.41 to her PACC2 account since 2015, the owner currently faces imminent foreclosure of lien that has ballooned out of control to more than $35,618.88

Incredibly,  $35,618.88   is  the  outstanding  balance   remaining  from the  aggregate  charges  of  $60,022.42.*

How can this be?

(*Source: Dollar amounts listed on J.G’s schedule of account, dated  February  7,2020 , as an addendum to a summary judgment lawsuit filed by Palm  Aire  Country  Club .  Case No. 16-00895 (05).

 

Illegitimate attorney fees?

Arnoff says it all comes down to $18,755.38  in attorney fees charged by the Shendells.

The fees were reflected in a November 8, 2016 invoice of the Shendells — fees that were paid by PACC2’s not duly elected and illegitimate Board, and then billed to the unit owner after they were improperly paid to the Shendells in 2016, before the new and duly elected Board resumed its control over Association affairs.

But remember — during the period of time between the March 2016 election and the court’s decision in favor of the new board, the holdover board no longer had legal authority to retain the services of Shendell & Associates.

Yet the Shendells continued to pursue collections for PACC2, at the direction of the ousted condo board. And, during that time, the law firm racked up thousands in attorney fees.

 

 

Owner falls into the HOA assessment debt trap

When a unit owner falls behind on HOA fees — even by a small amount — the owner can easily fall into a debt hole that’s hard to escape.

One PACC2 unit owner — let’s call her J.G. — is now caught in that trap.

Her collection nightmare began in September 2015, when her condo association issued a special assessment of $4,497.80.

Right around the time the  condo association issued a special assessment, J.G.’s spouse was seriously injured.

With expensive medical bills to pay, J.G. struggled to come up with the money to pay the fees in full, but her payment fell $500 short.

PACC2 added 10% interest to the past due amount, and by December of 2015, forwarded the account to collections. Broward County records reflect that a lien was filed by the Shendell law firm on behalf of the condo association, but later released after the unit owner agreed to a payment plan.

Several months later, the unit owner’s husband died as a result of health complications from his previous injuries. J.G. again fell behind on condo fees in early 2016.

The Shendells filed another lien against J.G.’s condo in Broward County.

Fighting HOA foreclosure

J.G. sought legal assistance, hoping to negotiate a reasonable settlement to bring her account current. Instead of working toward a resolution, the Shendells filed for foreclosure in May 2016. With interest, PACC2’s lien, at the time, was approximately $4,000, on a unit worth more than $100,000.

It’s important to note that, according to Broward County records, J.G. has no history of property tax or mortgage delinquencies.

J.G.’s attorneys tried to stop the foreclosure and arrive at a reasonable settlement. But Tamar and Larry Shendell fought every attempt to avoid foreclosure. In the process, they added their inflated legal fees to the unit owner’s account.

 

Shendell bills condo association for attorney fees

In November of 2016, the Shendells invoiced PACC2 in the amount $18,755.38, to cover their legal fees in the J.G. foreclosure case. Presumably, the outgoing condo board promptly paid Shendell’s invoice in full.

The condo association paid $18,755.38 to the Shendells, for legal fees to collect about $6,000. Put another way, the Shendell law firm’s attorney fees were nearly three times the amount of the condo assessment debt being collected.

 

New condo board, law firm shift attorney fees to unit owner

In November 2016, PACC2 posted $7,700 in payments made by J.G. — more than enough to bring her account current.

Or so she thought.

You see, shortly after the court ordered the old board to hand over control to the new board (elected at the March 2016 annual meeting), J.G.’s account was transferred to PACC2’s new legal counsel at KBR.

J.G. soon discovered that PACC2 posted the Shendells’ legal fees of $18,755.38 to her unit owner’s account as ‘costs’ payable to the association.

Ever since, KBR has been pursuing J.G to reimburse PACC2 for the Shendell law firm attorney fees.

In Arnoff’s opinion,

…the  current Board’s decision to  pursue  J.G  for  the excessive legal fees  charged  by  the  Shendells undermines the legal and  moral  standing  of  the  Association and the fiduciary responsibilities that the  Board  and  its  counsel  have to its unit owners.

Hopefully the situation will be corrected.

Not only should the Shendells’ elections and collection matters not be “swept  under the proverbial rug,” but also, the Association and its counsel  need to make sure the Shendells’ illegal and unethical practices (such as seeking  collection of the $18,755.38 fee from a vulnerable unit owner) not be repeated through a new Board and new counsel.

Perpetual debt to HOA

Arnoff’s analysis of  Kaye Bender Rembaum’s schedule reflects that  “J.G paid a little  over $24,000 in assessments of total aggregate assessments of about $25,000.”

But, although J.G has continued to make monthly payments on her account, she keeps falling further behind.

That’s because, under Florida statute, a partial payment is applied first to interest and late fees, then to attorney fees and costs, and then to the principal balance of assessments due.

Allow me to illustrate the problem with Florida statute, by way of example.

 

Two law firms amass more money than they collect for the condo association

Since 2015, PACC2 has billed J.G approximately $5,100 in interest, nearly $10,100 for KBR attorney fees, and more than $19,300 in ‘costs’ to cover the Shendells’ arguably unauthorized and excessive attorney fees.

Most of J.G.’s $24,403 in payments to PACC2 have been applied to interest, attorney fees, and ‘costs.’ Only $5,175.88 has been applied to past due condo assessments.

The end result? J.G.’s account still reflects a past due assessment balance of $20,346.53, $343 in interest, $3,363 for KBR’s attorney fees, and $11,566 in remaining ‘costs.’ The biggest chunk of her debt comes from ‘costs,’ which is the remaining balance of the Shendells’ attorney fees, as charged in 2016!

Since July 2015, PACC2 has paid the Shendell and KBR Law firms a combined total of $29,403 in attorney fees to collect past due assessments from J.G.

The condo association spent three times as much money paying attorney fees and costs than they have collected in assessments ($5175) plus interest ($4753).

That seems like a bad deal, right? But, apparently, PACC2 doesn’t care about collection costs, because every penny of attorney fees and costs has been passed onto J.G.

 

What if owner payments were applied to assessments first?

During the same period of time, PACC2 billed the unit owner $25,522 for special assessment and regular quarterly assessments.

If the $24,403 J.G. paid for the past four and half years had been applied to assessments first— rather than attorney fees and ‘costs’:

  • J.G would have avoided paying thousands of dollars in additional interest on a past due assessment balance.
  • PACC2 would have recovered most, if not all, of the condo association fees it relies on to pay its expenses.
  • J.G.’s account could have been restored to good standing a long time ago.
  • J.G would not be fighting to save her condo from foreclosure.

 

Outrageous? Unconscionable?

Arnoff says he has made numerous attempts to reason with the PACC2 condo board, but,

the majority of board members are not interested in removing or at least reducing the attorney fees portion of their $35,000 lien against J.G., including and especially eliminating the $18,755.38 charge of the Shendells.

 

What’s next for the unit owner?

For J.G. and other homeowners in a similar situation, a favorable resolution is unlikely.

In order to keep her condo, J.G will have to pay the full balance due, including attorney fees, before the foreclosure auction. Then, if she chooses, she can file a civil lawsuit asking to recover her payment of excessively high or unreasonable attorney fees.

The current unregulated HOA collections system enables predatory extortion of property owners, especially vulnerable residents with limited financial and social resources.

As Arnoff explains:

Before  the  case  of  Palm Aire Condo Association II and the Attorney Shendells  is closed out, there needs to be proper regulatory investigation by  both the Florida State Bar and the Division of Business and Professional Regulation. Government agencies must not only conduct investigations to bring  enforcement cases against wrongdoers, but also satisfy themselves and the public that there are no currently active violations of law.

Our most effective remedy is best expressed in the words of Justice Louis Brandies,”sunlight  is  the  best  disinfectant.”

Legislative solutions needed

State lawmakers must consider the following facts, and, with guidance from property owner advocates, seek tighter regulation of HOA law firms, management agents, and board members, on behalf of homeowner constituents.

Prior to the foreclosure, there’s no regulatory agency or pre-foreclosure court process that requires a competent, fair and impartial judge or arbiter to review the reasonableness of attorney fees charged by the HOA collections law firm.

Under the currently vague statutes, homeowners can be trapped in an endless cycle of collections that generates more revenue for HOA attorneys than it collects on behalf of community associations.

A property owner facing imminent foreclosure is often expected to scrape together large sums of cash, primarily to pay off the collections attorney, in order to save her home and primary investment. Many owners pay these excessive fees out of desperation, in order to save their home and investment.

The Florida Department of Business and Professional Regulation (DBPR), Division of Condominiums, Timeshares, and Mobile Homes, does not have legal authority to investigate or settle disputes over unpaid association fees or fines, including added penalties and legal fees.

After turnover from the developer, the Division only investigates certain complaint relation to undefined “financial issues,” condo election disputes, and failure of the association to provide a unit owner access to records.  

The Division provides even less regulation of homeowners associations for planned communities, investigating only election and recall disputes.

Florida state law doesn’t specify a cap or limit on attorney fees in relation to the amount of the debt being collected on behalf of a homeowners, condominium, or cooperative association.

These facts point to the need for the following reforms:

Establishment of a consumer advocacy department or agency, which will provide an impartial review of debt collection complaint, as well as pre-foreclosure review and, if necessary, adjustment of interest, late fees, and attorney fees.

Restructure or replace the DPBR Division with a true consumer regulatory agency, serving all three types of community associations. The agency should have the budget and authority to investigate quality of service, defective product, and potential criminal complaints, well beyond the current narrow scope of administrative issues.

To encourage owners to get back on track with HOA fees, and better ensure the Association collects its fees, establish a statutory cap on collection costs and attorney fees, in relation to the amount of the debt owed. Set lower limits on interest, late fees, and administrative fees.

Amend current priority of payment provisions to apply owner payments to the principle on assessment debt owed to the Association before paying legal costs and attorney fees.

Remove perverse incentives for abusive HOA governance. Consider repealing state laws and prohibiting provisions in HOA governing documents that enable Associations to impose punitive monetary fines and to foreclosure on property liens.

Bolster homeowner rights by enacting HOA Equal Protection of Constitutional rights, as currently proposed in House Bill 623. ♦

Reference:

Read the lawsuit: PACC@ v Shendell 1A