After crash, some condo owners still paying

Are condo owners in an aging North Fort Myers development being assessed more than double what they should be?

That’s the claim of an owner who urged his association to foreclose on the developer for what he calls ‘phantom units.’

"Palm Frond was built in the 1980s with 36 units," said Hugo Villagra, an attorney who’s resided there since 2003. "But a third phase of 40 units was recorded and never built."

Douglas Knutson bought the phase three parcel in 2002; let the bank foreclose on it in 2010; and got it back for $45,000 in 2014 on a tax deed sale.

What Palm Frond’s owner-residents didn’t know was that the parcel was more than a piece of land – it represented 40 units that should legally be a paying part of the community.

"The developer should pay those assessments," Villagra said.

How much was the association potentially losing? At $225 a month in assessments for each of 40 units, about $9,000 a month since 2014. (The tax deed sale wiped out any amounts due before that.)

Villagra, who served from 2011 to 2014 as the condo’s association attorney, was as unaware as his fellow residents, until he sought advice from a condo expert, Richard Deboest of Goede, Adamczyk, DeBoest & Cross.

“Sisters Creations (the LLC under which Knutson holds the property) is obligated to immediately pay all association assessments from February 5, 2014, to the present and into the future,” Deboest wrote to Villagra.

The reason is a precedent-setting case known as Hyde Park Condominium Ass'n v. Estero Island Real Estate.  Deboest knows the case well because his dad represented the losing side in 1986.

“The Florida condo act was amended to codify the Hyde Park decision that when a developer submits units to condo ownership, even if there’s no physical structure, they exist for all legal purposes,” Joe Adams of Becker & Poliakoff explained.

Adams, too, knows the case because his firm represented the winning side.

“We created the phantom units doctrine,” he said,

Suppose you’re the first person to buy into a condo of 100 declared units that don’t get built out or sold. The law holds the developer responsible for those units, so you don’t get stuck paying more than your share if the roof caves in.

Palm Frond’s attorney Chene Thompson of Pavese Law Firm said she agrees with the opinion Villagra obtained.

“We take the position we need to get paid whether the developer builds it or not,” Thompson said.

The lawsuit she brought for Palm Frond last December claimed Knutson owes the association $159,171.48.

“If and when we get the money back, the owners’ assessments will drop like a rock.” Thompson said.

Knutson’s attorney Jim Boatman said his client doesn’t have to pay assessments until the units are built, according to the association documents.

“You’ll see, a judge will agree with us,” Boatman said.

Thompson counters the association documents are illegal.

“That’s like telling someone it’s OK to run a red light,” she said.

How common are phantom units?

Thompson says she has current cases of phantom units the bank took title to when the developer lost out in the recession.

“He’s absolutely not the only case,” she said.

Adams has seen “dozens of those situations,” and is involved in a couple of them, he says.

But phantom units are much less common than they were, he and Deboest agree.

“Developers learned long ago you don’t declare units that don’t exist,” Adams said.

Foreclosing on the developer

Villagra wants the association to act quickly to foreclose on the lien it filed, as it has with other delinquent units.

Acting quickly helped The Towers Condominium near Edison Mall in Fort Myers come back from post-recession decline, according to its board chairman Terry Ondak.

“When we started here we had 39 foreclosures,” Ondak said. “All of us owners were paying for what others didn’t. I paid closed to $17,000 in special assessments because of that.”

Fort Myers condominium is 'Comeback Kid'

Ondak’s board now has a standing rule that owners with more than $400 in fees go into collections with the attorney after three letters, "no exceptions," he said. "We're able to foreclose within an average of six months from filing."

Thompson believes it's worth negotiating with Knutson on the chance it will save Palm Frond owners money.

“I know if you look at the docket it looks like there’s no activity. But there is a lot of correspondence back and forth, phone conferences between me and their council, and conversations between me and the board,” she said.

Jan Bergemann, president of Cyber Citizens for Justice, the state’s largest owner advocacy organization, advises condo boards to pull the trigger. The organization fields some 80 emails a day from owners in conflict with their associations for this and other reasons.

“Every HOA specialist will tell you not to drag out a foreclosure  too long. It adds to the legal fees,” Bergmann said. "You want to foreclose fast, because in the end, the debt is higher than the value of the property.”

While the attorneys on both sides discuss, Palm Frond’s situation has devolved into acrimony. Ironically, Villagra, who pressured and even sued the association to take action, is the target.

“I can understand his concern that Palm Frond is paying more than they should,” Thompson said, "but believe me, we won’t be talking about this a year from now.”

Boatman filed to have the case dismissed on a technicality.

"Doug Knutson is a dear friend of mine. This dumpy development, I wish he would just walk away from it," the attorney said.