Condominium Certification Prep

Question 1

What is the role of a bulk buyer in condominium premises?

Answer 1

A bulk buyer acts as a purchaser without inheriting developer rights but is entitled to, if listed in the transfer document:

1. Engage in sales, leasing, and marketing operations.
2. Exemption from developer’s working capital contributions.
3. Immunity from the condominium association’s first refusal rights.

Question 2

What rights does a Bulk Assignee inherit?

Answer 2

A Bulk Assignee inherits developer rights reserved in the condominium declaration, which may include:

1. Bypassing first refusal rights, leasing restrictions, and association approval for unit alterations.
2. Holding a right of first refusal for unit sales, conducting sales and leasing activities, and installing signage.
3. Powers to amend condominium documents, guarantee assessment levels while being exempt from payment, and add undeveloped phases. These rights depend on their initial reservation to the developer.

Question 3

Disclosures In Sale Of Units by Bulk assignee or Bulk buyer

Answer 3

When a bulk assignee or bulk buyer plans to offer more than seven units in a single condominium for sale or lease (for terms exceeding 5 years), they are responsible for filing certain documents and materials required by F.S. 718.503 and 718.504 with the division and making other disclosures before offering any units for sale. The documents filed with the division must also be delivered to the unit buyer before or at the time the contract is signed. F.S. 718.706.

1. Documentation to File and Provide:

• Updated Prospectus or Offering Circular: Must be in line with s. 718.504, including sale and lease contracts compliant with s. 718.503(2).
• Frequently Asked Questions (FAQs) Sheet: An updated version for prospective purchasers or tenants.
• Escrow Agreement: If required under s. 718.202, an executed version must be provided.
• Financial Information: As mandated by s. 718.111(13), unless unobtainable despite good faith efforts. In such cases, contracts must include a statement highlighting the unavailability of certain financial reports.

2. Disclosure Statement for Prospective Purchasers or Tenants:

• Describes any developer rights assigned to the bulk assignee or buyer.
• Includes a statement clarifying the seller’s limited obligations regarding developer warranties, except for work performed by or on behalf of the seller.
• For condominium conversions, a statement specifying the seller’s non-obligation to fund converter reserves or provide converter warranties, except as contractually agreed.

Question 4

What is the acquisition date requirement for Bulk Assignees and Bulk Buyers?

Answer 4

Bulk Assignees and Bulk Buyers must have acquired units after July 1, 2010, to qualify under their respective designations.

Question 5

What is the minimum unit purchase requirement for Bulk Assignees and Bulk Buyers?

Answer 5

They are required to acquire at least 8 units in a single condominium, setting a threshold for bulk transactions.

Question 6

What roles can a Bulk Buyer assume within a condominium premises?

Answer 6

A Bulk Buyer can engage in sales, leasing, and marketing operations and is entitled to exemption from developer’s working capital contributions and immunity from the condominium association’s first refusal rights, if listed in the transfer document.

Question 7

To what extent is a Bulk Buyer exempt from developer obligations?

Answer 7

A Bulk Buyer is not subject to developer obligations, except for contracts during the period they control the Board of Directors or as expressly assumed in writing.

Question 8

What are the requirements for contracts entered into by a Bulk Buyer during their control period?

Answer 8

Contracts must comply with FS. 718.302, be fair and reasonable, and can be terminated by 75% of unit owners.

Question 9

Can a Bulk Buyer control the condominium association indefinitely?

Answer 9

If the Bulk Buyer has sufficient voting power, there is no limit on the amount of time they can control the association by electing the board of directors.

Question 10

What rights does a Bulk Assignee inherit in a condominium?

Answer 10

A Bulk Assignee inherits developer rights reserved in the condominium declaration, such as bypassing certain restrictions, altering units without association approval, and amending condominium documents.

Question 11

How can a Bulk Assignee acquire developer rights?

Answer 11

Developer rights can be acquired via deed, recorded assignment, or foreclosure on developer rights.

Question 12

What developer obligations is a Bulk Assignee excluded from?

Answer 12

A Bulk Assignee is generally excluded from the original developer’s obligations, with specific exceptions like developer warranties and funding converter reserves, unless expressly assumed or for work performed by the Bulk Assignee.

Question 13

Can there be multiple Bulk Assignees for a single condominium?

Answer 13

No, there can only be one Bulk Assignee per condominium. In cases of multiple assignments, the first to record their assignment claims the Bulk Assignee status; subsequent parties are treated as Bulk Buyers.

Question 14

What are the turnover requirements for a Bulk Assignee?

Answer 14

A Bulk Assignee must turn over control of the board of directors in accordance with F.S. 718.301 and is required to deliver to the association only those documents in its possession or for which it has made a good faith effort to acquire.

Question 15

Can Bulk Buyers or Assignees acquire developer rights from any seller?

Answer 15

No, the rights can only be transferred if the seller actually possesses them. This is crucial if the bulk purchaser is buying from a mortgagee who acquired title through foreclosure but didn’t foreclose on the developer’s rights.

Question 16

Under what conditions can a Bulk Assignee or Bulk Buyer lose their shield from liability?

Answer 16

The shield from liability is lost if there is substantial noncompliance with all requirements of Part VII or if the transfer is made improperly, such as with the intent to hinder or defraud any buyer.

Question 17

What disclosures are required when a Bulk Assignee or Bulk Buyer sells or leases units?

Answer 17

They must file and provide updated prospectuses or offering circulars, FAQs, escrow agreements, and financial information as per F.S. 718.503, 718.504, and 718.706, including specific statements about developer rights and obligations.

Question 18

How do contracts work for Bulk Assignees during their control period?

Answer 18

Contracts must comply with F.S. 718.302, being fair and reasonable, and can be terminated by 75% of unit owners.

Question 19

What are the turnover requirements and reserve policies for Bulk Assignees?

Answer 19

Bulk Assignees must turnover control according to F.S. 718.301 and cannot waive or misuse reserves without majority approval, excluding developers, bulk assignees, and buyers.

Question 20

What developer obligations is a Bulk Assignee exempt from?

Answer 20

A Bulk Assignee assumes most obligations of the original developer except:
* Developer warranties under specific statutes, unless expressly assumed or for work performed by the Bulk Assignee.
* Funding converter reserves for units not acquired.
* Providing a cumulative audit from the declaration’s recording date; only required for their control period.
* Actions of the board prior to their control.
* Funding prior assessments or payments on any developer guaranty, unless rights are acquired.

Question 21

How many Bulk Assignees can a condominium have?

Answer 21

There can be only one Bulk Assignee per condominium. In case of multiple assignments, the first to record claims Bulk Assignee status; subsequent parties are treated as Bulk Buyers.

Question 22

How do units transferred to a Bulk Assignee affect turnover requirements?

Answer 22

Units transferred to a Bulk Assignee are excluded from turnover requirements calculation, unlike sales to a bulk buyer, which count towards computing turnover requirements.

Question 23

Can a Bulk Assignee in control of the board waive or use reserves freely?

Answer 23

A Bulk Assignee cannot waive reserves or use them for purposes other than initially provided without the approval of a majority of voting interests, excluding the developer, bulk assignee, and bulk buyer.

Question 24

What year was the Interstate Land Sales Full Disclosure Act (ILSA) enacted, and what is its main purpose?

Answer 24

Enacted in 1968, the main purpose of ILSA is to protect consumers from fraudulent practices in the sale or lease of vacant subdivision lots.

Question 25

What transactions does ILSA govern?

Answer 25

ILSA governs transactions involving “lots” in a “subdivision” by “developers” utilizing interstate commerce channels to “offer” “lots” for sale that are subject to a “Common Promotional Plan”. Compliance requires filing a “Statement of Record” and “Property Report” with the Bureau of Consumer Financial Protection, unless exemptions apply. Projects can often structure themselves to qualify for full or partial exemptions from ILSA’s requirements.

Question 26

How is a “Developer” defined under ILSA?

Answer 26

A “Developer” is any person involved in selling, leasing, or advertising lots in a subdivision. A lender can be deemed a “Developer” if it becomes actively involved in promoting and selling lots after foreclosure.

Question 27

What constitutes an “Offer” under ILSA?

Answer 27

An “Offer” under ILSA is any attempt to entice someone to acquire a lot in a subdivision.

Question 28

What is a “Subdivision” according to ILSA?

Answer 28

A “Subdivision” is land divided into lots for sale or lease as part of a “common promotional plan,” including condominium buildings and residential single-family home subdivisions.

Question 29

What is a “Common Promotional Plan” under ILSA?

Answer 29

A “Common Promotional Plan” is a developer’s plan to offer contiguous or similarly marketed lots for sale or lease, regardless of the number of lots covered in each offering.

Question 30

What makes it unlawful for a developer to offer lots for sale under ILSA?

Answer 30

It is unlawful for a developer to offer lots for sale via interstate commerce unless a “Statement of Record” and “Property Report” for each non-exempt lot is filed, containing specified information. Statements of Record and Property Reports must be amended whenever there is a material change, and an annual report must also be filed as long as the filings remain active.

Question 31

What revocation period must be granted in the purchase contract or lease under ILSA?

Answer 31

Regardless of whether there has been compliance, the purchase contract or lease must grant the purchaser or tenant a seven-day revocation period, allowing them to cancel the contract for any reason.

Question 32

Under ILSA, what happens if a developer fails to provide a Property Report before contract signing?

Answer 32

If the developer fails to provide a Property Report before contract signing, the purchaser or tenant can choose to terminate the contract within 2 years and receive a refund of deposits. Delivery is a one-time event. (In Florida condominiums, this period extends to 15 days as per Section 718.503, Florida Statutes).

Question 33

What anti-fraud provisions must a developer adhere to under ILSA?

Answer 33

A developer must avoid deceptive schemes to defraud purchasers, refrain from obtaining money through fraud, and not falsely assert that essential services will be provided.

Question 34

What are some examples of unlawful practices prohibited by ILSA?

Answer 34

Unlawful practices include failing to provide a Property Report before contract signing, engaging in misleading practices about cancellation or refund rights, and using unsubstantiated claims of investment potential. Misleading sales practices include referring to uncompleted improvements without clear status, using marketing materials that misrepresent the subdivision, and omitting required disclaimers in marketing materials.

Question 35

What rights do purchasers have if the contract lacks mandatory provisions under ILSA?

Answer 35

If a developer fails to provide a Property Report before contract signing, the purchaser or tenant can revoke the contract within 2 years and receive a refund of deposits.

If the offering of lots is not exempt from ILSA and the purchase contract or lease lacks mandatory provisions, the purchaser or tenant can revoke the contract within 2 years and receive a deposit refund.

If the developer fails to honor revocation and refund requests within 2 years, the purchaser or tenant can enforce this right through a lawsuit within 3 years of contract signing.

Purchasers can enforce revocation rights through a lawsuit within 3 years of contract signing if the developer fails to honor revocation and refund requests. However, termination rights for ILSA violations under 15 USC 1703 must be exercised within 2 years.

Question 36

What are the criminal and civil penalties for willful violations of ILSA?

Answer 36

Criminally, Developers may face fines up to $10,000 and imprisonment up to 5 years for willful violations of ILSA. Civilly, knowing and material violations can result in fines up to $1,000 per violation, with a maximum annual penalty of $1 million for all violations.

Question 37

What scenarios allow developers to claim full exemptions from ILSA requirements?

Answer 37

• Sale or lease of subdivisions with fewer than 25 lots.
• “Completed Lot Exemption,” applicable when lots are sold with completed buildings or developers commit to completing buildings within 2 years of contract signing, subject to extension for certain delays. Pre-sales contingency period of up to 180 days permitted.
• Sale of real estate securities by a REIT.
• Sale or lease of real estate by any government agency.
• Sale or lease of cemetery lots.
• “Builder Sale Exemption,” where lots are sold to individuals in the business of constructing residential, commercial, or industrial buildings.
• ILSA provides complete and partial exemptions based on specific criteria.
• Complete exemptions may apply to smaller subdivisions or projects with certain characteristics.
• Partial exemptions are available for projects subject to alternative regulations or meeting specific requirements.

Question 38

What scenarios allow developers to claim a partial exemptions from ILSA requirements? [Statutory Partial Exemptions]

Answer 38

• Sales or leases of lots where the subdivision contains less than 100 lots and is not fully exempt under 15 U.S.C. § 1702(a).
• Sales or leases where not more than 12 lots have been sold or leased in a moving 12-month period.
• Sales or leases where the subdivision contains no more than 20 lots, and the purchaser (or their spouse) conducts a personal on-site inspection of the lot before signing.
• Sales or leases where each lot is at least 20 acres in size.
• Sales in subdivisions that meet conforming governmental standards, with certain marketing practices avoided.
• Sales for mobile home lots to be built within 2 years, with fully refundable deposits if not timely built.
• Intrastate sales where the purchaser visits the site before signing and receives a written cost estimate for utilities.
• Sale of condominium units that will be “improved lots” at closing from the developer issued for that unit at closing.

Question 39

What scenarios allow developers to claim a partial exemptions from ILSA requirements? [Regulatory Partial Exemptions]

Answer 39

• Sale of lots for under $100 each (including closing costs) if purchaser won’t buy more than 1 lot.
• Lease of lots for a term not exceeding 5 years without obligation to renew.
• Sale of a lot to a person in the land sale business (Builder Exemption).
• Sale or lease of a lot to an owner of a contiguous lot with a building on it.
• Sale or lease of a lot to a government agency.

Question 40

What is the mission of Fannie Mae in relation to the US housing and mortgage markets and what are some ineligible characteristics for condominium projects under Fannie Mae guidelines?

Answer 40

Fannie Mae aims to provide liquidity, stability, and affordability to the US housing and mortgage markets by purchasing mortgages from lenders and selling them to investors. FHA loans, backed by the Federal Housing Administration, offer benefits like lower down payment requirements and assistance for borrowers with lower credit scores.

Ineligible characteristics include higher lien priority for HOA liens, mandatory membership fees for external amenities, recreational leases, hotel-like operations, and non-incidental business operations by the HOA.

Provisions such as short-term rentals, association lease approval, insurance requirements, investor limits, commercial use limits, assessment delinquencies, and pending special assessments/litigation can preclude FHA approval for condominium or HOA projects.

Question 41

Why might a Developers seek a partial or full exemption from the Federal Interstate Land Sales Full Disclosure Act?

Answer 41

Developers may seek a partial or full exemption from the Federal Interstate Land Sales Full Disclosure Act (ILSA) for several reasons, mainly to reduce regulatory burdens and associated costs, streamline the sales process, and minimize legal risks. Developers can claim full exemptions from ILSA requirements under various scenarios, eliminating the need to file a Statement of Record and Property Report or comply with anti-fraud provisions.

Question 42

How is a “Developer” defined under the Condominium Act?

Answer 42

A “developer” refers to an individual or entity engaged in creating or offering condominium parcels for sale or lease in the regular course of business. However, the term excludes:

(a) An owner or lessee of a condominium or cooperative unit who has acquired the unit for personal occupancy.

(b) A cooperative association that converts an existing residential cooperative into a condominium after transferring control to unit owners, provided the same individuals remain as unit owners and no units are offered to the public after conversion.

(c) A bulk assignee or bulk buyer as defined in s. 718.703.

(d) A state, county, or municipal entity acting solely as a lessor and not explicitly identified as a developer in the condominium declaration.

Question 43

What is a “Residential Condominium” under the Condominium ACT?

Answer 43

The term “Residential Condominium” refers to a specific type of condominium development primarily designed for living purposes.

Primary Use for Residence: A residential condominium is characterized by having two or more units, with at least one unit intended for use as a private, temporary, or permanent residence.

Exclusion of Primarily Commercial/Industrial Use: If the primary intention behind the condominium’s units is for commercial or industrial purposes, and only a small number (no more than three) are designated for private residence (specifically for maintenance, managerial, janitorial, or other operational staff), then the condominium does not qualify as a residential condominium.

Mixed-Use Developments: A condominium can have both residential and commercial/industrial units. In such cases, the development is considered a mixed-use condominium. These types of condominiums are subject to specific regulations, as outlined in section 718.404.

Question 44

What are the key characteristics of Residential Condominiums?

Answer 44

Definition: Florida Statutes (F.S.) 718.103(23) defines residential condominiums as those with two or more units meant for private, temporary, or permanent residence. However, a condominium is not considered residential if its units are primarily for commercial or industrial use, with the exception of up to three units that may be used for private residence by operational staff (like maintenance, managerial, or janitorial staff).

Condo Act Regulations: Developers creating residential condominiums must navigate the comprehensive regulatory framework of the Condo Act. This includes adherence to provisions that cover (1) the creation of the condominium, (2) the operation of the condominium association, (3) restrictions on agreements created by the developer and assigned to the association, (4) provisions that govern the sale of residential condominium units, (5) matters related to construction warranties, and (6) the process for transferring control of the association from the developer to the unit owners.

Question 45

What are the key characteristics of commercial and industrial condominiums?

Answer 45

Definition Ambiguity: Commercial and industrial condominiums lack a distinct definition in the Condo Act, which implies their classification by exclusion from the residential condominium definition.

Usage: Classified as non-residential when units are utilized for commercial or industrial activities, except for a maximum of three units possibly used for operational staff housing.

Common Elements and Expenses: These condominiums enjoy greater flexibility in the division of ownership and allocation of common expenses, allowing for varied assessment methods.

Disclosure Exemptions: Not subjected to the regulatory and disclosure mandates of Part V of the Condo Act, including the requirement to file a prospectus.

Conversion Regulations: Developers converting existing structures into commercial condominiums are exempt from the residential conversion regulations outlined in Part VI of the Condo Act.

Question 46

What are the key characteristics and considerations for mixed-use condominiums?

Answer 46

Shared Costs: Costs for maintaining common areas are distributed among all owners, proportionate to their ownership share in the common elements.

Commercial Activity: Commercial units allow for onsite commercial activities, with profits not shared with other unit owners. Commercial owners usually cover the costs for their unit interiors.

Dominant Residential Use: Typically, residential use predominates due to regulatory limitations, with commercial use being a smaller component.

Veto Power and Board Composition: Commercial unit owners can’t veto governing document amendments. Once residential units make up 50% or more, residential owners must have the majority board vote.

Equitable Share: Common element shares and expense assessments must be equitable, based on unit size or an equal fractional basis, especially important for condos established after January 1, 1996.

Impact on Commercial Owners: Regulations may limit the marketability and flexibility of commercial spaces, affecting control and financial obligations.

Mortgage Market: Fannie Mae and Freddie Mac’s non-residential use limits can impact financing eligibility for residential units in projects with over 25% non-residential space.

Question 47

What defines a multi-tiered condominium project and how do primary and secondary declarations function within it?

Answer 47

Concept: A “condominium-within-a-condominium” structure, where a primary condominium encompasses large mixed-use units, potentially subdivided into smaller units through secondary declarations.

Primary Condominium: Established via a primary declaration. Contains “mega-units” with diverse uses, which may be subdivided into smaller units.
Secondary Condominium: Formed through secondary declarations, subdividing mega-units into “secondary units.” Creation and amendments require majority consent from primary condominium parcel owners.

Declarations Interplay:
* Dual governance by primary and secondary declarations, with the primary taking precedence in conflicts.
* The secondary association represents its unit owners within the primary association, handling voting rights and common expense contributions.
* Common expenses attributed to a subdivided parcel are managed by the secondary association, which collects and pays these expenses to the primary association.

Establishing Secondary Condominiums: Permitted based on the original primary declaration, with any amendments requiring majority approval from primary unit owners, ensuring broad consensus for significant changes.

Question 48

What are the characteristics and requirements of leasehold condominiums?

Answer 48

Condos on leased land must have a lease with at least 50 years remaining (30 for non-residential or timeshares) from the first unit sale.

Leases must detail the leased land and facilities, ensuring control remains with unit owners or the association, with clear disclosures otherwise.

Leases should outline rent payment and use arrangements for unit owners, without restricting future facility expansions approved by the association.