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Condo Law – Can An Association Still Accept Maintenance Checks with Restrictive Endorsements?

August 20 th, 2014

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Cuevas, Garcia & Torres, P.A.

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Andrew Cuevas, Esq. - President

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Introduction
Mr. Andrew Cuevas, Esq., is the President of Cuevas, Garcia & Torres, P.A., and Vantage Property Title Company. Cuevas, Garcia & Torres, P.A., provides legal services in the areas of Community Association Law, Real Estate law, and Business Immigration, including title insurance services through Vantage Property Title Company. If you have any questions regarding this article or any other questions, you may contact Mr. Cuevas at (305) 461-9500 or via e-mail at acuevas@cuevaslaw.com. If you are interested in reading previous newsletters, please visit www.cuevaslaw.com, select the icon for Newsletters, and then choose the area of law you are interested in.

Can An Association Still Accept Maintenance Checks with Restrictive Endorsements?
There is a recent decision which should be of great concern to community associations, property managers, and their accounting departments with regard to accepting checks that provide restrictive endorsements. There are also some easy safeguards that can be followed to avoid accidentally settling a monetary dispute for an amount less than desired. This article may be a little longer than my normal articles, but the complexity and fact pattern should be of interest to all whom collect and deposit maintenance checks from condominium unit owners.

The Second District Court of Appeal recently issued a decision likely to alter many Florida community association practitioners' treatment of a payment accompanied by a restrictive endorsement. In St. Croix Lane Trust & M.L. Shapiro, Trustee v. St. Croix at Pelican Marsh Cd'm. Ass'n., Inc., Case No. 2D13-3636 (Fla 2 nd DCA, Aug. 8, 2014) , the appellate court addressed the Condominium Act "allocation of payment" statute, §718.116(3) Fla. Stat. (2011), applying instead the general concept of accord and satisfaction in §673.3111, Fla. Stat. (2011), and disagreeing with Ocean Two C'dm. Ass'n v. Kliger, 983 So. 2d 739 (Fla. 3d DCA 2008)

Florida Statute §718.116(3) states in pertinent part as follows:

(3) ... [A]ny payment received by an association must be applied first to any interest accrued by the association, then to any administrative late fee, then to any costs and reasonable attorney's fees incurred in collection, and then to the delinquent assessment. The foregoing is applicable notwithstanding any restrictive endorsement, designation, or instruction placed on or accompanying a payment...

The most important part of this article's analysis is that restrictive endorsements accompanying a payment should not be binding on the association. However, the court in the St. Croix case stated that if a check is tendered for less than the total amount of a disputed claim, then acceptance creates an accord and satisfaction of a debt. The court literally stated that "you cannot have your cake and eat it too" if the Association wanted to retain the right to pursue the entire debt, then the check should not be tendered for payment. How does the Association therefore handle these situations where the Condo Act in §718.116(3) seems to be very clear that restrictive endorsements do not apply, and more importantly where if the Association does not accept checks not only will the Association continue to charge interest on a balance that it is not allowing to be reduced as well as affecting negatively it's operating cash flow needed to meet daily obligations?

Summary of the facts in the St. Croix matter:

  1. The Association's initiated its assessment lien foreclosure action against a condominium unit and a third party purchaser acquired at foreclosure sale.
  2. After a certificate of title was issued to the Purchaser, the Association demanded that the Purchaser pay years of delinquent assessments not paid by the prior, foreclosed owner, over $38,000. Seemingly, the Association reduced its foreclosure bid to induce Purchaser to participate in the foreclosure sale.
  3. In response, the Purchaser's counsel tendered a check to Association counsel for a small portion of the amount due, $840.00, with what the appellate court deemed to be an "offer of settlement" stating as follows:
    • "At worst[,] my client only owes the pro rata first quarter assessment for the period of its ownership. However, in a good faith effort to resolve this matter I have enclosed herewith a check in the amount of $840.00 payable to your Trust Account for the full January 1, 2012 assessment. Be advised and warned, this check is tendered in full and final satisfaction of all claims made against the Trust and the property for the amounts demanded in your May 7, 2012 correspondence. Regardless of intent, negotiation of the enclosed check shall be deemed an acceptance of the offer of settlement made herein, and shall be in full and final satisfaction of all claims against the Trust and the property . . . as more particularly set forth in your May 7, 2012 correspondence."
  4. The Association counsel responded in writing as follows:
    • "We've been through this argument before, so I'm not going to recite it here again. You know our position, and the case law used to support it. I have instructed my staff to apply this as a partial payment once it's received (despite the restrictive endorsement)."
  5. The Association deposited the $840.00 check, and threated to sue the Purchaser for the remainder the Association claimed due.
  6. The Purchaser filed suit first, including claims for declaratory relief and lost rental income asserting that seeking lease approval would be futile. The trial court entered a summary judgment finding that the Association's acceptance of the partial payment did not create an accord and satisfaction.
  7. The Second District Court of Appeals reversed the trial court, holding that in spite of the Condominium Act's specific allocation provisions, "When the Association negotiated the [Purchaser's] check that was tendered in full and final satisfaction of the Association's disputed claim, an accord and satisfaction resulted."
  8. The Second District relied on the Accord Statutes, §673.3111 which provided in part:
    • (1) If a person against whom a claim is asserted proves that that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, that the amount of the claim was unliquidated or subject to a bona fide dispute, and that the claimant obtained payment of the instrument, the following subsections apply.
      (2) Unless subsection (3) applies, the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim.
  9. The exceptions allowed by the statute did not apply in this instance. Thus, the Court held that by depositing the check after the Purchaser's offer to settle the unliquidated debt, the Association created an accord and satisfaction.

Question: How can the St. Croix court make a decision by utilizing the "accord and satisfaction" argument where it is clear that the Florida Condominium Act specifically provides that in a condominium setting, restrictive endorsements do not apply if written on a check or accompanying a check (which could include a letter accompanying a check)?

Answer: To the great benefit of Condominium Association, the application of §718.116(3) [eliminating enforcement of restrictive endorsements] has been consistently followed since the ruling in Ocean Two Cd'm. Ass'n v. Kliger, 983 So. 2d 739 (Fla. 3d DCA 2008), however, inexplicably the St. Croix court based its ruling on a Legislative staff analysis that the Condominium Act merely provided an allocation formula to invalidate restrictive endorsements that would mandate a contrary allocation of the payment, and did not override "the law of accord and satisfaction...."

Comment
WHAT A MISTAKE!!! It seems like the court is trying to make law from the bench as opposed to allowing the legislature make the law. The St. Croix decision should be consistent with traditional rules of statutory interpretation. First, courts are usually prohibited from interpreting a statute's clear text. I would argue that the language in the Condo Act could not be any clearer. The rule limiting judicial interpretation is important because otherwise a court could simply substitute its judgment for the Legislature, creating rather than interpreting the law. The Court divined the Legislature's intent without first determining that the statute was ambiguous, the statute was contradictory, or that the statute was ridiculous. Since the Condo Act is specific in its language, it should prevail over the more general Accord and Satisfaction statute!

Furthermore, the St. Croix Court in disregarding the Oceans Two v. Kliger issued by the Third DCA has misread the finding in Oceans Two, which clearly stated as follows:

... in accepting and applying the payment is protected from a claim of waiver or accord and satisfaction by the express language of the statute....

There are other legal considerations that could be addressed in this article, such as: (a) the application of the Uniform Commercial Code; (b) the comparison of liquidated versus unliquidated amounts in dispute; and (c) the equity of association's reducing bid amounts at foreclosure sales in order to induce buyers to take title and later send demand letters for increased amounts owed. However I will not go into these additional issues at this time.

Conclusion - When can the Association accept restrictive endorsement checks?
As a member of the Real Estate and Probate Section of the Florida Bar, I have seen that the committees involved in addressing rulings such as in the St. Croix matter are hard at work in order to make sure that at the next Florida legislative session the impact of St. Croix is undone by providing a further clarification in the statute. In the meantime caution should be taken in accepting checks with restrictive endorsements. In general I am recommending to my clients that any checks which provide restrictive endorsements stating "full and final payment" of amounts due or any other similar language, be rejected and returned to the owner with an accompanying letter from legal counsel of the Association as to why the check is not being accepted, unless such payment is for the full amount. For those checks which merely have a restrictive endorsement stating the check is for a certain month or for a certain purpose (other than full and final payment), they be accepted and applied pursuant to the Condo Act, i.e., interest, late fees, costs, legal fees, then lastly maintenance.

This article is solely a partial explanation of all the issues related to the topic of this newsletter, and is not to be considered legal advice. The association should consult with its legal counsel to obtain explanations of all issues addressed herein and determine what collection procedures will most benefit your association.

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