Medical Marijuana and Your Florida Community

Citizens in the Sunshine State approved Amendment 2, which legalized the use of medical marijuana, by a 71% margin. Florida is expected to log more than $1 billion in medical marijuana sales by 2019, according to a report compiled by marijuana industry analysts New Frontier Data and Arcview Market Research. The full extent of this decriminalization of a Schedule 1 substance remains to be seen and much will depend on the rules governing medical marijuana which have yet to be passed by the State Legislature and the Department of Health. In terms of your community association, it is a safe bet that at some point an owner or resident will be discovered using marijuana in his or her unit or on the common elements or will request the use of same as a reasonable accommodation for a disability.

On December 29, 2014, the U.S. Department of Housing and Urban Development (HUD) issued a Memorandum regarding the use of marijuana in multifamily properties. That Memorandum reinforced that while the use of marijuana for medical purposes has been decriminalized by several states in our Union, the Controlled Substances Act (CSA), 21 U.S.C. Section 801, et. Seq. still classifies marijuana as a Schedule 1 substance and therefore the manufacture, distribution or possession of marijuana remains a federal crime.

HUD emphasized in that Memorandum that a public housing agency or owner of federally assisted housing must take active steps to terminate the tenancy of any household with a member who illegally uses a controlled substance or whose use of such substance interferes with the health, safety or right to peaceful enjoyment of the premises by other residents.

Naturally, the following questions have arisen with regard to private housing providers like condominium, cooperative and homeowners’ associations:

  • Do community associations have a duty similar to that imposed on public housing providers to deny occupancy to residents who will be using a substance that remains illegal under federal law?
  • Can a Florida resident request a reasonable accommodation to use medical marijuana and must the association grant that request?
  • Can the association inquire on a purchase or rental application whether or not any of the proposed occupants in the home or unit currently use or plan on using marijuana?
  •  Are owners who rent out their properties to Section 8 tenants required to investigate possible marijuana use and deny applications accordingly if such use is confirmed?
  • Does the prescription for medical marijuana mean an individual automatically has a disability as defined by state and federal law?

There is analogous case law we can consider when discussing the topic of medical marijuana use and its attendant issues for your community. In the case of Hidden Harbour Estates, Inc. v. Norman, 309 So. 2d 180 (Fla. 4th DCA 1975) the Court was presented with the question of whether a condominium association, through the exercise of its rule-making powers, could prohibit the consumption of alcoholic beverages in the common areas of the condominium. The Court held that the restriction on the consumption of alcoholic beverages was reasonable because it was designed to promote the health, happiness and peace of mind of the majority of the unit owners.

If an association were to pass a rule restricting the use of marijuana, medically prescribed or otherwise, on the common areas and perhaps even inside the units, the Board would have to clearly articulate its reasons for doing so. In the case of marijuana those reasons might include:

  • The fact that the use of the substance remains a crime under federal law regardless of the permissible use for certain medical reasons under Florida law.
  • The fear that the smoke from marijuana may create a hallucinogenic effect and/or health impact on others.
  • The impact on minors who might witness the use.

Since there are forms of marijuana (pills, edibles, oils) which do not emit smoke and thus are not easily detectable by others, allowing the use of the substance in other forms may provide a compromise position in some communities. In Florida, medical marijuana is now only available in ingestible form, although that may change.  Other communities may be most concerned about preventing the use of this substance on the common areas and limited common areas such as balconies or patios but for some communities, the concern may extend to use of the substance even inside the privacy of one’s unit, particularly if the building is old and the insulation between units is not great.

Fortunately, board members are not held to a standard of perfection; they are required, however, to be reasonable and to exercise prudent judgment when making decisions that impact their members and the community overall. In the case of medical marijuana use, the competing interests involved are clearly the resident’s desire to use the substance to alleviate the symptoms associated with a medical condition and the association’s concerns about the impact such use can have on the other residents as well as concerns about the continued criminality of such activity under federal law. Until accompanying rules are adopted by the State Legislature and the Department of Health (and those rules are imminent) the safest path to follow is to only allow medical marijuana (which is only available currently in ingestible form) to be used to treat children with seizures and a few other medical issues. It is too soon to predict how any claims brought under the Florida Fair Housing Act will fare.  Since the use of medical marijuana inside private residential communities is a new and emerging area, the decision on whether to regulate, restrict, prohibit or permit the use is one that requires a detailed conversation with the community’s association attorney who needs to be fluent in this area of the law.

Written by Donna DiMaggio-Berger and originally posted on FL Condo HOA Law Blog

The Association Foreclosed On A Delinquent Owner. Is The Mortgagee Entitled To The Rental Income?

Condominium and Homeowner Associations are never anxious to take on properties abandoned by owners.  Yet with the mortgage crisis many properties were left vacant for years.  In the interim, unpaid assessments continued to accrue and the properties were ripe for vagrants and were left to deteriorate, risking damage to the common elements or adjoining property owners.  As a result, many associations were compelled to foreclose, and, in many cases, had to take possession of the property.

 

For the Association, hiring a law firm to handle the foreclosure is often the easiest first step; however, once title transfers to the Association the real work begins for the Board.  While the Association is not financially responsible to the bank for the mortgage payments, the mortgage will continue to encumber the property and prevent the Association from selling the property free and clear of the first mortgage.  As a result, the Association is left with two choices upon taking title: sell the property to an investor “as is” or rent the property.

 

If the Association chooses to retain title and rent the property can it be compelled to turn over the rental income to the bank holding the mortgage before the bank forecloses on its loan?

 

Recently, the Third District Court of Appeal considered just this issue.  See UV Cite III, LLC v. Deutsche Bank National Trust Co., No. 3D16-2341 (Fla. 3d DCA 2017).  In UV Cite III the original borrower had defaulted on the mortgage and abandoned the property in 2008.  The bank filed suit in January of 2016 seeking to foreclose the mortgage.  In the interim, the condominium association had foreclosed on the property for nonpayment of assessments and deeded the property to an investor, UV Cite III, LLC in 2015 who rented the property.

 

Within a few months of filing for foreclosure, the bank filed a Motion to Sequester Rents alleging the owner failed to pay property taxes and that it would be unjust to allow the current owner to continue to collect rents and thereby profit from litigating (i.e., fighting) the bank’s foreclosure action.  The lower court granted the bank’s Motion to Sequester Rents and ordered the tenant to pay its rent directly to the court registry with the money eventually being paid to the bank at the end of its case.  This order was appealed.

 

The Appellate Court reversed holding that “absent an agreement between the parties to assign rents or some form of injunctive relief, a trial court has no authority to order a deposit of money into the registry of the court if the money was not the subject of the litigation.” Id (internal citations omitted).  The Court explained that Deutsche Bank’s foreclosure complaint failed to seek a judgment for rent collected, there was no evidence of an assignment of rents provision in the mortgage, and the bank failed to seek injunctive relief, i.e. seek a receiver of the property.  Note that even if there were an assignment of rents provision, it is likely that the assignment would be limited to rental income received by or on behalf of the borrower and not a new owner of the property who has no contractual relationship with the bank as it pertains to the delinquent mortgage.

 

Although banks tend to learn from their prior judicial missteps only time will tell whether they revise the standard contractual language that makes up the mortgage documents and/or their foreclosure complaints to add additional counts in an effort to divert rental income from the property to their benefit.  Even then, the equities favor the Association more than the bank.  For instance, the Association is essentially preserving the value of the property and the community itself by collecting funds to address the Association’s maintenance repair and replacement of obligations which are both statutory and contractual in nature.  Additionally, the Association as a subordinate lien holder to the first mortgagee is attempting to reduce not just the amounts owed in unpaid maintenance but also in interest, late fees, legal fees, and costs that would otherwise be written off and cripple the Association’s ability to meet its financial obligations. Simply put, the Association is not profiting from the rental income, but rather mitigating its damages and ultimately helping the bank out.

Written by Candace C. Solis and originally posted to the FL Condo HOA Law Blog