Real Estate News

Condo boards ‘fatten coffers’ with illegal fees. Residents just won a class-action settlement

Guests party on the 10th floor by the infinity pools during the grand opening of The Plaza on Brickell in downtown Miami in 2008.
Guests party on the 10th floor by the infinity pools during the grand opening of The Plaza on Brickell in downtown Miami in 2008.

In a move that could have implications for thousands of Miami-Dade County residents and cost the local real estate industry millions of dollars, a Brickell condominium association accused of charging residents inflated fees in violation of state law has agreed to pay up to $300,000 to settle a class-action lawsuit.

The lawsuit, filed by Joshua and Allison Kobasky, argued that The Plaza 851 Brickell Condominium Association had ripped them off, as well as hundreds of others, by charging mandatory, non-refundable “transfer” fees greater than $100 when they applied to lease a unit and move in.

The Florida Condominium Act prohibits associations from charging fees greater than $100 per person or married couple in connection with the sale, lease or transfer of a condo unit.

But the Plaza association required residents like the Kobaskys to pay a $150 screening/application fee and a $200 move-in/move-out fee — a charge $250 in excess of what state law allows. The overcharge may not be eye-popping, but it’s an added — and illegal — financial stress in one of the United States’ least affordable housing markets. And for condo associations that process hundreds of tenants, the fees quickly add up.

“Associations have historically charged these fees to fatten their coffers even though they don’t disclose them,” said attorney Aaron Resnick, who represented the plaintiffs in the Plaza lawsuit. “They know people need a place to live, and in most cases the inflated fees are not thousands of dollars. Most people will go ahead and pay $250 if it means getting their apartment quicker.”

Despite the law, buyers and renters are being taken advantage of across Miami-Dade, the Miami Herald has found. Roughly four in 10 condos listed for rent or sale charge transfer fees in excess of $100, according to a Herald analysis of real estate listings. And the Florida Department of Business and Professional Regulation (DBPR), which oversees the Division of Florida Condominiums, Timeshares and Mobile Homes, has taken little action to regulate the practice. Meanwhile, members of the property-management industry say they are lobbying Florida’s Legislature to raise the limit above $100.

The Kobasky family signed a one-year lease in January 2014 for a one-bedroom condo at the Plaza on Brickell East, located at 950 Brickell Bay Drive, for $2,100 per month. The $350 they were charged in application and move-in fees was well above the $100 cap.

The settlement benefits any participant who opted in and prevents the association from charging more than $100 per applicant or $150 per married couple in the future. That limit includes, but is not limited to, clerical fees; background, credit and screening checks; elevators fees; and move-in and move-out charges. However, if the legislature increases the $100 cap in the future, then the association may raise its fees in accordance, according to the settlement agreement.

The class period for the Plaza settlement was Jan. 5, 2014-June 3, 2019. A total of 588 people were eligible to participate in the class action. Each participant will receive $250, or 100 percent of the alleged damage suffered. Every potential participant was notified of their eligibility three times before the deadline, once by postal mail and twice by email.

Circuit Court Judge Michael Hanzman also ordered the association to pay a total of $95,000 in attorney fees to the two firms that represented the plaintiffs, Zebersky Payne Shaw Lewenz LLP and the Law Offices of Aaron Resnick, P.A..

The Kobaskys, who acted as the representatives for the class action, were also awarded $5,000 as compensation for their time and effort.

Evelyn Greenstone Kammet, department managing attorney at the law firm of Vernis and Bowling, represented the association. She said her client decided to settle because of the favorable settlement terms that were presented and the uncertainty and costs of protracted litigation.

“The transfer fee statute is unclear and almost no Florida appellate case law exists on this topic,” she said. “Considering the amount paid out to class members, as opposed to the amount paid to plaintiffs’ attorneys, it seems the attorneys had the most to gain.”

A new cottage industry?

The $100 state-mandated cap includes all non-refundable fees charged for interviews, background checks, credit reports, and other costs when people seek to buy or lease a condo in Florida. Many condo associations across Miami-Dade are in violation of the law, according to a Miami Herald investigation published in 2016.

The fees are collected by property-management companies and condo associations, which say they are only trying to cover the costs of screening new residents and moving them in. Background and credit checks are run to make sure prospective residents don’t pose a danger to others and can afford their units.

But the settlement could set a precedent that threatens companies and associations charging fees higher than $100 per person, said Jason Kellogg, a Miami attorney who specializes in condo law.

“This settlement is a pretty good result, and that might encourage more people who have paid these transfer fees to contact lawyers, and for lawyers to have a baseline value for these claims,” he said. “Lawyers will have a better way to measure and bring a coalition. The associations are probably nervous because if one of these cases goes to the appellate court, you would have a new cottage industry blowing up.”

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Icon Brickell for related group Robin Hill

Four other class-action lawsuits involving illegal fees by condo association boards at the Icon Brickell, Quantum on the Bay and Triton Tower in Miami Beach are currently making their way through court. Just one of the towers at the Icon Brickell project holds more than a thousand potential class members.

Resnick said the shortage of affordably priced housing in Miami-Dade has made condo rentals the only option for many people. He said associations have gotten away with the practice unchallenged — until now — because attorney fees don’t make legal action financially viable.

State officials have taken little action, in part because few Floridians seem aware of the law.

Over the one-year period from Sept. 1, 2018, to Sept. 1, 2019, the DBPR received eight complaints with allegations of transfer fee violations from Miami-Dade and Broward residents, according to Patrick R. Fargason, DBPR deputy communications director. The agency has an online portal that allows citizens without legal representation to download the proper complaint form.

But those complaints, even when investigated, don’t lead to mandatory reform. During that same one-year period, the DBPR closed 17 previous complaints. Twelve of them were resolved with an “Informational Letter” designed to educate the condo association about the law and mandate the refund of excess fees. Three were closed as no violation and two were not investigated as the issue was currently under litigation.

A new rule to the Florida Administrative Code passed on Dec. 5, 2018, allows the DBPR to be more active. Associations that charged inflated fees after that date and are investigated by the DBPR face fines up to $5,000 per violation.

Widespread overcharging

Little has changed since the Miami Herald first reported on condo fees. Despite the media coverage and class-action lawsuits, 42 percent of Miami-Dade condos listed for rent or sale still require more than $100 per person in transfer fees, according to a Herald analysis of the Multiple Listing Service (MLS) database used by real estate professionals. That compares to 46 percent in 2016.

Areas with the highest rates of condo associations charging more than $100 tend to be those that are popular with foreign investors and new immigrants; in other words, the pool of buyers and renters less likely even than locals to know about an already-obscure provision of Florida law. Those areas include Doral, North Miami, Hialeah, Bal Harbour and Sunny Isles Beach.

One of the highest violations: Six units listed at the Trump International Sonesta Beach Resort Condos in Sunny Isles Beach, ranging in price from $318,000-$350,000, have a $350 application fee. According to a Realtor handling one of the listings, there is an additional $150 required application fee payable to the management company AKAM On-Site, for a total application fee of $500. (The Trump Organization doesn’t run the building.)

(Update Sept. 20, 2019: According to David Cohen, Vice President of AKAM On-Site, Inc., the company is not involved with the day-to-day management of the Trump property and does not directly collect the $350 application fees. The company has also performed an audit on fee applications dating as far back as two years throughout their entire client portfolio. With the exception of four owners at this property who have since been refunded the additional $150 fee, all of their managed properties are in full compliance with the state law.)

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The Blue Lagoon Condominiums complex at 5077 NW Seventh Street in Miami. AL DIAZ adiaz@miamiherald.com

Even condos rented by the less-than-super-rich appear to flout the law. The website for the Blue Lagoon Condominiums in Flagami shows renters must pay a $100 application fee along with a non-refundable fee of $350 for “administrative and document storage.” Pet owners must also pay a non-refundable fee of $300.

Another two-bedroom, one-bath condo in Flagami, listed for sale at $165,000, has an application fee of $250.

Some members of the condo management industry believe the state’s $100 cap on fees is overdue for an increase.

“The industry is lobbying the Florida Legislature for a modest increase in the fee,” said Jose M. Pazos, president of the Miami-based Pazos | Robaina Association Management firm.

Pazos’ firm charged $150 fees until the Herald’s 2016 story. After it was published, he said, the fee was lowered — although that could change if the law does.

“It has not been increased since 1992,” Pazos said, “and it is becoming difficult to process background checks, especially in Miami, where so many are international and cost more than the statutory limit.”

Despite the law, fee violations continue to run rampant. Danielle Blake, chief of public policy for the Miami Association of Realtors, said the group ran an unofficial check in MLS in March 2019 and found that out of almost 21,000 condo listings, 8,233 had transfer fees that exceed $100, roughly matching the Herald’s analysis.

“But even when we tell potential tenants that they are being overcharged,” she said, “they move forward with the transaction anyway, because they love that particular unit and don’t want to jeopardize their chances. Their only option after that is to take the association to small claims court, but that rarely ever happens.”

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Rene Rodriguez has worked at the Miami Herald in a variety of roles since 1989. He currently writes for the business desk covering real estate and the city’s affordability crisis.
Nicholas Nehamas is an investigative reporter at the Miami Herald, where he was part of the Pulitzer Prize-winning team that broke the Panama Papers in 2016. He and his Herald colleagues were also named Pulitzer finalists in 2019 for the series “Dirty Gold, Clean Cash.” He joined the Herald in 2014.
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