97-003273 Florida Land Sales, Condominiums, And Mobile Homes vs. Palisades Owners Association Status: Closed Recommended Order on Friday, March 27, 1998.

Summary: Condominium Association failed to include required information in annual proposed budgets and financial reports, consequently it must pay a civil penalty.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

STATE OF FLORIDA, DEPARTMENT OF )

BUSINESS AND PROFESSIONAL REGULATION, )

DIVISION OF FLORIDA LAND SALES, )

CONDOMINIUMS AND MOBILE HOMES, )

)

Petitioner, )

)

vs. ) C ase No. 97-3273

)

PALISADES OWNERS ASSOCIATION, INC., )

)

Respondent. )

________________________________________)

RECOMMENDED ORDER

Notice was provided and on February 4, 1998, a formal

hearing was held in this case. The hearing location was the Bay

County Courthouse, Panama City, Florida. Authority for

conducting the hearing is set forth in Sections 120.569(1) and

120.57(1), Florida Statutes. The hearing was conducted by

Charles C. Adams, Administrative Law Judge.

APPEARANCES

F or Petitioner: Theresa M. Bender, Esquire

Department of Business

and Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-1007

For Respondent: William Underwood, Secretary

Palisades Owners Association, Inc.

Qualified Representative

6901 North Lagoon Drive, No. 48

Panama City Beach, Florida 32408

STATEMENT OF ISSUES

Should Petitioner discipline Respondent f or failure to make

certain disclosures and to maintain certain accounting practices

for the benefit of unit owners at Palisades Condominiums, Phase

I, called for in Chapter 718, Florida Statutes, and Rule 61B-22,

Florida Administrative Code.

PRELIMINARY STATEMENT

On June 11, 1997, Petitioner served Respondent with a Notice

to Show Cause. Through this notice, Petitioner accused

Respondent of violations of Chapter 718, Florida Statutes, and

Rule 61B-22, Florida Administrative Code. On June 21, 1997,

Respondent through its President, Winfred Browning, disputed the

factual allegations in the Notice to Show Cause. On July 14,

1997, Petitioner forwarded the case to the Division of

Administrative Hearings for conduct of a formal hearing. See

Section 120.57(1), Florida Statutes.

The hearing was originally noticed to be held on

October 27, 1997. The hearing was continued to allow the parties

to engage in a settlement conference. The case was re-noticed

and heard on February 4, 1998.

At the commencemen t of the hearing inquiry was made

concerning the opportunity for Respondent to be represented by a

person other than an attorney. It was determined that William

Underwood, Secretary, Palisades Owners Association, Inc., could

serve as the personal representative for Respondent. See Rules

60Q-2.008 and 60Q-2.009, Florida Administrative Code.

Petitioner presented Manuel Rafael DeAguero as its witness.

Petitioner's Exhibits 1 through 9 were admitted. Respondent

presented Winfred O. Browning as its witness. Respondent's

Exhibits 1 through 3 were admitted. Administrative Law Judge

Exhibit 1 was also admitted.

Petitioner requested official recognition of Chapter 718,

Florida Statutes; Rules 61B-22.003 and 61B-22.006, Florida

Administrative Code; and former Rule 7D-23.004, Florida

Administrative Code. Official recognition was given to those

provisions.

A transcript of the hearing was filed on February 26, 1998.

Petitioner filed a proposed recommended order on March 9, 1998.

Respondent did not avail itself of the opportunity to submit a

proposed recommended order. Petitioner's proposed recommended

order has been considered in preparing the Recommended Order.

FINDINGS OF FACT

1. Palisades Condominium, Phase I, is a forty-four (44)

unit condominium located at 6901 North Lagoon Drive, Panama City

Beach, Florida.

2. The condominium is subject to Petitioner's regulatory

authority set forth in Chapter 718, Florida Statutes, and related

rules within the Florida Administrative Code. Among Petitioner's

regulatory opportunities, directed to the condominium, is the

establishment of requirements for annual financial reports and

annual budgets.

3. Respondent is charged with the responsibility for

operating and managing the Palisades Condominium, Phase I, to

include compliance with Chapter 718, Florida Statutes, and

related rules in the Florida Administrative Code, that address

annual financial reports and annual budgets.

4. This case arose on the basis of an investigation

performed by the Petitioner in accordance with Section 718.501,

Florida Statutes, pursuant to complaints received by the

Petitioner concerning activities by Respondent in conducting the

affairs of the Palisades Condominium, Phase I. This

investigation led to the disciplinary action taken pursuant to

the Notice to Show Cause in Case No. 96-0510-CC-16440.

5. The investigation opened on May 10, 1996, and was

concluded by the investigator on August 5, 1996.

6. To resolve the issues framed by the Notice to Show

Cause, Petitioner examined documents maintained by the Respondent

that relate to annual financial reports and annual budgets of

common expenses in the years in question.

7. Pursuant to the by-laws of the Respondent, the fiscal

year for the organization is the calendar year.

8. The documents maintained by Respondent depicting the

annual financial reports in the years 1993, 1994, and 1995 fail

to disclose the beginning balance for each reserve account, fail

to reflect the amount of money added to each reserve account,

fail to describe the amount removed from each reserve account,

and fail to describe the ending balance in each reserve account

for the years in question. Moreover, during the years 1993,

1994, and 1995, the documents maintained by the Respondent, in

reference to financial reporting, fail to describe the manner in

which reserve items were estimated, the dates the estimates were

last made, the association's policy for allocating reserve fund

interest and whether reserves had been waived during those years.

9. In the years 1 992, 1993, 1994, 1995, and 1996,

Respondent's proposed annual budgets failed to set forth each

reserve account as a separate item, failed to show the estimated

life of the reserves, failed to disclose the estimated

replacement cost of the reserves, and failed to estimate the

remaining useful life for the reserves. Additionally, the

proposed annual budgets in the years in question did not separate

the current balance in each reserve account as of the date the

proposed budget was prepared. Finally, during the years 1994,

1995, and 1996, the annual budgets prepared by Respondent did not

disclose the beginning and ending dates of the period covered by

the budgets.

10. Although unit owners of the Palisades Condominium,

Phase I, voted in September, 1996, to waive the requirement for

reserves, the proposed annual budget for 1996 does not reflect

that decision.

CONCLUSIONS OF LAW

11. The Division of Administrative Hearings has

jurisdiction of the subject matter and the parties to this case

in accordance with Sections 120.569(1) and 120.57(1), Florida

Statutes.

12. Section 718.501, Florida Statutes, creates the

opportunity for Petitioner to impose a civil penalty against

Respondent for violations of that chapter or any rule promulgated

pursuant to that chapter. Given this authority, Petitioner

brought a Notice to Show Cause against Respondent. To prove the

accusations in that complaint, the Petitioner must do so by clear

and convincing evidence. See Department of Banking & Finance vs.

Osborne, Stern & Son, Co. , 670 So. 2d 932 (Fla. 1996).

13. Rule 61B-22.006(3)(a), Florida Administrative Code,

states in pertinent part:

(3) Disclosure requirements. The financial

statements required by Sections 718.111(14)

and 718.301(4), Florida Statutes, shall

contain the following disclosures

within the financial statements, notes, or

supplementary information:

(a) The following reserve disclosures shall

be made regardless of whether reserves have

been waived for the fiscal period covered by

the financial statements:

1. The beginning balance in each reserve

accounts as of the beginning of the fiscal

period covered by the financial states;

2. The amount of assessments and other

additions to each reserve account including

authorized transfers from other receive

accounts;

3. The amount expended or removed from each

reserve account, including authorized

transfers to other reserve accounts;

4. The ending balance in each reserve

account as of the end of the fiscal period

covered by the financial states;

5. The manner by which reserve items were

estimated, the date the estimates were last

made, the association's policies for

allocating reserve fund interest, and whether

reserves have been waived during the period

covered by the financial statements; and

6. If the developer has established

converter reserves pursuant to Section

718.618(1), Florida Statutes, each converter

reserve accounts shall have identified and

include the disclosures required by this

rule.

14. Rule 61B-22.006(c), Florida Administrative Code, states

in pertinent part:

Financial reports required by Section

718.111(13), Florida Statutes. The financial

report required by Section 718.111(13),

Florida Statutes, shall meet the following

requirements:

* * *

(c) The report shall contain the reserve

disclosures required by Rule 61B-

22.006(3)(a), Florida Administrative Code,

and

15. In the years 1993, 1994, and 1995, Respondent's annual

financial reports failed to comply with the aforementioned rules

by not disclosing the beginning balance in each reserve account,

the amount of additions to each reserve account, the amount

removed from each reserve account, the ending balance in each

reserve account as of the end of the fiscal period covered by the

financial statements, the manner by which the reserve items were

estimated, the date the estimates were last made, the

association's policies for allocating reserve fund interest, and

whether reserves had been waived during the period covered by the

financial statements in violation of Rules 61B-22.006(3)(a) and

(6)(c), Florida Administrative Code.

16. Section 718.112(2)(f), Florida Statutes, creates the

requirement that Respondent's annual budget include a reserve

account for capital expenditures and deferred maintenance. Those

accounts specifically include, but are not limited to, roof

replacement, building painting, and pavement resurfacing.

17. In association with the proposed annual budget former

Rule 7D-23.004(2)(b), Florida Administrative Code, states in

pertinent part:

In the proposed annual budget, each reserve

account shall be stated as a separate item,

and the budget shall show the estimated life,

estimated replacement cost, and the estimated

remaining useful life for each item for which

reserves are maintained. Additionally, each

budget shall separate the current balance in

each reserve account as of the date the

proposed budget is prepared.

18. In 1994, Rule 7D-23.004(2)(b), Florida Administrative

Code, was replaced by Rule 61B-22.003(1)(e), Florida

Administrative Code, which states in pertinent part:

(1) Required elements for estimated

operating budgets. The budget for each

association shall:

* * *

(e) Include a schedule stating each reserve

account for capital expenditures and deferred

maintenance as a separate line item with the

following minimum disclosures:

1. The total estimated useful life of the

asset;

2. The estimated remaining useful life of

the asset:

3. The estimated replacement cost or

deferred maintenance expense of the asset;

4. The estimated fund balance as of the

beginning of the period for which the budget

will be in effect; and

5. The developer's total funding obligation

when all units are sold, for each converter

reserve accounts established pursuant to

Section 718.618, Florida Statutes, if

applicable.

19. For the years 1992, 1993, 1994, 1995, and 1996,

Respondent, through the proposed annual budgets it prepared,

failed to state each reserve account as a separate item, failed

to disclose the estimated life of the items, failed to estimate

the remaining useful life of the items, failed to estimate the

replacement cost of the items, and failed to separate the current

balance in each reserve account as of the date the proposed

budget was prepared in violation of Rule 7D-23.004(2)(b), Florida

Administrative Code, and Rule 61B-22.003(1)(e), Florida

Administrative Code, respectively. Respondent also violated

Section 718.112(2)(f), Florida Statutes, by not identifying the

reserve accounts within the budgets as described in the statute.

20. Rule 61B-22.003(1)(b), Flor ida Administrative Code, in

pertinent part states :

(1) Required elements for estimated

operating budges. The budget for each

association shall:

* * *

(b) Disclose the beginning and ending dates

of the period covered by the budget; . . . .

That rule has application to the annual budget years 1994, 1995,

and 1996. The proposed budgets prepared by Respondent in those

years failed to disclose the beginning and ending of the period

covered by the budgets in violation of Rule 61B-22.003(1)(b),

Florida Administrative Code.

21. The manner in which Respondent waived reserves in

September 1996 does not excuse the shortcomings in the details of

the proposed budget it prepared for 1996, which did not include

reference to the waiver of reserves, leading to the conclusion

that the waiver occurred at a time beyond the preparation of the

proposed 1996 budget.

22. The history of agency penalties for violations of a

type similar to those found here, has been considered.

Nonetheless, Respondent's awareness of the problems in its

financial reports and annual budgets only occurred at the point

in time where they were commented on by the investigator in the

spring and summer of 1996. While the Respondent is not

absolutely excused from the violations, given the expectation

that Respondent should know and abide by the law, the continuing

nature of the violations in a setting where Respondent did not

appear to be aware of those violations, before 1996, mitigates

against the seriousness of Respondent's continuing improper

practice.

RECOMMENDATION

Upon consideration of the facts found and the conclusions of

law reached, its is,

RECOMMENDED:

That a Final Order be entered which imposes a civil penalty

in the amount of $500.00. That amount shall be remitted by

certified check payable to the Division of Florida Land Sales,

Condominiums, and Mobile Home Trust Fund, at 1940 North Monroe

Street, Tallahassee, Florida 32399-1007, to be delivered by

United States Certified Mail, Return Receipt Requested, within

thirty (30) days of the entry of the Final Order.

DONE AND ENTERED this 27th day of March, 1998, in

Tallahassee, Leon County, Florida.

___________________________________

CHARLES C. ADAMS

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 27th day of March, 1998.

COPIES FURNISHED:

Theresa M. Bender, Esquire

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-1007

William Underwood

Palisades Owners Association, Inc.

6901 North Lagoon Drive, No. 48

Panama City Beach, Florida 32408

Linda Goodgame, Esquire

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-1007

Robert H. Ellzey, Jr., Director

Department of Business and

Professional Regulation

1940 North Monroe Street

Tallahassee, Florida 32399-1007

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this recommended order. Any exceptions to

this recommended order should be filed with the agency that will

issue the final order in this case.