Florida Community Association Construction Law Blog : Sarasota Construction Lawyer & Attorney : Tannenbaum Scro Law Firm : Florida, Tampa Bay

Most owners hire a general contractor for major repair projects based upon the track record of that contractor on similar projects.  But the reality for most general contractors is that performance varies from job to job.  Although there are a variety of possible causes for this variability, perhaps the most significant is the fact that different project superintendents and subcontractor crews show up to undertake one project versus another.  In essence, although your contract is with the "company", the odds of securing peak performance on your job is highly dependent on the particular superintendent and subcontractor crews who are assigned to your job.

In one job our firm was involved in (after the fact), it was disclosed in the course of discovery that the superintendent involved had been hired by the general contractor a week before the job began and was fired at the conclusion of the job.  In the end, the job in question ended up being the "tryout" with the company for this superintendent, a "tryout" that did not fare well, much to the detriment of the owner.

An owner can leave it to the discretion of the general contractor to assign the project superintendent and subcontractors for their job, hoping that the general contractor will assign their best superintendent and subcontractors.  But there is an option.  As part of the bid process, an owner can require that the bidders provide the resumes of the superintendents on their staff, as well as the subcontractors anticipated to be utilized for the job.  In inquiring of references, the owner can ask the references who the assigned superintendent and subcontractors were for their job.  If the owner wants to be even more in depth, it can inquire about who the crew chiefs were for the subcontractors on the other jobs.

Having vetted the available superintendents and subcontractors, it then becomes possible in the negotiation of the general contract to designate a particular project superintendent and particular subcontractors whom the general contractor must utilize for the performance of the work.  A provision could be added to the effect that if the general contractor due to exigencies outside of its control is required to replace that superintendent or certain subcontractors, the general contractor be obligated to find suitable replacements subject to the approval of the owner.  The result - - the owner has greater assurance that the best team the general contractor has to offer shows up to perform their job.

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In 2004, Phillip Coon, the Vice-President of Lending for Coast Bank of Bradenton, and John Miller of American Mortgage Link, a Tampa mortgage brokerage firm, hatched a scheme which they marketed nationwide through 2006 to entice investors to purchase Southwest Florida single-family home flip deals.  Eventually over 600 investors from 40 states signed on to the program.  Coon and Miller recruited small homebuilders, including CCI of St. Petersburg, to provide the lots and build the homes.  Coast Bank was to reap high interest rates on the construction loans and American Mortgage Link earned millions in mortgage brokerage fees and arguably illegal "finder's fees."  The selling points on the deal were no money down (other than the arguably illegal "finder's fees"), no out-of-pocket closing costs and interest payments during the life of the construction loan and the delivery of a home at 90% of appraised value.

Of course, the deal in actuality was far from what was represented.  The builders chosen, primarily CCI, were not capable of delivering homes at the pace the deals were being sold.  Building departments in the counties where the homes were supposed to be built often took six months or more at the height of the boom to even issue building permits.  Closing costs and interest carry eroded the loan in progress balances to the point where there was not enough money left to build the homes.  Coon and Miller knew by 2005 that builders like CCI as a result were losing millions on these contracts.  Jesse Battle of CCI admitted in his bankruptcy proceeding that as of January of 2006 his company was over six million dollars in the red.  Yet, Coon and Miller continued to actively and aggressively market these deals and collect huge fees for their companies well into 2006.  Only a small percentage of homes were completed.  Some were left half-finished.  Most borrowers ended up with bare lots with mortgage balances of $80,000 or more.

The other problem with the deals is that the appraisals were "cooked."  Expert testimony in federal court revealed that rather than the homes being priced at 90% of appraised value, they were actually priced at 110% or more of appraised value.  John Miller had secured the services of an appraiser who is currently in line to lose his license who magically produced appraisals at exactly 10% above contract price on each deal.  Consequently, for the few borrowers to whom homes were actually delivered, what they got was a home that was upside down loan to value from the get go.

Of course, Coon and Miller were not satisfied with the huge fees and interest payments the bank and the brokerage company were receiving on these deals (in Coon's case, he was heavily bonused by the bank for the loan volume generated).  So they decided to bump the mortgage brokerage fee on each new loan by a point and split that point between them.  Overall, 1.5 million dollars was skimmed from the loans by them.  The FBI caught wind of the scam and eventually Miller agreed to wear a wire and implicate Coon.  Despite the fraudulent nature of the overall scheme, the feds in charging Miller and Coon focused solely upon the skimmed point.  More astounding to the borrowers from whose mortgages the point was skimmed was the fact that the feds and Coon and Miller agreed in their plea agreements that Coast Bank and not the borrowers was the victim of the skimming scheme.  This despite the skimmed point having been funded from the construction loans which Coast Bank ended up declaring in default and pursuing the borrowers for.  What was convenient for the government in structuring the plea agreements in this manner is that Coast Bank was defunct and thus the government was in line to keep the full 1.5 million dollars being forfeited as part of the plea deal by Coon and Miller.  What was convenient for Coon and Miller is that by pleading to a crime with only one victim (Coast Bank) they escaped the enhanced sentencing guidelines which would have been in place for a crime with multiple victims (ie: the 600 plus borrowers whose loans they looted).

The borrowers learned of the plea deals through a press conference held by the federal prosecutor in Tampa.  Our firm quickly intervened, eventually on behalf of 150 of the borrowers, to establish the borrowers' status as victims of the skimming scheme and to seek restitution of the point skimmed from each of their construction loans.  The district court denied victim status to the borrowers.  This was appealed to the 11th Circuit Court of Appeals.  The 11th Circuit Court of Appeals in In re Stewart, 552 F.3d 1285 (11th Cir. 2008) reversed the district court and declared the borrowers to be victims of the crime entitled to rights under the federal Crime Victims' Rights Act (CVRA).  The district court in the Coon prosecution then held a trial to determine the borrowers' right to restitution of the point skimmed.  The district court a year ago decided against the borrowers.  This was in turn appealed to the 11th Circuit.  On May 25th, the 11th Circuit issued its ruling affirming the district court finding that the borrowers' gripe was with the builders not the bank and thus they were not entitled to restitution.

What is totally ignored in the new opinion is that Coon and Miller solicited CCI and the other builders (not the borrowers who were scattered across the country), conceived and executed the marketing plan to bring customers to the builders, cooked the appraisals to support loans exceeding the value of the properties and continued to have Coast Bank fund these deals well after it was apparent that CCI and the other builders could never perform.

An appeal to the U.S. Supreme Court is not being considered.  However, the borrowers are exploring the possibility of petitioning the U.S. Attorney General to be awarded a portion of the assets being forfeited to the government as part of the plea deal.

The district judge in the Miller prosecution has stated that he would follow the lead of the 11th Circuit in the Coon matter in determining the course of the borrowers' restitution claims in the Miller prosecution.  As a consequence, the 11th Circuit's decision in the Coon case for all intents and purposes forecloses the borrowers' restitution claims in the Miller prosecution too.

Sentencing of Phil Coon and John Miller will now be set.  The borrowers are entitled to a say at the sentencing hearings.  They intend to argue for the maximum sentences for Coon and Miller.

Contact us if you would like copies of either of the opinions issued by the 11th Circuit.

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A warranty period in the context of condominium and homeowner association construction warranties is the finite period of time that the quality of a particular building component is guaranteed by a developer, general contractor, etc.  A statute of limitations in the context of a warranty claim is the period of time during which a claim on the warranty must be filed in court to preserve the warranty claim.  These time periods are often confused.   Hopefully, this post will help clarify the matter.

Florida Condominium Warranties

 a.  Warranty Expiration

For new condominiums, per Florida Statute 718.203, statutory warranties extend from the developer, contractor, sub-contractors, material suppliers and manufacturers to original and subsequent purchasers for the stated periods of time in the statute.  For conversions, per Florida Statute 718.618, assuming lack of adequate reserve funding, warranties extend solely from the developer to original and subsequent purchasers for the stated period of time in the statute.  Express warranties (warranties created by contract) extend for the period of time stated in the contract. Common law implied warranties  (warranties created by court decision), to the extent they are not disclaimed, extend from the developer to original purchasers for up to ten years.  Most developers effectively disclaim implied warranties in their contracts.  In order for a defect to be covered under a statutory or express warranty, it must be discovered during the warranty period.

b.  Statute of Limitations Expiration

Ordinarily, the statute of limitations for pursuing a warranty claim in court would be four years from date of discovery.  However, Florida Statute 718.124 provides that no cause of action on behalf of a condominium association accrues until transition of the Association to unit owner control (turnover).  Consequently, the statute of limitations for a condominium association pursuing a warranty claim is four years from discovery or four years from transition, whichever is latest, but in no case more than 10 years from issuance of the certificate of occupancy.  Express warranty claims can be pursued only by original purchasers and must be pursued within four years of date of discovery but in no case more than 10 years from the issuance of the certificate of occupancy.  A claim is preserved by filing suit, although placing a party on notice of a claim pursuant to Chapter 558, Florida Statutes has the effect of extending statutes of limitation for a finite period as defined in the statute.  A Chapter 558 notice, however, does not extend the limitations period for a building whose certificate of occupancy issuance is approaching its ten-year anniversary.

Florida Homeowner Association Warranties

a.  Warranty Expiration

There are no statutory warranties applicable to homeowner associations.  There is also no equivalent of Florida Statute 718.124 applicable to homeowner associations.  Thus, only common law and express warranties apply to homeowner associations.   Express warranties extend for the period of time stated in the contract. Common law implied warranties, to the extent they are not disclaimed, extend from the developer to original purchasers for up to ten years from the date of issuance of the certificate of occupancy.  Most developers effectively disclaim implied warranties in their contracts.  In order for a defect to be covered under an express warranty, it must be discovered during the warranty period.

b.  Statute of Limitations Expiration

The statute of limitations for pursuing a warranty claim in court is four years from date of discovery, but in no case more than ten years after the issuance of the certificate of occupancy.  A claim is preserved by filing suit, although placing a party on notice of a claim pursuant to Chapter 558, Florida Statutes has the effect of extending statutes of limitation for a finite period as defined in the statute,   A Chapter 558 notice, however, does not extend the limitations period for a building whose certificate of occupancy issuance is approaching its ten-year anniversary.

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We are diverting from our usual construction-related topics to inform you of this serious threat to judicial independence in Florida.

On Friday, April 15th, the Florida House of Representatives passed HJR7111, a bill proposing amendments to the Florida constitution revamping the Supreme Court, giving the Legislature the authority to establish the rules of court and altering the judicial nomination process.  The bill is a transparent attempt by the Florida House of Representatives to rob the judiciary of its independence.

There is much wrong with this legislation.  Perhaps the worst element is the proposal to add three justices to the Supreme Court, split the court into two panels: one panel hearing only criminal cases and the other hearing only civil cases, and then assign the four most experienced justices to the criminal panel.  By no coincidence, the four senior judges led the majority on the panel which last year invalidated three proposed constitutional amendments proposed by the Legislature.  With judicial appointment being altered in the bill to provide the Governor with unbridled discretion to choose whomever he wishes to fill the new positions and to name the Chief Justice,  the adoption of the amendments will guarantee one party's control of all three branches of government.  This is a dangerous incursion into the separation of powers, a bedrock of our democracy.

For any of you who may be of the mind that this is "politics as usual" in the arena of court structuring and judicial appointments, understand that what this bill proposes is unprecedented not only in Florida, but nationally.  Every local and state bar association, and there are many from conservative districts, has come out against this legislation.  So have a number of former Florida Supreme Court justices, conservative and liberal.  Go to the Citizens for Fair and Impartial Courts website at www.fairandimpartial.com for their comments and several editorials on the issue.

Fortunately, one of our system's checks and balances is that in order to become law, the bill or something close to it must also clear the State Senate.  A companion bill has been introduced in the Senate, although it is unclear as to whether it is gaining traction.  If you are concerned about this threat to judicial independence, please contact your local State Senator and urge them to stop this dangerous legislation in its tracks.

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