Tampa-based LM Funding America is off to a rocky start as a publicly traded company.
The firm — which buys the rights to collect delinquent homeowners association dues — is under attack in two lawsuits accusing it of illegal practices.
One suit, filed by a Miami condo association, alleges that LM Funding concocted a "criminally usurious lending scheme'' that targeted struggling community associations.
The other suit, by a company that buys distressed assets, accuses LM Funding and its CEO, Tampa attorney Bruce Rodgers, of demanding payment of fees to which they are not entitled.
Both lawsuits seek status as class actions, a move that could vastly expand the number of plaintiffs trying to collect from LM Funding.
Rodgers on Friday called the claims "baseless and without merit.''
"All of the things they are alleging we do are on behalf of community associations comprised of ordinary citizens that have to pay more if these lawsuits succeed,'' he said. "We really are defending the little people here.''
Founded in 2008, LM Funding says it helps struggling associations by paying them upfront money for maintenance and repairs in exchange for the right to collect delinquent fees from unit owners. The amount LM Funding pays is equal to what the association would receive by law if the lender foreclosed — 12 months of delinquent assessments or 1 percent of the mortgage value, whichever is less.
LM Funding then hires Business Law Group — a Tampa law firm founded by Rodgers — to bill the owners. After collecting the debt, the law firm keeps enough to cover attorney fees and costs and gives LM Funding the interest, late fees and an amount equal to what it paid the association.
Whatever is left goes to the association.
Since its founding, LM Funding has bought the collection rights on 11,000 condos in nearly 500 associations. Among them are numerous condos that Primestar-H Fund 1 Trust acquired after the owners defaulted on their mortgages.
In a suit in federal court in Tampa, Primestar acknowledges it is liable for a certain amount of past-due association fees. But Primestar says Rodgers, LM Funding and Business Law Group also demanded attorney costs, late fees and other charges not allowed under Florida law.
In one case, that of an Orlando condo, Primestar says its maximum liability on the $226,5000 mortgage balance was 1 percent, or $2,265. But Business Law Group demanded it pay $36,623.
"Defendants' practice essentially holds first mortgagees … hostage because they cannot obtain clear title and dispose of a property until they satisfy the association's lien,'' the suit says.
Aaron Gordon, LM Funding's general counsel, said the so-called "safe harbor'' cap that limits liability for delinquent fees does not apply in all cases. He also questioned Primestar's decision to file suit after LM Funding had raised almost $10 million by going public in October.
"You can surmise the motivation,'' he said.
In a suit filed in Miami-Dade County, the Solaris at Brickell Bay Condominium Association says that while LM Funding purports to "buy'' the rights to delinquent accounts, it actually operates as a lender charging illegally high interest.
In 2011, LM Funding paid Solaris $140,458 but later collected $198,410 on the accounts. When Solaris terminated the contract, LM Funding demanded an additional $395,605 for what it said was the value of uncollected accounts and the interest that had accrued on them.
"Thus a debt of less than $150,000 became a debt of nearly $600,000 in less than three years,'' the suit says.
Alleging that LM Funding violated Florida's usury laws, Solaris wants the company to pay it and other condo associations double the amount of interest it has collected — potentially hundreds of thousands of dollars or more.
Gordon, LM Funding's counsel, said the suit is meritless.
"They are on their third amended complaint,'' he said. "It keeps getting dismissed because they have trouble stating a complaint.''
Susan Taylor Martin can be contacted at [email protected] or (727) 893-8642. Follow @susanskate