Single Dwelling Covenant Not Waived By Other Structures

A covenant allowing only one dwelling to be constructed on each lot in a Baltimore County community of over 600 homes is not waived by allowing erection of other structures including pool houses, gazebos, guest houses, and sheds, according to a recent ruling of the Maryland Court of Appeals–the highest state appellate court.

At issue in Shader v. Hampton Improvement Association, Inc. was whether a “one dwelling” covenant prohibited construction of a house on each of two subdivided portions of the original lot as it existed when the covenant was first created in 1931. Although the appeals court concluded there had been a waiver of the portion of the covenant which prohibited buildings other than “private dwelling houses”, there had been no waiver of the covenant which prohibited “no more than one dwelling” on each lot.

Explaining that each clause of the covenant is severable and independent of the other restrictions, the Maryland Court of Appeals agreed with the trial court and intermediate appeals court that waiver of one clause did not constitute a waiver of other covenant restrictions.  Therefore, the “one dwelling” covenant remained enforceable to ensure the residential character of the neighborhood and a house was not allowed on each subdivided portion of the original lot.

Community Governance Training For Managers

Tom Schild recently taught a 2-day program on Community Governance in Baltimore, Maryland.  Community association managers from Maryland, Virginia, Pennsylvania and Washington D.C. attended the class to learn about the legal aspects of operating condos, coops and homeowners associations.

The course is part of the Professional Management Development Program of the Community Associations Institute (CAI), a national organization comprised of community association managers, service providers and volunteer leaders.  Topics covered in the Community Governance program include association governing documents; statutes and case law affecting community management; fiduciary responsibilities of association boards and managers; management and service contracts; and developing and enforcing community rules.

Tom is member of CAI’s National Faculty and has taught the Community Governance program since 1998 in many cities throughout the United States. He is also a Fellow of CAI’s College of Community Association Lawyers (CCAL), which is  comprised of fewer than 160 attorneys nationwide who are recognized for their leadership  and contributions in the field of community association law.



Maryland Court Guidance on Access to Association Books and Records

Several recent Maryland appeals court decisions provide new guidance to  condominium and homeowner associations on owner inspection of association books and records.

Legal Advice and Billing Records

The Maryland Court of Special Appeals supported a Baltimore condo association’s refusal to provide a unit owner with the written legal advice of condominium attorney.  The court concluded, in 100 Harborview Drive Condominium v. Clark, that the common law and statutory attorney-client privilege — which recognizes the confidentiality of an attorney’s legal advice — pre-empts an owner’s right of inspection and copying the condominium “books and records” allowed by the Maryland Condominium Act, Section 11-116.  Based on the text and legislative history of the Condo Act, the court determined that all written legal advice is protected from disclosure, even if the owner requesting such records is the subject of the legal advice.

However, the July 2015 court decision also ruled that an attorney’s detailed billing records submitted in support of an invoice for legal services must be provided to owners, except to the extent such records include confidential information protected by the attorney-client privilege or work product doctrine.  For instance, billing records which reveal the reason for seeking legal advice, litigation strategy or the specific nature of services provided are protected from disclosure.

Financial Records and Delinquency Reports

Separately, in the May 2015 “unreported” case of Brown v. Commission on Common Ownership Communities,  the Maryland Court of Special Appeals upheld the decision of the Montgomery County Commission on Common Ownership Communities (CCOC) that a condominium had complied with the books and records provisions of the Condominium Act by providing financial records as kept in the ordinary course of business and it did not have to create new documents which re-format its existing financial records.  (An “unreported” appellate decision may not be relied on as precedent in other similar cases).

The CCOC decision upheld by the appeals court also ruled that the books and records provision of the Condo Act requires that, on request,  condominium unit owners must be provided with assessment delinquency reports without redaction of the names of delinquent owners.  That portion of the CCOC decision was not contested in the court appeal.

Confidentiality Agreements

Completing the trilogy of  recent rulings regarding access to books and records, the Court of Special Appeals ruled in August 2015 that a person entitled to inspect and copy corporate records may be required to sign a confidentiality agreement which prohibits disclosing the information to third parties.

Referring to a Maryland court case from 1898 regarding stockholder rights to inspect the books of a business corporation, the court interpreted the statutory right of inspection to allow use of a confidentiality agreement to protect against disclosure and misuse of confidential documents and information.  Although the financial records in Hogans v. Hogans Agency, Inc. involved a business corporation, the ruling is also instructive with regard to providing access to the books and records of condominium and homeowner associations.

Based on this new judicial guidance regarding access to books and records, association boards and managers may be able to avoid inspection disputes by adopting, or amending, a written policy for owner inspection and copying of association records.

Maryland Appeals Court Sinks Condo Boat Plan

A condominium association’s attempt to allow each homeowner to have exclusive use of a boat slip was recently torpedoed by the Maryland Court of Special Appeals.

The court ruled that the board of directors of a waterfront condominium with 8 owners and 8 boat slips, which were designated as general common elements, did not have the authority to lease the boat slips for 10 years to individual unit owners for their exclusive use even though all but one owner supported the leasing plan.

In Emerald Bay Townhouse Condominium v. Cioffioni,  the intermediate appeals court rejected the contention of the condo association that the long term leases were allowed by the Maryland Condominium Act, Section 11-125, and the condominium bylaws which authorize easements, licenses and leases of the common elements in excess of 1 year with the approval 66 2/3 percent of unit owners and their lenders.  The court reasoned that, since the boat slips were general common elements owned in common by all unit owners, the board could not lease slips for exclusive individual use without the unanimous consent of all unit owners.

According to the appellate court, Section 11-125 of the Condo Act does not allow the grant of an exclusive right use of the general common elements.  Rather, it only allows the lease of such common elements to others in addition to the use by unit owners, and does not allow the property rights of the unit owners to be redefined  by granting a unit owner an exclusive right to use a portion of the common elements.

The Emerald Bay decision is “unreported” so it may not be cited as precedent for other similar situations. However, it is instructive on how a 3-judge appeals court panel views the exclusive use of “general common element parking spaces, whether for cars or boats, without the unanimous consent of the unit owners”.


Federal Government Delays Residential Foreclosures

by Tom Schild

The federal government agency which regulates Fannie Mae and Freddie Mac recently announced that its 2015 goal is to “avoid foreclosure whenever possible” and provide “more favorable outcomes for borrowers”.  For condos and HOAs with owners not paying their mortgage and association assessments, this means continued delay in lender foreclosures.

Many borrowers continue to own homes where mortgage payments have not been made for several years.  More than half of all delinquent loans held or guaranteed by Fannie Mae and Freddie Mac are at least one-year delinquent, according to the Federal Housing Finance Agency (FHFA) which is responsible for the supervision of these housing finance companies. As of late 2014, more than 300,000 loans with a total unpaid principal balance of about $54 billion were over one-year past due.

In January 2015,  FHFA Director Mel Watt reported to a congressional committee that it expects Fannie and Freddie to increase consumer awareness of the Home Affordable Refinance Program (HARP) to reduce mortgage payments and to “continue refining and improving other loss mitigation and foreclosure prevention strategies.”  Mr. Watt explained that FHFA will continue to review loss mitigation options to help families stay in their homes and stabilize communities.

FHFA has also instructed Fannie and Freddie to reduce the number of severely delinquent loans they hold by selling more of these loans to private investors which have experience to successfully provide foreclosure alternatives to borrowers who are seriously delinquent.

Under new FHFA guidelines issued in March 2015, purchasers of delinquent loans are required to evaluate all borrowers for loan modification, short sale, and deed-in-lieu of foreclosure as alternatives to foreclosure.   Foreclosure must be the last option.

The federal policy of delaying residential foreclosures could mean several more years before a property is foreclosed on by the lender.   This is likely to cause continued financial hardship for condominiums and homeowner associations where the owner is not paying the association assessments.

Separately,  FHFA has recently filed suit seeking to invalidate foreclosure sales based on HOA assessment liens where state law recognizes a “super priority” for such liens. In Nevada and the District of Columbia which have “super priority” lien statutes,  appellate courts have recently ruled that foreclosure of such liens extinguishes the mortgage.  FHFA contends that such foreclosures are contrary to federal law to the extent they extinguish the Fannie Mae mortgage interest in property.

2015 Maryland Legislative Session Ends With No New Community Governance Laws

 by Tom Schild

The 2015 legislative session of the Maryland General Assembly ended April 13 after lots of talk but not much action on bills concerning condos, coops and homeowner associations.

Legislation to extend resale disclosure requirements to homeowner associations and cap the fees which may be charged by condos and HOAs died in the final hours of the legislative session.  As passed by the House of Delegates, the bill would also have limited the liability of a condo or HOA for issuing an incorrect resale disclosure statement. The Senate approved the fee cap but did not agree to the liability limits. Therefore, the legislation was not enacted.

A bill to prevent developers from limiting condominium statutory warranty rights was withdrawn; and a bill to require access to common areas for political candidates was rejected on initial review by a House legislative committee.

A proposal  to eliminate a 3-month waiting period before a housing coop can initiate legal action to evict a coop member for not paying assessments was referred for further study.  Legislation to regulate community association managers was not considered this year for the first time in several years

Although not limited to community associations, several other bills would have made it more difficult to collect assessments from delinquent owners.  One bill would have restricted the ability to collect court judgments by increasing the amount  exempt from garnishment.  Several other bills proposed to delay residential foreclosures.  These bills were not enacted.

These topics may get another look next year.  For 2015, the General Assembly session had lots of talk—but no new laws regarding governance of condos, coops and HOAs.