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.

 

Association Assessments Linked to Rental License

A new law in Montgomery County, Maryland requires that the owner of property in a condo, coop or HOA must be current in payment of association assessments in order to obtain a County rental license to lease the property.  As part of the application for a rental license beginning June 16, 2015, an owner must certify that the assessments are no more than 30 days past due.

Additionally, the County may deny, suspend, revoke or refuse to renew a housing rental license if the board of directors of the condo, coop or HOA submits a recorded statement of lien or unpaid court judgment as proof of unpaid association assessments.

Ron Bolt–an attorney with Thomas Schild Law Group and co-chair of the Maryland Legislative Committee of the Washington Metro Chapter of the Community Associations Institute–submitted recommendations to the County Council  to strengthen the legislation to aid community associations in collecting assessment from delinquent owners.

Prince George’s County and Howard County have similar laws linking payment of association assessments to the issuance and revocation of a rental license.

10 Tips for Condos and HOAs to Stay Out of Court

Tom Schild co-presents 10 Tips for Staying Out of Court at the Annual Conference and Expo of the Community Associations Institute’s Washington Metropolitan Chapter on Saturday March 7, 2015.

Those attending the program will learn how court litigation can usually be avoided if board members of condos, HOAs and coops have a basic understanding of the duties and responsibilities for governing their community.

The Number 1 Tip is that board members must read the association declaration, bylaws and other governing documents for their community. The governing documents lay out the authority of the board to impose and collect assessments, spend funds, maintain and repair common areas, and enforce use restrictions.

Other tips for staying out of court include inspect the common areas; avoid ambiguous contracts; be reasonable and consistent in enforcing rules; and document board actions.

Community association boards of directors should plan ahead to avoid litigation by following governance procedures, complying with fair housing requirements; and acting promptly to collect assessments.  In addition, board members should stay informed of laws and court rulings which affect association governance.

The CAI Washington Metro Chapter’s Annual Conference and Expo at the Convention Center in Washington D.C. features speakers on a wide range of topics and over a hundred exhibitors who provide goods and services to community associations.

Condo Insurance Claims Soar as Temperatures Plummet

by Tom Schild

As arctic temperatures blanket Maryland and much of the eastern United States, frozen pipe breaks are causing havoc for homeowners.

Typically, the cost of repairing a burst pipe is not covered by property insurance but repair costs for the related water damage to the building is covered.  For condominium owners, there are special challenges in sorting out whether the condo association–or the individual unit owner–pays to repair damage to walls, floors, carpet and other portions of the building.

In Maryland, the Condominium Act requires the condo association to have property insurance for both the common elements and the individual units. Repair costs in excess of the insurance deductible amount will be paid for by the insurance company.

However, who pays the first $5,000 of repair costs depends on whether the broken pipe is a common element or part of the unit.  Under Section 11-114 of  Maryland Condominium Act, the entire insurance deductible amount is paid for by the condo association if the cause of the damage originates in a common element pipe.  But, if the frozen pipe is a unit pipe, the owner of the unit where the cause of the damage occurs must pay up to $5,000 of the repair cost not paid by the insurance company.

The individual unit owner is also responsible for the cost of repairing or replacing any upgrades or additions to the unit–commonly referred to as “betterments and improvements”  in insurance jargon–beyond what was in the unit as originally constructed.

To cover up to $5,000 of the condo association insurance deductible and the cost to repair or replace betterments and improvements, unit owners can obtain their own individual unit insurance known as an HO-6 policy.  This insurance also covers damage to an owner’s furniture and other personal property.   The deductible amount to be paid by the unit owner in individual insurance policies can be as little as $250.

Yet, many condo owners do not have individual HO-6 coverage and are not able to pay the first $5,000 to repair their unit, other units and the common elements when the broken pipe is part of the unit.  This can leave other unit owners or the condo association to make repairs and then seek reimbursement from the owner of the unit where the cause of the damage originated.

To avoid surprises and disputes over payment of the first $5,000 of repair costs, each condominium association is required by the Condo Act to provide annual written notice of the amount of the deductible in the condominium master insurance policy and the unit owner’s responsibility for the property insurance deductible.  Additionally, the condo bylaws can require each unit owner to maintain an individual condominium unit insurance policy.  Existing bylaws can be amended to require unit owner insurance with approval of 51 percent of the unit owners.

Water damage can occur year round.  But, the arctic temperatures of the winter of 2015 will gladly soon be a blast from the past.

 

 

2015 Maryland Legislative Session Heats Up

by Tom Schild

Despite the recent arctic air sweeping through Maryland, the 2015 Maryland legislative session is heating up.

After a slow start in January with many new legislators and a new Governor taking office, a rush of bills were introduced in February.  Among the bills concerning governance of Maryland condos, coops and HOAs are proposals to (1) prevent developers from limiting condominium statutory warranty rights; (2) require access to common areas for political candidates; and (3) require homeowner associations to provide resale disclosure information and cap the fee charged by condos and HOAs for providing resale disclosure information.

A proposal to change the housing cooperative law adopted in 2014 would eliminate a 3-month waiting period before a housing coop could initiate legal action to evict a coop member for not paying assessments.

Other legislation under review would restrict the ability to collect court judgments for delinquent assessments. Although not limited to condos, coops and HOAs, the bill would make it more difficult to obtain money in bank accounts and sell property to pay a person’s debts.

Legislation regarding licensing of community association managers (which had been considered the past several years) has not been introduced in 2015.

The 90-day legislative session of the Maryland General Assembly runs until April 13, 2015.

Maryland County Law To Require Board Member Education

by Tom Schild

Board members of condominiums, homeowner associations, and housing coops in Montgomery County, Maryland will soon have to complete a class on the responsibilities of serving on the board of directors.  Beginning in January 2016, a new County law  mandates training for all board members within 90 days of first being elected or appointed to the board of directors of a condo, HOA or coop.

The Montgomery County Commission on Common Ownership Communities (CCOC) has been tasked with developing an educational curriculum and approving a similar training program administered by other organizations. Where a condo, HOA, or coop board member does not complete the mandatory board education, the CCOC may take legal action to enforce the new training requirement.  Additionally, a CCOC dispute resolution panel may consider a board member’s failure to complete the training in deciding a dispute between a homeowner and a community association.

However, failure to complete the training requirement does not disqualify a board member from continuing to serve on the board or invalidate a vote by the member.

Each community association in Montgomery County will have to certify to the CCOC that each board member has completed the required training and must provide an annual report which includes the name and address of each board member, the date each member completed the training, the number of vacancies on the board, and the length of time each vacancy existed.

The legislation to require board education was considered by the County Council for several months before it was enacted in February, 2015.