Maryland Condo Lawyer Blog » Homeowner Associations

Award of Attorney’s Fees Under the Consumer Protection Act May Not Be Subject To An Arbitration Agreement

rburke — Tue, 30 Aug 2011 15:52:27 +0000

I obtained a noteworthy ruling this morning in the Circuit Court for Montgomery County while representing a condominium unit owner in a construction defect suit. The sales agreement provided for arbitration of claims, and contained a provision that precludes the arbitration panel from awarding attorney’s fees. Under Md. Cts. & Jud. Proc Code Ann. Sec. 3-221, an arbitration award cannot include attorney’s fees unless provided for in the arbitration agreement.

The complaint filed on behalf of the unit owner included a cause of action under the Maryland Consumer Protection Act, which provides for the award of attorney’s fees. The Court accepted our argument that, because the damages that can be awarded under the Consumer Protection Act could not be awarded in arbitration, the Consumer Protection Act claim was not subject to the arbitration agreement, and can proceed in Court before a jury.

Disputes As To Homeowners Association Elections May Be Submitted To the Attorney General’s Office

rburke — Tue, 12 Jul 2011 13:26:43 +0000

The Maryland General Assembly enacted new legislation aimed at helping to resolve disputes concerning the election of officers and board members of a homeowners association. Senate Bill 532 amends Section 11B-115 of the Maryland Homeowners Association Act to give the Consumer Protection Division of the Attorney General’s Office authority to resolve election disputs. A lot owner who believes that the governing body of an HOA has failed to comply with the election procedures under the association’s governing documents can submit their dispute to the Division for resolution if any one of five specific matters are at issue: (1) Notice about the date, time, and place for the election; (2) the manner in which a call for nominations for the board was made; (3) the format of the election ballot; (4) the format, provision, and use of proxies during the election process; or (5) the manner in which a quorum is determined for election purposes. The new law take effect on October 1, 2011.

Maryland General Assembly Passes Limited Relief For Unpaid Assessments In Foreclosure Actions

rburke — Wed, 13 Apr 2011 16:10:47 +0000

Pursuant to legislation passed in the closing hours of this year’s session of the Maryland General Assembly, four (4) months of unpaid assessments due to condominiums and homeowner associations, up to a maximum of $1,200, will now receive priority over mortgages, but only those recorded after October 1, 2011. As reported in my post of March 18, legislation was pending in the General Assembly that would afford some limited relief to condominiums in the case of unpaid assessments for units that become lender-owned as a result of foreclosure. House Bill 1246 passed both houses on Monday, April 11, 2011, and once signed by the Governor, will take effect on October 1, 2011. The new law amends Section 11-110 of the Condominium Act to provide that four (4) months of unpaid assessments shall receive a priority over a first mortgage or deed of trust in a foreclosure action. However, there are significant limitations attached to the provision. Only the principal amount of regular assessments are given a priority. It does not extend to interest, costs of collection, late charges, fines, attorney’s fees, special assessments, or other charges that are normally considered part of the delinquency under the Contract Lien Act. Additionally, the Legislature imposed a $1,200 cap on assessments receiving a priority. Moreover, the priority only applies against mortgages and deeds of trust recorded after October 1, 2011. Lenders holding liens are also entitled to request written information from the condominium concerning the unpaid assessments, and, if the information is not provided, the priority is voided.

The original bill proposed a priority for six months of assessments in accordance with the recommendation of the 2006 Maryland Task Force on Common Ownership Communities, but that provision was amended to four months. An amendment also added the $1,200 cap.

The new law also amends Section 11B-117 of the Homeowners Association Act to provide the same four month priority for unpaid assessments due to homeowner associations. The same limits applicable to condominium assessments apply; that is, assessments are capped at $1,200; only the principal amount of regular assessments receives a priority; the homeowners association must provide requested written information to the lender; and the priority is applicable to only mortgages and deeds of trust recorded after October 1, 2011.

Maryland General Assembly Again Considers Limited Relief For Unpaid Assessments In Foreclosure Actions

Fri, 18 Mar 2011 14:31:02 +0000

Associations continue to suffer from an epidemic of unpaid assessments. Such delinquent owners are often also behind in their mortgage payments, which can lead to the lender foreclosing. Once the lender forecloses and takes title, it becomes responsible for assessments going forward, but not for past due assessments. As in last year’s session, the legislature is again considering a means of providing some relief to associations in these circumstances. The Residential Association Sustainability Act of 2011 is pending as Senate Bill 946 and House Bill 1246. It would provide that, in the case of a foreclosure on a mortgage or deed of trust on a condominium unit, the portion of a lien on the condominium unit that represents up to six months of specified unpaid assessments, including specified fees and costs, has priority over a first mortgage or deed of trust under specified circumstances. Accordingly, if the condominium has obtained a lien on the unit for unpaid assessments, six months of those assessments would constitute a priority over the mortgage or deed of trust. In other words, six months of assessment would be paid first out of a foreclosure sale before payment of the mortgage debt.

The Senate bill, which is sponsored by Senators Mathias and Manno, has been referred to the Judical Proceedings Committee, and the House bill, which is sponsored by Delegates Conway, Arora, Bobo, Braveboy, Cullison, Frush, Kramer and Nieman, has been referred to the Environmental Matters Committee.

The 2006 Maryland Task Force on Common Ownership Communities recommended that delinquent assessements receive a priority lien for six months of assessments, late fees, attorney fees, and cost of collection. During the 2010 session of the General Assembly, the House passed a bill providing for a four month assessment priority. That bill also required that each unit owner post a two-month security deposit, so that the association would have the benefit of a six month cushion. The security deposit requirement was criticized by some as placing an undue burden on homeowners. The bill evenually died in the Senate.

Associations May Have The Means To Force Lenders To Act With Regard to Delinquent Units

rburke — Wed, 16 Feb 2011 17:30:59 +0000

When a lender fails to move forward with foreclosure on a delinquint unit, the association can be left with both a vacant property and no means to collect its assessements. However, the law may give condominiums and homeowner associations a way to fight back against lenders that have liens on delinquent properties in their communities, but refuse to take title and assume responsibility for unit owner oblgations to the association. A “quiet title” action may be the answer.

Condominium and homeowner associations continue to be impacted by the recession and depressed real estate values. Unit owners who are unable to keep up with their mortgage payments often become delinquent in their fee assessment payments as well. This, of course, damages the association, whose ability to operate is entirely dependent upon timely payment of assessments by all unit owners. And even when an association pursues all of it available statutory remedies, including placing a lien on the unit, the properties are usually subject to a mortgages, home equity lines, and other secured loans from banks and lending institutions that have first priority. This prevents the association from foreclosing and taking ownership for purposes of selling the unit. But a further complication arises when the lender holding the superior lien fails to move forward with it own foreclosure on such properties.

When lenders assume ownership of properties through foreclosure, they become responsible to the association for assessements applicable to the unit from the time that they take title. Essentially, the lender becomes the unit owner. However, not all lenders who are entitled to foreclose on a property proceed with foreclosure. In some cases, the lenders are waiting for the market to improve, or simply are carrying too many troubled properties to take on more. Whatever the reason, they can avoid the responsibilites of ownership by simply not going forward with foreclosure. When this happens, and the delinquent unit owner has vacated the unit, the association is left to deal with a vacant property wand no one responsible for paying its share of association expenses.

According to the Community Associations Institute, a large percentage of lender-owned homes are not making timely assessment payments. Add to those the vacant units where the lender has failed to take ownership, and the number of non-paying units becomes staggering. In some jurisdictions, the problem is so acute that the legal community has been called upon to find creative ways to address it. One method is an action to “quiet title.” Such actions can generally be brought by any person or entity with constructive possession of a property under color of title or claim against another person or entity claiming title through, for example a lien. A condominium or homeowners assocication with a lien on a unit for unpaid assessment may qualify as holding a sufficient claim of possession so as to be entitled to bring such an action. The suit is intended to remove any cloud on the title and resolve disputes as to ownership interest.

Arguably, such a suit could require the lender to either move forward with foreclosure or release its claim and allow the association to take title. In some places, this process has come to be called “the mortgage terminator,” and particular attention has been given to a case involving a Miami condominium unit in which Citibank held the mortgage. The condominium association, which had a lien on the unit for unpaid assessments, sued when Citibank failed to move forward with foreclosure. The parties reached a settlement that reportedly allowed the association to take title.

A Maryland statute, Md. Real Prop. Code Ann. Sec. 14-108, specifically provides for “quiet title” actions. The right lawyer may be able to utilize this procedure to either force lenders to foreclose, take title, and begin paying assessment, or to give up their claim to the property and allow the association to foreclose on its lien.

Warranties and Rights of Action

rburke — Wed, 04 Aug 2010 15:41:03 +0000

For most individuals, the purchase of a new house or condominium unit is the largest investment that they will have ever made. Moreover, that investment is also a home and place of refuge and relaxation that they share with family and friends. Few things, therefore, have the potential to be more disturbing than the discovery of construction defect issues that diminish both the enjoyment of the home and its value. For that reason, new home purchasers in Maryland are afforded various protections in the form of statutory warranties. They also may receive specific warranties from the seller as part of their purchase agreement. Additionally, homebuyers may have other statutory and common law rights of action that arise as a result of construction deficiencies. However, none of these possible remedies provides a certain or easy path to relief. All such claims are governed by strict statutes of limitations that require considerable diligence or order to preserve the intended benefits. Pursuing claims is also an expensive and often protracted process that, in addition to the retention of capable legal counsel, also requires the involvement of building consultants who can identify defects, recommend repairs, and offer opinion evidence to support the claim.

In response to various comments and questions some of you have been kind enough to share on this blog, I am going to be authoring a series of posts that address some of these issues, as they relate to condominium and new home warranties, homeowner association warranties, seller’s warranties, contract claims, and common law causes of action. These matters will be addressed from the standpoint of both associations and individual owners. In the meantime, if there are any issues along these lines that are of particular interest, please feel free to send a comment.

LEGISLATURE PASSES NEW WARRANTY PROVISIONS BUT NO FORECLOSURE RELIEF

rburke — Fri, 30 Apr 2010 16:04:44 +0000

The Maryland General Assembly passed House Bill 620, which, if signed into law by the Governor, will take effect on October 1, 2010. The newly enacted law will expand common element and common area warranty protections in condominiums and homeowners associations beyond the period of a developer’s control. It extends the implied condominium common element warranty, by providing that the warranty run for two years from the election of the first board of directors controlled by the unit owners. Similarly, it provides that the implied warranty on homeowner association common areas be extended to run for two years from the election of the first governing body controlled by the homeowners. It also requires that the common elements identified in a condominium declaration be consistent with those components that are specified as being subject to the common element warranty provisions under the Maryland Condominium Act. The Legislature did not, however, pass the proposed Residential Sustainability Act that would have provided some limited relief to condominiums and homeowners associations where foreclosure sales do not result in sufficient funds to cover unpaid association assessments.

Section 11-131(d) of the Maryland Condominium Act provides that there is an implied warranty on certain specified components of the common elements; namely, “the roof, foundation, external and supporting walls, mechanical, electrical, and plumbing systems, and other structural elements.” An issue and potential loophole arose, however, whenever a condominium declaration identified these components, or any part of them, as being included within the units rather than the common elements. The new enactment amends Section 11-103(a)(4) of the Condominium Act, which concerns the required content of a condominium declaration, for all condominiums created on or after October 1, 2010. New subsection (4)(ii) provides that “the description of the common elements shall include the” same five components listed in Section 11-131(d), “to the extent that the improvements are shared by or serve more than one unit or serve any portion of the common elements.” This ensures that developers cannot use the declaration to define these specified components as part of the units, and thereby avoid the intent of the law that these components be subject to the common element implied warranty, provided that the components serve more than one unit or serve the common elements. Additionally, the new subsection provides that “the description and designation of the common elements … may not be amended until after the date on which the unit owners, other than the developer and its affiliates, first elect a controlling majority of the members of the board of directors for the council of unit owners.” This prevents the developer from modifying the definition of common elements during the period of time that it controls the condominium’s board of directors.

With regard to the common element warranty itself, Section 11-131(d)(3) of the Condominium Act presently provides that the warranty “commences with the first transfer of title to a unit owner,” and “extends for a period of 3 years.” For common elements not completed as of the first transfer of title, the three years commences “with completion of that element or with its availability for use by all unit owners, whichever occurs later.” In many instances, however, unless condominium units sell quickly, the developer can maintain control of a majority of the council of unit owners for several years; sometimes even until after the three-year warranty has expired. The new enactment is intended to address this. It retains the provision that the warranty extends for a period of 3 years from the first transfer of title to a unit owner, or, with respect to an incomplete element, from its completion or availability for use, whichever is later; but also provides that the warranty may run for “2 years from the date on which the unit owners, other than the developer and its affiliates, first elect a controlling majority of the members of the board of directors for the council of unit owners, which ever occurs later.” As a result, developers who maintain control of a majority of the units for the first several years cannot avoid responsibility for the common element warranty, because the unit owners will still have at least a two year warranty from the time they assume majority control.

As to the homeowner association warranty, Section 11B-110(a) of the Maryland Homeowners Association Act now provides that there is an implied warranty on improvements to the common area, which runs for a period of one year. It “begins with the first transfer of title to a lot to a member of the public by the vendor of the lot.” For improvements not completed at the time of the first transfer of title, the warranty commences “with the completion of the improvement or with it availability for use by lot owners, whichever occurs later.” As in the case of the condominium common element warranty, this meant that a developer that maintains majority control of the association could avoid the warranty obligation. The new enactment make two significant changes. First, it extends the warranty from one to two years, commencing with the first transfer of title to a lot, or, with regard to an improvement not completed at the time of first transfer, from its completion or availability for use, whichever is later. Additionally, it also amends Section 11B-110(a)(3) to provide that the warranty may also commence “2 years from the date on which the lot owners, other than the declarant and its affiliates, first elect a controlling majority of the members of the governing body of the homeowners association,” if this would result in a later date for commencement of the warranty period.

House Bill 842, known as the Residential Association Sustainability Act of 2010, would have provided that a specified portion of a lien on a condominium unit or lot in a homeowners association, would, in certain circumstances, have a priority over any future first mortgage or deed of trust recorded after October 1, 2010. This was intended to assist condominiums and homeowners associations that have been left with unpaid assessments, despite having obtained a lien on the property, where the proceeds of a foreclosure sale are exhausted by the outstanding mortgage debt. This measure was defeated.

PROPOSED LEGISLATION WOULD EXPAND WARRANTY PROTECTION FOR FUTURE CONDOMINIUMS AND HOMEOWNERS ASSOCIATIONS

rburke — Thu, 04 Mar 2010 17:45:37 +0000

The current session of the Maryland General Assembly is considering new legislation that would expand common element and common area warranty protections in future condominiums and homeowners associations. House Bill 620 proposes to expand the application of both the three-year condominium common element warranty, and the one-year homeowners association common area warranty, for projects created after October 1, 2010. The warranty on condominium common elements would run for three (3) years from the first transfer of title to a unit, or two (2) years from the date the developer transfers control, whichever is later. The warranty on homeowners association common areas would run for two (2) years form the first transfer of title to a lot, or two (2) years from the date the developer transfers control, whichever is later.

Under current law, there is a three-year implied warranty on certain specified components of the common elements, including the roof, foundation, external and supporting walls, mechanical, electrical, and plumbing systems, and other structural elements. This warranty, which is enforceable only by the council of unit owners, commences with the first transfer of title to a unit in the condominium. (There is an exception for common elements not completed at that time, in which case the warranty on such common elements commences when they are completed or become available for use, whichever is later). That means that the warranty will expire regardless of when the unit owners take control of the condominium from the developer, and regardless of the number of units that have been sold. It is possible, therefore, depending on the pace of sales and the size of the condominium, for the common element warranty to expire before or close to the council of unit owners assumes control of the complex, which usually occurs about the time that a majority of the units have been sold. The warranty can also expire even before some units have been sold. So it is possible to buy into a condominium community at a time when the three-year common element warranty no longer exists.

Under the proposed bill, Section 11-131 of the Maryland Condominium Act would be amended to provide that the three-year common element warranty, while commencing with the first transfer of title, runs for a period of three (3) years from that date, or for two (2) years from the date on which the developer transfers control of the council of unit owners, whichever occurs later. This would extend the common element warranty in any community where there transfer of control occurs more than a year after the transfer of title to the first unit. The legislation would also require that the specified components to which the warrant is applicable, must be included in the definition of common elements contained in the condominium governing documents, provided that they serve more than one unit or serve the common elements. Presently, any of the specified components could potentially be excluded from coverage under the warranty by their inclusion as part of the units as defined in the declaration.

Under the original language of the bill, these provisions would not be applicable to any current condominium, but, instead, would apply only to those for which the declaration, by-laws, and plat are recorded after October 1, 2010.

The current homeowners association common area warranty commences upon the first transfer of title to a lot. (There is an exception for not yet completed common area components, in which case the warranty commences when they are completed or available for use, whichever is later). The warranty extends for period of only one year. As a result, it is possible for the warranty to expire before the developer transfers control of the community to the property owners, and before many lots have even been sold.

The proposed legislation would amend Section 11B-110 of the Maryland Homeowners Association Act to enlarge the warranty to two (2) years. It would also provide that the two-year period commence at the time of the first transfer of title to a lot, or at the time the developer transfers control to the homeowners, whichever is later.

In its present form, the legislation would not effect any existing homeowners association. Instead, it would only apply to those created after the effective date of the legislation, which is identified in the bill to be October 1, 2010.

MARYLAND GENERAL ASSEMBLY CONSIDERING LIMITED FORECLOSURE RELIEF FOR CONDOMINIUMS AND HOMEOWNERS ASSOCIATIONS

rburke — Thu, 04 Mar 2010 16:39:46 +0000

Legislation has been proposed in the current session of the Maryland General Assembly that would provide some relief to condominiums and homeowners associations in the event of a foreclosure. House Bill 842, known as the Residential Association Sustainability Act of 2010, provides that a specified portion of a lien on a condominium unit or lot in a homeowners association, would, in certain circumstances, have a priority over any future first mortgage or deed of trust recorded after October 1, 2010. This is intended to assist condominiums and homeowners associations who have been left with unpaid assessments, despite having obtained a lien on the property, where the proceeds of a foreclosure sale are exhausted by the outstanding mortgage debt.

As I discussed in a recent post, the wave of foreclosures arising from the recession has significantly affected condominiums, as well as homeowners associations, in their ability to collect delinquent assessments. When a mortgage lender forecloses, even when an association has pursued and established a lien on the property, the mortgage loan has priority. And, as a result of plunging real estate values, the proceeds of a foreclosure sale are most often sufficient to satisfy both the mortgage loan balance and any other liens. The condominium or association lien is then extinguished by the foreclosure sale, and the condominium or homeowners association is left with a deficit arising from the uncollectable unpaid assessments.

The proposed legislation would add new language to Section 11-110 of the Maryland Condominium Act, to provide that, in the event of a foreclosure under a mortgage or deed of trust, up to six (6) months of unpaid assessments would have a priority over any claim of the holder of the mortgage or deed of trust. However, under the initial version of the bill, this priority would only be applicable in the event of a mortgage or deed of trust recorded against the unit after October 1, 2010. This would include, in addition to the unpaid assessments, late fees, interest, and attorney’s fees associated with the condominium having established a lien, provided that they were levied in accordance with the provisions of the condominium’s governing documents.

The bill would also amend Section 11B-117 of the Maryland Homeowners Association Act, to provide the level of relief to homeowners associations with respect to delinquent assessment liens. Again, six (6) months of assessment would have a priority over claims under a mortgage or deed of trust, but only those recorded after October 1, 2010. As with the condominium version, the lien priority would include properly established late fees, interest, and attorney’s fees.

The significant deficiency in this legislation is its limited applicability. It will provide relief to condominiums and homeowners associations only as to future mortgages or deeds of trust recorded after October 1, 2010. No presently recorded loans would be affected. As a result, in the event of a foreclosure on any exiting mortgage or deed of trust, along with any recorded before October 1, 2010, condominiums and homeowners associations will still be precluded from collecting on assessment liens where the proceeds of the foreclosure sale are exhausted by mortgage loan.

Those interested in following this legislation may refer to the following link:

http://mlis.state.md.us/2010rs/billfile/HB0842.htm

The Condominium Phenomenon

rburke — Thu, 18 Jun 2009 14:24:23 +0000

It has been nearly 30 years since I first became involved in the representation of a condominium association that was confronted with construction defect issues. That case was litigated for several years, and eventually grew to engulfing a multitude of parties, including developer entities, the general contractor, design professionals, engineers, numerous subcontractors and suppliers, and all of their law firms and insurers. It ultimately resulted in a resolution that allowed the condominium to repair the significant deficiencies in the exterior envelope of their high-rise building. Since that time, condominium construction defect matters have come to constitute the majority of my work. This has resulted from two phenomena: The first has been the explosion of condominium development since the 1980s, with the wide acceptance of the condo as a desired form of housing. The second is the nature of residential construction and its tight profit margins, in which inspection, supervision and coordination of trades are often the first casualties of budget constraints.

In the years since that first construction defect case, I have litigated, and tried many more equally complex matters, and have resolved still more by other means of dispute resolution. Because condominiums are usually large multi-family housing complexes, they are much more like commercial buildings than they are typical housing, and the impact of design and construction issues are multiplied by the sheer size of the project. As a result, the consequences of failure to act diligently and properly have the potential to be enormous and prohibitively expensive.

This blog is devoted to the things that I have learned from these experiences that can benefit condominium owners, homeowner associations, and property managers in dealing with their ownership and maintenance responsibilities, as well as the means by which developers, designers, builders, and contractors can produce residential projects that do not become a source of liability and unhappy customers. I look forward to our discussions.