New Maryland Law Affects Developer Voting Rights in an HOA

Governor Hogan has signed into law legislation adopted by the General Assembly during 2019 session that deals with the voting rights of developers in homeowner associations where not all lots have been sold.  Senate Bill 305, which was passed unanimously by both Houses and signed by the Governor on April 30, 2019, amends Section 11B-111.7 of the Maryland Homeowners Association Act, and addresses the votes to which a developer is entitled with respect to whether lots have been subdivided and recorded.  Of course, any lot that has been sold must have first been subdivided and recorded.  The issue has been the developer’s votes on unsold lots that have not been subdivided and recorded.  Under current law, which will be changed when the new law takes effect on October 1, 2019, until all of the lots have been subdivided and recorded, a developer is entitled to the number of votes equal to the number of unsold lots that have been subdivided and recorded but remain unsold.  There is no vote for lots that have not yet been subdivided and recorded.  The new law provides that, once all of the lots have been subdivided and recorded, the developer is entitled to one vote per lot that remains unsold.  But, until all of the lots have been subdivided and recorded, the developer’s votes are to be as provided in the governing documents; i.e., the governing documents  control until every lot has been subdivided and recorded.  So developers will have control of determining the number of votes to which they are entitled by addressing the issue when the governing documents are prepared.  Arguably, however, if the governing documents are silent on the issue, the developer gets no votes on unsold lots until each and every lot is subdivided and recorded.

Maryland General Assembly Considers Two Bills That Would Expand a Condominium’s Priority Lien

Senate Bill 374 and House Bill 250, pending in the Maryland General Assembly, would expand the portion of a condominium’s lien that has a priority over a first mortgage or first deed of trust.  Under the current provisions of Section 11-110 of the Maryland Condominium Act,  a portion of a condominium’s lien for delinquent assessments has a priority consisting of four months of assessments limited to a maximum of $1,200.  Additionally, it is limited to regular assessments only, and my not include (1) interest; (2) costs of collection; (3) late charges; (4) fines; (5) attorney’s fees; (6) special assessments; or (7) “any other costs or sums due under the declaration or bylaws of the condominium or as provided under any contract, law or court order.”  The proposed law would expand the priority to six months of assessments, eliminate the maximum limitation, and allow inclusion of the list of seven items that are now expressly precluded.

Maryland House of Delegates Considers Bill Regarding Percentage Required For Amending Bylaws

Legislation pending in the Maryland House of Delegates seeks to supplement a prior revision that applied the percentage required for approval of amendments of condominium bylaws to only the number of unit owners “in good standing” — meaning unit owners not more than 90 days in arrears in payment of assessments of other charges. — rather than to the total number of owners.  A change to the Section 11-104 of the Maryland Condominium Act adopted during 2017 provides that, notwithstanding what the bylaws themselves require, the bylaws may be amended by the affirmative vote of 60% of the unit owners in good standing, “or a lower percentage if required by the bylaws.”  This had the effect of reducing the number of votes required to the extent that some unit owners were not “in good standing.”  House Bill 207 would go further and provide that any lower percentage contained in the bylaws would also be applied only to “unit owners in good standing.”  In other words, if the bylaws call for a percentage lower than 60%, that lower percentage requirement would also be determined only by the number of “unit owners in good standing” and not to the entire number of owners.  The bill also would affect homeowners associations by making the same amendment Section 11B-116 of  the Maryland Homeowners Association Act.

Proposed Legislation Would Require Developers To Name Unaffiliated Unit or Lot Owner To Condo and HOA Boards

House Bill 564 in the Maryland General Assembly would require a developer, upon the conveyance of 25% of the units or lots, to appoint at least one board member to the association’s governing body who is a unit owner or lot owner, and not affiliated with the developer.  The bill would also require the association’s governing body to meet at least two times each year, and would require the developer to provide the members of the board with certain information relating to any bond provided to a governmental authority in connection with the project.  The legislation would also require that the books and records of the association be kept separate and apart from those of the developer.

U.S. District Court Allows Association’s Claims To Proceed For Actions During Period of Developer Control

The United States District Court for the District of Maryland has denied a motion to dismiss filed on behalf of a developer, and allowed claims of a property owner’s association to proceed that concern actions taken while the board was under the control of the developer’s agents.  In Greenspring Quarry Association, Inc. v. Beazer Homes Corp., Civil No. JKB-17-646, the association’s suit relates to charges for common area maintenance costs.  The assoication alleged that the developer was to be responsible for such charges until title transferred to the association, and claimed that, during the period that the developer controlled the board, the management company had been instructed to bill the association for common area maintenance for several years before title was transferred.  The court denied the developer’s motion to dismiss all claims, finding that there were sufficient allegations of an independent duty of care and reasonable reliance on the representations made, and that the claims were stated with sufficient particularity.  Notably, the court found that the developer’s agents on the board assumed fiduciary duties to the association when they occupied the board seats.

Governor Hogan Signs Law To Require Notice To Homeowners Of Sales Of A Common Element Or Common Area

Maryland Governor, Larry Hogan, has signed into law legislation passed in the General Assembly that requires a condominium council of unit owners or a homeowners association to provide at least 30-days notice to all owners of any sale, including a tax sale, of a common element in the condominium or common area in the HOA.  What had been Senate Bill 809 and House Bill 1369 in the 2017 session will add new Subsection 11-108(d) to the Maryland Condominium Act, and new Section 11B-106.2 to the Maryland Homeowner Association Act.  The notice required to be given must include written notice to every homeowner; posting of a sign on the property; and, if the association has a website, a notice on the home page.