Legislation now pending in the Maryland House of Delegates would prohibit condominium boards from withholding legal agreements from unit owners, and would prevent developers from including provisions in the governing documents, sales contracts, or settlement documents that bar disclosure to unit owners of settlement terms. House Bill 30 would add new Subsection (c) to Section 11-109.1 of the Maryland Condominium Act, which addresses the requirements for closed door meetings of the board of directors, providing that “[n]othing in this section may be interpreted to, authorize the board to withhold or agree to withhold from the unit owners information about any legal agreement to which the board is a party.” Additionally, the proposed law would amend Section 11-134.1 to provide that any provision in (1) the declaration, (2) the bylaws, (3) a contract for an initial sale from the developer, or(4) an agreement to settle a disputed claim, is unenforceable if it “[p]rohibits the disclosure to the unit owners of any term of an agreement to settle a disputed claim.”
Legislation being introduced in the 2020 session of the Maryland General Assembly would require holders a mortgage or deed of trust on a condominium unit to provide a written objection in writing to a proposed amendment to the declaration within 60 days of receiving notice, or be deemed to have consented to the amendment. HB 25 pending in the House of Delegates is intended to address an uncertainty arising from provisions in condominium declarations requiring that mortgagees and holders of deeds of trust approve amendments. A question has often arisen as to what happens if a mortgage holder receives notice of a proposed amendment, but does not respond. HB 25 would amend Section 11-103(c) of the Maryland Condominium Act, and establish a 60-day period for holders of mortgages or deeds of trust to respond after receipt of the proposed amendment, or be deemed to have consented. However, the proposed change does carve out three specific exceptions to the 60-day rule for any amendment that would (1) alter the priority of the lien; (2) materially impair or affect the unit as collateral; or (3) materially impair or affect the right of the holder of the mortgage or deed of trust to exercise any rights under the mortgage, deed of trust, or applicable law. Amendments falling into those categories would still require actual approval by the mortgagee or deed of trust holder. It is also noteworthy that the proposed legislation is limited to proposed amendments of the declaration, and does not address provisions requiring that holders of mortgages or deeds of trust approve amendments to the by-laws.
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.
The following House of Delegates bills in 2019 session of the Maryland General Assembly passed in a vote of the full House but failed to get out of committee in the Senate:
HB207 concerning members qualified to vote to amend bylaws.
HB249 concerning responsibilities for insurance deductibles.
HB392 concerning dispute resolution procedures.
HB655 concerning denial of rental licenses for units with assessments in arrears.
HB825 concerning rights of holders of mortgages and deeds of trust in connection with declaration amendments.
HB826 concerning unit owner’s installation of electric vehicle charging equipment.
HB1037 concerning council of unit owner meeting requirements.
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 Passes Bill To Raise Condo Unit Owner Responsibility for Insurance Deductible
By a vote of 139 – 0, the Maryland House of Delegates has passed legislation that would make condominium unit owners responsible for a larger amount of the insurance deductible when the condominium’s policy pays for damage from an issue that originates in the owner’s unit. Under Section 11-114, a condominium must maintain property insurance on the entire property, including the common elements and the units, except for improvements and betterments installed in the units by the owners. Where damage originates from a component of a unit, the liability of the unit owner is limited to the insurance deductible under the condominium’s policy up to a maximum of $5,000. HB 249 would double the unit owner responsibility to $10,000. The bill also adds clarifying language with regard to damage that is a common expense. The current law provides that any damage originating from the common elements is a common expense. HB 249 provides that this also would include damage originating from “an event outside of the condominium units and the common elements.” The bill now moves onto the Senate Judiciary Committee.