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Community Association LawLetter

MARYLAND CONDOMINIUMS MAY BE LIABLE FOR FALSE OR MISLEADING INFORMATION IN RESALE CERTIFICATES

The Maryland Court of Appeals recently ruled that a Maryland condominium association may be liable to the purchaser of a condominium unit based upon false or misleading information in a resale certificate prepared by the condominium.

In Swinson v. Lords Landing Village Condominium, the owner of a condominium unit contended she should not have to pay a special assessment for the cost of wood and painting repairs to common elements because the Condominium allegedly furnished false and misleading information in the resale certificate regarding such repairs.

The resale certificate provided by the Condominium stated that the Condominium had no knowledge of any violation of the health or building code with respect to the common elements. When the resale certificate was issued, the Condominium had been cited by Prince George's County for an alleged violation of the county housing code in connection with the need to replace rotted and exposed wood.

The resale certificate also disclosed the existence of litigation against the condominium's developer concerning common area defects, including deteriorating wood and water penetration problems. The certificate identified the case number and invited prospective purchasers to review the court file. No information was provided about the then-current status of the litigation.

Although the trial court ruled that the resale certificate provision of the Maryland Condominium Act imposed no liability on the Condominium for providing erroneous or incomplete information, the Court of Appeals concluded that the Condominium did have potential common law tort liability to a prospective purchaser for fraudulent or negligent misrepresentations. The court reasoned that the Condominium had a statutory duty to a unit owner to provide resale information for the owner to transmit to a prospective purchaser and, therefore, a duty of care to furnish accurate and non-misleading information extended to the prospective purchaser as well.

However, the appeals court concluded that the information in the resale certificate was not false or misleading. With regard to the pending housing code violation, the court found that the required resale certificate disclosures related only to known violation of the health or building codes and not to violations of the housing code. The court made the distinction that building codes specified construction requirements, while housing codes principally concerned the maintenance and habitability of residential structures.

With regard to the pending litigation against the developer, the court found that disclosure of the existence of pending litigation—not the status of the litigation—is all that is required to be disclosed.

Therefore, although the court found a condominium has potential liability for making resale certificate disclosures which are false or misleading, the court concluded that the Lords Landing Village Condominium had made no fraudulent or negligent misrepresentation in the resale certificate in this instance.

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OWNER OCCUPANCY RESTRICTIONS UPHELD BY DISTRICT OF COLUMBIA APPEALS COURT

An amendment to the bylaws of a District of Columbia housing cooperative which required 90 percent owner occupancy was upheld by the District of Columbia Court of Appeals in Burgess v. Pelkey.

The proprietary leases between the cooperative and coop owners had allowed subleasing and contemplated that the coop bylaws and rules might be amended in the future. The original bylaws provided that amendments shall not be made "retroactive".

When the bylaw amendment requiring 90 percent owner occupancy was adopted, any existing subleases were permitted to continue, but no new subleases were allowed if the new sublease would result in less than 90 percent owner occupancy for the coop.

A coop owner, who had previously sublet his unit, was denied the right to a new sublease. After the owner sold his coop ownership, he filed suit, contending that refusal to allow him to sublease his unit violated the provisions of the proprietary lease and bylaws.

However, the appeals court concluded that the cooperative's refusal to allow new subleases of units was applied prospectively -- not retroactively -- because no sublease in existence at the time of the bylaw amendment was affected. The court also concluded that the 90 percent owner occupancy requirement was enforceable as it was not unreasonable, subjective, or discriminatory. It also noted that an amendment to the coop rules imposing a two-year residency requirement on new owners was not unreasonable.

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MARYLAND CONDOMINIUM IMPROPERLY REFUSED TO REPAIR DAMAGED UNIT

The Maryland Court of Special Appeals recently ruled that the board of directors of a Prince George’s County commercial condominium improperly refused to use insurance proceeds to pay for repairs to a damaged unit.

In Moshyedi v. Annapolis Road Medical Center Condominium, the unit owner had sustained substantial damages to his unit from flooding. Insurance proceeds of over $29,000 were sent to the condominium for repair of the unit. However, the condominium board of directors instructed the contractor not to completely repair the unit, but only make those repairs that were necessary to prevent further damage to the unit or the condominium common elements. This action was taken by the board because the unit owner was delinquent in his payment of assessments. As a result, the condominium retained approximately $15,000 of the insurance proceeds intended for repairs to the damaged unit.

Repairs to the unit were completed by the owner's tenants. When the condominium filed suit against the owner for unpaid condominium fees, the owner counter-sued the condominium for the cost of completing repairs to the unit.

The Court ruled that the condominium bylaws imposed a fiduciary duty upon the Board of Directors with respect to disbursement of insurance proceeds paid to repair and restore damaged units.

The appeals court concluded that a condominium's duty to repair a unit and pay for such repairs with insurance proceeds is independent of the unit owner's obligation to pay assessments. The condominium may not withhold repairs because of a unit owner's failure to pay assessments. The court ruled that the board's "duty to perform repairs is mandatory and unconditional and its refusal to do so is a breach of its fiduciary duty".

Therefore, the unit owner was entitled to recover the costs of completing the repairs.

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HOMEOWNER FAIR HOUSING SUIT DISMISSED BY FEDERAL TRIAL COURT

The United States District Court for Maryland has ruled that there was no basis for a fair housing suit filed against a Burtonsville, Maryland homeowners association and its management company.

In Doka v. Greencastle Lakes Community Association, a homeowner and a fair housing civil rights organization alleged that a homeowners association and its management company had violated federal fair housing laws by not taking action to respond to alleged racially motivated harassment committed by one homeowner against another homeowner on the homeowner's property.

The trial court concluded that there was no legal support for association liability, and dismissed the suit before trial. Finding that the association had no obligation to take action in the dispute between neighbors, the court noted that the alleged conduct did not occur on community common areas subject to control by the association, and that the association's covenants and bylaws did not contain provisions requiring association action in neighbor-to-neighbor disputes.

Additionally, the court found there was insufficient evidence to establish fair housing violations based upon alleged creation of a hostile housing environment or upon alleged disparate treatment of the complaining homeowner.

The court also dismissed the suit against the management company, noting that it had no authority to resolve disputes among homeowners under its contract with the association.

Lastly, the court ruled that the homeowner alleged to be engaged in the harassing conduct could not be held liable under the federal fair housing laws because that homeowner had no power to deny the sale or rental of the complaining homeowner's property or to otherwise make the property unavailable for use.

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LawLetter Intro
Winter  2003 LawLetter Summer  2002 LawLetter
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Last updated   August 28,  2014 Copyright 2014 Site designed by AIS

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