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New laws were passed by the Maryland General Assembly in 2011 regarding association liens and other topics. Condos and HOAs will benefit from legislation which allows a 4-month priority lien up to $1200 of unpaid assessments. When a lender forecloses, the association lien will be paid before the mortgage debt.
Throughout the 2011 legislative session, Tom Schild met with legislators, submitted written testimony and attended committee hearings in support of the priority lien bill.
The new assessment lien law applies to loans obtained after October 1, 2011.
In 2010, there were over 10,000 lender foreclosure sales in Maryland, according to the Maryland Department of Housing and Community Development. Over time, the priority assessment lien law will provide tens of millions of dollars to Maryland condos and homeowner associations.
Maryland Governor Martin O'Malley signs new law to establish a 4-month priority for assessment liens when there is lender foreclosure as Tom Schild and others look on, May 10, 2011.
Beginning October 1, Maryland condominium bylaws may be amended by 51 percent of the voting interests to require homeowners to obtain an HO-6 insurance policy which covers repair costs up to $5,000 of the deductible amount under the condominium master insurance policy.
During the 2011 legislative session of the Maryland General Assembly, numerous bills were introduced to implement various recommendations of the Maryland Task Force on Common Ownership Communities.
Click here to view the full Task Force report.
The new guidelines issued on June 30, 2011 include the following changes:
- Bank-owned properties are included in calculating the number of delinquent owners.
- The allowable delinquency rate is increased to 20 percent if specified financial standards are met.
- management companies must maintain fidelity insurance for officers, employees, and agents to handle association funds.
- For any special assessment, information must be provided as to whether the assessment affects the current or future marketability of the property.
Additionally, the new FHA standards require a certification that the submitter of the FHA application has "no knowledge of circumstances or conditions that might have an adverse effect on the project or cause a mortgage secured by a unit to become delinquent". Such circumstances include (a) defects in construction; (b) substantial disputes or dissatisfaction among unit owners about the operation of the project of the owners association; and (c) disputes concerning unit owners' rights, privileges and obligations.
The Federal Housing Administration (FHA) no longer offers "spot loans" which allowed borrowers to qualify a condominium for FHA-insured loans on an individual basis. Now, the entire condominium must obtain FHA approval in order for individual condominium units to be financed with an FHA-insured loan.
All FHA approvals obtained prior to October 2008 were set to expire on December 7, 2010. The expiration date has been extended on a rolling basis through September 30, 2011, depending on when a condominium previously received FHA approval. Click here for FHA eligibility standards..
Foreclosures are also being delayed by lenders who are re-examining the accuracy of loan and foreclosure documents in response to legal challenges and government criticism of lender foreclosure procedures. Click here for additional information
Although transfer fees are not common in the Washington / Baltimore region, such fees are often used in other areas of the country to raise capital reserve funds for associations.
The FHFA had proposed in August 2010 to disallow transfer fees on loans purchased or guaranteed by Fannie Mae or Freddie Mac. In response to strong opposition by the Community Associations Institute and associations which utilize transfer fees, the FHFA announced in a February 2011 proposed rule making that it would allow Fannie Mae and Freddie Mac loans where the seller or purchase is reuired to pay a transfer fee to the condominium or homeowners association.
The allowable transfer fees must be used to support maintenance and improvements in the community. The proposed FHFA rule does not address the appropriate level of transfer fees, but invited public comments on that issue. A final FHFA rule has not yet been issued.
From the Courts... printer-friendly version
The Maryland appeals court rejected a homeowner's contention that a trial court injunction interfered with a claimed constitutional right to communicate with the homeowners association manager and board members.
Applying the "fighting words" doctrine, long recognized by the United States Supreme Court as speech not protected by the First Amendment, the Maryland appeals court ruled than an injunction was appropriate to prohibit a homeowner from engaging in abusive and threatening communications regarding association matters. The injunction did not bar all communications by the homeowner or prohibit attendance at association meetings, so long as the homeowner was not abusive or threatening. Davis v. Seneca Crossing, decided August 31, 2009.
The basis of the court ruling is its conclusion that the Condominium Act requires the unit owner to make all repairs to the unit regardless of the cause of the damage.
The court further concluded that "the master insurance provision was intended to cover only damage sustained to the common elements or the structure of the condominium" and the master policy is not meant to insure each owner's property or individual unit. The court's decision is contrary to the long-standing interpretation of the Act by managers, attorneys and insurance professionals regarding master insurance coverage for units. (Anderson v. Gables on Tuckerman Condominium, decided April 15, 2008).
In response to this court decision, the insurance provisions of the Maryland Condominium Act have been amended. The new law took effect June 1, 2009. See New Laws and Legislation.
New Laws and Legislation . . .
Over time, the priority lien law will provide tens of millions of dollars to Maryland associations.
The new law leaves it to each condominium to decide whether to require individual HO-6 policies, but encourages condominiums to require such policies by making it easier to amend the bylaws.
Homeowners Association Annual Budgets. Homeowner Associations are now required to prepare and submit an annual proposed budget to owners at least 30 days prior to adoption. The new law also requires specified budget items including "reserves" and requires adoption of the budget at an open meeting. This is similar to the long-standing budget requirements of the Maryland Condominium Act.
Developer Warranties. This new law alters the duration of implied warranties to three years on completed condominium common elements or two years after a homeowner board of directors is elected, whichever is later. It also alters the duration of implied warranties for homeowner associations to two years on completed common areas or two years after a homeowner board of directors is elected, whichever is later.
Clotheslines or "Right to Dry". This eco-friendly law allows an owner or tenant to use a clothesline or other similar laundry drying device notwithstanding the terms in the declaration, bylaws, or other documents. The board may still adopt reasonable regulations regarding the time, placement and manner of use of clotheslines.
Manager Registration - Prince George's County. Community association management companies which manage properties in Prince George's County must now register with the Prince George's County Office of Community Relations.
These new laws took effect October 1, 2010.
Maryland Governor Martin O'Malley signs a new law regarding fidelity insurance as Thomas C. Schild and others look on, April 14, 2009.
The following new laws were enacted:
Condominium Property Insurance. In response to the April 2008 Maryland Court of Appeals decision in the Anderson v. Gables on Tuckerman case, the Maryland Condominium Act was amended to clarify that condominium master property insurance policies must cover both common elements and units. Additionally, up to $5,000.00 of the master policy deductible will be the responsibility of the unit owner when the cause of damage or destruction originates in a unit.
The new condominium insurance law also requires each condominium to provide an annual notice to unit owners regarding the unit owner's responsibility for the property insurance deductible and the amount of the deductible. A similar notice must be included in resale certificates issued by the condominium.
This condominium insurance law became effective on June 1, 2009.
Fidelity Insurance. This legislation requires all condominiums, homeowner associations, and housing cooperatives to purchase fidelity insurance to provide for the indemnification of the community against loss resulting from fraud or theft by any officer, director, managing agent, or employee who disburses funds for the community. The fidelity insurance policy must cover three months of assessments and the amount in investment accounts held by the community up to $3,000,000, at the time the fidelity insurance is issued. This legislation took effect October 1, 2009.
Closed Meetings of Board of Directors. This new law repeals the provisions in the Maryland Condominium Act and Maryland Homeowners Association Act that boards of directors may hold a closed meeting on a two-thirds vote for "reasons so compelling as to override the general public policy in favor of open meetings." It adds language that allows boards of directors to close meetings for and units for consultation and discussion on all legal matters and for discussion of individual owner assessment accounts. The new closed meeting provisions were effective October 1, 2009.
Association Books and Records. This legislation requires condominiums, homeowner associations and housing cooperatives to provide copies of meeting minutes and financial statements prepared within the past 3 years to a requesting owner by mail, electronic transmission, or personal delivery within 21 days of receiving a written request. If the requested financial statements and minutes were prepared more than three years before the receipt of the written request, the community has 45 days to provide the copies.
As in the past, other association books and records must be available for examination and copying during normal business hours upon reasonable notice of a request to review or copy such records. However, there are some changes to provisions regarding what personnel and personal records may be withheld from inspection.Under the new law, the charge for copying books and records may not exceed the amount charged by Maryland courts. Additional charges may apply if an owner wants to personally review the records or wants the records delivered. The new law applies as of October 1, 2009.
Developer to Homeowner Control. Developers must comply with new procedures for transition of control of a condominium or homeowner association. This includes a meeting for the election of the board of directors and providing the financial records, contracts, owner records and other documents to the owner-controlled board. This new law took effect October 1, 2009
Under the maintenance transfer program, the County will provide structural maintenance for a facility after it has been inspected, and any repairs necessary to bring the facility into good operating condition have been made.
The responsibility for bringing the storm water facilities to good working condition and confirming the location and ownership of the facilities rests with the association. Although the association must bear the cost of inspection, repair and transfer, associations may save up to tens of thousands of dollars in future structural maintenance expense.
The actual transfer of maintenance responsibility for storm water facilities will be accomplished through recorded easements and covenants with Montgomery County.
Federal Update . . .
The new FHA standards require a certification that the submitter of the FHA application has "no knowledge of circumstances or conditions that might have an adverse effect on the project or cause a morgage secured by a unit to become delinquent". Such circumstances include (a) defects in construction; (b) substantial disputes or dissatisfaction among unit owners about the operation of the project of the owners association; and (c) disputes concerning unit owners' rights, privileges and obligations.
The new guidelines issued on June 30, 2011 also include the following changes:
- Bank-owned properties are included in calculating the number of delinquent owners.
- The allowable delinquency rate is increased to 20 percent if specified financial standards are met.
- management companies must maintain fidelity insurance for officers, employees, and agents to handle association funds.
- For any special assessment, information must be provided as to whether the assessment affects the current or future marketability of the property.
The new FHA standards also impose a "continued obligation to inform HUD if any material information compiled for the review and accptance for this project is no longer true and correct".
The Federal Housing Administration (FHA) no longer allows "spot loans" which allowed borrowers to qualify a condominium for FHA-insured loans on an individual basis. As of February 2010, the entire condominium must obtain FHA approval in order for individual condominium units to be financed with an FHA-insured loan.
A condominium which has FHA approval benefits by enabling owners to refinance to an FHA loan and by making condominium units available to more potential purchasers. Additionally, purchasers may find an FHA-approved condominium preferable since the condominium has met FHA standards for financial stability.
All FHA approvals obtained prior to October 2008 were set to expire on December 7, 2010. The expiration date has been extended on a rolling basis through September 30, 2011, depending on when a condominium previously received FHA approval. Click here for additional explanation.
submitted a report Congress regarding reform of the current housing finance system. The report, Reforming America's Housing Finance Market, was prepared by the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development.
Under the proposed plan, Fannie Mae and Freddie Mac would be eliminated and private lenders would be the primary source of mortgage credit with responsibility for any losses. The government's role in insuring or guaranteeing mortgages would be reduced substantially.
Direct government risk for mortgage defaults would be limited to loans insured by FHA, VA or USDA.
The allowable transfer fees must be used to suport maintenance and improvements in the community. The proposed FHFA rules does not address the appropriate level of transfer fees, but invited public comments on the issue. A final FHFA rule has not yet been issued.
Faced with growing budget shortfalls due to the high number of delinquent owners, some associations are amending their governing documents to establish transfer fees as an added source of income.
Reasonable modifications may also be made to public and common use areas, such as widening entrances to fitness centers or laundry rooms, or for changes to exteriors of dwelling units, such as installing a ramp at the entrance to a dwelling.
DOJ/HUD Joint Statement
This and That . . .
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In March 2009, Tom Schild participated in a program in Washington, D.C. on Condominium Insurance. The program was part of the Annual Conference and Expo of the Washington Metropolitan Chapter of the Community Associations Institute (WMCCAI).
In October, 2008 Tom Schild taught Essentials of Community Association Volunteer Leadership in Silver Spring, Maryland. Mr. Schild presented the portion of the all day course regarding association legal documents and rules enforcement.
In On May 13, 2008, Tom Schild was featured
in a Fox TV news story about the "foreclosure crisis" and the financial impact of unpaid assessments on condominium and homeowner associations. Fox 5's Melanie Alnwick reported that the rising number of owners behind in payment of assessments cuts across all geographic and demographic areas and could result in higher association assessments to make up for any budget shortfall.
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From the Courts/New Laws and Legislation/Federal Update/This and That
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