New Jersey Lawyer & Attorney : Stark & Stark Law Firm : New Jersey Law Blog

Fannie Mae and Freddie Mac (along with the Federal Housing Administration) purchase or guarantee the vast majority of mortgages in this country.  Obviously then, any toughening of their lending standards could have a major impact on the housing market.  As we have seen over the past few years though, standards that are too lax could leave Fannie Mae and Freddie Mac with bad loans, ultimately becoming the responsibility of United States taxpayers.  In March, 2009, Fannie Mae advised that it would no longer guarantee mortgages on condominiums in associations where fewer than 70% of the units have been sold.  The previous percentage was 51%.  Fannie Mae also declared that it will not purchase mortgages in associations where 15% of the owners are delinquent in the payment of assessments, or where one (1) owners has more than 10% of the units.  Fannie Mae believes that these are evidence of an association that may soon have financial trouble.  It is expected that Freddie Mac will implement similar policies this July.  Fannie Mae and Freddie Mac has also increased fees on mortgages for condominiums.  Prospective buyers without a minimum 25% down payment must pay closing-cost fees equal to 0.75% of their loan, regardless of their credit score (exceptions are pending with respect to cooperatives and detached condominiums).

There are caveats and/or exceptions to these policies and/or rules.  According to Fannie Mae, the 70% rule does not apply to loan applications suubmitted through an underwriting program used by major lenders.  Fannie Mae added that hundreds of projects submitted through that exception since March 1, 2009 have been approved even though their sales levels are below 70%.  Further, developers can seek exemptions with respect to loans that are manually underwritten. 

Debates in Congress are ongoing with respect to whether these policies ought to be further amended, as everyone continues to try to find the right balance between the need to facilitate the creation and purchase of housing, and the need to avoid another round of mortgages for individuals that cannot afford them.

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David J. Byrne, Shareholder and Co-Chair of Stark & Stark’s Community Association group, authored the article, The Status of Affordable Housing Units After a Foreclosure and Involuntary Sale, for the June 22, 2009 edition of the New Jersey Law Journal. The article discusses how the recent economic downturn and troubled real estate market downtown affect mortgages and affordable housing agreements following a foreclosure.
 

You can read the full article here. (PDF)

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Trial Court Rules that Mendham Must Provide Municipal Services with respect to A Condominium's Access Road

The Mendham Knolls Condominium Association is a small condominium situated in Mendham.  Access to the condominium is achieved only via Boundary Oak Lane, an approximately 156 foot long road that empties into the condominium's parking area.  New Jersey's Municipal Act provides for certain enumerated services or reimbursement for the cost of services to a qualified private community in "the same fashion as the municipality provides these services on public roads and streets."  Mendham argued that it need not provide either services, or reimbursements, in relation to Boundary Oak Lane as it was more akin to a driveway and Mendham does not provide any services in relation to driveways.  The condominium argued that Boundary Oak Lane is a road and eligible for services or reimbursements as Mendham does provide services on township roads.
 

The court first found that the applicable road-related standards are those in place currently, not at the time of the road's original construction.  The court then relied upon pictures of the road and neighborhood as well as how it had a "drive" for a name along with some other factors.  It concluded and ruled that Mendham must comply with the Municipal Services Act with respect to Boundary Oak Lane.  This condominium will now have the snow and ice removed from Boundary Oak Lane as well as have their related street lighting costs reimbursed.  This will certainly help the community balance its budget in upcoming years, without assessments.
 

Condominiums and associations must assert their rights under the Municipal Services Act even in the face of often dismissive municipalities.

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In general, the United States Fair Housing Act makes it unlawful for a condominium, cooperative and/or homeowners association to discriminate in the terms, conditions or privileges of the sale or rental of housing, or in the provision of services in connection with a dwelling, because of race, familial status, gender, religion or disability.  When it comes to the "disabled", unlawful discrimination is further defined as the condominium's, cooperative's or homeowners association's failure to make a "reasonable accommodation" in its practices, policies, etc. so that an owner can have an "equal opportunity to use and/or enjoy a dwelling".  Specifically, the applicable federal regulation provides:  "(a) It shall be unlawful for any person to refuse to permit, at the expense of a handicapped person, reasonable modifications of existing premises, occupied or to be occupied by a handicapped person, if the proposed modifications may be necessary to afford the handicapped person full enjoyment of the premises of a dwelling".  In this regard, condominiums, cooperatives and/or homeowners association often receive requests from disabled owners that they be allowed to modify a common facility, building component, etc., at their expense.  For example, a disabled owner may ask for the right to install a ramp to her unit to allow for wheelchair access to the unit.   When considering a "reasonable accommodation" request, as they are commonly called, the condominium, cooperative and/or homeowners association should not condition its approval of the request on the disabled person's promise or duty to restore the area in question back to its original condition.  In fact, it is clear that only with request to rentals, not owners, can this be done.  The applicable federal regulation provides: "In the case of a rental, the landlord may, where it is reasonable to do so, condition permission for a modification on the renter agreeing to restore the interior of the premises to the condition that existed before the modification, reasonable wear and tear excepted."
 

Condominiums, cooperatives and homeowners associations should consult with counsel once it receives any owner or resident request for a "reasonable accommodation" pursuant to the United States Fair Housing Act.

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David J. Byrne, Shareholder and Co-Chairperson of Stark & Stark's Community Association Group presented materials related to minimizing risk, avoiding litigation and alternative dispute resolution, in conjunction with Donald B. Brenner, Esquire, during a seminar entitled "Managing Costs and Risks in Challenging and Uncertain Economic Times". The presentation was held at the Meadowlands Exposition Center in Secaucus, New Jersey on Wednesday, May 13, 2009. 
 
Mr. Byrne focused his presentation on how condominiums, homeowners associations and cooperatives can avoid and/or resolve conflicts through alternative dispute resolution, as well as comply with New Jersey in respect of alternative dispute resolution.  He discussed mediation, arbitration and ADR.  Mr. Byrne also discussed how to best employ ADR in the context of community associations, to best ensure rule compliance, dispute resolution and the absence of litigation.

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Appellate Court Affirms Rockland County Supreme Court's Reliance Upon the Business Judgment Rule to Uphold Board's Decision to Make a Construction Contract without Owner Vote
 

In or around 2007 a condominium board of managers contracted for certain construction work on its buildings.  Owners within that condominium filed a suit against the condominium arguing that the contract called for "alterations" or "improvements", which required approval of the owners per the condominium's governing documents.  The resulting suit was captioned William F. Helmer, et al v. Marc A. Comito, et al.
 

As the matter involved an owner challenge to a board action, the court relied upon the business judgment rule.  The court wrote that under "'the business judgment rule, the court's inquiry is limited to whether the board acted within the scope of its authority under the bylaws (a necessary threshold inquiry) and whether the action was taken in good faith to further a legitimate interest of the condominium.  Absent of showing of fraud, self=dealing or unconscionability, the court's inquiry is so limited and it will not inquire as to the wisdom of soundness of the business decision.'"  In this case, the board determined that the work involved constituted "repairs" and "maintenance", which was within the board's sole authority to address.  There was an overwhelming amount of evidence that the buildings continued to suffer from leaks, and that experts hired by the condominium recommended repairs.  Further, the Village of Nyack Building Department opined that "the proposed scope of work is of a repair/maintenance nature and does not require a building permit".   As a result, the court found, the board was "within its authority in entering the construction contract without the unit owner approval required for 'alterations' or 'improvements' costing more than 25% of the estimated annual budget, such that the owners' complaint should be dismissed.
 

The case continues the longstanding applicability of the business judgment rule in matters involving challenges to board decisions.  It is imperative that boards ensure that the authority for a particular action is set forth in the governing documents or applicable laws, and that said action is motivated by good faith.  It is equally as important that a board document the evidence supporting its decisions and/or actions. 

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On May 20, 2009, Congress passed a credit card holders' "Bill of Rights" that will enact sweeping new restrictions on the credit card industry and provide numerous protections for consumers. Treasury Secretary Timothy Geithner said that the bill would "create a more fair, transparent and simple consumer credit market." This bill comes as no small relief to consumers and home owners battered by the current economic crisis.  When a condominium unit owner is faced with the decision of paying his maintenance fees or dealing with credit card balances that have rocketed skyward due to penalties and late charges, this bill provides a respite in the storm. President Barack Obama is expected to sign the bill into law within days. The bill was designed to combat abuses that Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee, identified as, "Card issuers raise rates for unclear reasons, use billing methods that consumers do not understand, and assign fees and charges without warning.”
 
According to Consumers Union, publisher of Consumer Reports, what follows is a list of some of the key provisions of the bill:

Enhanced disclosure requirements
 

• Periodic statements must clearly state the required due date and late payment penalty.
• Credit Card issuers must disclose the period of time and total interest it will take to pay off a card balance if only minimum monthly payments are made.
• Credit Card issuers must provide 45-day written notice before raising APR or before making any other significant change to the card agreement.

First twelve months of new card
Credit Card issuers are restricted from raising interest rates in the first twelve months after a credit card account is opened, except:

• When the increase is under a variable interest rate agreement.
• At the end of the promised time period for a promotional rate. For example, the Credit Card issuer can offer 5 percent for eight months and then 12 percent after that. (The promotional period must be at least six months.)
• If the required minimum payment is not received within 60 days after the due date.

Existing balances
Credit Card issuers cannot raise interest rates on existing balances unless:
 

• The increase is under a variable interest rate.
• It is the end of a promised time period for a promotional rate.
• The required minimum payment is not received within 60 days after the due date.

Notice of future rate hikes
After the first twelve months, the Credit Card issuer can only raise the rate on future purchases upon providing 45 days notice of the increase. No notice is required for increases due to one of the reasons stated above.
 

Paying off under old terms
Credit Card issuers can’t change the terms for repaying a balance, except that the Credit Card issuer may give the cardholder either five (5) years to pay off the outstanding balance at the old rate; or an increased minimum payment that has no more than twice as much of a contribution to paying down the balance as the old minimum payment.
 

Limits on fees and penalties
 

• If the interest rate is increased because the minimum payment is not received within 60 days after the due date, the rate must go back to the original lower rate if the consumer makes on-time minimum payments for six months.
• An over-the-limit fee may be imposed only once per billing cycle if the balance is above the limit on the last day of the cycle.
• Credit Card issuers who increases the interest rate must review the account every six months and decrease the rate if indicated by the review.
• Two-cycle billing is prohibited. Credit Card issuers cannot reach back to an earlier billing cycle when calculating the amount of interest charged in the current cycle.

These new restrictions and protections are expected to dramatically change the way Credit Card issuers treat consumers. These changes should create an environment wherein consumers can better understand and interact with Credit Card issuers.

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Stark & Stark Community Associations Group Co-Chair, A. Christopher Florio, will present at seminar for the Pennsylvania and Delaware Valley Chapter of the Community Associations Institute entitled, New Jersey Council: Assessments and Collections. The seminar will be held Friday May 29, 2009 at the Holiday Village Community Services Association in Mt. Laurel, New Jersey.

The seminar will cover the all-important topic of assessments and collections in New Jersey’s common interest ownership communities. Topics to be covered include an extensive overview of collections procedures and applicable state law, how to handle collections when owners are in bankruptcy or facing foreclosure and tips on developing a collections policy for your community.

You can access additional information online here.

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Stephen M. Lasser, a Partner in Stark & Stark's Condominium and Co-op Practice Group, presented materials to Board Members on the collection remedies available to condominiums and homeowners associations, in conjunction with David J. Byrne, Partner and Co-Chairperson of Stark & Stark's Condominium and Co-op Practice Group, during a seminar hosted by ASSOCIA/River Management.  The presentation was held at the Samuel Morse Historic Site, Poughkeepsie, New York on Wednesday, May 6, 2009. 

Mr. Lasser focused his presentation on the practical and legal considerations involved with filing liens, commencing lawsuits for money judgments, sheriff and foreclosure sales and collecting rent from tenants residing in non owner occupied units.  Mr. Lasser also discussed pending laws, which will affect condominiums and homeowners associations, and how the courts in New York have applied the Business Judgment Rule to condominium and homeowner association boards. Mr. Byrne presented materials related to collections and the impact of various federal and New York on community associations (you can listen to Mr. Byrne's portion of the seminar here).

You can listen to Mr. Lasser's portion of the seminar here. 

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David J. Byrne, Partner and Co-Chairperson of Stark & Stark's Condominium and Co-Op Practice Group, presented materials related to collections and the impact of various federal and New York laws on community associations, in conjunction with Stephen M. Lasser, during a seminar hosted by ASSOCIA/River Management, for the benefit of association board members.  The presentation was held at the Samuel Morse Historic Site, Poughkeepsie, New York on Wednesday, May 6, 2009. 

Mr. Byrne focused his presentation on the way community association boards, and management, can ensure payment of assessments, maintenance fees, and carrying charges without resort to counsel.    Mr. Byrne also discussed the impact of the United States Fair Housing Act, the United States Bankruptcy Code and the United States Telecommunications Act of 1996 on community associations.  He discussed as well the impact of New York's Human Rights Law on community associations.  Mr. Lasser focused his presentation on the practical and legal considerations involved with filing liens, commencing lawsuits for money judgments, sheriff and foreclosure sales and collecting rent from tenants residing in non owner occupied units (you can listen to Mr. Lasser’s portion of the seminar here).

You can listen to Mr. Byrne's portion of the seminar here.

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