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The Merrick Gables Homeowners Association's federal lawsuit against both a wireless and technology company, and the Town of Hempstead, was dismissed recently.  The association challenged the company's installation of DAS (digital antenna system) equipment on existing utility poles in the public right of way under an agreement with the Town of Hempstead.  The association claimed the network had caused property values to drop because of the perceived health risks of radio frequency (RF) emissions associated with the DAS equipment. The suit also alleged that the DAS installations amounted to a "nuisance" and an unconstitutional "taking" of their property and that Hempstead was negligent in allowing the deployment.  In defending itself, NextG Networks argued that there exists an overriding public policy promoting the deployment of broadband, competitive wireless networks such as NextG's DAS networks, which enable wireless carriers to add greater coverage and capacity to their networks.  On motion, the federal court dismissed the entire lawsuit and held that federal law "clearly prohibits" towns from regulating the installation of wireless facilities based on perceptions of health risks associated with RF emissions. The court also rejected claims that the Town was negligent in allowing the installations on utility poles in the public way.  At issue also was a special promise and/or agreement between Hempstead and the association, made in 2000, whereby Hempstead promised to impose a moratorium on wireless installations.  The court explained that the United States Telecommunications Act (the "Act") prohibited the Town from adopting such a moratorium on the installation of wireless facilities in the first place.  Lastly, the court ruled that this equipment could  not be a  "nuisance" in light of the Act which reflected congressional intent to promote and facilitate the deployment and improvement of wireless networks and technology.
 

The outcome of this association's suit reminds us of an association's need to consider federal law when dealing with issues that have been regulated by the federal government, such as telecommunications, fair housing, bankruptcy and mortgages.  Further, the outcome  is also further evidence of the questionable value of agreements made with municipalities to protect community values, in lieu of direct action by those communities themselves. 

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On Jun 12, 2009, the Federal Housing Administration ("FHA") announced a new, stricter approval process for condominiums to be eligible for FHA financing.  Condominiums, and their managing agents and attorneys, must be aware of the mortgage market and how tightened underwriting standards will affect association operations and property values.  Recent studies show that the FHA alone currently insures approximately 23% of all new mortgage transactions.  It is believed that the FHA, Fannie Mae, Freddie Mac, the Veterans Administration and the Department of Housing and Urban Development account for 90% of the mortgage market.   Under the proposed regulations, all condominiums previously approved for FHA financing would have to be reapproved or FHA financing would not be available.

Some of the proposed regulations are as follows:

1. Projects consisting of three (3) or fewer units will no more than one (1) unit encumbered with FHA insurance.  Projects consisting of four (4) or more units will have no more than 30% of the total units encumbered with FHA insurance.
2. The new regulations require that at least 50% of the total units must be sold prior to endorsement of any mortgage in the project.
3. Transfer of control of the association shall pass to the owners of units no later than:  (i) 120 days after the due date 75% of the units are conveyed to unit purchasers; or (ii) one (1) year after completion of the project evidenced by the first conveyance to a unit purchaser.
4. A final certificate of occupancy is required as a precondition to project approval.  Temporary certificates of occupancy are not permitted.
5. No more than 25% of the property's total floor area in a project can be used for commercial purposes.
6. No more than 15% of the total units can be in arrears (more than 30 days past due) of their assessments.
7. A current reserve study must be no more than 12 months old.
8. Existing condominium project approvals will expire two (2) years from the date placed on the list of approved condominiums.

These lending guidelines were to be effective October 1, 2009.  The effective date has been twice postponed however.  The current effective date is December 7, 2009.

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Stephen M. Lasser, a Partner in Stark & Stark's Condominium and Co-op group, was one of six speakers on a panel of distinguished lawyers and insurance professionals during the morning session of the Ethics Day Seminar sponsored by the New York Association of Realty Managers (NYARM) held July 22, 2009.  Over 60 property managers and real estate professionals attended Mr. Lasser's portion of this educational program held at Tavern on the Green in Manhattan.

Mr. Lasser and the other panelists discussed legal and ethical issues property managers and boards face concerning Directors and Officers (D & O) liability and insurance coverage.  Topics covered during this round table discussion included the amounts and types of D & O insurance coverage available, typical claims such as discrimination claims and practical and legal solutions to common pitfalls faced by property managers and boards.  Mr. Lasser discussed the NY Business Judgment Rule and how it protects property managers and boards in addition to D & O insurance.  After the presentations, there were discussions with the audience the panelists and an extensive question and answer session at the end of the seminar, which was followed by more informal discussions at a coffee and cocktail reception immediately after.

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Currently alive in New York's Assembly is A07388, which is a proposed amendment to New York's Real Property Law.  If enacted, all residential real property managers and any firm employing, contracting with or contracting to provide a property manager would be required to file a registration statement with New York's Secretary of State and be certified by an approved certifying organization.  The proposed law would permit New York to collection $50 for "each filing" and require a registration filing every two (2) years.  Interestingly, if enacted, the law would compel the "turning over of all property records within then days upon cessation of performing realty management, except funds and records requiring bank reconciliation which allows for 45 days."  If enacted, the law would also require property managers to disclose whether he or his principals have been convicted of crimes involving fraudulent practices or crimes arising out of their duties as a property manager.  The law would exempt however, any "property manager, or entity employing a property manager, if all the condominiums or cooperative units for which such property or entity performs services comprising less than 25 residential units."

For justification, the proposed law's drafters provide that in the "past, unscrupulous or untrained property managers have bilked cooperative shareholders of millions of dollars in elaborate schemes of fraud."  Other justifications are provided as well.  Stark & Stark's Condominium & Cooperative Group will continue to track this proposed law, as well as all of those that affect New York's condominiums and cooperatives.

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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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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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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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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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Stephen M. Lasser, Partner in Stark & Stark's Condominium and Co-op Group, presented a seminar at the New York Cooperator Expo on April 7, 2009 in conjunction with David J. Byrne, entitled Using Mediation, Arbitration & ADR to Avoid or Minimize Conflict.

Mr. Lasser's portion of the seminar covered the topic Minimizing Acrimony & Conflict While Collecting Carrying Charges and Assessments.  Mr. Lasser's presentation included discussions on the different types of debtors, the statutory warranty of habitability, common management back office mistakes and legal pitfalls. You can listen to Mr. Byrne's portion of the seminar here.

You can listen to Mr. Lasser's portion of the presentation online here. (17.5 MB)

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