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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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The FHA insures loans made by FHA-approved lenders all across the country.  In fact, 30% of all mortgages in the United States are insured by the FHA.  The availability of this insurance enables lenders to make loans and extend credit to a broader class of borrower, allowing owners within a condominium to market their homes to more potential buyers.  The FHA will insure only certain loans - those that meet FHA requirements.  As of February 1, 2010, the FHA may insure loans made with respect to condominiums only in condominiums that have been certified by the FHA.  These new rules do not relate to homeowners associations.  Condominiums that are currently certified must be recertified every two (2) years.  The new FHA rules apply to condominiums in New Jersey, New York, Pennsylvania together with all of the other 47 states.

 

FHA certification will likely make the sale and purchase of homes within a condominium easier.  There are arguments available to owners by which a condominium may have a fiduciary duty to seek FHA certification.  The condominium's approved status will be published, and FHA will be free to insure loans there.  To the extent that management or your board would like to secure FHA certification, Stark & Stark's Community Association, and Condominium & Co-Op, Groups are ready to discuss the relevant issues, and prepare and file the applications.  If you would like additional information, or to hear more about the FHA, condominiums and/or the certification process, please contact David J. Byrne  or A. Christopher Florio. 

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As we all know, New Jersey continues to be plagued by both a troubled real estate market and economy.  Our real estate market remains awash in homes either in foreclosure, or having gone through a foreclosure and subsequent sheriff's sale.   It also remains awash in unsold new construction, and an essentially non-existent new construction pipeline.  October's figures show a "mixed bag" as they say.  First, construction of new homes in the New Jersey region fell 18.8%.  This included a nearly 10% decline in the construction of single family homes.

 

Second, and on the other hand, for the first time in 2009, the number of residential foreclosure filings was lower than it was over the same period in October 2008.  Lenders started 4,991 foreclosures against New Jersey homeowners in October 2009, down from 5,262 during October 2008.  The October 2009 figures were also less than a height of 6,138 filings, from June 2009.   These two relate via home builders' likely reluctance to erect new homes in the face of the existing inventory of homes, much of which stemming from the availability of foreclosed homes.

 

The extent and progress of these foreclosures appears to be slowing as well via the numerous state and federal programs designed to help owners avoid foreclosure.  More than 2,600 New Jerseyans have received counseling through New Jersey's foreclosure mediation program.  Of the 2,600 that received counseling, about 1,450 cases have been completed and roughly half of those were able to remain in their homes.  The federal government reported recently that approximately 22,100 New Jersey homeowners have reworked their mortgages through the federal loan modification program.

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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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As more and more residential mortgages go into default, and then into foreclosure, more and more units within associations are owed by banks and/or mortgage companies.  In New Jersey, once a unit is sold, including by virtue of a sheriff's sale, the purchaser is liable for all assessments and fees going forward.  Before that, absent some atypical equitable circumstances, a bank that holds or services a mortgage on which an owner has defaulted does not owe assessments.    In New Jersey, a foreclosure from filing to sheriff's sale, can take anywhere between 18 and 24 months now.  Evidence reveals that banks are adding to these situation by delaying their foreclosure efforts - in order to avoid the sheriff's sale by which those banks will then become obligated to pay regular, ongoing assessments.  In the past, associations burdened with delinquent owners had a light at the end of the tunnel (Units in default with respect to their mortgages are typically in default in the payment of assessments) - the bank's sheriff's sale at least meant that regular assessments with respect to that unit would start coming in.  Banks would rather avoid taking on additional non-performing assets with no equity, with respect to which they would also have to begin paying monthly assessments and other costs.  This has forced associations to continue their own foreclosures and/or collection actions as there is absolutely no certainty that the bank holding or servicing the relevant mortgage will even finish its foreclosure, take title and begin paying assessments.  These association efforts include their own foreclosures and rent receiverships.

 

The overall economy, banking and mortgage system trouble and the overall real estate market has also resulted in units that have become owned by banks, etc. but that are not paying regular assessments.  Some of this stems from the fact that it is not always clear who is legally responsible for the payment of those assessments.  During the "housing boom" of the past several years, mortgages were widely originated by a lender and then sold to a Wall Street firm, which "pooled" the mortgage with others to create a mortgage-backed security that was sold in pieces to investors.  Mortgage-servicing companies, which typically are units of banks, are hired to collect the mortgage payments from homeowners and distribute the proceeds to the various investors.  Servicing companies argue it is the bank that must pay the ongoing assessments.  The bank, obviously, argues otherwise.  Associations can take advantage of this - or at least mitigate the negative consequences of it - by aggressively targeting all post sheriff's sale units, liening them and then foreclosing on them thereafter.  These units will typically be free and clear of other liens and/or judgments and thus are attractive targets.  Further, the units are typically vacant such that during the pendency of the association's foreclosure against the bank's unit, the association can seek a rent receivership by which a tenant can be placed; one that will pay monthly rent of any market-set amount during the pendency of the foreclosure.
 

Associations burdened with a ever increasing number of delinquent owners but continue to be vigilant in order to minimize the impact to the other owners.  Boards should be aggressive, creative and realistic when addressing the actions and/or inactions of banks that hold or service mortgages in their associations.

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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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A Stark & Stark Community Association Group client recently defeated both the related municipality and unit's mortgagee and put an affordable housing unit into rent receivership.  The condominium unit in question was abandoned by the owner; a low income woman who had qualified for the purchase of an affordable housing unit, as governed by New Jersey's Fair Housing Act and Council on Affordable Housing ("COAH").  Both the condominium and the condominium unit's mortgagee, Mortgage Lenders Network Home Equity Loan Trust (the "Bank") had filed separate foreclosure complaints against the owner.  The condominium's foreclosure was completed first, with a judgment entered (the Bank having not yet secured a foreclosure judgment).  Once the condominium learned that the owner had abandoned the unit, it filed a motion seeking the appointment of a rent receiver.  The rent receiver, the condominium hoped, would identify and install a tenant, who would then pay monthly rent to the condominium, in an effort to offset the amounts in assessments, left unpaid by the owner.

The municipality opposed the condominium's motion arguing that the installation of a tenant would slow its attempts to ensure the unit's ultimate ownership by a low or moderate income family.  Thus, the municipality argued, the unit should remain vacant until the Bank's sheriff's sale and ultimate purchase by the municipality.  The Bank opposed the motion arguing that the installation of a tenant would slow its efforts to complete its foreclosure and sheriff's sale and that, if there is to be rent receiver, the Bank and not the condominium should be the recipient of the funds.

The condominium countered that it was and remains wholly inequitable for the condominium and its middle class neighbors to preserve this asset valued so highly by the municipality (it must ensure the continuation of this as an "affordable unit" to ensure compliance with COAH regulations) and the Bank (it intended to sell the unit after foreclosure for the amount of the unpaid mortgage, thereby recouping some of the  Bank's losses) without any contribution from the unit's owner, the municipality or the Bank.  Further, if the Bank was to be the beneficiary of the rent receivership, so be it, but then the Bank better start paying monthly assessments.

The court agreed with the condominium, ordering that a rent receivership be created.  She further ordered that the municipality to identify persons qualified under COAH regulations to reside in an affordable unit.  The Court ruled as well that the only way the Bank and/or the municipality could avoid the receivership and tenancy is if they pay the condominium's regular monthly fees.

The condominium's success here further illustrates how condominiums and associations must continue to be aggressive and creative to collect unpaid assessments and safeguard their rights during these difficult and challenging economic times.  For further information on associations and rent receiverships, or collections in general, please contact David J. Byrne, Esquire, Co-Chair of the Community Association Group.

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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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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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