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New Jersey’s Appellate Court recently held that unpaid assessment and/or maintenance fee delinquency disputes between a condominium and a unit owner are ‘housing-related’ disputes for the purposes of New Jersey’ Condominium Act, N.J.S.A. 46:8B-14(k).  In Bell Tower Condominium v. Pat Haffert, et al, the board approved a special assessment related to alleged necessary repairs.  Haffert’s share was $22,000.00.  Haffert refused to pay.   Haffert – who was a board member at the time - challenged the special assessment on procedural and substantive grounds.  He argued that the vote was mishandled, that the board had violated the Act repeatedly over the years via its failure to procure annual audits, have elections, have open meetings, make financial records available for inspection, etc.  When Haffert still refused to pay, and attorney communications failed to resolve the dispute, the condominium sued.  Haffert filed a counterclaim, in which he sought an order compelling the condominium to provide him alternative dispute resolution (“ADR”) vis a vis the assessment-related dispute.  At the case’s conclusion, the court entered a $22,000.00 judgment against Haffert.  The court rejected Haffert’s ADR-related claims.

Haffert appealed.  On appeal, the court reiterated the dictates of Finderne Heights, an appellate court decision from 2007.  In Finderne Heights, the appellate court ruled that – because of the Act and its section 14(k) – all ‘qualifying disputes must be sent to arbitration if after suit is filed, either party chooses to invoke the alternative dispute remedy that must be made available under the Act.

It has been commonly understood that disputes involving unpaid assessments and/or maintenance fees were not ‘housing-related’ for the purposes of Finderne Heights and 14(k).  The court in Bell Tower disagreed.  This does not mean however that a condominium cannot commence a collection action at law and/or at equity without first offering and/or participating in, ADR.  It means only that once a debtor – after suit is filed – pleads and/or seeks through formal court papers that the delinquency be the subject of ADR, the condominium must oblige.  Since almost all disputes involving unpaid assessments and/or maintenance fees are uncontested, there should be no significant impact to the condominium’s assessment management and recovery program.  Additionally, I assume that efforts will be made to amend the Act to overturn that decision.  Before changing any process or program in light of the Bell Tower case, feel free to contact me to discuss and/or to clarify.

 

If you would like to discuss this client alert in more detail or how it may affect your community association, please contact David Byrne at 609-895-7365 or by email at dbyrne@stark-stark.com

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A three-judge appellate court just halted – perhaps only temporarily however - the Christie administration's work to overhaul New Jersey’s rules governing a municipality’s rights and obligations in relation to affordable housing within that municipality.  The government’s extinguishment of the Council on Affordable Housing (“COAH”) was not undone.  However, the rules created by COAH and/or in relation to COAH were reinstated, pending a full hearing and decision by the appellate court in 2012.  The reinstated rules will be administered, until that hearing, by the New Jersey Department of Community Affairs.

 

The existence of affordable housing-related rules, and how they are administered and/or enforced, is heavily connected with the extent and nature of New Jersey’s residential development.

 

If you would like to discuss this client alert in more detail or how it may affect your community association, please contact David Byrne at 609-895-7365 or by email at dbyrne@stark-stark.com

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An Environmental Control Board (“ECB”) violation is issued by the Department of Buildings when a property does not comply with a part of the New York City Construction Codes and or Zoning Resolution (“ECB Violation(s)”).  There are three classes of ECB Violations: Class 1 (Immediately Hazardous), Class 2 (Major) and Class 3 (Lesser). 

 

To resolve an ECB Violation, a building may agree to cure the violation or contest the violation: 

1. Cure the Violation. If you choose to cure the violation, you must admit the violation and certify correction by the “cure” date listed on the Notice of Violation.  This will require you to complete an “AEU2: Certificate of Correction” form, provide photographs and receipts to serve as proof of the correction and provide a notarized statement attesting to how the violation is corrected. 
2. Contest the Violation. If you choose to contest the violation, you must appear at a hearing before the ECB. You may bring witnesses or other evidence to substantiate a defense against an ECB Violation. After the hearing, the ECB Administrative Law Judge will make a decision with one of the following outcomes: (a) Dismissal – No Penalty Imposed

If you prevail in contesting your violation, you will not owe any penalties and your violation will be dismissed. However, the Department of Buildings may re-inspect, reissue a violation or appeal the decision; (b) In Violation – Standard Penalty Imposed. If you are found in violation, a penalty will be imposed. You have the right to appeal this decision. The appeal process is conducted entirely in writing, and therefore no further appearances are necessary; (c) Mitigation – Reduced Penalty Imposed For certain violations, if you attend the hearing, admit guilt and demonstrate that the condition has been corrected, the ECB Administrative Law Judge may impose a mitigated (reduced) penalty (½ the standard penalty); (d) Stipulation at Hearing – Standard Penalty Imposed Depending on the violation, you may have the option to enter into a stipulation with the Department during the first hearing. By entering into a stipulation, you admit guilt and agree to correct violating condition within 75 days; (e) Default – Five Times Standard Penalty Imposed

 

Hence, if guilt is admitted and the ECB Violation is cured, a hearing, as well as any penalties which may result from the hearing will be avoided. If the ECB Violation is contested and a hearing takes places, any one of the foregoing outcomes may occur.

 

Before deciding whether to cure an ECB Violation or to contest an ECB Violation, one must consider the type and class of ECB Violation because the monetary fines will differ depending on the type and class of ECB Violation . The ECB Penalty Schedule can be found under the ECB section of the website for the City of New York.  One must also consider whether a defense can be substantiated at a hearing before the ECB.  An ECB Violation should not be contested unless a defense, through witnesses and other credible evidence, can be substantiated at a hearing before the ECB Board. 

 

If you would like to discuss this client alert in more detail or how it may affect your community association, please contact David Byrne at 609-895-7365 or by email at dbyrne@stark-stark.com

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After high profile accidents, cities and states all across the country attempt to protect building occupants by using window guards. New York City is one of those cities. In New York, there are specific laws related to window guards and cooperatives and condominiums.  A cooperative in New York City is treated in relation to the law as a landlord, such that the landlord/tenant-related obligations apply. A cooperative with three or more apartments must install window guards on each window of that apartment except windows leading to fire escapes.

First floor apartments are not necessarily exempt. In buildings with fire escapes, a window guard must be left off one window in each ground-floor apartment. All common area hallways must have window guards. If an occupant of an apartment in, or a shareholder of, a cooperative with three or more apartments would like window guards, the cooperative must install them. In all such instances, the window guards must be fixed if they are in need of repairs.

As the condominium form of ownership is different from the cooperative form of ownership, so are New York City’s window guard-related rules as they relate to condominiums. A condominium is not obligated to install window guards on any unit- or apartment-related windows. If an owner of a condominium unit would like to have window guards, the board of managers should allow it, and that owner will be the party responsible to have them installed, and repaired if necessary. A condominium and/or its board of managers may have the discretion to utilize common charges and/or expenses to install unit-related window guards. A condominium though is the party responsible to install window guards connected with the common element/area hallways. 

To the extent any of your shareholders and/or owners have questions and/or have made demands related to window guards, consult experienced management and/or your legal counsel. 
 

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In 2010, New Jersey's Judiciary commenced a proceeding aimed at a variety of improper foreclosure practices. In the Matter of Residential Mortgage Foreclosure Pleadings and Document Irregularites, MER-F-59553-10. On December 20, 2010, the Supreme Court entered an order to show cause by which these banks were ordered to show cause why their foreclosures, writs of execution and possession and sheriff's sales should not be prohibited in light of alleged improper practices. In March, the state's six largest banks (Bank of America, JPMorgan Chase, CitiBank, Ally Financial, One West Bank and Wells Fargo) agreed to a stipulation that should allow residential mortgage foreclosures to continue.

 

By virtue of the stipulation, mortgage services had until April 1, 2011 to convince Retired Appellate Division Judge Richard Williams that they had remedied all improper practices. These six banks are responsible for a majority of the state's current foreclosures. Also, evidence had surfaced that each had engaged in what has become known as "robo-signing". "Robo-signing" is the term used to describe a bank's assembly-line foreclosure process by which foreclosure supporting affidavits are signed even though the signer lacks personal knowledge that the contents of the affidavit being signed are true and correct.

 

By virtue of the stipulation, each bank must show that they now have procedures in place to eliminate robo-signing and that those procedures will be followed. Additionally, the banks must address their authority to act when they are not the actual mortgagee, their record-keeping practices, their procedures for assuring that whatever is filed with the court is correct and the procedures used to facilitate communication with their own lawyers. Under the terms of the agreement, once foreclosures restart, the Judiciary or its appointed representative will have the power to review random foreclosures to test compliance.

 

The delay connected with foreclosures - whether resulting from the backlogged foreclosure unit or from the Judiciary order to show cause - continues to burden our community associations with delinquent units and/or homes that are not 'turned over' to the bank via that bank's foreclosure. New Jersey law provides that upon the conveyance of a unit and/or home via sheriff's sale, the purchaser of that unit and/or home at the sheriff's sale must begin the payment of regular assessments and fees going forward. Hence, the speedy and proper foreclosure of a unit and/or home is often crucial to a community's financial status.

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The Federal Housing Finance Agency ("FHFA") recently published a Notice of Proposed Rulemaking  directing Fannie Mae, Freddie Mac and the Federal Home Loan Bank System to regulate transfer fees paid to community associations. While the revised FHFA draft will allow community associations to continue to use deed-based transfer fees (i.e., capital contributions, membership fees, flip taxes, etc.) to fund association operations, the rule would still allow  FHFA to limit how associations use the funding raised by such fees. FHFA's rule would ban transfer fees paid to investors, but will allow transfer fees payable to a community association. This would apply to investors only prospectively, which should mean that any existing transfer fee paid to an investor or used by an association or any purpose is still valid and enforceable.

 

Per the rule, community associations could use revenue raised by new transfer fees for very narrow purposes, and would be regulated in how those with new transfer fees manage non-resident use of common property or elements. The rule has not yet been finalized or put in place, such that the public can still comment on it. This proposed rule, to the extent that it restricts how funds from new transfer fees can be used, does not likely adhere to established property law. Generally speaking, community associations have the right to raise revenue and use this revenue the way their owners and leadership determine. Until April 11, 2011, citizens are permitted to submit comments to the Federal Housing Finance Agency as follows:

- E-mail: Use the address, regcomments@fhfa.gov, and include the following in the subject line of the e-mail: FHFA Proposed Rule on Certain Private Transfer Fee Covenants, (RIN) 2590-AA41
- U.S. Mail: Use the following address to send comments by U.S. Mail:
     Mr. Alfred Pollard
     General Counsel
     Federal Housing Finance Agency
     1700 G Street, NW
     Washington DC 20552
     ATTN: Public Comments: FHFA Proposed Rule on Certain Private Transfer Fee Covenants, (RIN) 2590-AA41
- Federal E-Rulemaking Portal: Go to www.regulations.gov and follow the instructions provided to submit your comments electronically.

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In these tough economic times, assessment delinquencies have become more and more of an impediment to an Association’s ability to remain self-sustaining and pay its every day expenses. Assessment lien foreclosure is a collection route prevalently used by many Associations. Ultimately, the expectation is that the Association will take title to the unit, allowing the Association to rent (or sell) the unit with the hope that the unit’s delinquent balance can be recovered.

 

With the tremendous backlog of foreclosures currently impacting the State, the foreclosure process in New Jersey can take as long as two years before an Association can even conduct a sheriff’s sale and be in a position to take title to the unit. Moreover, if and when title is acquired, the Association’s work is not done.

 

Unless the property is vacant, the Association must seek the former unit owner’s eviction. Unlike a mortgage foreclosure in which a bank is contractually and automatically entitled to possession upon a debtor’s default, Associations must affirmatively seek possession through the courts. This is a lengthy process in itself and can take up to a year before the Association can ultimately take possession of the unit. While the route to possession is a long one, the hope is that with possession of a unit, the Association can install a tenant and convert the unit into an income-generating property.

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Five of the country's largest banks recently received a list of demands from state attorneys general with respect to their defaulted mortgages and resulting foreclosures. Unfortunately for community associations, if the banks give in to the government’s demands, these community associations will only be further burdened by homes and units that are typically behind or not paying assessments and/or maintenance fees at all. A bank's foreclosure and then sheriffs/judicial sale is a tremendous benefit to a community association as that bank is thereafter responsible for the payment of assessments and/or maintenance fees accruing from that date forward. 
 

If these banks meet these government demands, they would be prohibited from commencing a foreclosure while a borrower was actively trying to lower the interest rate or alter other mortgage terms (i.e., 'mortgage modification'). Additionally, per the demands, any borrower that made three payments pursuant to a trial mortgage modification would then receive a 'permanent modification'. Further, any bank denial of a borrower's modification request would trigger a 'review' by an 'ombudsman' or independent review panel. These demands appear to rise from the federal government's new Consumer Financial Protection Bureau. The banks would have to alter internal processes, potentially slow new lending and employees would have to provide the government with formulas and reports documenting all efforts related to modifications. Employees would be rewarded for pushing modifications and not foreclosures. 
 

None of the banks involved (including Bank of America and JP Morgan Chase) have publicly stated whether they will meet these demands.  
 

Currently, it is estimated over 2 million American households are in active foreclosure, with another 2.2 million households considered 'severely delinquent' vis a vis their mortgages. Experts fear that a plan like this would further slow the overall foreclosure process, burdening their communities and neighbors with the consequences. Many experts believe that the faster all of these foreclosures are finished, the faster the properties will 'turnover', stabilize the market and then eventually lead the real estate market back to normalcy. Foreclosures already take, on average, approximately 400 days from start to sheriffs/judicial sale. We all know that community association units and homes in 'foreclosure' almost always fail to pay assessments and/or maintenance fees, with the completion of the foreclosure (i.e., sheriffs sale/judicial sale) resulting in the first regular payments from that particular unit for perhaps years.
 

Hopefully the federal government and/or the state attorneys general will consider the needs and interests of our communities suffering from bank foreclosures when pressing demands like these.

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In 2003, President Bush signed the "Fair & Accurate Credit Transactions Act" into law.   The law was enacted to stem the tide of what was deemed "rampant identity theft".  Congress empowered the Federal Trade Commission ("FTC") to promulgate rules to effectuate the law.  The FTC spent years working on the rules, purportedly trying to balance the need to protect the public against the need to minimize the regulatory burden on business.  Relevant rules were eventually adopted and given a November 1, 2008 effective date.  The concerns of various groups and business leaders vis a vis these rules led to the enactment of the Red Flag Clarification Act.  This law clarified various aspects of this program, including what entities may be a 'creditor'.   
 

The related federal regulations can be found at 16 C.F.R. Sec. 681.  This "Red Flag" rule applies to "Financial Institutions" and "Creditors" (defined as "Covered Entities").  A "creditor" is one that "regularly and ordinarily in the course of business (as relevant to community associations and those who manage them) advances funds on behalf of a person, based on the obligation to repay (does not include a creditor that advances funds on behalf of a person for expenses incidental to a service provided by the creditor to the person.  A "creditor" also includes any other type of creditor as the agency (FTC) may determine appropriate based on a determination that such creditor offers or maintains accounts that are subject to a reasonably foreseeable risk of identity theft.  It is likely that the FTC would consider a community association, and a community association management company, to be a "creditor" for the purpose of the Red Flag rule. 
 

A creditor must develop a written program intended to prevent or mitigate identity theft.  This program must identify the red flags related to the accounts and/or information the creditor maintains.  It must detect the red flags within the program, respond appropriately to any red flags identified and/or detected and ensure the program is updated periodically to reflect changes in risks to customers, members and to protect them from identity theft.  "Red Flags" include:  (1) alerts, notifications and credit reporting agency warnings; (2) suspicious documents; (3) suspicious personal identifying information; (4) suspicious account activity; and (5) notice from other sources (i.e., law enforcement).  Management companies and their community association clients must consider the need for a "Red Flag" privacy officer.  They must review and analyze their dishonesty, errors & omissions, directors and officers and liability policies in relation to this.  Management companies should consider how their existing boilerplate contracts protect them, if at all.  Management companies should also ensure that their compliance with this - and their warnings/directions to boards - are documented. 

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The Federal Housing Administration (FHA) just extended the deadlines for condominium projects seeking to renew their FHA certifications. New guidelines established by the FHA in 2009 require that condominiums be re-certified and approved every two years. According to the FHA, all condominiums that received approval before October 1, 2008, were supposed to be re-certified by December 7, 2010. However, the deadline for approval has now been extended.

 

The new, applicable deadline depends upon the date the condominium was originally approved for funding.  In the FHA's letter it wrote that the "extensions were granted to reduce the impact of processing and reviewing the number of project approvals expiring at the same time while recognizing current housing market conditions."  The deadlines are as follows:

• Condominiums approved between 1972 and 1980 must be re-certified by Dec. 31.
• Condominiums approved between 1981 and 1985 must be re-certified by Dec. 31.
• Condominiums approved between 1986 and 1990 must be re-certified by May 31, 2011.
• Condominiums approved between 1991 and 1995 must be re-certified by July 31, 2011.
• Condominiums approved between 1996 and 2000 must be re-certified by Aug. 31, 2011.
• Condominiums approved between 2001 and 2005 must be re-certified by Sept. 30, 2011.
• Condominiums approved between 2006 and September of 2008 must be re-certified by March 31, 2011.

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