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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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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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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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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David J. Byrne, Partner and Co-Chairperson of Stark & Stark's Condominium and Co-Op Practice Group, presented materials related to mediation, arbitration and alternative dispute resolution, in conjunction with Stephen M. Lasser, during a seminar entitled Neighbors at War - Real-Life Arbitration. The presentation was held at the New York Cooperator Expo, New York City on Tuesday, April 7, 2009. 

Mr. Byrne focused his presentation on how condominiums and cooperatives can avoid and/or resolve conflicts through alternative dispute resolution, as well as be spared the acrimony of litigation.  He discussed mediation, arbitration and ADR.  Mr. Byrne also discussed these concepts in relation to fair housing, addressing how condominiums and cooperatives can minimize conflict while ensuring fair and discrimination-free housing. You can listen to Mr. Lasser's portion of the seminar here.

You can listen to Mr. Byrne's portion of the presentation online here. (12 MB)

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The proposed law could perhaps inadvertently impair associations’ ability to recover unpaid assessments from owners in default on their mortgages.

The Presidents plan to stabilize the housing markets, H.R. 1106, would allow federal courts to reform mortgages in cases where a homeowners property is worth less than their principal mortgage balance.  More specifically, the law would give bankruptcy judges the ability to cram down a mortgage's principal balance and the related monthly payments.  It remains a concern however whether, if adopted, this law would threaten both associations ability to collect past due assessments and their lien-related rights (including rights under the priority lien portion of New Jersey's  Condominium Act).  Recent amendments to the proposal have attempted to minimize these threats.  H.R. 1106 was recently amended to clarify what costs must be included in an owners' post bankruptcy payments. The proposed law now specifically includes assessments in the resulting formula.  Experts interpret this amended language as intending to ensure that the modified mortgage payment must be lowered enough so that when payments for taxes, assessments and other mandatory costs are added to the new payment, the resulting amount is below a sustainable threshold set by law. 

However, additional study of this proposed law is necessary, along with additional amendments.  It would certainly help for our elected officials to be reminded by owners within community associations of their need to protect the rights and financial security of a debtor's neighbors, as well as the debtor himself.

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In a tough, declining housing market age-restricted housing was, for years, developers' saving grace.  Such housing was also incredibly attractive to municipalities as they attempted to increase the property tax base, without adding children to the school system.  Evidence tells us now though that age-restricted housing is no longer immune to the challenging and difficult economy and real estate market.  The age-restricted real estate market is no longer thriving.  Otteau Valuation Group, an East Brunswick real estate research firm estimates that there is enough age-restricted housing built in New Jersey and in the pipeline to meet demand for the next 15 to 20 years.
 

Recently, bills were introduced in both the state senate and assembly by which municipalities that removed age restrictions on developments that have not yet been built would have their affordable housing obligations reduced.  Legislators in favor of these bills hope that such a law would revive the construction of housing for middle class working families.  At the same time, developers of troubled age-restricted developments are seeking planning board approvals by which their pending projects (whether unbuilt or partially built) are freed from the age-restrictions.  In exchange, municipalities, while allowing the removal of the age restrictions, are securing promises of more affordable housing, units with floor plans that are not family friendly, and enhanced recreational spaces.
 

In the end, the challenging and difficult economy and real estate market continue to alter the way governments, developers, homeowners, professionals and others operate.

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In October, 2007, Governor Corzine signed into law the "Predatory Towing Prevention Act" (the "Act").  The Act became effective on October 19, 2008, and can be found at N.J.S.A. 56:13-7 et al.    While the Act became "effective" on October 19, 2008, the registration provisions of it have not yet become operative.  The registration provisions provide that no "person shall .... engage in the business of towing unless registered" with the New Jersey Division of Consumer Affairs.  Each such registration must be done annually, and accompanied by a fee.  The registration provisions are scheduled to become operative on April 16, 2009.  As a result, New Jersey's towing companies are pressing the legislature to enact Senate Bill S-2073, which if enacted will limit the reach of the Act.  The towing companies and its trade organization, Garden State Towman's Association, are advocating support of S-2073.
 

Prior to the Act, the government had received massive amounts of complaints about: (1) random towing by unscrupulous towers on public streets and private property; (2) excessive fees related to claiming towed vehicles; (3) towing in areas where the driver/operator had no idea his vehicle was subject to towing; (4) inconsistent and inadequate local ordinances and/or regulations.  The Act does not regulate community associations, or provide for any penalties for community associations should they run afoul of it.  However, in order to ensure that a community association can secure the services of a reputable towing company, or ensure that such a company will agree to operate in that community association, a community association must comply with its terms.  Associations should do several things.  First, it must post a sign "in a conspicuous place at all vehicular entrances to the property which can easily be seen by the public".  That sign must be no smaller than 36" high by 36" wide.  The sign must state the following: (a) the purpose or purposes for which parking is authorized and the times during which such parking is permitted; (b) unauthorized parking is prohibited and unauthorized vehicles will be towed at the vehicle owners' expense; (c) name, address and telephone number of the towing vendor that will perform the towing; (d) a list of charges for the towing and storage; and, (e) street address for the storage facility where towed vehicles will be stored and may be redeemed, together with the times during which the vehicles may be redeemed. 

Second, a towing company may not remove a vehicle during normal business hours without a written consent, given to the towing company's employee at the time of the vehicle's removal.  No such general authorization is required though, for normal business hours, should the vehicle at issue be within 15 feet of a fire hydrant, etc., or be parked in a manner that interferes with the entrance or exit to the association.  No written authorization is required for towing outside of normal business hours.  Lastly, a towing company must immediately release a vehicle to the vehicle's owner or operator when that person engages with the towing company employee, prior to the vehicle's removal from the property.  In such an instance, the owner and/or operator of the vehicle is not liable for any towing-related fees.

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Undoubtedly, your community has seen its share of mortgage company foreclosures.  While mortgage foreclosures generally accompany unpaid assessments, and thus may not be welcome, they are in actuality, opportunities for associations.  Knowing what to do, and how to do it, in the face of a mortgage foreclosure is crucial to a community's overall collection policy, and its financial security.  

 

First, a successful and finished mortgage foreclosure results in exactly what an association needs - a paying owner in the unit.  The mortgage company must pay the assessments attributable to that unit from the date of the judicial sale, and/or sheriff’s sale, forward. Thus, depending on the circumstances, a quick and successful mortgage foreclosure and judicial and/or sheriff’s sale is a welcome development.  When an association becomes aware of a mortgage foreclosure in its community, it must file a responsive pleading, or a notice of appearance.  Because the sale is such a crucial date, it is imperative that an association be aware of that sale, when it is scheduled.  By filing papers in the mortgage foreclosure, the association will be given notice of the judicial and/or sheriff’s sale, by the mortgage company.  That association can thus calendar the date and demand assessment payments begin immediately thereafter.  

 

Second, state laws, like Pennsylvania’s community association laws and New Jersey’s Condominium Act, often contain “limited divestiture” and/or “limited lien priority” provisions.  As I am sure the reader knows, a mortgage foreclosure judicial sale extinguishes the association's lien.  Limited divestiture or limited lien priority provides that assessments due for the six (6) months immediately preceding the sale remain due on the unit; meaning, in order to have ownership of a unit free and clear of unpaid assessments, the mortgage company must pay these assessments.

 

Third, in a situation where a unit has kept its value, or enjoyed increased value, or where the underlying mortgage has been reduced - resulting in "equity" - there may be "surplus funds" as a result of the judicial and/or sheriff’s sale.  Surplus funds consist of amounts paid by a sale’s successful bidder above the amount due on the foreclosed mortgage.  Third parties will often bid on units at judicial and/or sheriff’s sales, where they can resell the unit for an amount above what they paid for it, satisfying the underlying mortgage via their successful bid.  Creditors of the unit foreclosed upon, or of the owner of that unit, may petition the court for release of those “surplus funds” to that creditor, which will then be used to satisfy the owner's debt.  So, a unit successfully foreclosed upon could very well yield funds to the association, to satisfy that unit's debt.  The association's claim to these funds is superior to the unit owner's himself.  

 

Fourth, an association under certain circumstances should consider bidding and even purchasing a unit in foreclosure.  If there's equity in the unit, and the association is owed a sum significant enough to justify additional legal efforts, the association can bid on the unit at the sale.  The association would either be the successful bidder and thus be able to easily install a tenant, from which it can generate revenue, or sell the unit.  By bidding at the sale the association, when there is equity, at the very least, the association may help to increase the eventual purchase price, generating surplus funds that can be sought by the association.  It is only by participating in and/or monitoring that foreclosure that the association will be aware of the judicial and/or sheriff’s sale, and its circumstances, and put into play any or all of these strategies. 

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