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. 

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. 

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.

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.

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.

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.

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.

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.

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.

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. 

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.

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.

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. 

• Every ton of paper that is recycled saves 17 trees and 7,000 gallons of water
• One fifth of all wood harvested in the world ends up in paper
• It takes 2 to 3.5 tons of trees to make one ton of paper
• In the United States, paper accounts for nearly 40 percent of all municipal solid waste
• Making paper uses more water per ton than any other product in the world

To reduce the amount of paper we use, we are experimenting with filing legal briefs and other legal paper using both sides of a sheet of paper.  We are revising and altering the forms of various legal documents to lower the amount of paper used.   Large documents will be scanned and emailed, instead of mailed and/or faxed.  The firm hopes to have software perfected shortly to permit the creation, and dissemination, of invoices for legal services, electronically, with the preparation and/or revisions to those invoices done electronically as well.  A goal for 2009 is to file all collections complaints and collection-related pleadings via the court system's electronic filing program, eliminating paper filings altogether.  We already manage our collection practice via OCATS - Online Community Association Tracking System.  Via OCATS, monthly status reports - often several pages long - can be received, reviewed and shared with boards, all electronically.  Management can refer new collection matters to us via OCATS, without faxes or mailings, as account histories and other information can be shared electronically.  Also, we post governing documents, debtor correspondence, payment plans, etc. on OCATS, so our clients need not print them; they are viewable via the internet 24 hours a day, seven days a week, 365 days a year.