Legal/Legislative Update – May, 2013

Published on: May 15, 2013


It is an annoying, disgusting and seemingly inevitable by-product of pet-friendly policies in condominium and apartment communities: Some residents don’t clean up after their dogs. Fining offending residents is the obvious response, but finding them after-the-fact can be a problem. Enter PoopPrints, a Knoxville, Tenn. pet waste management company, with a thoroughly modern solution. As the company’s name suggests, its strategy involves identifying the dogs responsible for leaving the deposits behind.

Like investigators of human crimes (think a canine version of television’s CSI), the company matches DNA from trace evidence collected at the scene to a DNA data base created by swabbing the mouths of pets in the community. Most owners (and presumably their pets) typically cooperate in this initiative, company officials say.

Legends at Oak Grove, a 264-unit apartment complex spotlighted recently in an article in Multifamily Executive, introduced the poop-tracking program a year ago and pronounced it an immediate success. The community easily offset the cost ($35 – $55 for each initial DNA test kit plus $60 per sample for retrieving and testing fecal matter) by assessing a one-time pet fee of about $350 and establishing a graduated schedule of fines for clean-up offenses, ranging from $75 for the first offense to $150 per incident for repeat offenders.

Simply the knowledge that their pets’ poop would no longer be anonymous was enough to ensure virtually 100 percent compliance by residents, Adam Chavira, property manager at Legends, told the trade publication. “When we sent out that first letter [explaining] what DNA testing would entail,” he reported, “the community almost cleaned itself overnight.”


Continuing its regulatory focus on the mortgage market, the Consumer Financial Protection Bureau (CFPB) has published comprehensive rules governing mortgage servicing practices ranging from the way loan officers are compensated, to how they communicate with borrowers and the procedures they must follow when they foreclose.

The goal is “to fix a broken system” and to ensure that borrowers are treated fairly and “with dignity,” CFPB Director Richard Cordray said during a hearing introducing the new rules.

One of the major symptoms of that ‘broken’ system, Cordray and others contend, was a compensation structure that encouraged loan originators to “steer” borrowers toward higher-cost, higher-risk loans. The rules prohibit linking compensation to the interest rate or other loan term. They also bar “dual compensation” arrangements, in which originators are paid both by the borrower and a third party.

The rules also establish uniform foreclosure procedures, targeting the abuses that led to a multi-billion-dollar settlement agreement involving the nation’s largest loan servicers. Among other key provisions, the new regulations:

  • Prohibit “dual tracking” – a common practice in which servicers proceeded with foreclosures while simultaneously negotiating loan modifications with delinquent borrowers.
  • Require servicers to wait until loans are at least 120 days delinquent before beginning a foreclosure action.
  • Require services to follow a “fair review process” that includes notifying borrowers of loss mitigation options, such as a loan modification, before initiating a foreclosure.
  • Notify borrowers in writing if their modification requests are denied, explaining the reason for the denial and informing them of their possible right to appeal.

“Many servicers failed to provide the basic level of customer service that borrowers deserve, costing them money and dumping them into foreclosure,” Cordray said at the field hearing. “Dealing with sloppy mortgage servicing became a frustrating nightmare….Our new rules… are designed to give strong protections to struggling borrowers. In this market, as in every other, consumers have the right to expect information that is clear, timely, and accurate,” he added. “[And] when it comes to mortgage servicing, they also deserve a fair process. This is all the more true given the high stakes for consumers and the central importance of homeownership in our society.”

Although more restrictive in some respects, the rules were generally in line with what industry executives had expected, raising concerns they have expressed in the past, about compliance costs and administrative burdens that some say will force smaller companies out of the servicing business.

Although the uniform standards will generally benefit the industry, a report by Fitch Ratings concluded, the compliance requirements “will further increase compliance costs….extend timelines, and potentially drive further consolidation within mid- to smaller servicers.”

“So many of these changes go right to the pocketbook,” Diane Pendley, managing director at Fitch, told Housing Wire. “I would not be surprised if we don’t see an additional group of servicers, or their parent firms, making the decision that the liabilities, the oversight and the costs make it prohibitive for them to stay in the business.” □


Baby boomers have reached, or are nearing, the age at which many will be down-sizing, moving from into smaller dwellings or retirement communities. The question is: Who will buy the homes they currently own? The answer is not nearly as clear, or as optimistic, as it would have been a decade ago, a report by the Bipartisan Policy Center, concludes.

The expected buyers – members of a generation demographers have dubbed “Echo Boomers” – have the numbers to absorb the homes their parents (and grandparents) will be selling, the report, “Demographic Challenges and Opportunities for U.S. Housing Markets,” points out. But their finances are fragile and may prevent them from moving up the housing ladder, or from entering the housing market at all, according to the report.

Income, or the lack of it, is the major problem. Real median income increased more or less steadily between 1975 and 2000, enjoying a couple of major growth spurts during that period. But since 2000, the report notes, median income hasn’t increased much at all, ending the decade about where it was in 1998.

The recession, from which the economy appears finally to be recovering, forced many would-be home buyers to remain in the rental market and led many young adults to delay forming their own households, or to dismantle households they had formed – and move in with their parents.

About half of the 25-34-year olds who took that route (back to their parents) had incomes that would have put them below the poverty line otherwise, hardly I a position to rent dwellings, let alone to purchase them. Absent these and related trends, the report says, there would have been nearly 2.7 million fewer vacant homes cluttering the housing market today.

Even as the economy recovers and job prospects improve, the home buying capacity of the Echo Boomers will be limited, the report says, by the high levels of credit card and student loan debt many of them carry – a prospect that bodes ill not just for the Boomers but for the housing market as a whole, according to the report, which emphasizes the importance of developing thoughtful, well-targeted housing policies going forward.

“Housing policies will likely affect individuals’ decisions about whether, when and with whom to form households,” the report notes. “Even more, the housing policies that emerge by the end of the 2010′s will influence whether many households buy or rent, where they decide to live and whether houses currently owned by Baby Boomers are sold, rented or leave the housing stock entirely. Whether for newly forming households or long-established ones, therefore, housing policies that emerge by the end of this decade have the potential to affect significantly the wealth portfolios of tens of millions of American families.”



Residents of New York condominiums and co-operatives damaged by Hurricane Sandy aren’t blaming climate change alone for creating the out-sized storm; they are blaming their governing boards, property managers, or both, for failing to prepare adequately for it.

The class action suits (there are several of them pending) claim generally that those responsible knew (based on weather forecasts) that a powerful storm was coming; should have known, based on recent history (Super storm Irene the year before) that extensive damage was possible; and should have done more to protect the buildings they governed or managed from the massive damage they could have anticipated

But legal analysts predict that plaintiffs in these cases will have a hard time overcoming the “business judgment rule” that generally shields board members from liability as long as they acted in good faith, demonstrated some degree of prudence and weren’t guilty of blatant negligence or self-dealing. While managers aren’t protected by the business judgment rule, analysts think they will have a strong defense, as well: How can they be deemed negligent for failing to prepare for a storm the likes of which no one had ever seen?

In one suit described in a New York Law Journal article, residents of a co-op building allege that the superintendent dutifully and appropriately stacked sandbags in front of a building set back from the water but failed to put them around a building fronting on the water, because he didn’t have enough to complete the task. “Obviously, that sounds stupid,” noted one commentator. But while this may provide grounds for firing the superintendent, he agreed, it is not necessarily enough to prove negligence on the part of the board that hired him.


An insurance broker who incorrectly described the coverage a condominium’s insurance policy provided has some liability for the uncovered losses the community incurred, the Florida Supreme Court has ruled.

Two lower courts dismissed the suit the Tiara Condominium Association filed against Marsh & McLennan Companies after discovering that the association’s policy provided only $50 million in coverage – not the $50 million per occurrence the broker had said was in effect. The coverage proved insufficient when the community suffered more than $100 million in damages from two separate hurricanes in 2004. As part of a settlement, the insurer covered $89 million of the claims and the association sued the broker for the balance.

Two lower courts dismissed the suit, agreeing that the economic loss rule required a showing that the association had suffered actual property damage or personal injuries as a result of the broker’s actions; the association could not recover for a purely financial loss, the courts said. But the state’s highest court disagreed, ruling not only that the case against the broker could proceed, but also that the state’s courts should revert to the origins of the economic loss rule and apply it only to product liability cases in the future.

“Our experience with the economic loss rule over time, which led to the creation of the exceptions to the rule, now demonstrates that expansion of the rule beyond its origins was unwise and unworkable in practice,” the majority opinion states. “Thus, today we return the economic loss rule to its origin in products liability.”

Interestingly, a Massachusetts Appeals Court also recently revised a prevailing interpretation of the economic loss rule, holding in Wyman V. Ayer Properties that the limitations on recovery did not apply to a community association seeking damages for flawed construction.


“We will still, even though I’m a free-market capitalist, have a federal imprint on housing when all is said and done.” ― Rep. Scott Garrett (R-NJ), talking about proposals to revamp Fannie Mae, Freddie Mac, and with them, the nation’s mortgage financing structure.