LEGAL/LEGISLATIVE UPDATE – FEBRUARY 15, 2018

Published on: February 15, 2018

LEGAL BRIEF

TIME LIMITS

A New Hampshire Supreme Court decision holding that developers aren’t subject to statutory time limits on phased condominium developments has focused industry attention on what condo developers can do and when they can do it. Addressing a different fact pattern and using a different rationale, the Delaware Supreme Court reached the same conclusion. (Bethany Marina Townhouses v. BMIG, LLC.)

The original plans called for 14 buildings in this community, only 11 of which were completed by the original developer. The declaration set a deadline of August 2010 for annexing land to the community, after which the unanimous consent of owners would be required for those additions. The declaration also gave the developer a perpetual easement to build up to 14 buildings as long as the condominium existed. The easement covered both land included in the condominium submission and land owned by the developer that was not part of the submission.

BMIG acquired the developer’s interests in the property in 2008 and began constructing new residences on an undeveloped parcel in 2014. The association objected, arguing that the deadline had passed, and expansion now required owner approval. The association also challenged BMIG’s claim to own a pumping station and several condominium amenities. Taking their dispute to court, both parties sought summary judgment.

The trial court sided with the developer on three key points, finding that:

  • The deadline to construct additional units in the condominium did not affect BMIG’s general right to construct units on property not included in it.
  • The expansion deadline also had no effect on BMIG’s perpetual easement.
  • The company could claim ownership of the pumping station, pool, pool house and the storm management station serving the condominium community, because all had been excluded either from the declaration or from subsequent amendments to it.

The association did not fare well on appeal. Rejecting its central augment, the Supreme Court agreed with the trial court that the development deadline restricted only the addition of land and new units to the condominium. “BMIG intends to develop the land and unbuilt units independent of the condominium established by the Declaration,” the court noted. “Thus, the deadline has no effect on BMIG’s development rights.”

For the same reason, the court also dismissed the association’s contention that owners had assumed there would be no further development after the deadline expired and had relied on that assurance. The only assurance implied by the deadline, the court said, was that no units would be added to the condominium after that date without their consent. There was no assurance about development on land not included in the condominium.

Those two findings eliminated support for the association’s argument that the easement expired with the development rights. Because the right to develop on un-submitted land had not expired, the court said, the easement permitting development of those parcels remained intact. “[The] easement itself has no time limitation for construction,” the court noted, [and] the Declaration states the easement is ‘perpetual during the continued existence’ of the condominium—which still exists.”

Turning to the ownership of the pumping station, the court found some confusion created by the condominium documents. The original plans indicated that the station was to be conveyed to the county, and the first of several amendments indicated that the conveyance had occurred. But subsequent amendments indicated that the station was “to be removed” from the condominium submission. “To complicate matters [further],” the court noted, “both the original declaration and all declaration amendments excepted the pumping facilities from the submitted condominium property.”

The answer to the ownership question depended, the court said, on which references were correct. “If the notes on the Declaration Plans are accurate, the Developer does not own the land associated with these features and cannot reclaim them by later amendment. But if the notes on the Declaration Plans are not accurate,” the court ruled, “then they belong to BMIG because they were excepted from the condominium in the Declaration and all relevant amendments.

The court found the ownership of the amenities, on the other hand, to be straightforward, and in favor of the association. The pool, pool house, and storm water management ponds all were constructed on submitted condominium land before a subsequent amendment tried to exclude them. But owners had a percentage interest in those features, which, the court noted, “could not be revoked without their consent.” Reversing the trial court’s holding on this point, the Supreme Court concluded that the amenities “were on land validly excepted from the declaration.”

(For additional information on the New Hampshire decision (Condominiums at Lilac Lane v. Monument Garden, LLC) please contact Attorney Ed Allcock at eallcock@meeb.com, or 781-843-5000.

MILESTONES AND SPEED BUMPS

Airbnb, the on-line platform for short-term home rentals, has simultaneously hit a milestone and a speed bump. The speed bump came in Detroit, where the City Council enacted new zoning restrictions prohibiting the use of a residential dwelling “to accommodate paid overnight guests.” The majority of owners renting rooms for short stays are in the two areas where the practice is now prohibited.

City officials said the restriction responds to concerns about preserving affordable housing and to complaints from owners who object to the influx of vacationers in their residential communities. Airbnb officials said the restrictions will hurt middle-class homeowners, who rely on the revenue from short-term rentals to boost their income and offset home expenses.

“We’re very disappointed by this turn of events,” a company spokesman said in a press statement. “Airbnb has served as an economic engine for middle class Detroiters, many of whom rely on the supplemental income to stay in their homes,” he added. “We hope that the city listens to our host community and permits home sharing in these residential zones.”

The setback in Detroit came as Airbnb announced a groundbreaking agreement that will allow homeowners to count revenue earned from short-term rentals as qualifying income when refinancing their mortgages. Fannie Mae, Quicken Loans, Citizens Bank and Better Mortgage are partnering with Airbnb in this initiative, which company officials said will enable many homeowners to benefit from lower mortgage rates.

IDENTITY THEFT SOARS

Identity fraud set new records last year, hitting more victims than at any time during the past decade. The massive Equifax breach had a lot to do with the statistical explosion, but the increasing skill of cyber-criminals was also a factor, according to an analysis by the consulting firm Javelin Strategy & Research. ID fraud increased by 8 percent last year compared with 2016, affecting 16.7 million consumers and producing $16.8 billion in losses.

“It’s not just that there’s more victims,” Al Pascual, research director at Javelin, told the Wall Street Journal. “The fraud schemes are more complicated, more sophisticated.”

In addition to honing their skills, cyber-thieves are also shifting their focus: Social security numbers were compromised more often than credit cards – 35 percent vs 30 percent, the Javelin report found. The study highlighted several other trends, among them:

  • Thieves are relying more on account takeovers to defraud consumers. The number of takeovers tripled last year and the losses resulting from them exceeded $5 billion.
  • Fraudsters are getting more sophisticated and using more complicated schemes. More than 1.5 million incidents involved opening new intermediary accounts in the victims’ names as a means of compromising their existing accounts.
  • As embedded chips make credit cards more secure, fraudsters are turning to on-line shopping channels rather than point-of-sale transactions.

“2017 was a runaway year for fraudsters, and with the amount of valid information they have on consumers, their attacks are just getting more complex,” Pascual noted in a press statement. “Fortunately, there are a variety of digital tools that consumers can leverage to stay better informed on the status of their identities and accounts, and to ultimately stay better protected.”

EMPLOYMENT GAINS

Confirming the Fed’s increasing confidence in the economy, the Labor Department’s January employment report brought a double-dose of good news: Employers added 200,000 workers to their payrolls, beating analysts’ expectations; and wage gains, elusive throughout the recovery, finally made an appearance. Average hourly earnings increased by nearly 3 percent in January, the largest year-over-year increase since the recession ended in 2009. The national unemployment rate remained unchanged at 4.1 percent, its lowest level in nearly 20 years, with 17 states reporting record lows.

A robust January employment report confirmed the economy’s strength, while triggering a bond sell-off that sent mortgage rates higher in early February.

Mortgage rates, averaging 4.2 percent for conventional 30-year loans in Freddie Mac’s Primary Mortgage Survey, have reached their highest levels in more than four years, as investors have begun pricing in their expectation that the Federal Reserve will remain on course to boost its target rate multiple times this year.

EYE ON INFLATION

Watching economic trends – and labor market conditions ─ closely (see related item above), the Federal Reserve’s policymaking Federal Open Market Committee (FOMC) left its target funds rate unchanged at 1.25 to 1.5 percent in January, while reaffirming its intention to push rates higher this year. The statement issued after the meeting shifted from the concern the committee had been expressing ─ that inflation was lagging the Fed’s 2 percent target ── to concern about heightened inflation risks.

“Inflation on a 12-month basis is expected to move up this year and to stabilize around the Committee’s 2 percent objective over the medium term,” the statement said. While “near-term risks to the economic outlook appear roughly balanced, the statement added, the committee is “monitoring inflation developments closely.” The December statement, by contrast, said nothing about inflation risks, noting only the Fed’s continuing concern that core inflation indicators continued to decline and were still running below 2 percent.

The employment gains and rising wages that are keeping the Fed on its rate-setting course are also fueling something of a consumer spending spree. Consumer spending increased by nearly 4 percent year over year in the fourth quarter; household debt levels rose to $15.1 trillion in the third quarter from $13.4 trillion in the same quarter of 2011. The savings rate, meanwhile, hit a post- recession low at 2.4 percent in December.

The economy grew at an annual rate of 2.6 percent in the fourth quarter, beating analysts’ expectations, as the recovery continues to reflect the slow pace and resilience that have been its hallmarks during the past nine years.

A larger-than-expected jump in consumer prices reported in January, meanwhile, has led some analysts to predict that the Fed will increase interest rates more aggressively this year to head off an inflationary spurt.

HOUSING STUMBLES

The housing market recovery stumbled at year-end, with declines in both existing and new home sales. Reversing course after three consecutive month-over-month gains, existing homes sales fell by 3.6 percent to a seasonally adjusted annual rate of 5.57 million units in December, eking out a scant 1.1 percent year-over-year gain.

New home sales followed an even steeper downward trajectory in December, falling by 9.3 percent compared with November ─ e largest month-over-month decline in almost 18 months. But the annualized sales pace (608,000 units) was more than 14 percent above the year-ago rate.

Pending sales, a measure of future existing home sales – increased for the third consecutive month, but inventory levels continued to trend downward in December, falling by 11.4 percent to reach their lowest level since January 1999, when the National Association of Realtors (NAR) began tracking these statistics. Inventories have now declined year-over-year for 31 consecutive months, making an already tight sellers’ market even tighter, and pushing home prices steadily higher.

The closely watched S&P CoreLogic Case-Shiller index rose 6.2 percent for the 12 months ending in November. Echoing that trend, the median home price, measured by the National Association of Realtors (NAR), posted its 70th consecutive year-over-year increase in December, with a 6.2 percent jump, bringing the median to $246,800.

Prices are now rising at nearly triple the inflation rate, David Blitzer, managing director at S&P Dow Jones Indices, who noted that it is supply, not demand, that is “the primary factor” driving home prices. “Without more supply, home prices may continue to outpace inflation,” he warned.

IN CASE YOU MISSED THIS

The federal flood insurance program has been extended again, as the House and Senate have not yet agreed on legislation to overhaul it. The latest extension, until March 23, is part of yet another continuing resolution enacted to keep the government operating until lawmakers can agree on a budget.

Household debt levels have hit a new record high, but analysts say consumers are well-positioned to carry the load.

Rising home prices, offset partly by rising incomes, held housing affordability ratios flat last year, according to the National Association of Home Builders.

Rising rents are spurring demands for rent control in housing markets across the country, as lower-income tenants struggle to keep pace.

More than 7 percent of the nation’s homes, valued collectively at an estimated $1.5 trillion, are at risk of wildfires, an analysis by Redfin has found.

WORTH QUOTING

The odds of a bad outcome have gone up,” the Goldman Sachs CEO told CNN’s Christine Romans in an interview airing Wednesday. ─ Lloyd Blankfein, CEO of Goldman Sachs, warning that sweeping tax cuts and increased government spending may overheat the U.S. economy, triggering inflation, sharply higher interest rates, and another downturn.


Marcus, Errico, Emmer & Brooks specializes in condo law, representing clients in Massachusetts, Rhode Island and New Hampshire.