LEGAL/LEGISLATIVE UPDATE – JUNE 19, 2019

Published on: June 19, 2019

CONDO COOLING

Boston’s sizzling condominium market is cooling off. Sales reported for April were 4 percent below the total for the same month last year, the Greater Boston Association of Realtors reported, while the number of units listed for sale increased by 15.3 percent compared with the prior month – the 18th consecutive monthly increase.

Separately, the Warren Group reported that condo sales increased by 1.3 percent statewide, but the median price recorded its third consecutive year-over-year decline, falling by 0.5 percent to $370,000.

Cassidy Norton, associate publisher and media relations director for the Warren Group, said she views the downward trend as “a return to normalcy” for a market that has been driven by a surge of new luxury developments.

Single-family home sales and prices both increased in April, with the median price hitting a record $382,500 for the month. “[Prices] have been rising steadily for the last three years,” Norton told the Boston Globe. “Even with inventory levels improving,” she predicts that “stiff competition” from buyers will keep upward pressure on prices through the spring and summer selling season.

KEEPING NFIP AFLOAT

Repeating what has become a familiar ‘just-in-the-nick-of-time’ pattern, Congress voted to extend the National Flood Insurance Program (NFIP) for four months, through September of this year. That action followed an emergency vote hours before the program was set to expire, to extend the program for two weeks. Unable to agree on broad reform of the insurance program, Congress has approved a dozen short-term extensions since 2017. But lawmakers may now be on a path that will produce this elusive agreement. Rep. Maxine Waters (D-NY), chair of House Financial Services Committee, and Patrick McHenry (R-NC), the committee’s ranking member, have agreed on a measure that would overhaul the insurance program and extend it for five years, through September 30, 2024. Among other changes, the legislation would:

  • Provide funding for updated flood zone mapping
  • Create umbrella coverage options for multifamily developments; and
  • Eliminate some obstacles to private flood insurance programs

Housing industry trade groups, including the National Association of Realtors and the National Association of Home Builders praised the bipartisan effort to create “a long-term solution” for the flood insurance program.

TARIFFS’ TOLL

Reflecting the impact of the simmering trade war with China and the threat of tariffs on Mexican goods, the employment picture darkened considerably in May. Employers added only 75,000 workers to their payrolls, way below the 180,000 analysts had expected, while estimates for March and April were also scaled back.

The weak report, which broke a months-long stream of good employment news, was “an ominous turn,” according to a CBS MarketWatch analysis, suggesting, according to this analysis, that the heretofore resilient economy may be slowing.

Other economic reports added to that concern. Orders for durable goods slid in April, “painting a weaker picture of U.S. factory demand than anticipated,” the Wall Street Journal reported. Retail sales also declined, dragged down by sluggish consumer spending on cars, electronics and home improvement goods. (Underscoring the problem with reading too much into a single month’s data, retail sales rebounded smartly in May.)

Consumer confidence remained high, as spring gave way to early summer. The Conference Board and University of Michigan indexes, which often diverge, both tracked near 15-year highs in May and April, respectively. That confidence was not reflected in spending patterns, however. The Commerce Department reported that personal consumption expenditures, measuring spending on just about everything, increased by only 0.3 percent, lagging far behind the robust spending report in March, even though personal income grew by 0.5 percent – the strongest gain so far this year.

Analysts noting the disconnect between soaring consumer confidence and slowing consumer spending, have also noted that previous periods of unusually strong confidence (in 2007, 1998-2001, 1994 and 1990) all preceded steep economic downturns.

REVERSING DIRECTION?

The combination of weak economic reports and growing unease about both the political and economic environment have fueled speculation that the Federal Reserve, which has been patiently avoiding further rate increases, may be compelled to ratchet rates downward to prevent an economic decline.

Fed Chairman Jerome Powell said a few weeks ago – before President Trump’s threat of tariffs on Mexican goods had been added to concerns about the China trade war – that policy makers were “closely monitoring” the trade dispute and would respond “as appropriate” to its impacts on the economy. But some analysts question just how effective the Fed’s response can be.

“The Fed will do its best t given where the economy is” Nathan Sheets, chief economist at PGIM Fixed Income told CNBC, “but it would take a dramatic easing of monetary policy for them to fully offset these kinds of effects.”

WIDENING GAP

The homeownership rates for blacks has been frozen in time – and not in a good way. The 1969 Fair Housing Act made a big difference, boosting ownership rates by 20 percent between 1950 and 1970. But the upward curve flattened and has declined since, according to a recent analysis in Forbes. John Flake, the author of this report, attributes the lag partly to an “inelastic supply” of housing affordable to lower-income borrowers and disproportionately high foreclosure rates in minority neighborhoods. A Zillow study found that the foreclosure rate in black neighborhoods was double that in white communities; the disparity rises to 2.5 times in Hispanic neighborhoods.

A related report from the Urban Institute notes that blacks today have the lowest homeownership rate among all racial and ethnic groups 41.8 percent. That represents a decline of almost 5 percent over the past 2 decades – a period when ownership rates for other whites and other minorities either increased or remained constant, the Washington-based think tank notes in a recent report. The report suggests five strategies for bridging the ownership gap:

  • Advancing policy solutions at a local level
  • Tackling housing supply constraints and affordability
  • Promoting an “equitable and accessible” housing finance system
  • Outreach and counseling for renters
  • A focus on “sustainable homeownership” and housing preservation

The black homeownership rate is the same today as it was 50 years ago when the Fair Housing Act was first passed,” the report notes. “Changing this entrenched pattern and reducing the racial wealth gap will require a concerted, multiyear, multi-partner effort with a shared vision and enormous commitment.”

IN CASE YOU MISSED THIS

Recession risks, pretty much dismissed since the last downturn, have begun to surface in more economic forecasts.

The number of job openings exceeded the number of unemployed Americans by the largest margin on record in April, the Department of Labor reported. The widening gap reflects both a shrinking labor pool and a growing mismatch between the positions available and workers with the skills required for them, analysts said.

The exurbs – areas beyond the suburbs ─ are the only areas in which home construction is consistently increasing, according to the National Association of Home Builders (NAHB). “A shortage of buildable and affordable lots is forcing builders to increasingly look further outside of suburban and metropolitan areas to find cheaper land that provides more building opportunities,” NAHB Chairman Greg Ugalde explained.

Tax reform’s impacts have been mixed, neither “all bad nor all good” for homebuyers, a Redfin analysis has found.

The Department of Housing and Urban Development (HUD) has confirmed its determination that “dreamers” protected by the Deferred Action for Childhood Arrivals (DACA)program, but now caught in immigration limbo, are not eligible for FHA-insured mortgages.

LEGAL BRIEF

USE IT OR LOSE IT

This admonition usually comes from trainers, explaining the importance of exercising muscles and joints. But the advice applies equally to condo association covenants and rules: If boards don’t enforce them consistently, they may lose the ability to enforce them at all. That was the bottom line in this Louisiana Appeals Court decision (Aucoin v. Copper Meadows Homeowners Association, Inc.).

The covenant restriction at issue prohibited residents of this subdivision from parking trailers, mobile homes and “similar a recreational vehicles” in front of their homes. From the time Dustin and Ashley Aucoin purchased their home in 2010, Dustin, a plumber, regularly parked his cargo trailer on the street. In 2013, the board cited him for violating the parking rule, but withdrew the citation without acting on it, presumably recognizing that cargo trailers were not specifically referenced in the covenant.

The following year, owners voted to amend the declaration, adding language including cargo trailers on the list of vehicles that had to be parked behind residences ─ either in a closed building or behind a fence at least six-feet tall.

Although Dustin continued to park his vehicle in front of his home, the board did not cite him for a violation until August of 2017, accompanying the citation with a $25 fine, automatically debited from his bank account. The board continued to send violation notices (at least five of them), but did not levy any additional fines.

The Aucoins sued, arguing that a two-year statute of limitations barred the enforcement action, which the board had initiated three years after the covenant language was revised.

The applicable Louisiana statute specified that actions to enforce building restrictions must begin no later than two years after a violation is identified. That statute also holds that if the statute of limitations on the enforcement of a restriction expires, the restriction itself is eliminated for the property involved. The trial court, finding no ambiguity in the statutory language, and no basis to question the Aucoins’ assertion that the parking violation was consistent, obvious, and easily identified, ruled in their favor.

On appeal, the association maintained that the statute of limitations had not expired, because multiple inspections had failed to spot the improperly parked trailer during the three-year period before the violation was cited. The Appeals Court found the argument less than credible, however. Although the board members conducting the site inspections claimed not to have noticed the (very large) trailer, the court noted:

  • Several owners testified that they regularly saw it parked in front of the Aucoins’ home.
  • Photographic evidence supported their testimony.
  • Other witnesses corroborated the Aucoins’ assertion that the trailer was parked regularly on the street outside of business hours during the week, on weekends and on holidays.

Overturning a lower court decision, the Appeals Court noted, requires a finding that there was no “factual basis” for the ruling, and that the ruling was “clearly wrong or manifestly erroneous.” Neither standard was met here, the court said.

“There was a reasonable factual basis for the trial court’s conclusion that there was a noticeable ongoing violation of [the covenant restriction] for more than two years” before the board moved to enforce it, the Appeals Court said. Additionally, the court found that the trial court’s refusal to “give much weight” to the argument that board members had not noticed the violation within the statute of limitations window, was based on “explicit findings of fact” that the Appeals Court said it could not find to be “manifestly erroneous,”

Accordingly, the court enjoined the association from any further efforts to enforce the parking restriction against the Aucoins, ordered the association to refund the $25 fine it had assessed, and ordered the association to pay the costs of the appeal, as well.

WORTH QUOTING

“Given the broader economic picture, housing should be doing better” – David Blitzer, chairman of Dow Jones Index Committee.


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