Legal/Legislative Update – January 1, 2014

Published on: December 30, 2013

GOING UP. This won’t come as a surprise to most condominium owners, but maintenance costs have been rising steadily. They increased 3 percent in 2012 compared with the previous year and are 25 percent higher than they were a decade ago. That’s according to data compiled by the Institute of Real Estate Management, which estimated the average cost of maintaining a single condominium unit at more than $2,400 per year.

GOING DOWN. Foreclosure rates have set a new record – a 95-month low, according to RealtyTrac’s U.S. Foreclosure Market Report. Foreclosure activity declined by 15 percent compared with the previous month and fell by 37 percent year-over year.

LEAD STORY. Paint manufacturers have won most of the liability suits holding them responsible for the cost of removing lead-based paint from homes built before 1878, when its use was banned. But that winning record stalled in California, where a Superior Court judge ordered companies to pay $1.1 billion to cover lead removal costs in 10 cities and towns. The companies are asking the judge to reverse his ruling; barring that, they say, they intend to appeal.

HITTING THE MARK. Housing starts (annualized) exceeded the 1 million-unit mark in November ─ only the second time in the past four years starts have reached a level they topped regularly during the housing boom. But if you’re wondering why home starts have lagged for most of this year, even though prices have been rising at a double-digit pace, you can blame the employment prospects ─ or lack thereof ─ for young adults. Less than 75 percent of them are employed, which is below the 80 percent rate considered normal and too low to spur the housing demand builders want to see.

LET THE TAPERING BEGIN. This is finally the beginning of the end for the unprecedented bond-buying program the Federal Reserve has used to underpin the economic recovery. Fed officials announced after the December Federal Open Market Committee meeting that the “tapering” they signaled and then ‘un-signaled’ earlier this year will actually begin in January.

A REAL DRAG. The income gap isn’t just a debating point between liberals and conservatives; economists say it is also a major drag on growth. In the same vein, a study by the Economic Policy Institute (which leans leftward on the political spectrum) has concluded that raising the minimum age would boost the economy as a whole by increasing the purchasing power of the working poor.

 

Legal Briefs

 

DODGY DRAFTING. It isn’t just “the evil that men do” (Shakespeare’s words) that lives after them; so do poorly drawn condominium documents, which can create problems for decades after they are drafted. Two recent court cases illustrate that point.

In Marwick v. The Homeward Glen Homeowners Association, an Illinois appeals court wrestled with the original declaration for a condominium development, specifying that the covenants could not be amended for 20 years, after which they would be extended automatically for periods of 10 years, unless amendments were approved by 2/3 of the owners and recorded one year before they took effect. Owners also had to receive notice of proposed changes at least 90 days before the vote. Owners tried to amend the documents in 1996 and again in 2004, triggering litigation over whether the actions satisfied the requirements outlined in the declaration.

Some owners argued that the original declaration was still in effect while others argued that it had been supplanted by the 1996 revisions. The complicated dispute was further complicated because the board’s position changed periodically as new members replaced older ones.

While the litigation was pending, the owners approved another amendment in 2012, leaving it to the courts to sort out what the Appeals Court termed “the current installment of ‘King Lear in the Country.’” Upholding the trial court’s decision, the Appeals Court decided: a) there was insufficient evidence to determine whether the 1996 amendments were validly enacted and some questions about the procedures used to approve the 2004 amendments; but b) enough evidence to support a finding that the 2012 amendments were ok.

The second case (Lawton v. Schwartz) also involved a duration clause (this one 55 years) and questions about how or if the condominium’s covenants could be amended before it expired. The plaintiff (Lawton) asked the board of her condominium to enforce a provision barring any interference with “owner’s views, privacy or solar access” by pruning or removing overgrown trees on neighboring properties that were blocking her view of the mountains. The board refused, instead proposing an amendment eliminating the word ‘views’ from the declaration. A majority of owners approved the change.

Lawton sued, arguing that the amendment was barred by the declaration’s 55-year duration period. The board pointed to another provision specifying that after the sale of the first lot, the declaration could be amended by a majority vote of owners. Relying on that clause, the trial court granted summary judgment to the association, ruling that the amendment was valid. The New Mexico Appeals court disagreed, finding that the inconsistency made the duration clause “ambiguous,” precluding summary judgment for either party, and requiring further deliberations by the trial court to determine what the drafters of the original declaration intended.

 

WORTH QUOTING

“Housing’s lost decade is almost over.” ─ From Deutsche Bank’s housing forecast for 2014.