Legal/Legislative Update –August 5, 2014

Published on: August 5, 2014

RETHINKING FHA CERTIFICATION.   Since the Federal Housing Administration (FHA) tightened the criteria condominium communities must meet to obtain FHA certification (a requirement for borrowers who want to use FHA financing to purchase condominium or refinance an existing mortgage) the number of condominiums seeking certification has slowed to a trickle. The Washington Post reported recently that only about 10,000 of an estimated 140,000 condominium developments nationally have obtained FHA certification. California Realtors have launched a campaign to persuade condominium boards to reconsider their evaluation of the cost and effort that have discouraged many from seeking FHA approval. The goal is “to show reluctant condo directors the positive benefits [of FHA certification],” Mike DeLeon, president of the Orange County Association of Realtors, told the Post. “[The campaign] stresses keeping unit values at their highest by widening the pool of potential purchasers… [and emphasizes] the relatively low risk of default presented by today’s FHA buyers.”

Separately, the FHA is reportedly considering reinstating the “spot approval” process that would permit FHA-insured mortgages on a “spot” basis in communities that have not obtained FHA certification. Columnist Ken Harney reported this development recently, noting: “[FHA] officials are mum on the details and timing, but they confirmed to me …that reviving this key financing option is now under active study. The main reason, according to Harney: “FHA is under growing political and trade group pressure [from] the National association of Realtors and the Community Associations Institute especially — to do so.”

FLOOD INSURANCE LIMITS.   A new Massachusetts law limits the amount of flood insurance lenders can require to no more than the outstanding balance on a mortgage or on a home equity line of credit. The restriction, advocated by state Attorney General Martha Coakley, is intended to offset steep increases in flood insurance premiums resulting from changes in the National Flood Insurance Program, aimed at shoring up that program’s shaking finances. “The proposed federal flood insurance changes were inherently unfair to thousands of Massachusetts families,” Coakley said in a press statement. “This new law, combined with recent changes to the National Flood Insurance program, will offer greater protection to families who could face unsustainable rate increases through no fault of their own.” The law requires creditors requiring borrowers to obtain flood insurance to inform them that the minimum required coverage “may not compensate you for your losses in the property due to the flood. If you wish to protect your home or investment, you may wish to purchase more flood insurance than the amount we are requiring you to buy.”

READY AND ABLE BUT UNWILLING.   That’s how a CoreLogic report explains why many homeowners who could move up the housing ladder or down size are choosing not to do so – because they’re reluctant to exchange the extremely low rate mortgage they have for the still attractive but higher payments on a new one. CoreLogic estimates that as many as 3.6 million homeowners are in this position, possibly one reason the housing recovery has been less dynamic than analysts have been predicting.

WORSE THAN ALLEGED.    When Mortgage Bankers Association (MBA) exec David Stevens asserted a few weeks ago that Fannie Mae and Freddie Mac deny more than half of all applications from low-income borrowers, critics pounced, alleging that the MBA’s analysis was flawed and its estimate much too high. A new analysis from the Urban Institute has concluded that the estimate is actually too low. If you look only at weak-credit profile borrowers (the key comparison, according to UI), the denial rates for Blacks and Hispanics were 75 percent and 67 percent, respectively, compared with 50 percent for Whites and 55 percent for Asians

YOU’VE GOT TO ADMIT IT’S GETTING BETTER.   That’s the Fed’s view of the employment market. Economists at the central bank are predicting that the unemployment rate will fall to 6 percent by the end of this year. That’s getting awfully close to the Fed’s goal for an unemployment rate in the mid-5 percent range, which represents solid improvement, to be sure, but neither solid nor fast enough to justify a near-term increase in interest rates, most fed watchers agree. They think the difficult balance between supporting the recovery and avoiding an inflationary bubble continues to tilt toward the recovery.

UPWARD MOVEMENT.   Pending sales increased for the third consecutive month in June, reaching their highest level since September of last year. The improvement fueled hopes that home sales will strengthen during the second half of this year, but it’s not clear the upward trend will be strong enough to offset the steep first quarter decline.



NOTHING EASY ABOUT EASEMENTS. Easements must be drafted clearly, executed carefully, and asserted or opposed consistently, as attorneys who defend or challenge them, and consumers who have suffered losses resulting from them, can tell you. Two recent cases, both involving condominium associations, illustrate the point.

In Applegate Properties, Inc. v. Coronado Cays Homeowners Association, a California Appeals Court found that nonresidents of a condominium had established a right to enter a marina through a condominium common area by adverse possession, because the condominium association had not consistently challenged their access.

The condominium developer had constructed the marina at issue on land adjacent to it after the condominium was created. Both condominium owners and non-owners docked boats at the marina. The dispute began when the condominium association decided to install a security fence with keyed gates, limiting access to owners and tenants in the community and their guests, and requiring non-residents to pay $100 to obtain gate keys. The marina owner at the time objected, claiming easement rights over a walkway leading to the marina, but he ultimately paid the fees required to obtain keys for non-resident users of the marina.

About two years later, the association again announced its intention to limit marina access to condominium owners, but the marina owner continued distributing keys to non-resident marina users. This continued for about a decade, when the association informed the owner that it was changing the gate locks and would provide keys only to community residents. The marina owner managed nonetheless to obtain several keys for non-residents, in exchange for giving the association a list marina tenants and their addresses.

A new owner (Applegate Properties) bought the marina a year later. The marina’s manager, who was a resident of the association, obtained keys for non-resident marina tenants by identifying them as his sponsored guests. The condominium association’s manager objected periodically, but did nothing to block their access.

When the association changed the locks again, Applegate sued and a trial court found that the company had in fact established a prescriptive easement, because the use of the common area access by nonresidents had been “notorious, continuous, adverse and uninterrupted” for more than five years. An Appeals Court upheld the decision

A Wisconsin court dealt with a different easement question: Who benefits from it? In this case (Metropolitan Place Apartments, LLC v. Metropolitan Place Residential Condominium Owners Association, Inc.), a developer created a project that included a residential condominium, an apartment building and a parking structure that was organized as a separate condominium.

Before turning over control of both the parking and condominium associations to the condominium owners, the developer executed an easement granting parking rights along an entrance ramp (which was part of the condominium common area) to tenants of the apartment building and their guests. When the apartments demanded access to that parking area, the two owners’ associations objected, arguing that the easement wasn’t valid and (just in case) taking steps to terminate it.

A trial court granted summary judgment for the associations, agreeing that the developer did not have the authority to grant the easement. “[He] sold the property once to the condo owners and now claims he can rent the same property out to his apartment dwellers,” the court ruled.

On appeal, the court concluded that the developer had the right to grant an easement, but focused on the wording of the condominium declaration escribing its terms. That provision said that while in control of the parking association, the developer had “full authority to take action on behalf of [it].” The developer’s authority included “the right to grant easements over any part of the parking condominium for the benefit of the parking condominium…”

The appeals court concluded that the developer had the right to grant easements only if they benefited the parking association, and the court noted, “there is no evidence in the record from which it can be reasonably inferred that the easement in any way benefited the Metropolitan Place Parking Condominium Owners Association or its members. There is no evidence that the Metropolitan Place Condominium unit owners were compensated in any way for the usage of the parking spots by the Apartments’ tenants, nor is there any evidence that the unit owners are otherwise benefited by that usage.”

Worth Quoting:

“A full recovery that includes first-time homebuyers is still years away; many young adults still need to find jobs and keep them long enough to save for a down payment and qualify for a mortgage. Until that happens, the clearest signs of recovery will be apartment construction and renter household formation, not first-time home buying, as young adults move from their parents’ homes into their own rental units.” – Jed Kolko, chief economist, Trulia, discussing “what’s missing” from the housing recovery.