LEGAL/LEGISLATIVE UPDATE – December 4, 2016

Published on: December 5, 2016

OVERTIME DELAYED

Employers bracing for a sweeping and (for them) costly change in overtime laws have won a reprieve. A Federal District Court Judge in Texas approved a nationwide injunction sought by state governments and business groups opposing the change, preventing, at least for now, a redefinition that would have made approximately 4 million more workers eligible for overtime pay.

barack-obama-1129156_1920President Barak Obama had championed the change in Department of Labor rules as a means of improving the lot of middle-income workers, whose incomes have been essentially flat for more than a decade. The revision increased the salary below which overtime is required to $47,476 from $23,660 – a level that has not been changed in 12 years.

A coalition of 21 states, joined by the U.S. Chamber of Commerce and other business groups, had challenged the rule, arguing that the massive increase in the overtime requirement exceeded the president’s authority to revise the regulation. Federal District Judge Amos Mazzant III granted a temporary injunction blocking implementation of the regulation, which was to have taken effect December 1, until he has ruled on the merits of that argument.

Opponents cheered the ruling, predicting that it would spell the death knell for the overtime increase. “Assuming that this preliminary injunction holds and there isn’t an appeal or some other thing that disrupts it, we are done with this regulation,” Marc Freedman, executive director of labor law policy at the U.S. Chamber of Commerce, told the New York Times. (The Obama Administration has, in fact, filed notice that it intends to appeal.)

But many employers have already boosted the salaries of some workers to exempt them from the new overtime requirements, which could complicate efforts to roll-back the rule, even if the court ultimately strikes it down.

“Supporters of the regulation have observed that the politics of essentially withdrawing a planned salary increase from many workers could prove complicated for an incoming president elected on a message of improving workers’ economic circumstances,” a New York Times article noted.

HOME SALES SOLID

Existing home sales reached their highest level in almost 10 years in October, as steady gains in employment and income boosted confidence in the economy and the housing market. Resales reached an annual rate of 5.6 million units, 2 percent above the year-ago level. Pending home sales, an indicator of future activity, also increased, but by only a scant 0.1 percent over the September level. New home sales moved in the opposite direction, falling to an annual pace of 563,000 units – 2 percent below the September level (which was revised downward) and a four-month low.

abode-987096_1920Home starts and permits for new construction both rebounded, however, reflecting growing builder confidence that a strengthening economy is bringing millenials, finally, into the housing market. “With improved employment and income prospects, millennials are an expanding portion of housing demand as they move out of their parents’ homes – increasingly to form families,” David Berson, chief economist for Nationwide, told HousingWire.

Other less upbeat analysts pointed out that the housing gains came before the increase in mortgage rates, which has already slashed mortgage application rates and is expected to have a similar effect on home purchases.

Strength in existing home sales and home construction activity are “all very encouraging,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, agreed, but those positive indicators “have to be seen in the context of the recent decline in mortgage applications.” If that downward trend continues, he said, “it will likely push home sales down sharply in the early part of next year. We expect further declines in demand as rates climb,” he told National Mortgage News.

THE CHANGE THAT ISN’T

When is a change not really a change? When it involves the Federal Housing Administration’s condominium financing requirements.

FHA_ApprovedWhen the FHA announced its proposed revisions its existing rules, reactions (with some reservations) were generally favorable. The Community Associations Institute (CAI) was “on the whole pleased” with the effort to streamline the rules and make them less restrictive. The National Association of Realtors expressed concerns about some provisions but both organizations were delighted with the reduction in owner occupancy requirements from 50 percent to 35 percent. The NAR in particular called that change “a big win.”

A closer reading of the language surrounding that provision suggests that it may not be much of a change at all. To qualify for the lower ratio, no more than 10 percent of an association’s members can be 60 days or more delinquent in the payment of their dues. In addition, the association must have “adequate” reserves and submit three years of “acceptable” financial documents. These restrictions will limit the number of associations able to qualify for the lower owner-occupancy rate, industry executives complain.

“We’ll be making the case that the 35 percent threshold should apply equally to all buildings otherwise eligible for FHA approval,” NAR President Bill Brown told National Mortgage News.

The revised regulation also allow the FHA to set the occupancy requirement within a range that can vary between 25 and 75 percent, which means it could remain at 50 percent or higher, if the agency decides a higher level is necessary.

FHA officials have made it clear that they are not enthusiastic about lowering this requirement. A recent letter to mortgage lenders stated: “FHA has determined that for most projects, the existing owner-occupancy requirements are necessary to maintain the stability of the Mutual Mortgage Insurance Fund.”

capitol_boston-111239_1920ZONING CHANGES

The Massachusetts Legislature gave developers an early Christmas present in the form of small but significant revisions in the Zoning Act that expand their protection from changes in zoning requirements and make it easier for them to update noncompliant structures. One change increases the so-called “zoning freeze” from six months to a year. This is the time builders have to begin construction without being subject to zoning rules enacted after their permits were granted. The revisions also give developers three years instead of two to commence construction or “Substantial use” under a special permit. Another change allows builders to reconstruct or substantially alter a “legal, nonconforming structure” 10 years after its completion without obtaining a variance, as long as no civil or criminal suits have been filed against them during that time period. Under the new standard, builders must demonstrate only that the change is not “substantially more detrimental” to the neighborhood than the existing nonconforming use.

CONVENTIONAL WISDOM

Conventional wisdom holds that construction of ‘low-income housing’ depresses home values in the surrounding neighborhood. A recent study suggests the conventional wisdom is wrong.

Researchers at Trulia analyzed more than 3,000 projects in the 20 most expensive metropolitan areas, built under the federal low-income housing tax credit program between 1996 and 2006. They calculated changes in values for properties located within 2000 feet and within 4000 feet of those developments.
They found “no significant difference” between the values of properties closest to the low-income units and those further from them. “[The data] challenge [the] prevailing argument around low-income housing,” Cheryl Young, a Trulia senior economist who worked on the study, told the Wall Street Journal. The study shows “there really isn’t an effect.”

There were some exceptions. One was the Boston-Cambridge MSA, where values of the closer-in properties increased more slowly than those in the outer ring. In Denver, the opposite occurred: Values increased faster in the closer-in ring. Researchers attributed the effects more to general market conditions than to the impact of the low-income housing. In Boston, they noted, the housing was concentrated in neighborhoods where value were already depressed; in Denver, they were located in or near rapidly appreciating downtown neighborhoods.

IN CASE YOU MISSED THIS

HUD announced that it is banning smoking in all subsidized housing developments. The ban, intended to protect residents from second-hand smoke, will apply to more than 940,000 subsidized rental housing units nationwide.

smoke-1001667_1280Smoking may not be the only concern for public housing residents. HUD inadvertently posted personal information – including social security numbers and birth dates – of nearly 500,000 individuals on its web site.

Regulators are increasing the secondary market’s conforming loan limits – the maximum loan Fannie Mae and Freddie Mac can purchase – for the first time in a decade. The single-family cap in designated “high-cost” markets is rising to $$424,000 from $417,000.

The homeownership rate, stuck at or near historic lows for most of the past decade, increased in the third quarter. The new rate is 62.9 percent; the record high, in 1965, was 69.2 percent.

This sound familiar? Delinquencies on subprime auto loans are rising, but industry executives say the trend isn’t a concern. And they are making it easier for consumers with negative equity in their existing vehicles to buy new ones.

The very rich got very richer last year. The total income reported on the top 400 individual tax returns rose 20 percent in 2014, the Internal Revenue Service reported.

LEGAL BRIEF

GIVING AND TAKING

What a municipality giveth to a homeowners association, it can’t necessarily take away. The Montana Supreme Court reached that conclusion in a dispute over a homeowner association’s right to install gates on private roads leading to the community. (The Estates Homeowners Association, Inc. + Grouse Mountain v. Whitefish.)

private-road-511717_460The plat plan the city of Whitefish approved for the community specified that its roads would be private and that the HOAs could close the roads to the public. It also provided for a reciprocal agreement between Grouse Mountain HOA, which governed the first two phases of the development, and Estates HOA, which governed the third, ensuring reciprocal access to the streets for residents in all three phases.

The city subsequently approved a resolution prohibiting subdivisions from gating private roads to block public access. Estates sued, claiming that it had an established right, under the subdivision approval, to erect gates. Grouse Mountain sought to intervene, arguing that a decision allowing Estates to erect gates at two ends of the community would interfere with its easement and with access for its residents.

The District Court entered summary judgment for Estates, affirming its vested interest in installing the gates; the court rejected Grouse Mountain’s intervention, concluding that because the gates hadn’t been installed, its easement hadn’t been impeded. The city and Grouse Mountain both appealed, and the Supreme Court ruled against both of them.

On the intervention issue, the court ruled that Grouse Mountain did not share “a common interest of law or fact” with Estates that would justify its intervention in the suit. Grouse Mountain was seeking to protect its easement, the court reasoned, while Estates was seeking to affirm its vested property interests. Grouse Mountain could pursue its easement claim in a separate suit against Estates, the court noted, which the associations has done.

The Supreme Court also affirmed the lower court’s ruling in favor of Estates on the key question – whether the plat plan established a right the city couldn’t revoke to erect gates blocking the community’s private roads.

goal-819975_1280The city argued that the property rights the plat plan conveyed weren’t absolute, because they were subject to subsequent review “pursuant to the City’s engineering standards and Condition 24 of final plat approval.” But the court pointed out that Condition 24, on which the city was relying, referred specifically to street plans “and Estates desires to install a gate, not a street.” Moreover, the court noted, the city didn’t approve the final plat until all the specified conditions had been satisfied. Approval of the final plat established Estates’ vested right to construct the gates, the court said, and the city “cannot now withdraw its approval of that plat by passing a resolution.”

The court also rejected the city’s secondary argument – that there was no “concrete dispute” and thus no “justiciable controversy” for the court to resolve. The city contended that the “triggering event” that would have created the required “concrete” dispute would have been a vote by association members to approve installation of the gates, which had not yet occurred.

The court didn’t buy that analysis. The triggering event, the court said, was the city’s adoption of the resolution prohibiting installation of the gates, “which interfered with Estates’ vested property interest.” Because the court’s decision “will have the effect of a final judgment on the rights of the parties,” the court concluded, “the District Court correctly concluded that a justiciable controversy exists. The District Court’s grant of summary judgment to Estates and denial of summary judgment to the City was appropriate because a justiciable controversy exists, Estates’ property right vested upon final plat approval, and [the city’s resolution] interferes with that property right.”

IN QUOTES

“If you put a lot of fiscal stimulus — particularly big personal income tax cuts —on an economy that’s already at full employment, that’s like putting a well-done steak on broil.” ─ David Kelly, chief global strategist at JPMorgan Asset Management.

 

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