Legal/Legislative Update – June 15, 2014

Published on: June 16, 2014

THEY LIKE WHERE THEY LIVE.  Notwithstanding periodic reports of heavy-handed condominium boards and the owners furious with them, most residents like the common interest ownership communities (CIOCs) in which they live. And every year, the Community Associations Institute (CAI) publishes a survey confirming that conclusion. This year’s survey, conducted for the Foundation for Community Association Research, found once again that nearly two-thirds of the 65 million owners and renters living in CIOCs rate their experience as positive; 26 percent are neutral (neither liking nor disliking the experience), with only 10 percent expressing negative views.

NOSIER THAN THOU.  “An unwarranted intrusion on personal privacy.” That’s how Republican critics are describing a sweeping data collection initiative launched jointly by the Consumer Financial Protection Bureau (CFPB) and the Federal Housing Finance Agency (FHFA). The regulators say their plan to create a national data base of mortgage information will help them track and understand housing market trends. But critics question the need for “intimate personal information” and say the plan doesn’t include nearly enough privacy protection for consumers.

DELAYED ACTION.  The anticipated spring spurt in home sales was supposedly delayed by a wretched and prolonged winter. But the market hasn’t blossomed yet and recent indicators suggest it isn’t likely to do so any time soon. Pending home sales, a predictor of future home buying activity, increased a scant 0.4 percent in April compared with March, and they were 9.2 percent below the year-ago figure. Fannie Mae’s chief economist, Doug Duncan, is predicting that year-over-year sales will decline this year for the first time since 2010. In a press statement, Duncan termed current housing market data “worrisome,” but said he expects conditions to return to “normal” –─ “sometime in late 2016.”

NOT TO WORRY.  The economic growth rate (GDP) declined in the first quarter for the first time in three years. Economists said they expected the dip (1 percent), though it was larger than anticipated, and expect a strong rebound in the second quarter. “I wouldn’t worry too much about the decline,” Ryan Sweet, senior economist at Moody’s Analytics, told Bloomberg News. “It’s mostly driven by less construction spending and less inventory accumulation. This quarter should be a good one,” he predicts.

LEAD PAINT ANEW.  The Environmental Protection Agency (EPA) is going to develop rules governing renovations of public and commercial buildings containing lead-based paint. The Federal Register notice says the agency will use a “scenario” framework to determine when renovations trigger health concerns rather than the “one-size-fits-all” approach it applied to residential structures. EPA will “assess elevations in lead exposure resulting from a broad range of scenarios, considering variation in type of renovations activities building types, sizes and configurations, use and occupancy pattern, cleaning frequencies, etc., which are designed to be reflective of factual P&CB settings,” the notice explains.

IN RETROSPECT.  Why didn’t the Obama administration push harder and earlier for broad-based reductions in mortgage debt levels during the financial crisis? Lawrence Summers, former director of the National Economic Council, and a primary architect of the Administration’s policies during that period, offers five reasons in a recent Financial Times essay. The top two: The potential for damaging the banking system, “which risked bringing down the system in an effort to save it”; and concern that forcing lenders to write down principal values on existing mortgages might deter future lending: “It did not seem unreasonable to worry at the time that if government forced the write-off of a trillion dollars of mortgage debt, flows of not only mortgage debt but also car loans and credit card debt to consumers would be inhibited as well,” Summers wrote.

LEGAL BRIEFS

DEPTH PERCEPTION. Condominium developers who set initial assessments artificially low in order to entice buyers (an all-too-common practice) aren’t doing future boards or future owners any favors. Developers who also make it difficult to increase those assessments may end up destroying the communities they have created.

That is the bottom line for the board at Enchanted Hills Community Association in Ohio, which is wondering how that community can survive an appellate court ruling (Keltz v. Enchanted Hills Community Association) that the board lacks the authority to increase assessments on owners.

The community’s original declaration, filed in 1969, set annual maintenance charges at $15 for an owner’s first lot and $5 for additional lots. The declaration also specified that owners of 60 percent of the lots would have to approve any changes in the covenants.

When the association was incorporated the following year, the bylaws gave the board the authority to collect membership dues and assessments in addition to those specified in the declaration and the board exercised that authority consistently over the next 20 years, using the funds collected for maintenance and operating expenses. But a group of owners sued the association in 2011, contending that the excess charges were unauthorized and should be refunded to owners.

The bylaw amendment on which the board relied was not valid, the plaintiffs argued, because it violated the Ohio Planned Community Act, which prohibits community associations from charging assessments and dues greater than those specified in the declaration, unless owners vote to amend the governing documents A trial court agreed with the plaintiffs and the association appealed the decision.

Among the association’s primary arguments: The bylaws were approved more than a decade before the Planned Community Act and so were protected by the statute’s grandfather provision. But the Appeals Court found that the bylaws were invalid not because they violated the statute but because they exceeded the authority granted in the condominium’s declaration. The declaration did not allow the association “to unilaterally create restrictions where none exist,” the court ruled.

The association’s argument that the inability to increase fees would threaten the community’s survival did not alter the court’s view that owners must approve any change in the assessments charged. Rejecting the association’s plea that “it would be nearly impossible to get 60 percent of lot owners to agree on anything,” the court noted that, as only ”a handful” of owners had objected to the increases, the 60 percent requirement should be achievable. “Notwithstanding these policy arguments” (e.g. that the community could not survive), the court concluded, “the association cannot charge or increase assessments beyond the authority specified in the…declaration….”

WORTH QUOTING

“We’re in the very early stages of a long recovery in condos….Now you’re seeing rental booming, but today’s renters are going to be tomorrow’s condo buyers.” — Sam Khater, deputy chief economist for CoreLogic Inc., in an interview with Business Week.