Alphabet Soup

This afternoon's discussion, continuing in the economic theme, is a discussion on lending in the community association industry. Several representatives of private project approval companies, a representative of FannieMae, and a developer's attorney (who explains that he has inadvertently become a banker's attorney are discussing the current state of financing in the U.S.

Historically, FHA was the first government-related association to assist in condominium funding; that was ultimately followed by the VA, then FNMA and FMAC. These entities all had underwriting standards relating to which projects they would lend upon; community associations could seek and obtain approval, once that approval was obtained the approval would be posted, and would be permanent, in the absence of litigation, or certain other significant adverse actions.

In November of 2007, however, FNMA stopped granting approvals and deferred the approval decision to lenders. That caused great consternation, as lenders did not know what they were doing, and loan availability suffered.

Recently, FNMA has indicated that it will resume the project approval program, with several different options.

An attorney, who is the past president of CAI, is suggesting that a price protection plan for homes will solve the World economic problem. Simplified greatly, he's proposing that new homeowners be assured of a repurchase of their home, at the original purchase price, after a two year period.

One drafting suggestion to the practitioners is that association governing documents allow board modification of provisions relating to secondary mortgage markets.

Several of the panelists are reminding attendees that the agencies will, even in otherwise noncompliant projects, grant exceptions in appropriate circumstances.

CCAL Case Review -- Part 2.

Back to the case review:

The first case of the morning's discussion is Pacific Hills Homeowners Association v. Prun, a case involving an association's five-year long pursuit for the removal of a fence. The lawsuit came five years after the first letter; the unit owner defended based upon laches, and waiver.

Park Ridge Condominium Association, Inc. v. Callais involved an association that refused to produce records based upon a contention that the request was designed to harass; the production was required, and fees were awarded.

Ritter & Ritter, Inc. Pention and Profit Plan v. The Churchill Condominium Association, involved a dispute between a unit owner and an association, relating to required repairs to slab penetrations between units. The court reaffirmed the board's fiduciary duty, but then analyzed the decision on the business judgment rule. Judicial deference applied to the board, but not the association; the association owed a duty to the members, and the association had to repair the problem. In other words, the board was not liable for deciding not to make the safety repairs, but the association had a duty to make them.

Thompson v.Toll Dublin, LLC involved a builder's effort to force an association into arbitration in connection with its construction defect; the developer knew of the defects, resulting in fraud claims against the developer. The Court rejected the effort to force non-statutory claims into arbitration; the court also found the arbitration provisions to be unconscionable.

A California case, Treo @ Kettner Homeowners Association v. The Superior Court of San Diego County involved a condominium provision which purported to take away the unit owners' right to a jury trial in a construction defect case. The Court denied the enforceability of the provision, based upon the absence of meaningful negotiation in connection with the declaration's provisions.

An Arizona case, The Lofts at Fillmore Condominium Association v. Reliance Commercial Construction, Inc. held that a builder was liable rof breach of the implied warranty of habitability, even where the seller was not the builder. The implied warranty arose between the builder and the ultimate buyer, even in the absence of contractual privity.

Lake Buckhorn Property Owners Association, Inc. v. Townsend involved architectural restrictions in a declaration which were supplemented by a more restrictive regulation respecting the size of a septic tank. The court restated the black letter law that an association's regulations which are inconsistent with a declaration are invalid.

Miller v. Savana Maintenance Association, Inc. is a fair housing case which affirms an association's right to insist upon medical records to substantiate a claimed handicap under the Fair Housing Act.

Chesler v. Conroy involved outrageous behavior among the residents of a three unit condominium; the parties clearly treated each other inappropriately; nonetheless, the court held that this particular case did not rise to a federal fair housing claim, based upon disability. The Court did reaffirm the potential, in appropriate cases, of a hostile environment fair housing claim.

Bloch v. Frischholz was a religious discrimination case; it involved a woman who challenged an association rule based upon its interference with her right to mount a mezuzah (a religious symbol) on her door, in a common hallway. The Court held that the religious discrimination prohibitions in the fair housing act does not require a religious accomodation, and facially neutral restrictions were permissible.

On to Alternative Dispute Resolution

Things are getting more interesting now; the discussion has moved to whether or not mediation works.

A few lawyers are saying that it never works; most lawyers are in jurisdictions where mediation is mandatory. Benny Kass is speaking favorably of the process; he laments only that mediation comes at the end of the case. There seems to be a consensus in the room that if mediation fails, it is often due to poor choice of a mediator.

On to leasing restrictions... Once again, participants are talking about "rental prohibition regret" -- the situation where partially vacant associations are wishing that they could allow rentals, in order to stop or slow foreclosures, or provide for some income that might allow for the payment of assessments. A panelist who will remain unnamed is suggesting, with a chorus of "boos" that "A board doesn't necessarily have to follow its bylaws." The contention is that the times warrant the action. Jim Strichartz is suggesting that boards should seek adoption of temporary moratoriums on enforcement. Another participant reminded that any such hardship should be conditioned upon continued payment of assessments.

Similarly (as discussed yesterday), what about the age-restricted communities? First and foremost, associations are reminded not to lose their exemption status in connection with the granting of such hardship exemptions.

Another suggestion: Can a board exercise its business judgment, in light of financial difficulties, not to pursue enforcement of violations during the financial crisis? Most panelists (and I) think that's a rather scary proposition, because it might lead to widespread violations, which could lead to waiver of the provision.

CCAL Law Conference -- Day 2, Part 3 -- The Economy, Again

Another session dealing with the economy -- this time, "How to Guide Your Firm Through the Economic Slump". Four partners/shareholders of various sized firms are addressing the economy's effect on firms; all of these firms are seeing dramatic increases in revenue, and (unfortunately) parallel increases in accounts receivable.

One bit of consistent advice from all of the panelists (Hobbs & Olson clients beware) is that firms be more aggressive in following up on accounts receivable. All of the panelists report terminating clients who haven't been paying.

Two collection attorneys in California report that due primarily to the California statutory restrictions, they are accessing each routine collection matter at least 50times. Suddenly, the weather in Southern California is not quite as inviting...

All of the attorneys on the panel insist upon payment for their collections rather than accepting contingent referrals; the consistent response: "You get what you pay for..." Contingent firms, these panelists say, tend to focus only on gathering the "low hanging fruit". Those easy cases, of course, are not the most important cases to be pursuing.

Liveblogging CCAL -- Part 2

The current session is dealing with the perpetual issue of when to report a liability claim. The speaker, Jeanette Dixon Lee-Sam, is reporting that one of the largest reasons for denial is the failure to give timely notice. She reports that her company (AIG) has a staff or lawyers, one of whom will be appointed to seek to resolve the claim, in house.

Ms. Lee-Sam has stated, more conclusively than I have ever heard anyone state, that the notice of a potential claim will not adversely affect coverage or premiums. Her co-presenter, Joel Meskin, generally agreed, although he said that a number of notices may have an adverse effect.

Association lawyers who wish to provide a defense on behalf of their insureds, and insured associations which wish to have their counsel are advised to: 1) carefully consider whether that is, in fact in the association's best interest; 2) articulate, if they do wish to represent the association, how they are specially suited to assist, and 3) be willing to accept the insurer's scheduled rates.

Live Blogging the Law Conference -- Day 2

As posted yesterday, I'm here at the College of Community Associaton Lawyers' Law Conference; while I'm at the various sessions today, I intend to share some of the highlights.

First up this morning is the first session of the two-morning case law update; there are over 50 cases to be covered. I don't intend to summarize all of them, but will note some of the highlights. If there are any particularly interesting cases, I'll follow up with summaries of some of them either here, or on this blog's parent cite, Utahcondolaw.com.

Starting out with some good news; the speakers are reporting that the "Business Judgment Rule" has been repeatedly reaffirmed. The Business Judgment Rule, simply stated, is that the good faith business decisions of a board, if within the authority granted to the board, will not be unduly scrutinized by the courts. The predictions are for more Fair Housing litigation, more Fair Debt Collection Practices Act and more construction defect cases. I think they're predicting that one correctly.

In an Ohio case, Gall v. The Mariemount Windsor Square Condominium Association, the court refused an association's attempt to "correct" an apparently erroneous par value schedule. The lawsuit, which was fought over a change of less than 1%, was brought by an individual who came in third, in an election for two directors.

A California case, Mission Shores Association v. Pheil, involved a California statute which allows a court to reduce the requisite vote for a declaration amendment, wherein 36% of the owners didn't even participate. A similar result was reached in Fourth La Costa Condominium Owners Association v. Seith. Fourth La Costa also dealt with the problem of lender approval. The court affirmed the association's mailing, by certified mail, of letters to lenders, in order to get their "consent".

In the collection realm, a Rhode Island case, Mullowney v. Masopust, rejected a marina condominium's effort to reallocate assessments. Owners in this condominium had a unit that consisted of a locker; ownership of the locker allowed the use of a boat slip. Some owners (presumably also owners of smaller boats), wanted to change the assessments, and base them upon boat size. The court found the efforts to violate the Rhode Island Condominium Act.

In Association Two Condominium Association, Inc. v. Kliger, a Florida Appelate Court rebuked a law firm for refusing to accept a partial payment on assessments. The case serves as a reminder that courts will not be sympathetic to over-reaching associations and their counsel.

A Wyoming case, Dwan v. Indian Springs Ranch Homeowners Association, Inc., involved architectural restrictions; an association which had approved a non-compliant roof pitch later rejected the same pitch on a garage, proposed for the same lot. Based upon the approval to the house, the court reversed the denial on the garage.

Gleneagle Civic Association v. Hardin, another architectural control case, involved an email exchange regarding the proposed construction of a fence. The owners requesting the fence corresponded by email; the ACC chairs responded by email; ultimately the requesting owners attempted to argue that the email rejections of the proposed fence were valid. The Colorado Appelate Court, reviewing all of the circumstances involving email correspondence, affirmed the validity of the email as a "written denial".

A Washington case, Lake v. Woodcreek Homeowners Association, dealt with an owners' conversion of airspace above his garage. The court rejected the conversion of the common area to individual space, without the unanimous consent of the owners, as it altered the owners' percentage interests in the common areas.

In McMahon v. Pleasant Valley West Association, an owner sued the owner of attacking pit bulls, and attempted to sue the association for failure to exercise reasonable control in failing to control the dogs, due to the known dangerous propensities of pit bulls. The court held that the association had no such duty.

"It's the Economy, Stupid"

I’m at the College of Community Association Lawyers’ law conference, and the big subject of the day is – yeah, you guessed it – the economy.

Speakers are covering a number of topics associated with the economy, and its consequences. Numerous suggestions are being made – few things are strikingly new to me, but the speakers’ repeated affirmation of Hobbs & Olson’s collection practices are reassuring. One of the early afternoon speakers suggested that firms should be considering the pursuit of personal judgments – a practice that we’ve been advocating for years. Another speaker suggested that associations should be including a budget line item for bad debt –I’ve only been recommending that for a year.

A big issue of discussion – and one that we are seeing more of – deals with lenders who foreclose and don’t thereafter pay their assessments, and other lenders who, either by virtue of mandated or voluntary policies, are not foreclosing on their units. It seems to be the consensus that those deadbeat lenders should be pursued aggressively. I agree.

Ellen Hirsch De Haan, President of the Foundation for Community Association Research, is suggesting that associations might want to consider relaxing some rules that might otherwise make sense. Do you want to rigidly enforce anti-rent restrictions, if that rental income might help the owner to pay their mortgage and/or their assessments? Are you going to rigidly enforce your single family restrictions if the children who lost their jobs (or the parents who lost their 401(k)) move in?

“Good guys”, who pay their assessments, are being penalized if the association does not pursue their neighbors, because the neighbors end up paying more. For this reason, associations should be actively pursuing their collections equally, but equitably.

And here’s a scary tale from Florida – abandoned homes there are being stripped of appliances, cabinets, copper wiring and everything else of value. In high-end communities, the strippers are apparently watching the public foreclosure records, and visiting the foreclosed, and thus vacant, homes. So, if you are aware of foreclosed and vacant units in your association, keep an eye on them.

Service Animals, Revisited Again

A recent edition of the New York Times Magazine included a rather lenghty, but interesting and (I thought) balanced article on the controversy surrounding companion animals.

The article addresses a number of service and companion species, including miniature horses, monkeys, goats, parrots, iguanas and ducks. The article addresses the Justice Department's proposed rulemaking respecting the Americans With Disabilities Act. As regular readers know, the ADA does not apply to most community associations. The applicable act in the community association realm is the Fair Housing Act, and it has many similarities, but also significant differences.

Because many courts and most owners don't draw a distinction between the ADA and the FHA, however, and because the issues in the article apply to both Acts, I recommend it to those who are interested in the issues. Please remember, however, that the article deals with the ADA, and the rights and responsibilities of associations and residents under the FHA differ greatly from the rights and responsibilities of providers and customers under the ADA.

Urbane Urban Turbines

The Blue Sea Development Company is building affordable housing in the Bronx which will receive a portion of its electricity from wind-powered, rooftop turbines. Ten one-kilowatt turbines, which apparently cost about $10,000 each, according to the New York Times article, will provide about half of the building's power, which should reduce the building's common area electricity usage from $18,000 per year to $9,000 per year.

This installation is one of many wind-powered installations underway in New York City, following Mayor Michael Bloomberg's stated support for rooftop wind projects in Manhattan.

Photo Credit: Rob Bennett for The New York Times

USGBC's Great Green Home Guide

The United States Green Building Council has a great web site, full of suggestions for homeowners seeking to save energy, money and to help to save the Earth. Clicking on the logo above should take you there; if not, the site is at www.greenhomeguide.org.