Thursday, January 28, 2010

Utah Condo Sales Are Up -- Way Up!

The Salt Lake Board of Realtors issued its fourth quarter 2009 Housing Market Report, and it appears that the Utah housing market, and particularly the condominium market may be on the mend.

Single family sales were up 36 percent compared to the same quarter of the previous year; condominium sales were up even more.  544 condominiums sold during the quarter in Salt Lake County, which was a 42 percent increase over the corresponding 2009 quarter.  

The year-end figures for 2009 were also up over the numbers for 2008.  2008 was the third year of a three year downturn in sales, thus suggesting that 2008 may have been the bottom.

Here's a link to the Salt Lake Board of Realtors' press release and here's a link to a spreadsheet of the statistics.

Monday, January 25, 2010

That's a Pretty Big Loan...

The New York Times is reporting today about a rather major default; the debtors defaulted on $3 billion worth of notes last week.  The 5.4 billion dollar deal which defaulted had involved 110 buildings and 11,227 apartments in what was the most expensive real estate deal of its kind in American history.

Wonder if anyone will try to step in and convert the to condominiums or cooperatives?  Hah!

Saturday, January 23, 2010

CCAL Law Conference -- Financing Availability

Over the past several years, many changes have taken place in real estate financing; one of the less publicized areas of change deals with the availability of financing for community associations.  Lenders and underwriters are changing the way they review and approve those associations that can get federal mortgages.

The panelists for today’s town hall meeting on mortgage financing eligibility include DeLynn Conley, Senior Risk Manager, Project Standards, Fannie Mae; Loura K. Sanchez, Esq., CCAL, Stephen M. Marcus, Esq., CCAL; and George E. Nowack, Esq., CCAL.

FHA Loans

FHA loans are now 30% of the market.  On February 1, spot loans will no longer exist.  Previously, questionnaires would be distributed, and largely ignored.   However, starting on February 1, associations will need to be approved, and those approvals will be expensive to obtain.

There are 3 mortgagee letters that have been issued.  Mortgagee letter 46b provides two methods for approval; currently, all applications are being sought through the FHA.

There are many documentary requirements on applying for certification.  An attorney’s opinion is not required by FHA, but is left to the lender or developer.  The developer or lender may, in turn require a letter.  That opinion will require, in theory, that an association complies with “all applicable laws and regulations…” 

Rights of first refusal will be allowed, if not discriminatory.

FHA may have an advantage with respect to pre-sale requirements; in connection with FHA, it will be at 30% through the end of 2010.

FHA used to limit its involvement in a project to 10%; that will be increased to 50% through 2010.  Thereafter, it will decrease to 30%.

FHA appears to have removed legal document requirements, other than a transition limitation.

FHA will be reviewing budgets, and an inclusion of deductible funding for insurance deductibles.


FMAC will follow FNMA and FMAC requirements; FNMA will require 10% reserve funding and deductible coverages for insurance.

Insurance Requirements

FNMA requirements now require insurance to cover 100% replacement cost, including replacement of the Units.  This can be a guaranteed replacement cost policy, or a policy with a replacement cost policy with an agreed value endorsement to cover any coinsurance gap.

Under the new rules, a borrower becomes involved in connection with betterments and improvements.  If the association policy doesn’t cover betterments and improvements, there will be a gap.

Bare Walls – the association’s policy will cover only replacement of the drywall or plaster, and none of the fixtures or improvements.

Single Entity – the most typical coverage, according to Nowack.

All-In  -- the association’s policy will cover and replace all contents of the unit, including the improvements and betterments.

If the association does not cover with all-in coverage, the owner must obtain a “walls in” policy.  (Which would be a standard HO-6 policy.)  The policy must cover, at a minimum, 20% of the appraised value of the Unit.  A major problem with this, of course, is that the value of a Unit may well include intangibles such as a view.

Another new insurance requirement is fidelity coverage; the association needs to have a minimum of three months of aggregate assessments, and an amount equal to all of the association’s reserves.

What Next?

Steven Marcus is suggesting that associations be proactive prior to February 1 to obtain certifications; Project Approvals out of Philadelphia is one possible source.

Associations involved in litigation, and associations with special assessments in place, will be reviewed on a case-by-case basis.

CCAL Law Conference -- The Unauthorized Practice of Law

Yesterday afternoon, I attended a session on the unauthorized practice of law in community associations, with an emphasis on managers’ conduct.  The hypotheticals were fairly predictable; sales contracts by realtors, interpretation of governing documents and the biggie – managers preparing and filing liens.  Richard Ekimoto pointed out that the unauthorized practice of law constitutes a civil and criminal offense in all 50 states.

Now, the focus has shifted to the aiding and abetting of the unauthorized practice of law – the first question, does an attorney aid and abet by preparing a “standard form” for managers’ use?  This isn’t an issue for me, in light of my declination of representation of management companies, but I have no doubt that my forms are being used as “forms” (and modified) by managers and associations alike. 

Richard Ekimoto is telling about having been informed that a management company that he once worked with who admitted to having had a binder full of opinion letters from his firm and others, for review and use by managers within the office.   Needless to say, there are some real problems with that, the least of which is the obvious breach of the attorney/client privilege associated with that conduct.

The audience is suggesting there’s a trend for managers to get more aggressive in their marketing of legal services.  An Arizona manager who apparently asked a question at last year’s seminar is posting materials suggesting that he “spoke at the College of Community Association Lawyer’s seminar.”

Now there’s a backlash from managers who assert that they’re constantly put into an untenable position of being asked to answer legal questions, but told not to call counsel for the answers.  Fortunately, the moderator brought that discussion to a halt before you (and others) heard about it (and the ensuing brawl) on the evening news…

A couple of other points quickly presented as the seminar draws to a close:

·      The presence of counsel at a meeting will, if appropriately handled, allow for the protection of candid discussions under the cloak of the attorney-client privilege.

·      An association board that relies upon the advice of an appropriate professional will be protected by the business judgment rule, regardless of the wisdom or advisability of the ultimate decision.  The business judgment rule focuses on the procedure associated with decision making rather than the substance of the decision.

CCAL Seminar -- Collecting Assessments

Terry A. Kessler, Esq.; Michael S. Karpoff, Esq. and David C. Swedelson, Esq. are the speakers for this session.

A topic being addressed for the third time in this session is assessment recovery; once again, attorneys here are stating that they’re seeing clients take their collections to other firms and other resources (such as collection agencies).

Needless to say, everyone is reminiscing about the good old days, when less than 1% of the matters were going to sale; now it’s probably 20%.  In California, they’re starting to see some of the units get picked up at the sale.

Terry Kessler is an advocate of judicial foreclosure from New Jersey.  Judicial foreclosures were taking 6 to 9 months; now it’s taking from 8 to 12 months, and sometimes up to two years, to finish the judicial process.

Ms. Kessler also advocates the pursuit of rent from tenants where possible, even where the lender is foreclosing its lien.  In Utah, specific statutory provisions facilitate the association’s ability to demand rent from tenants.  Hence if your association has rental units, the occupancy of a unit should be considered as an aspect of the collection plan.

CCAL Seminar -- Insurance Audit

Joel W. Meskin, Esq., CIRMS presented a session today on auditing associations’ policies.  In actuality, the discussion related more to a review of policies, but he covered many good points in the allotted hour.

Joel’s hypothetical began with a failure to provide timely notice of a potential claim and a resultant declination of reimbursement for initial defense case.

Joel reminded in a session yesterday, and again in his session today that associations should NOT distribute a list of delinquent unit owners.  He frequently sees claims arising from those lists. 

Joel recommends that all associations have reserve studies, and asserts that these reserve studies may be one of the most important risk management tools to an association.

Joel notes the difference between imbedded D & O policies and stand-alone policies.  Several companies provide D & O coverage as an automatic endorsement; the imbedded policies generally, if not always, provide lesser coverages.

Many, if not most Directors and Officers (D & O) claims are not monetary claims; the imbedded coverages may exclude many of these types of claims.   Imbedded policies also limit the class of those included within the category of insureds.

Respecting fidelity bond coverages, Joel is recommending the greater of:

1.     the maximum funds that will be in the custody of the association or its management agent at any time the bond is in force;
2.     any amount required by the association’s bylaws;
3.     any amount required by statute; or
4.     three months of assessments/fees plus current reserve funds as required by the lenders.

Crime coverage is a separate coverage from fidelity coverage, and covers theft and related losses resulting from acts of third parties.

Attorneys often represent their clients without giving notice to the carrier, and then the policy period passes.  That will result in the loss of coverage.

CCAL Seminar -- The Case Law Update

One of the many highlights, and always the best-attended events of the CCAL Law Conference, are the two morning sessions of the Case Law Update, which has been presented for the past several years by the team of Wilbert Washington II, Esq., CCAL and George E. Nowack, Jr., Esq., CCAL.  Their always interesting and humerous presentation is based upon a compilation of leading cases of the preceding year; the cases are compiled and summarized by Donald Dyekman, Esq., CCAL.

Here’s my summary of their commentary on the cases; if and when I get Don’s permission, I’ll add a link to his compilation, which includes even more cases, and some slightly different commentary.

Amendment of Covenants and Bylaws

Apple Valley Gardens Association, Inc. v. MacHutta, 763 N.W. 2d 126 (Wisc., 2009) involved a lease restriction adopted through an association’s bylaws; the court upheld the amendment.  The bylaw amendment had not been recorded..

Riverview Heights Homeowners’ Association & Riverview Heights Homeowners, Inc., v. Rislov, 205 P.3d 1035 (Wyo., 2009) involved a challenge to an amendment that had purportedly been adopted, but had not been memorialized as required – the declaration required attestation in the “form of a deed.”   The court invalidated the amendment based upon the improper attestation..

Nikolai v. Deer Run Owners’ Association, 2009 Ohio App. LEXIS 5525 (Ohio App. 2009) held that the shifting of a roof’s status from common area to limited common area, (in order to shift maintenance responsibility),  constituted a change in the “Units” and thus required unanimity.  

In Platt v. Aspenwood Condominium Association, Inc., 214 P.3d 1060 (Colo. App., 2009), the association developed two lots on the common area, and then contracted with members for the purchase of one of the lots.  The association demanded supermajority consent for the sale, and the court affirmed that action.  The court, however, questioned the association’s good faith.

The association’s letter seeking approval, however, indicated that the sales may have been under contract at too low of a price, and pointed out that the association’s failure to approve the sale would have reduced the assessments for all unit owners.

Raphael v. Silverman, 2009 Fla. App. LEXIS 17689 (Fla. App., 2009) involved an association board’s decision to replace balcony dividers with transparent, rather than opague, dividers.  The Raphaels sued the association and the board members individually.  The plaintiffs’ allegations of self-dealing on behalf of the unit owners were dismissed, in the absence of evidence respecting any particular individual benefit to the board members.

Cohn v. The Grand Condominium Association, Inc., 2009 Fla. App. LEXIS 16833 (Fla. App., 2009) involved a mixed use community.  After the formation of the association, Florida law changed, requiring a majority control by residential owners.  Many years later, that statute was further amended, to make it retroactive.

The commercial owners raised a constitutional argument, that asserted that no law could abridge contractual rights.  The court imposed a balancing test, starting with an implied limitation requiring a substantial impairment.  The court found this to be a substantial impairment on the association’s voting structure, and found for the commercial and retail owners.

Wil Washington calls the Village of Doral Place Association, Inc., v. For Sale by Owner Realty, Inc., 2009 Fla. App. LEXIS 15540 (Fla. App., 2009). , the “Nightmare on Doral Place” suit.  Shortly after the transition, the manager received a tax notice on the property on which the association was owned for $2,593.85, which was not paid; another party bought the property and fenced off the pool.  The tax sale was affirmed; ultimately the association had to buy the property back from the subsequent pool owner.

Comcast of Florida, L.P. v. L’Ambiance Beach Condominium Association, Inc., 17 So. 3d 839 (Fla. App., 2009) involved a dispute as to the continued enforcement of a developer’s contract following transition.  The association succeeded in determining that the developer had properly reserved the right to terminate the contract at the time of transition.

Lake Forest Master Community Association, Inc. v. Orlando Lake Forest Joint Venture, 10 So. 3d 1187 (Fla. App., 2009) was a construction defect case; the developer sought to have the suit dismissed based upon an alleged failure to seek association approval of a lawsuit.  In fact, however, the lawsuit had been approved in a third rescheduled meeting; the developer challenged the propriety of notice for the third rescheduled meeting.  The court noted that the association had properly followed the procedure for the meetings; unfortunately, the association’s minutes of the second meeting failed to note the adjournment of the meeting.  Parol evidence was allowed, and the association’s secretary recalled the adjournment and re-notice.  The developer’s last argument, that the majority vote requirement was a requirement for a majority of all, also failed.

Covenant Enforcement

Musgrove v. Westridge Street Partners I, LLC, 2009 Tex. App. LEXIS 2660 (Tex. App., 2009).   Covenants imposed in the 1940s required single-family homes and greenspace; for many years thereafter, they were ignored.  One of the remaining two lot owners offered to sell his lot to the developer; the developer declined, and the would-be seller sued.  The court noted that no one had sought to sue for fifty years; indeed the court found that the seller was unaware of the covenants until after he sued.  The court found that the restriction had been abandoned.  The unit owner tried to argue that the non-waiver clause precluded this result, but the court held the non-waiver clause to have been abandoned.

Schwartz v. Banbury Woods Homeowners Association, Inc., 675 S.E. 2d 382 (N.C. App., 2009).   This 14-page opinion, according to George Nowack, answers the question of whether a motor home is a camper.  The owners said that their use of the motor home as an extra bedroom, occasional refrigerator and “granny unit” excluded them from the otherwise applicable screening requirement.  

The owner relied upon the motor vehicle code, suggesting that the distinction between a self-propelled vehicle and a camper in the statute was relevant; the court made a historical inquiry and decided that a motor home was, indeed, a camper.

Fox v. Madsen, 12 So. 3d 1261 (Fla. App., 2009) dealt with the statute of limitations in a challenge to a condominium declaration amendment; the court found the applicable statute to be the 5-year statute respecting contracts.

Westgate v. Laumbach, 966 A. 2d 349 (Del., 2009) involved a Quonset hut installed right on the boundary of a lot.   The court took testimony from neighbors; testimony indicated the hut owner was irritable and the structure was a nuisance.  The owner removed the hut, but left the contract.  The court enjoined future misconduct, and the owner argued that he was being subjected to “selective enforcement.”

Lallo v. Szabo, 911 N.E. 2d 788 (Mass. App., 2009) was a two-unit duplex; the upstairs owner wanted to expand into the attic, which was a common area.   The covenants required arbitration in the event of a dispute; the upstairs owner insisted upon arbitration.  The downstairs owner pointed out that the arbitrator would be unable to provide a remedy, hence making the arbitration clause inapplicable.

Abril Meadows Homeowner’s Association v. Castro, 211 P. 3d 64 (Colo. App., 2009) involved an attempt to impose fines upon an owner who modified without consent; the declaration had been recorded without a signature.  The lack of a signature resulted in a remand to the trial court for imposition of appropriate attorneys’ fees.

Covenant Interpretation

Fawn Lake Maintenance Commission v. Aldons Abers, 202 P. 3d 1019 (Wash. App., 2009) involved a discussion between an association president and an owner; the lots were combined with the governmental agency, but there was no agreement with the association.  The association limited access and rights, but continued to impose assessments on two lots.  52 other lot owners, many of whom owned more than one lot, were treated similarly.

Starlight Ridge South Homeowners Association v. Hunter-Bloor, 99 Cal. Rptr. 3d 20 (Cal. App., 2009) involved a property with various concrete channels to deal with erosion.  An owner with a channel in her lot refused to maintain her lot; the declaration language was in conflict, but the more specific provision, dealing with channel maintenance, controlled.  The owner was required to maintain the lot.

In 1230-1250 Twenty-Third Street Condominium Unit Owners Association, Inc. v. Bolandz, 978 A. 2d 1188 (D.C. App., 2009) an owner made an enclosure surrounding his balcony, in part to protect his unit from water damage.  The court found that the unapproved modification was a violation of the covenants, but that the association’s failure to maintain, despite repeated requests, warranted the continuance of the modifications.  The unit owner was awarded $157,000 in attorneys fees.

Fair Housing

Bloch v. Frischolz, 2009 U.S. App. LEXIS 24917 (7th Cir., 2009) is a continuation of a case involving the installation of a mezuzah in a common area.  The court considered whether the enforcement of the rule, however, was neutral.

Overlook Mutual Homes, Inc., v. Spencer, 2009 U.S. Dist. LEXIS 105100 (S.D. Ohio, 2009) is a companion animal case.  The owner sought an accommodation to keep their daughter’s dog “Scooby.”   The court made a distinction between the ADA regulations and HUD regulations dealing with HUD-administered housing.  Scooby was allowed to stay.

Hawn v. Shoreline Towers Phase I Condominium Association, Inc., 2009 U.S. Dist. LEXIS 24846 (N.D. Fla., 2009) was another pet case; the owner returned from vacation with his dog, “Booster.”  The first letter failed to make any mention of the alleged service nature of the dog; the later letter asserted that Booster was necessary for psychological reasons, and that Booster was now “certified.”  The association sought supporting medical information.  Booster’s owner pursued his claim in the applicable agency and prevailed; the matter then went to court.  The owner’s failure to provide the information relieved the association from liability

Stross v. The Gables Condominium Association, 2009 U.S. Dist. LEXIS 52918 (W.D. Wash., 2009) involved a woman with severe disabilities who wanted 12 rather than the otherwise available 4 keys for her various caregivers and emergency responders.  She agreed to consent to a lockbox, to which the board agreed, but only on the condition that she signed numerous documents.  The court restrained the association and gave her the option of selecting either the 12 keys or the lockbox, and affirmatively released her from the obligation to sign any documents in connection with her choice.  

Friday, January 22, 2010

Law Conference -- The Panel of Pundits

This afternoon’s session is the opportunity for an interactive session, with five practitioners fielding and responding to questions from the audience, and audience members jumping in.  Questions have been submitted in advance, and can be submitted from the floor.

  • ·        Jim Strichartz, from Washington, says that his firm has 75 active foreclosures pending against lenders, with their goal being to get title to the property, and collect rent through a court-appointed receiver.  Other associations are seeking to remove bank-owned units from the association’s blanket insurance policies, so as to force the lenders to obtain (and pay for) their own insurance.  Obviously, that decision creates some significant risk, particularly where the uninsured units are integrated with other units.
  •       Several attorneys in the audience have obtained loans for their client associations through the Small Business Administration to cover uninsured casualty losses arising from earthquakes in California and floods in Georgia.  There are some interesting issues as to how (or if) those loans are being secured.
  •          The firm of Hindman Sanchez, in Colorado, offers a monthly “foreclosure hotline” to which homeowners can call in their foreclosure questions.  Loura Sancez reports that they’re not getting many calls, and the services would otherwise be free to their flat-fee clients, but she thinks it’s good marketing…
  •              Much of the discussion has now moved to how to deal with the confusing collection issues that are arising daily in today’s economy.  Lots of firms report that clients are moving based upon dissatisfaction with their attorneys’ collection success rates based upon historical expectations. 
  •             David Swedelson is concerned about his associations that are deferring maintenance and repairs on their associations.  He was watching the news and saw an interview with a client board member, who was explaining that they couldn’t afford to repair the crater.  Needless to say, he called his client the next day to tell him to advise that they fix it immediately.  Some things cannot be deferred.
  •            George Nowack  and the members of  his firm are adding language to their declarations specifically providing that apathetic unit owners who don’t respond to several overtures for a vote will be deemed to support “whatever the association wants.”
  •            Several panelists and audience members are seeing their clients get unintentionally immersed into collection agency contracts that take not only past due, but also future assessments.   And no one on the panel or in the audience believes that credit reporting is of assistance.  
  •       George Nowack reports that many of his firm’s associations are offering amnesty or partial amnesty on getting something.  These decisions, made on a case-by-case basis can be warranted by the business judgment rule.  Furthermore, associations have some flexibility in connection with late fees and interest.

Trying to Live Blog the Law Conference...

today was frustrating, to say the least.  Some rooms had wireless; others did not.  And I foolishly left my wireless modem at home, or at the office.  Wherever it is, it's not here.

At any rate, I was typing away during several presentations. And though they're far from live, I will post them.  One in just a moment, and a few others in the morning.

CCAL Seminar -- Fraud in Associations

I'm at a session now on fraud in associations; there's several hundred people here, and a show of hands reveals that a large majority -- probably 90% -- of the audience has had an association that was victimized by fraud.  Clearly it's happening a lot, and it's probably only being discovered some of the time.

Multivest Management was a major case of embezzlement; one of the principals of the company managed to embezzle 3.4 million from about 50 associations over a 7 year period.

One association in the state of Ohio resulted in a $650,000 loss.

Another association was victimized by a management team where the maintenance man, in connection with the accountant, was fabricating maintenance reports and getting paid on them.  Several associations have been victimized by improper use of credit cards.  (And indeed I personally served on a CAI ethics investigation involving improper personal use of a credit card.)

Another association was taken over by a disgruntled owner who took over an association by gaining the trust of other recent immigrants; the individual obtained control, took over the management duties, embezzled and stopped paying his assessments.  The 95 unit association lost  over $130,000.

An association with a volunteer owner/treasurer resulted in the loss of more than $80,000 from a 75 unit association.

Turning to prevention ideas, suggestions include:

Segregation of duties:

First, make certain there is no comingling of your association's funds.  Have them tied to your association's tax ID;
Use a lockbox system for receipt of assessments;
Segregate and monitor the association's reserves.


Require duplicate bank statements an assure that the person reconciling the account is other than the one writing the checks;
Enable online account review;
Compare invoices with the corresponding checks;
If the association allows  credit card, have a low limit and monitor the invoices.

Third Parties

Get banking services from reputable lenders
Consult with a qualified agent and get adequate coverages (and remember that D & O coverage is not the same as fidelity coverage.
Hire a qualified third party CPA to conduct reviews at a minimum, and even better yet, audits.

When obtaining insurance, make certain that everyone with access to money is covered.  Be aware of what the discovery requirements are, and what will invalidate your coverage.

The secondary mortgage market is requiring coverage for three months worth of assessments; there is no penalty for noncompliance, but noncompliance will complicate the ability to finance units.

Thursday, January 21, 2010

CCAL Law Conference -- Rental Restrictions

The first session that I'm attending is on rental restrictions in community associations; the presenters are David Ramsey, Esq., CCAL and Jennifer Loheac, Esq., lawyers from the New Jersey firm of Greenbaum, Rowe, Smith, Davis, LLP.

New Jersey, like Utah, has no cases specifically on associations' rights and abilities to amend to restrict rentals, although a case dealing with parking, ________, touches on the rights associated with property ownership.

Woodside Village VIII Condo. Ass’n. v. McClernan, 806 So. 2d 452, (Fla. 2002),  involved a restriction on rentals which allowed short term rentals without association consent, and longer term (over one year) leases with the consent of the board.  Ultimately, the board sought to allow rentals for only nine months of a year.  New purchasers could not lease their units until they had owned for a year.

An investor continued to rent in violation of the restriction; the association sued and the defendant counterclaimed.  The lower courts held for the defendant/owner; the Supreme Court reversed.

One side note to the Woodside Village case arose from Woodside's having had set aside 6 units for disabled rentals; that led to a challenge and partial settlement.

In Seagate Condominium Association v. Duffy, 330 So.2d 484 (4th District Ct. App. 1976) , the challenge arose in connection with an allegation that the rental restrictions unduly "restrained the alienation' of units.

The rental restriction had been passed by 96% of the units.  The unit owner rented to college students; a lawsuit ensued.  Florida had limited only absolute and near absolute restrictions; the restriction on leasing was not absolute.  The court indicated that these amendments would be reviewed in the context of reasonableness; impliedly, at least, the 96% sentiment was significant.

Breene v. Plaza Tower Ass’n, 310 N.W. 2d 730 (N.D. 1981), involved a declaration that prohibited various types of actions; the association prohibited almost all leasing.  Breene sued; prevailed at the trial court, and the association appealed.  The court precluded any amendment with a retroactive effect or effect on current owners; presumably they considered these rights too significant to allow change of rights as to existing owners.

Shorewood West Condo. Ass’n v. Sadri, 992 P.2d 1008 (Wash. 2000), involved a challenge from investor/buyers, but the lower court precluded the retroactivity of the provision.  The Court of Appeals reversed, and it was further appealed to the Supreme Court.  The change in the bylaws was found to be invalid; had the amendment been in the declaration, owners would have notice of the change.

Charter Club on the River Home Owners Ass'n v. Walker, (Unreported, Georgia Court of Appeals, 2009 Ga. App. LEXIS 1397), involved another challenge by a unit owner who was renting, and continued to rent, after the amendment.  Georgia's statute imposed amendments which restricted "use" without the owner's consent.  Georgia's court started out by asserting that restrictions in declarations will be strictly construed.  Leasing property is a type of "use;" hence the statute precluded the restriction.  The question arising from this case is whether it can be applied to those who voted in favor of it (yes, according to a Georgia lawyer at the seminar) and whether it can be applied against those who didn't vote (no, according to the same lawyer).

Villa De Law Palmas Homeowners Ass'n v. Terifaj, 121 Cal. Rptr. 2d 780 (Court of Appeal 2002) involved a restriction adopted by rule; the owner challenged the rule and the trial court questioned the validity of the rule.  The association then made the rule into an amendment, and the court's inclinations shifted.

Apple Valley Gardens v. McCutta , from Wisconsin, involved a developer who retained some units; the association amended to prohibit them.  The declaration, from the outset, had impliedly allowed rentals through such provisions as one providing that the lease of a unit would not relieve the buyer of an obligation to pay the assessments.

The bylaw amendment was held to be acceptable, and not contrary to the declaration, and lastly the limitation was not an unreasonable restraint on alienation.

Villas West 2 v. McLauthen involved Fair Housing Act challenge to a rental restriction.  The purchaser bought after the rental restriction was in place; the McLaughlins both moved from the house.  The daughter attempted to rent the house; the no-lease provision was alleged to have a disparate effect on minorities.  The rental restriction had an adverse impact on minorities;  in the disparate impact, the association could respond only by showing a good reason for the rule.  The speakers anticipate more of these fair-housing based challenges to rental restrictions.

Moving onto "tips for the practitioner," the speakers suggest:

  • Include a hardship exception, to make the amendment seem more palatable to owners and the courts;
  • Make the hardship exceptions objective, to protect arguments respecting arbitrariness;
  • Don't even try to take away vested rights (e.g., such as terminating an existing lease);
  • Better in the declaration than the bylaws, (or even worse, a regulation;
And now there's an interesting discussion about whether or not grandfathering is acceptable, and if so, how do you do it.  (There's a practical side to this, both in connection with getting votes and avoiding lawsuits.)

Friday, January 15, 2010

Live Blogging -- 2010 Legislative Update

I'm at the Utah State Capitol (East Senate Building, actually) for the Utah Chapter of the Community Association Institute's (UCCAI) monthly luncheon; the topic today will be the 2010 legislative session, and particularly the Legislature's anticipated consideration of the Uniform Common Interest Association Act (UCIOA).

John Morris, chair of the UCCAI Legislative Action Committee, is introducing the event and participants.  Senate President Michael Waddoups is unable to participate, but is supportive of the legislation, and legislation related to community associations in general.  Likewise, Wayne Niederhauser is covering for Senator Waddoups at another meeting and thus also unable to attend.

Gage Froerer, the House sponsor of UCIOA, is running late, but anticipated to attend.

Marla Mott-Smith is inviting contributions and pledges to the Utah LAC; pledges can be made to

Andrew Fortin, Vice President of Government Affairs from the national office of the Community Associations Institute is discussing changes on the national level related to mortgage financing in the United States.  Delinquency standards and pre-sale standards are chilling the mortgage markets.  CAI and its members, he says, must be vigilant in watching the legislation on the state and federal level.  Andrew is presenting a $3,000 check from the national office to support the Utah LAC's efforts.

John Morris says there will be legislation on transfer fees this year; the problem arises from provisions requiring payments in perpetuity to a third party.  That differs from legitimate transfer fees associated with many associations.  Representative Webb is considering legislation on this issue.  The fear is that the legislature may eliminate all transfer fees, regardless of their nature or proposed beneficiary.

The discussion has now departed from legislation and headed to inquiries about the advisability and legality of board-imposed transfer fees and board-imposed special assessments.  The consensus:  just don't do it.

Rich Vial is giving a history of the 7+ year history of trying to get Utah's community association laws updated.  For about 4 years, people in the industry have been working on the drafting of the legislation, but the politics of attempting to pass the legislation lie ahead.  Vial says that the legislation will not pass without the support of builders and realtors.  Robert Rees says he's about 80% of the way through the review and editing of the proposed legislation.

Wednesday, January 06, 2010

Last Call -- CCAL Law Seminar is only 14 Days Away!

Don't forget that the College of Community Association Lawyers' 31st Annual Law Seminar will be held in sunny (and less polluted) Tucson two weeks from tomorrow; you can still register here.

And if you can't go, you should watch this site for information from the conference.  I'll be live-blogging the sessions that I attend, and if Julie Ladle is at another, she'll post a summary as well.  Topics to be discussed will include (among many other matters): difficult people, the economy (of course), rental restrictions, Chinese drywall, contested elections and the unauthorized practice of law.

And, of course, there will be case law and legislative updates.