Here are questions we frequently run across.
We represent hundreds of condominium and homeowner associations. Condominium boards usually deal with routine matters, like property maintenance, but some issues, like the ones below, cause real headaches
1. Insurance policies. Condominium insurance is complicated for both the association and unit owners. Premium costs for association property and casualty insurance is going up. Associations have tried to deal with this by choosing coverages carefully, including higher deductibles on their policies. Higher deductibles mean that someone has to pay the deductible when there is damage. Increasingly, associations are placing that burden on individual owners through amendments to the governing documents. Some of that burden may (or may not) be covered by individual policies purchased and paid for by individual unit owners.
2. Insurance claims. Two years ago associations saw sharp increases in insurance claims for roof damage caused by heavy snow. We have seen some very large insurance claims caused by freezing pipes as well. These claims raise the possibility that insurance companies will drop coverage, and we have seen that threat several times this year.
3. Leasing and Tenants. Associations have long believed that increasing numbers of rental units in a condominium degrade the community. Many associations have attempted to place limits on the number and duration of leased units by amending their documents. Short term rental of units through AirBnB and other services brings people onto the condominium property who probably do not know the rules and may not care.
4. Pets. People care passionately about their pets, but misbehaving animals can annoy other unit owners and cause damage. Even where the condominium documents prohibit pets, federal and state Fair Housing laws override these restrictions by allowing "service animals" and "comfort animals." Some boards and owners believe that claims for the need of these animals are suspect.
5. Civility. A national breakdown in civility has made its way into condominium associations (not that it hasn't been there before). This has made it difficult to attract volunteers willing to serve on boards.
The declaration or bylaws usually sets out the procedure for starting the amendment process.
Different rules apply depending on:
-whether the amendment is to the declaration, the bylaws or the rules
-whether the amendment affects a fundamental attribute of the condominium, such as voting rights or unit boundaries.
-the nature of the amendment
-whether the condominium was formed under the Unit Ownership Act or the Maine Condominium Act
Only unit owners, not the directors, can amend the declaration. Amendments to the declaration must be certified and recorded in the county registry of deeds to be effective.
Many amendments to the declaration require approval of 67% or 75% of the voting power in the entire condominium, meaning that unit owner who does not vote essentially votes "no" to the amendment.
Amendments to the bylaws usually require approval of unit owners as well. These amendment may require approval of a majority of those voting, a majority of the voting power of all units, 75% of the voting power of all units, or some other percentage.
Resale certificates are documents, usually signed by the secretary, treasurer or manager, providing certain information of interest to buyers of a unit. The information required to be provided is listed here, and the association typically will use a pre-prepared form to do so.
Typically, the seller or the real estate broker involved with the sale will request the Resale Certificate. The association is required to provide it on request, and has 10 days to do so. A buyer can back out of a perfectly good purchase agreement for any reason, or for no reason at all, and receive their deposit back any time before receiving a Resale Certificate, and for five days afterward. No association wants to find themselves in a position where failure to provide a Resale Certificate within 10 days results in a lost sale.
Associations can charge the selling unit owner for preparation of a Resale Certificate (making sure that a bill for doing so is sent to the closing agent, so that it may be paid out of closing proceeds of sale). The typical charge for preparation is between $75 and $150, established by vote of the board of directors. Sometimes the fee for preparation is collected by the association manager and is considered part of the manager's compensation.
Banks providing financing to buyers will sometimes send their own questionnaires to the board of directors or their managers, seeking to determine whether the condominium meets the financing standards for secondary mortgage market financing (that is, Fannie Mae, Freddie Mac, etc). The contents of the questionnaire vary, and some of them ask for legal conclusions that are best answered by a lawyer.
I frequently receive requests from associations that I "record a lien." This refers to a notice, naming a delinquent unit owner and the amount of past due common assessments, recorded in the public records at the county registry of deeds.
Strictly speaking, recording the notice does not advance the associations legal position. The association has an automatic lien on the unit for assessments from the moment the assessment becomes due, lasting for five years, and this is not affected by recording the notice. The lien will exist even if the owner sells the unit, and a competent title examiner will always ask the association about this as part of a title examination on behalf of the buyer (one question on the Resale Certificate addresses this issue).
And yet, recording the lien has appeal and may be effective in convincing a unit owner to pay up. It gives the board of directors the feeling that they are "doing something," and emphasizes that they are serious about the delinquency.
Giving the unit owner prior notice of intent to record the lien may cause the unit owner to pay up and avoid the stigma of having the notice appear on the public records, possibly attracting the attention of credit report agencies.
The actual notice should be drafted by an attorney, who will typically tell the unit owner that the unit owner is responsible for attorney's fees incurred in collection efforts, stating the attorneys fees incurred in drafting and recording the lien.
The income from collection of common assessments is the lifeblood of the Association. Owners generally cannot withhold payment of assessments because they do not like something the board has done or not done.
Condominium associations have expenses, including maintenance, repair and replacement of the common elements, insurance premiums and management fees. To pay these expenses, the association levies assessments against each unit owner, based on a formula set out in the Declaration. This formula cannot be changed except with unanimous consent of all unit owners.
The Declaration may provide that the size of assessments for particular units, for particular matters, is not calculated according to the general formula. Common cases include the maintenance expense of limited common elements, services provided to particular owners, utilities expense and expenses benefiting less than all units and the expense of repairing damage caused by unit owners, their family or guests.
The Board of Directors has a wide variety of methods to make sure assessments are collected. These include:
1. an automatic lien on the unit, lasting for five years, second only to the lien of any first mortgage. The association has the authority to foreclose the lien in the same manner as a mortgage.
2. interest on unpaid assessments of 18% per year in addition to reasonable late charges.
3. Under Section 1603-116 (g) of the Maine Condominium Act, payment of the association's legal fees if the association successfully sues the owner for collection of the amounts due. Legal fees can far exceed the amounts otherwise due.
4. Under Section 1603-102 (18) of the Maine Condominium Act, suspend most rights and privileges in the association. These may take the form of denying access to amenities, prohibiting parking on the common elements or disqualifying a unit owner from voting or serving on the board of directors.
The board of directors has the authority to assess fines when an owner (or guest or tenant of an owner) violates the declaration, bylaws or the rules. Before assessing a fine the board must give the owner a chance to explain themselves through an "opportunity to be heard," at a special board meeting, usually held in executive session. At the board meeting, the owner is invited to say whatever they wish by way of explanation. It is not a court hearing and the rules of evidence do not apply. Board members will generally just listen, perhaps asking clarifying questions. If the board assesses a fine, the fine is a lien on the unit, lasting for five years. It can be enforced by court action or even foreclosure.
Fines should be rare occurrences. Every effort should be made to resolve issues informally, because the collateral damage resulting from hard enforcement can be great and lasting. Just as police officers have discretion to let off a speeding motorist with a warning, boards can exercise discretion in enforcement without losing the power to enforce similar cases later.
Larger associations should establish a policy for rule enforcement. A realistic schedule of fines for common violations will give notice to everyone what the penalty is for the violation.Consistency in enforcement of the rules is important, but again, the board has discretion.