Community Associations Newsletter - May 2018

Date: May 31, 2018

Virginia: 2018 Legislative Update for Common Interest Communities

By: Kevin Kernan, Esq. and Alysia Yi, Esq. 

The Virginia General Assembly approved a number of bills during its 2018 legislative session.  Several of the bills impact, directly or indirectly, common interest communities.  The Governor of Virginia signed the following bills into law in March and the new laws will take effect on July 1, 2018, except as otherwise noted herein.  We have outlined the substantive legislative action taken by the Virginia General Assembly that impacts both homeowners and condominium associations.

The following bills amend the Virginia Property Owners’ Association Act (Va. Code Ann. 55-508, et seq., as amended (1950)), the Virginia Condominium Act (Va. Code Ann. 55-79.39, et seq., as amended (1950)), and other statutes that may affect common interest communities.  Please feel free to contact us if you have questions regarding any of the following legislative changes.

Nonstock Corporations Members’ Meetings

House Bill 1205 amends §§ 13.1-83813.1-83913.1-84213.1-844.2, and 13.1-845 of the Virginia Nonstock Corporation Act.  The bill authorizes the board of directors of a nonstock corporation to determine that any meeting of members, either a special or annual meeting,  may be held by means of remote communication, but only if the articles of incorporation or bylaws do not require the meeting to be held at a certain location.  Since most homeowners associations are incorporated in Virginia, this bill allows homeowners association meetings to be held remotely.  Keep in mind that the Association will need to implement reasonable measures to allow members to participate and vote in a meeting that is held remotely.     

Duty to Redact Association Books and Records

Senate Bill 722 amends § 55-79.74:1 of the Virginia Condominium Act (“Condo Act”) and §§ 55-509.3:2 and 55-510 of the Virginia Property Owners’ Association Act (“POAA”).  The bill provides that books and records kept by or on behalf of an owners’ association shall be withheld from examination and copying in their entirety only to the extent that an exclusion from disclosure enumerated in the Condo Act or POAA, as applicable, applies to the entire content of such books and records.  Otherwise, only those portions of the books and records containing information subject to an exclusion may be withheld or redacted, and all other portions of the books and records must be made available for examination and copying.  An Association will no longer be able to withhold books and records when only certain portions of the books and records are eligible to be withheld from disclosure under the Condo Act or POAA.  The Association is permitted to charge the requesting member reasonable costs incurred by the Association for responding to the records request and redaction of the appropriate portions.   

Disclosure Packets: Fees and Electronic Delivery Requirements

House Bill 1031 amends §§ 55-509.455-509.6, and 55-509.7 of the Virginia Property Owners’ Association Act (“POAA”) under which associations can charge fees for the preparation and delivery of resale disclosure packages.  This bill does not affect fees for condominium associations.

The bill amends the POAA to provide that homeowners associations may not collect a fee for preparation and delivery of resale disclosure packages, whether professionally managed or self-managed, unless the association:

  • is registered with the Common Interest Community (“CIC”) Board;
  • is current in filing the association’s most recent annual report with the CIC Board;
  • is current in paying the annual payment and assessment to the CIC Board (payable at registration and with each annual report filed with the CIC Board); and
  • for professionally managed associations, the association can provide the disclosure package electronically, if requested.

The bill also amends the POAA is to give homeowners associations that are not professionally managed the right to charge certain fees that currently can only be charged by professionally managed associations including:

  • a reasonable fee (not to exceed $50.00) for expediting the inspection, preparation and delivery of the disclosure package if such expedited delivery can be accomplished within five (5) days – and only if expedited delivery is requested;
  • $25.00 for each additional hard copy requested;
  • the actual cost of using a third-party commercial delivery service or overnight delivery, if requested; and
  • a $100.00 fee for inspection of the lot and exterior of the dwelling as required to prepare the disclosure package.

CIC Board Form for Association Disclosure Packets and Resale Certificates

House Bill 923 amends § 54.1-2350 of the Code of Virginia, relating to the Common Interest Community (“CIC”) Board, § 55-79.97 of the Virginia Condominium Act, and § 55-509.5 of the Virginia Property Owners’ Association Act (“POAA”).  The bill requires the CIC Board to reconfigure its current one-page disclosure form that accompanies disclosure packets for prospective purchasers of lots located within a homeowners association  and it now requires the reconfigured CIC Board form to also accompany resale certificates provided to prospective purchasers of condominium units located within a condominium unit owners association.   

The reconfigured CIC Board form must include additional information to provide potential purchasers notice of certain restrictive covenants that may affect the potential purchaser’s decision to purchase a lot or unit located within a common interest community.

The disclosure form now must contain the following statements to alert buyers to certain aspects of ownership in a community association even though some of these items will not apply in every community: 

  • limitations on an owner’s ability to rent his/her unit;
  • limitations on an owner’s ability to park or store certain types of motor vehicles or boats within the community;
  • limitations on an owner’s ability to maintain an animal as a pet within the lot or unit or within the common areas;
  • architectural guidelines applicable to an owner’s lot or unit;
  • limitations on an owner’s ability to operate a business within a dwelling or condominium unit; and
  • the period or length of declarant control.

The CIC Board disclosure form must also contain the following statements:

  • the purchaser is responsible for his own examination of the documents included in the resale disclosure;
  • the purchaser shall carefully review the entire resale certificate or disclosure package; and
  • the contents of the resale certificate or disclosure package shall control to the extent that there are any inconsistencies between the CIC Board form and the resale certificate or disclosure package

Authority of Special Conservators of the Peace

House Bill 151 amends § 19.2-13 of the Code of Virginia, relating to Special Conservators of the Peace (“S-Cops”), who are sanctioned by court orders and regulated by the Department of Criminal Justice Services.  S-Cops can be contracted by homeowner’s associations and have arrest powers, can be armed with a gun and Taser, and can serve documents like warrants.  This bill limits the powers provided in the power of appointment for an S-Cop to only the duties for which the S-Cop is qualified by training as established by the Criminal Justice Services Board. 

Additionally, the bill requires the order of appointment to provide that such duties shall be exercised only in the geographical limitations specified by the court and that it delineate a geographical limit or distance beyond which the S-Cop may not effectuate an arrest following a close pursuit.  The bill now prohibits S-Cops contracted by a homeowners association from using the word “police” and from using the seal of the Commonwealth on their equipment in the performance of their duties.

Local Regulation of Solar Facilities

Senate Bill 429 and House Bill 508 amend the Code of Virginia by adding § 15.2-2288.7, relating to local regulation of solar facilities.  The bills provide that a property owner may install a solar facility on the roof of a dwelling or other building to serve the electricity or thermal needs of that dwelling or building, or install a ground-mounted solar energy generation facility, provided that such installation is in compliance with any height and setback requirements in the zoning district where such property is located as well as any provisions pertaining to any local historic, architectural preservation, or corridor protection district.  The provision of the bills with respect to ground-mounted solar energy generation facilities will take effect on January 1, 2019. 

However, the bills make clear that the amended statutory language does not  supersede or limit contracts or agreements between or among individuals or private entities related to the use of real property, including recorded declarations and covenants found in the governing documents of a condominium unit owners’ association, the declaration of a property owners’ association,  the cooperative instruments of a cooperative, or the declaration of a common interest community as defined in § 55-528 of the Code of Virginia.

To Foreclose or Not To Foreclose? What To Consider When That Is The Question

Originally published in the February 2018 volume of the Washington Metropolitan Chapter Community Association’s Institute’s Quorum. 

By: Chad Rinard, Esq. 

Foreclosure is a matter of last resort. Whether an owner is unable to or neglectful in paying assessments owed to an association, the last remedy that should be considered to get paid is foreclosure. A foreclosure takes time, it is costly, and it is designed to displace an association member who cannot or will not fulfill his or her obligation to pay assessments like the other members do. On the other hand, a foreclosure against a property that has sufficient equity in it (meaning the value of the property exceeds the amount of debt owed on it) can be a complete remedy that recovers unpaid assessments, the cost of foreclosure, and eliminates the ongoing hassle for an association by replacing a nonpaying owner with (hopefully) a paying one.

Under Virginia law, an association has two types of foreclosure remedies available to it: a judicial and a non-judicial foreclosure. A judicial foreclosure requires the filing of a lawsuit that asks a court to sell a property to satisfy an association’s judgments or statutory liens.

The ultimate goal of the foreclosure is to force the sale of the property at a price sufficient to cover the costs of the sale including the attorneys’ fees incurred, any delinquent real estate taxes, the balance owed on any mortgage senior in priority to the association’s judgement or lien, and, in an order prescribed by Virginia law, the association’s liens, the association’s judgements, and any additional mortgages or liens on the property.

In order to proceed with a judicial foreclosure, a Virginia association will have to demonstrate that the rental proceeds from a property over the course of five years would be insufficient to satisfy the association’s judgements. If the rental proceeds are determined to be sufficient, the court may displace an owner for the period of time necessary to allow an association to rent the property until its judgments are paid. If the rental proceeds for the property are determined insufficient, a court will enter an order allowing the foreclosure to proceed. While a court retains oversight of the foreclosure, it will likely seek assistance by appointing a commissioner in chancery to hear evidence about the value of the property and the payoff amounts for any delinquent real estate taxes or liens against it. An association will be expected to give evidence of the value of the property, likely through a professional appraisal, and identify any delinquent taxes and other recorded liens against the property. The association will also have to solicit from those other lien holders the payoff amounts for their liens. The commissioner in chancery will hear the same and report back to the court his or her findings.

Once those findings are received, the court will appoint a commissioner of sale, who in many cases is the attorney for the association. The commissioner of sale can sell the property either via an auction or a realtor. Once a bid has been received it will have to be accepted by the court. The commissioner of sale will also ensure the safe deposit and distribution of funds from the sale and prepare a deed for the new owner.

In addition to the expense, the downside to any type of foreclosure is that the process may be stopped or stayed at any time by the filing of a bankruptcy petition by the delinquent owner. If the owner files for bankruptcy, an association will have to cease all efforts to foreclose the property and the cost expended in the foreclosure action will be lost unless the bankruptcy is dismissed without a discharge of the debt.

A non-judicial foreclosure involves the foreclosure of an association’s statutory lien and, as the name implies, does not require the filing of a lawsuit. The non-judicial foreclosure remedy is a statutory right provided to associations through the Virginia Condominium Act and Property Owners’ Association Act. The process for a non-judicial foreclosure is faster and less complex than a judicial foreclosure and results in a sale on the courthouse steps. But not surprisingly, because this type of foreclosure occurs outside of a court, there are some disadvantages to a non-judicial foreclosure compared to a judicial foreclosure. For a non-judicial foreclosure to succeed, the auction must attract a bid that is sufficient to satisfy any delinquent real estate taxes, the balance owed on the first deed of trust, and the association’s statutory lien or the sale will have to be cancelled and the costs of a non-judicial foreclosure will have been incurred, but will not be collected. With a non-judicial foreclosure, in particular, great care should be given to ascertain the value of a property before the process is ever started to predict the bids that may be received at the auction. Equity in the property is a necessary component for a successful non-judicial foreclosure.

An association can have success with either a judicial or a non-judicial foreclosure. Upon receiving notice that a foreclosure is proceeding, some owners will submit payment in full right away. There is always the hope with a foreclosure that it will induce an owner to repay any assessments owed, perhaps using the equity in the property to compete a loan modification, and pay to the association the delinquent assessments from the proceeds of the loan. For those owners who do not pay, a foreclosure may be an effective remedy available to the association for the recovery of delinquent assessments. When all other collection options have been exhausted associations should work with legal counsel to identify delinquent properties that may be candidates for foreclosure and receive consultation about the benefits, risks, and costs of foreclosure of any particular property.

2018 Maryland Legislative Updates

By: Anthony Clark, Esq. 

Below we have outlined the substantive legislative actions taken by the Maryland General Assembly over the course of the most recent legislative session. We have included legislation that impacts both homeowners and condominium associations for a comprehensive view of the laws affecting community associations in Maryland generally. 

Claims Against Developers and Vendors - Unenforceability of Certain Provisions

This law makes unenforceable any provision of a declaration, a bylaw, a contract for the initial sale of a unit, or any other instrument made by a developer or vendor if that provision: 

(i) shortens the statute of limitations applicable to the claim; 

(ii) waives the application of the discovery rule or other accrual date applicable to a claim;

(iii) requires a unit owner or the council of unit owners to assert a claim subject to arbitration within a period of time that is shorter than the statute of limitations applicable to the claim; or

(iv) operates to prevent a unit owner or the council of unit owners from filing a lawsuit, initiating arbitration proceedings for a claim subject to arbitration, or otherwise asserting a claim within the statute of limitations applicable to the claim.

The above applies only to a provision relating to any right of a unit owner or council of unit owners to bring a claim under applicable law alleging the failure to comply with: (i) applicable building codes; (ii) plans and specifications approved by a county or municipality; (iii) manufacturer’s installation instructions; or (iv) warranty provisions. This law applies prospectively upon its effective date of October 1, 2018. Moving forward, new associations will face fewer hurdles in the process of making a claim against the developer or vendor for warranty and construction defect claims.

Foreclosed Property Registry - Updated Information - Notice to Local Governments 

This statute requires the State Department of Labor, Licensing, and Regulation (DLLR) to establish procedures that require a foreclosure purchaser to submit to the Foreclosed Property Registry any change to certain information within 21 days after the change is known to the purchaser. It also requires DLLR to notify, by electronic means, on receipt of an initial registration or any change to certain information, authorized users from the county and the municipal corporation in which the property is located. After taking effect on January 1, 2019, this law will assist community associations in preventing maintenance and other issues such as squatting associated with vacant properties.

Prince George's County - Sales of Residential Real Property - Community 

This statute affects the sales of residential real property in a community development in Prince George’s County by requiring that a contract of sale must include a disclosure statement that identifies the community amenity and specifies when the community amenity will be completed in accordance with a recreational facilities agreement recorded with the Prince George’s County Planning Department. Community amenity includes: (i) country club; (ii) a golf course; (iii) a health club; (iv) a park; (v) a swimming pool; (vi) a tennis court; and (vii) a walking trail. Beginning October 1, 2018, this information must be displayed in the community development’s sales or management office to any prospective purchasers. This is a consumer friendly law that provides prospective purchasers of property in a community association additional information. 

Condominiums - Suspension of Use of Common Elements 

Here, the legislature has added additional notice requirements when an association is looking to restrict access to common areas as a result of a delinquency in the payment of assessments. If a declaration includes such a provision, this new law notes that the declaration shall also state that a suspension of the use of common elements may not be implemented until an association: (i) mails to the unit owner a demand letter specifying a time period of at least 10 days within which the unit owner may pay the delinquent assessment or request a hearing to contest the suspension; and (ii) if a unit owner requests a hearing to contest a suspension, provides notice and holds a hearing in accordance with § 11–113(b)(2) and (3) of the Maryland Condominium Act. Notably, an association may amend the declaration to add or repeal such a suspension provision by the affirmative vote of at least 60% of the total eligible voters of the condominium. The Condominium Act provides that a declaration may be otherwise amended only with the written consent of 80 percent of the unit owners listed on the current roster.

Real Property - Homeowners Associations - Number of Declarant Votes 

This law takes effect on July 1, 2018, and provides that a declarant of a homeowners association, until the time all lots in a homeowners association have been subdivided and recorded in the land records of the county in which the homeowners association is located, the declarant, when voting on a homeowners association matter, shall have a number of votes that is equal to the number of lots that: (i) have been subdivided and recorded in the land records of the county in which the homeowners association is located; and (ii) have not been sold to members of the public.

Courts - Consumer Debt Collection Actions - Statute of Limitations 

This law clarifies that any payment toward, written or oral affirmation of, or any other activity on a certain debt that occurs after the expiration of the statute of limitations applicable to the consumer debt collection action does not revive or extend the limitations period and providing that a certain provision of law may not be interpreted to affect the statute of limitations applicable to a cause of action arising from a certain agreement or payment plan entered into before the expiration of a certain statute of limitations. This is important to note for all community associations in their attempts to collect outstanding debt from owners beyond the three year statutory period. 

Real Property - Deletion of Ownership Restrictions Based on Race, Religious Belief, or National Origin

This bill affirmatively authorizes an association to execute and record a restrictive covenant modification to delete any recorded covenant or restriction that restricts ownership based on race, religious belief, or national origin from the common area deeds or other declarations of property in the development without approval from lot owners in the association. Notably, the law also provides that beginning October 1, 2019, within 180 days after receiving a written request from a lot owner, the governing body of a homeowners association shall delete a recorded covenant or restriction that restricts ownership based on race, religious belief, or national origin from the common area deeds or other declarations of property in the development.

Real Property - New Home Sales - Information on Energy-Efficient Options takes effect on 10/1/2018

Beginning October 1, 2018, this law requires that in a development with 11 or more homes to be built by the same builder, a home builder is to provide a purchaser with written information on energy-efficient options, including a statement that tax credits may be available related to the energy-efficient options, available for installation in a new home, and that a contract for the initial sale of a new home must contain a certain acknowledgment that the purchaser was provided with certain information about energy-efficient options for the home.

Proposed Legislation that DID NOT Pass

Some noteworthy legislation which did not pass include: reserved spaces for electric charging vehicles; a state licensing system for community managers; mandatory correct of certain drainage defects by home builders; and appointment of unit owners to condominium boards of directors by developer at certain thresholds during the development period.