Community Associations Update - December 2014

Date: December 5, 2014

Protecting Your Community: Considerations in Creating a Safe Community Environment
By: Roberto M. Montesinos

The transition into the cold and dark of winter offers an excellent opportunity for community associations to analyze safety and security issues. In this article, we will examine some of the routine steps a community association can take in order to minimize the risk of crime and prevent injury in the community. We will also examine the legal issues associated with maintaining or instituting a “neighborhood watch” program.

Physical safeguards: Initially, there are a number of items community boards should routinely inspect in order to deter crime and prevent injury to either person or property in the community. A walking survey of the community should be performed by members of the board and/or the community’s managing agent to identify hazardous conditions. Some of the items to specifically look for include broken or poor lighting, broken or weak fencing, broken or improperly functioning locks and doors (including security and access gates), unkempt landscaping which threatens damage to person or property (dead limbs) and trip hazards in walkways. If security cameras are installed, they should be inspected to ensure they are working properly. Alternatively, if a board wishes to install a camera system, they should work with a licensed and insured contractor to set up cameras in key locations. We also recommend adopting a security camera policy which assists in immunizing the board from potential liabilities which may arise from having security camera(s) in place.   By reviewing these items, boards can help minimize crime and injury around the community.

Educating the residents:  Additionally, boards should not overlook the educational aspect of safety and security issues. We recommend that boards distribute information to community members on how to keep their units or homes protected and in a safe condition. Specifically, homeowners should be reminded to keep their windows and doors locked at all times and not to allow strangers to access buildings or common areas – don’t allow people to tailgate you into a private access location! Homeowners should also be reminded to keep their homes in a clean and orderly condition. Unkempt properties that give the illusion of being uninhabited frequently draw the attention of vandals. We also recommend that crime reports be sent out on a periodic basis so members are aware of issues in the community that they should look out for.

Should you have a neighborhood watch program?  Neighborhood watch programs have received considerable attention as result of cases like the George Zimmerman matter in Florida. The first issue to consider in determining to maintain or implement a neighborhood watch program is whether or not the board already has a duty to provide security in the community. If not, and if the board decides on its own to provide security, then this can have the perverse effect of creating more liability for the board, not less, if a resident is injured. In essence, the argument is that by choosing to secure the community, the board may be held liable for any injuries that occur as a result of failing to perform that duty or failing to perform it well. Courts have gone both ways on this issue, but the risk should be kept in mind  if your community determines to implement a neighborhood watch program.

In most cases, the governing documents do not give the board a specific security duty. If this is the case, the board may not want to take on the risk of implementing or monitoring a security program such as a neighborhood watch. While the board is generally authorized to take such action based on the powers and duties section in the governing documents, certain protections should be adopted in order to insulate the community from liability.

First and foremost, it should be made clear that any member of a neighborhood watch committee should not “take matters into their own hands.” Their job is to watch, not act: if suspicious activity is observed, the police should be contacted immediately. Secondly, the board should contact its insurance carrier to see what type of protection is in place for volunteer security programs. If no insurance is in place or if it cannot be obtained, the community should consider hiring a professional security agency and have an indemnification agreement signed.

If you have a neighborhood watch program in place or if you are considering implementing one, we strongly encourage you to contact your attorney to discuss the associated liabilities and whether or not a program of this nature is appropriate for your community.

In sum, there are a number of measures community associations can take to help minimize crime and the potential for injury in their communities. The board and community members should work together to identify hazardous conditions. If a threatening or suspicious condition exists, the proper authorities should be contacted to investigate the matter.

The Power of the Super-Priority Lien
By: Jhumur Razzaque

An Overview
On August 28, 2014, the District of Columbia Court of Appeals held, in Chase Plaza Condominium Association, Inc. v. JPMorgan Chase Bank, N.A., that a condominium association’s foreclosure of its super-priority lien extinguishes all junior liens -- including the first mortgage or first deed of trust on the condominium unit. The super-priority lien consists of the most recent six months of assessments owed by a unit owner to the association. This decision has a significant impact for mortgage lenders and condominium associations in the District of Columbia, as it establishes that a condominium association’s foreclosure on its lien for six months’ worth of assessments can wipe out the first trust holder’s entire security interest in the property. If there are no significant proceeds left after the association’s lien is paid from the proceeds of the sale, the first trust holder’s lien, along with all other liens with lower priority, is extinguished.

The D.C. Condominium Act and the Statutory Lien
Under the D.C. Condominium Act (“Act”), a condominium association has a statutory lien for assessments owed by a unit owner against the unit. Also pursuant to the Act, a condominium association may foreclose on its lien by initiating a non-judicial foreclosure sale in order to enforce its lien. The statutory authority to foreclose on the condominium’s lien may provide substantial relief to an association that suffers financial detriment due to continual delinquency from a non-assessment paying unit owner. It essentially stops the bleeding by allowing the condominium association to sell the property to a new potentially dues-paying owner, and simultaneously recover some, if not all, payments on its condominium lien from the proceeds of the foreclosure sale.  Pursuant to Section 42-1903.13(a)(1)(B) of the Act, the association’s lien is prior to any other lien or encumbrance other than a first deed of trust from an institutional lender, recorded before the date on which the assessment sought to be enforced became delinquent. Additionally, Section 42-1903.13(a)(2) of the Act provides that the association’s lien is prior to a first mortgage or first deed of trust described in the section cited above and recorded after March 7, 1991, to the extent of the common expense assessments which would have become due in the absence of acceleration during the six months immediately preceding institution of an action to enforce the lien. It is this provision of the D.C. Condominium Act that creates the super-priority lien for condominium associations.

Background Facts 
The basic facts of Chase Plaza Condominium Association, Inc. v. JPMorgan Chase Bank, N.A., involve a unit owner, Brian York, who defaulted on payment of his condominium assessments as well as his mortgage payments. Chase Plaza Condominium Association later foreclosed on its six-month priority lien and the property was sold at the foreclosure sale for $10,000, free and clear of the first trust and any other junior liens. Several months later, when JPMorgan attempted to initiate foreclosure proceedings, it discovered that the property had already been foreclosed upon by Chase Plaza and that its interest may have been extinguished. JPMorgan then brought suit against both Chase Plaza and the foreclosure purchaser, requesting that the court set aside the foreclosure sale and declare that JPMorgan held title to the property.

The first court to hear the case, the trial court, held that foreclosure on a condominium association’s super-priority lien could not extinguish a first deed of trust. While the trial court found that Chase Plaza was statutorily authorized to institute foreclosure proceedings pursuant to the Act, it found the foreclosure sale invalid, reasoning that the property should have been sold subject to JPMorgan’s first deed of trust.

What the Court of Appeals Decided
The D.C. Court of Appeals reversed this ruling, holding that foreclosure of a condominium association’s super-priority lien extinguishes a first deed of trust or first mortgage on the unit.

The D.C. Court of Appeals applied a general principle of foreclosure law in reaching its decision, namely, that liens with lower priority are extinguished if a valid foreclosure sale yields insufficient funds to satisfy a higher priority lien.  In other words: valid foreclosure of a senior lien extinguishes all junior liens if there is not enough money left over to satisfy them. The D.C. Court of Appeals described the condominium association’s lien created by D.C. Code § 42-1903.13 as a “split-priority” lien: a lien split into two based on differing levels of priority. As the lien for six months of assessments is higher in priority than the first mortgage, it is the senior lien. Therefore, foreclosure of this senior lien extinguishes all junior liens, including the first mortgage.

The parties in Chase Plaza did not dispute the fact that Chase Plaza’s super-priority lien was higher in priority than JPMorgan’s first deed of trust. However, JPMorgan argued that a foreclosure sale on Chase Plaza’s super-priority lien could not extinguish its first deed of trust. The D.C. Court of Appeals, applying the general principle of foreclosure law and determining the legislative intent of the statute, held that it could.

It must be noted that this is not the end of the story when it comes to the D.C. Court of Appeals’ recent decision. The case was sent back to the trial court to decide JPMorgan’s unresolved claim: whether the foreclosure sale should be invalidated because the purchase price was unconscionably low. Furthermore, the decision may be subject to reversal in the future.

How does the D.C Court of Appeals’ recent ruling affect condominium foreclosure sales?
While it is possible that this decision may be reversed in the future, currently, the decision by the D.C. Court of Appeals in Chase Plaza Condominium Association, Inc. v. JPMorgan Chase Bank, N.A., stands. If a D.C. condominium association has a chronically delinquent owner who owns a unit that is most likely underwater, a condominium foreclosure sale on the association’s super-priority lien may be the solution to stop the bleeding. The association will not recover the full amount of assessments owed, but it will recover some portion of the debt. Additionally, such a foreclosure sale would force the chronically delinquent owner out of the unit, and a new owner would be responsible for payment of assessments after the sale. 

Alternatively, since most lenders are well aware of the D.C. Court of Appeals’ recent ruling, it is very likely that the first trust holder will attempt to pay off the super-priority lien in order to protect its interest. Thus, the association may end up recovering six months’ worth of assessments without even having to move forward with the foreclosure sale.

The Hiring Process
By: Jennifer S. Jackman

Associations should exercise care when hiring new employees --   not only in selecting the right candidate but in avoiding questions that could create liability.   This can be especially important when boards of directors, who typically include directors with little to no experience in the human resources and hiring arenas, are involved in the hiring process.  Make sure to review these areas of inquiry with your boards to ensure they understand what they can and cannot ask in an interview or consider in the hiring process.

Depending on the job being filled, there may be a compelling reason to want to know whether the applicant has been convicted of any crimes – particularly crimes involving violence or theft if the applicant will have access to condominium units. 

While inquiries into convictions and arrests may seem reasonable at first blush, several states and localities have passed “ban the box” laws in recent years.  The “box” referenced is the one applicants are asked to check if they have ever been convicted of a crime, regardless of the nature of the crime, when it occurred or what relevance it has to the job for which they are applying.  Some of the recent changes to ban the box laws prohibit employers from asking about prior convictions (with some exceptions) and from conducting criminal background checks prior to a first live interview or conditional offer of employment.   

Even if your state or county doesn’t have a ban the box law, employers should always avoid asking about arrests.  Before asking about convictions, make sure you know the limitations in your jurisdiction.    For example, in D.C., there is currently no prohibition, although this could change as ban the box laws pick up momentum. Maryland and Virginia prohibit asking about expunged or pardoned convictions.  Some local jurisdictions, like Baltimore, have already enacted legislation prohibiting inquiries into convictions.  When in doubt – don’t ask.

What about health issues and family planning?  Associations need reliable employees who will be there as scheduled, particularly when they have very few employees.  Finding coverage for an employee who takes time off to have a baby or for a chronically ill employee who has frequent doctors’ appointments can be a hassle.

In light of those issues, can you ask an applicant about their health or family planning?  NO!  Never, ever ask an applicant about their health or family planning as this information is protected from disclosure under federal and local laws, such as the Americans with Disabilities Act and the Pregnancy Discrimination Act.  Under no condition, should an Association ask an applicant about any of these topics.

Military Service:
There is no prohibition against favoring veterans in the hiring process.  However, if you are interviewing veterans, steer clear of asking what type of discharge they received (unless a security clearance is required as part of the job -- unlikely in the association setting).  Likewise, do not ask about disciplinary actions or post-traumatic stress.  While you can (but are not required to) give preferential treatment to veterans, employers cannot discriminate against someone because they served in the military.

Facebook, particularly when the person has not set privacy settings, can seem like a good tool to really get to know a candidate.  If you choose to look at public posts on Facebook, do so with caution. As a general principle, employers who review applicants’ Facebook pages run some legal risks.  Why?  Because you may learn information you would not otherwise know in the application process – race, age, pregnancy, sexual orientation, and health information could all be discovered by simply reviewing an applicant’s Facebook page. 

If the employer decides against hiring a person based upon information learned from looking at the Facebook page, liability could result.  Further, even if the applicant is not hired for reasons unrelated to their Facebook page, if the applicant knows their Facebook page was reviewed, the applicant might allege that the decision not to hire was based upon a protected factor discovered when looking at the Facebook account.   For applicants who have privacy settings on Facebook, employers should avoid asking for passwords or taking steps to get around the privacy settings.

Associations certainly want to make the right choice in selecting an employee who may have access to units and confidential information.  There are many questions that can be asked which will help determine whether an applicant has the requisite experience and is a good fit.  That said, as explained above, there are many questions that should never be asked.

If you have further questions as to what is appropriate in the hiring process, please contact Jennifer Jackman.