By Deborah Goonan, Independent American Communities
Senate Bill 258 and House Bill 77 (MD)
It’s no secret that real estate developers prefer to limit and avoid construction defect warranty claims. In Maryland, some developers add provisions to association governing documents or sales contracts that are intended to get around state law by effectively reducing the “statute of limitations” or “statute of repose” — the period of time during which property owners or an association of owners can file a legal claim with regard to discovery of defects.
These bills would make contract provisions that contradict state law unenforceable.
According to Attorney Raymond D. Burke, Maryland has a 10 to 20-year statute of limitations for construction defect claims, and legal claims must be filed within three years of discovery.
A short amendment to require condominium association to conduct periodic reserve studies, each to be completed by a “certified engineering firm.” The findings of such reserve study would set requirements for “appropriate funding plans.”
Subsection (i) of section 10 of chapter 183A of the General Laws, as appearing in the 2016 Official Edition, is hereby amended by adding the following two sentences:- As used in this section, the term “adequate replacement reserve fund” shall mean a reserve fund requirement as defined by the periodic accomplishment of a reserve fund study by a certified engineering firm. The organization of unit owners shall develop appropriate funding plans to meet the needs outlined in such study.
Note that condominium associations in Massachusetts are already required by law to maintain a reserve fund. Following transfer of control from a developer to unit onwers, a vote of 67% of total voting interests is necessary to waive or modify that requirement.
The purpose of this amendment is to require periodic reserve studies. However, Reserve Specialists are almost exclusively certified by trade group Community Associations Institute (CAI), whose members also include management companies and construction firms that serve condominium associations.
From a housing consumer perspective, according to Homeowners Alliance for Accountability, Reform, Responsibility & Transparency (HAARRT), H. 4167 is problematic for homeowners.
For instance, what is the process by which an association will choose a qualified “certified engineering firm” that will provide an accurate and objective analysis of the condition and long-term maintenance plan for the association’s assets? How can condominium unit owners feel confident that management companies, reserve specialists, and contractors are not working in concert to maximize lucrative repair and replacement services, some of which may be costly or unnecessary?
The bill does not address these important considerations.
Also, as currently drafted, the funding level requirement is vague. What constitutes “appropriate funding?” Would condo associations be required to fully fund reserves, or fund at some lower “adequate” level such as 70%?
Homeowners in Massachusetts have organized a HAARRT petition to oppose H. 4167. See link below for more details.
Another flag bill proposed in Michigan will simply complicate matters by setting different standards for a resident’s rights to display the state flag of Michigan, depending on whether the home is governed by a homeowners or neighborhood association in a planned community vs. a condominium association. If enacted, Michigan HOAs and neighborhood associations would allow state flags, while condominium associations would not.
HB 1522 (NH)
This consumer-friendly bill proposes to increase accountability of homeowner board members with regard to their fiduciary duties. The amendment makes clear that individual directors would not be protected by the association’s liability insurance for deliberate acts of theft, fraud, self-dealing or recklessness.
The proposed text, as currently written: (my emphasis added in bold)
New Section; Condominium; Board of Directors Liability. Amend RSA 356-B by inserting after section 35 the following new section:
356-B:35-a Board of Directors; Liability. A member of the board of directors shall discharge his or her fiduciary duties to the unit owners’ association in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner he or she reasonably believes to be in the interests of the association. A member of the board of directors shall not be covered by a master liability policy and shall be liable for monetary damages of the unit owners association if such person knowingly breached or failed to perform his or her fiduciary duties and the breach of, or failure to perform, his or her fiduciary duties constitutes a crime of forgery, theft, embezzlement, tampering with physical evidence, obstruction of justice, or the destruction of or the refusal to allow inspection or copying of an official record of a condominium association that is accessible to unit owners within the time periods required by law; constitutes a transaction from which the director derived an improper personal benefit, either directly or indirectly; or constitutes recklessness or an act or omission that was in bad faith, with malicious purpose, or in a manner exhibiting wanton and willful disregard of human rights, safety, or property.
2 Effective Date. This act shall take effect 60 days after its passage.
Who could be opposed to such a law?
Look no further than the CAI-member law firm of MARCUS ERRICO EMMER BROOKS PC.
In a blog post of Feb. 20, 2018, entitled BIG CHANGES IN NH CONDO LAW OPPOSED BY INDUSTRY LEADERS, Dean Lennon writes, in the following screen capture: (click on the image to enlarge)
Now, does this stance indicate to the reader that CAI represents the interests of the homeowners they claim to serve?
Clearly, CAI’s mission is to represent association-governed communities by and through protection of the board members that authorize payment of their retainer fees.
The referenced link also contains MEEB commentary on two other bills opposed by CAI.
The bill is currently under consideration in the House, by the Commerce and Consumer Affairs committee.