Tips for removing your condo board president

Residents tired of 'nasty' letters, lax rule enforcement

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Jul. 6, 2012

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DEAR AVA: This is probably one of the most controversial issues involving community associations. As a direct result of the mortgage meltdown problems that were facing the country starting a few years ago, and because lenders have been hit with massive delinquencies (especially in community associations in Florida, Nevada and California), the lending community has tightened its money belt.

FHA, which currently underwrites a large amount of community association loans, has imposed strict guidelines as to what associations are eligible for mortgage loans within their community. Up until a couple of years ago, FHA approved "spot loans." That meant that the lender looked to the financial ability of the individuals who were buying or refinancing, and did not necessarily concern itself with the association. Now, spot loans no longer exist; if you want to get an FHA loan in your community, the association must be certified by FHA.

And this means that the association must have adequate reserves. It also means that no more than 50 percent of the owners can be investors.

As a result, community associations all over the United States are attempting to meet these tough standards. Boards of directors are proposing amendments to their legal documents to put a cap on the number of rentals that will be permitted within the complex.

To answer your specific question, you have to review the condo's legal documents. Case law is clear throughout the country that in the absence of language in the legal documents restricting the number of investor-owners, a board cannot merely by adopting a rule impose such restrictions. They must be included in the condo association's declaration, which means that a formal amendment may be needed. This will always require a supermajority of owners to vote, either 66.67 percent or even 75 percent of the membership.

If the association does not have any such restrictions, then your client (should he wish to pursue the matter) should retain his own attorney. But if there is already language in the legal documents restricting leasing, then you have to comply with that language.

DEAR BENNY: Back in 2011 my husband and I put a contract on a condo. We received the customary homeowners association (HOA) documents for our review, giving us the ability to rescind our contract if we did not agree with or like the documents. I read them and we went ahead and purchased the condo.

In 2012 it has come to our attention that we are part of a greater master association that can make decisions affecting our condo association, as well as obligating us to maintenance expenses we had no idea we were going to be part of. I feel this was not fully disclosed, and had we known that, we would not have purchased. We have lived here a year. Can I get my purchase price back and do the other homeowners have a class-action suit, as this is true for them? --Deborah

DEAR DEBORAH: I seriously doubt that you can get your money back. Are you sure that the disclosure documents you received prior to closing did not disclose the existence of a master association?

If they did, then you are out of luck. The defense will clearly state that "you had the opportunity to cancel the contract based on your review of the condo documents, but opted not to cancel. Accordingly, you have no case."

On the other hand, if you are absolutely sure that the documents you reviewed did not disclose this information, then there may be help. Recently, a Maryland high court held that if the resale package provided to potential homebuyers is misleading, or contains misrepresentations (and I would consider an omission to fall within those categories), then owners such as yourself may have a case against the association (or the developer) based on a violation of the applicable state consumer protection statute.

This may be state-specific to Maryland, but it's worth looking into. The case (MRA Property Management Inc. v. Armstrong) was decided in April of this year by the Maryland Court of Appeals.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

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