Each year, the legislature makes changes to the laws regulating condominium, cooperative, and homeowner associations. This year, many of the legislative changes were intended to address the unique problems which arose as a result of the severely depressed housing market and the effect it has had on these associations. This article summarizes some of legislative changes that took effect on July 1.
Protection for Bulk Purchasers
There are many recently constructed condominium projects with large amounts of unsold and vacant units. Many of these have been foreclosed or are facing foreclosure. Developers and banks who own these units are trying to sell them at bulk discounted prices. A new law, called the “Distressed Condominium Relief Act”, was enacted to protect bulk purchasers of condominiums from liability for actions of the original developer. Previously, a purchaser of more than 7 units in a condominium was subject to the same laws affecting the original developer if they offered the units for re-sale or lease. The new law establishes two new categories called “bulk assignees” and “bulk buyers.” Bulk assignees are purchasers who purchase more than 7 units and receive, as part of the purchase, an assignment of some or all of the original developer’s rights. These purchasers will still be subject to some of the laws affecting the original developer but those are now limited and clearly listed. Bulk buyers are purchasers who purchase more than 7 units but, with a few exceptions, do not receive an assignment of the original developer’s rights. These purchasers are subject to even less laws affecting the original developer or a bulk assignee and those are also clearly listed. The intent of this new law is to enhance the ability of banks and developers to sell their units to investors, who will ultimately sell or lease the units. This enables the associations in these troubled projects to generate assessment income and should help reduce the large inventory of vacant units which now exists. The law will only apply to bulk purchasers who purchase units before July 1, 2012. If the market has not adequately recovered when the 2012 legislature meets, there will likely be efforts to extend this deadline.
Fire Sprinklers
Another significant legislative change involves installation of fire sprinklers. Previously, condominiums and cooperatives were facing a deadline of December 31, 2014, to retrofit the units and common areas with fire sprinklers. This created a major expense for some condominium and cooperative owners. Prior law allowed non “high rise” condominiums to exempt themselves from this requirement if two thirds of the owners voted to be exempt. Owners in high rise condominiums, defined as buildings over 75 feet high, could only exempt themselves from installing fire sprinklers in the units but were still facing the deadline to install sprinklers in the common areas. The new law now allows both high rise and non high rise condominiums to be totally exempt upon a majority vote instead of a two thirds vote. It also extends the deadline for retrofitting to December 31, 2019 for those owners who do not vote to exempt themselves.
Payment of Past Due Assessments
The law which obligates banks that acquire title to condominium units through foreclosure to pay past due assessments was also amended. The prior laws affecting condominium and homeowner associations were different. Banks which foreclosed on condominium units were only responsible for paying six months of past due condominium assessments or an amount equal to one percent of the original mortgage amount, whichever was less, whereas, banks which foreclosed on homes were responsible for paying one year of past due homeowner association assessments or an amount equal to one percent of the original mortgage amount, whichever was less. The one year time period now applies to both condominium and homeowner association assessments. Again, this change is in recognition of the large number of condominium foreclosures. Since foreclosures often take much longer than six months to complete, condominium associations were losing significant revenue when an owner’s unit went into foreclosure.
Another legislative change will help condominium, cooperative, and homeowner associations collect their assessments from leased units and homes. If an owner is leasing a unit or home but not paying their condominium, cooperative, or homeowner assessments, an association now may collect the assessment directly from the tenant. Upon written demand from the association, the tenant must pay the assessment directly to the association, up to the amount of rent, and in turn the tenant may deduct the amount paid to the association from the amount of rent due to the owner. Under this new law, associations were also given the authority to evict tenants if they fail to pay assessments after written demand.
This Article only summarizes some of the 2010 legislative changes and should not be relied upon as a complete description of those changes. Some of these changes are much more detailed than can be addressed in this newsletter and there are additional changes to the laws affecting condominium, cooperative, and homeowner associations which are not discussed. Please consult with an attorney for a complete explanation of the legislative changes made by the 2010 legislature.
Each year, the legislature makes changes to the laws regulating condominium, cooperative, and homeowner associations. This year, many of the legislative changes were intended to address the unique problems which arose as a result of the severely depressed housing market and the effect it has had on these associations. This post summarizes some of legislative changes that took effect on July 1.
Protection for Bulk Purchasers
There are many recently constructed condominium projects with large amounts of unsold and vacant units. Many of these have been foreclosed or are facing foreclosure. Developers and banks who own these units are trying to sell them at bulk discounted prices. A new law, called the “Distressed Condominium Relief Act,” was enacted to protect bulk purchasers of condominiums from liability for actions of the original developer. Previously, a purchaser of more than 7 units in a condominium was subject to the same laws affecting the original developer if they offered the units for re-sale or lease. The new law establishes two new categories called “bulk assignees” and “bulk buyers.” Bulk assignees are purchasers who purchase more than 7 units and receive, as part of the purchase, an assignment of some or all of the original developer’s rights. These purchasers will still be subject to some of the laws affecting the original developer but those are now limited and clearly listed. Bulk buyers are purchasers who purchase more than 7 units but, with a few exceptions, do not receive an assignment of the original developer’s rights. These purchasers are subject to even less laws affecting the original developer or a bulk assignee and those are also clearly listed. The intent of this new law is to enhance the ability of banks and developers to sell their units to investors, who will ultimately sell or lease the units. This enables the associations in these troubled projects to generate assessment income and should help reduce the large inventory of vacant units which now exists. The law will only apply to bulk purchasers who purchase units before July 1, 2012. If the market has not adequately recovered when the 2012 legislature meets, there will likely be efforts to extend this deadline.
Fire Sprinklers
Another significant legislative change involves installation of fire sprinklers. Previously, condominiums and cooperatives were facing a deadline of December 31, 2014, to retrofit the units and common areas with fire sprinklers. This created a major expense for some condominium and cooperative owners. Prior law allowed non “high rise” condominiums to exempt themselves from this requirement if two thirds of the owners voted to be exempt. Owners in high rise condominiums, defined as buildings over 75 feet high, could only exempt themselves from installing fire sprinklers in the units but were still facing the deadline to install sprinklers in the common areas. The new law now allows both high rise and non high rise condominiums to be totally exempt upon a majority vote instead of a two thirds vote. It also extends the deadline for retrofitting to December 31, 2019 for those owners who do not vote to exempt themselves.
Payment of Past Due Assessments
The law which obligates banks that acquire title to condominium units through foreclosure to pay past due assessments was also amended. The prior laws affecting condominium and homeowner associations were different. Banks which foreclosed on condominium units were only responsible for paying six months of past due condominium assessments or an amount equal to one percent of the original mortgage amount, whichever was less, whereas, banks which foreclosed on homes were responsible for paying one year of past due homeowner association assessments or an amount equal to one percent of the original mortgage amount, whichever was less. The one year time period now applies to both condominium and homeowner association assessments. Again, this change is in recognition of the large number of condominium foreclosures. Since foreclosures often take much longer than six months to complete, condominium associations were losing significant revenue when an owner’s unit went into foreclosure.
Another legislative change will help condominium, cooperative, and homeowner associations collect their assessments from leased units and homes. If an owner is leasing a unit or home but not paying their condominium, cooperative, or homeowner assessments, an association now may collect the assessment directly from the tenant. Upon written demand from the association, the tenant must pay the assessment directly to the association, up to the amount of rent, and in turn the tenant may deduct the amount paid to the association from the amount of rent due to the owner. Under this new law, associations were also given the authority to evict tenants if they fail to pay assessments after written demand.
This post only summarizes some of the 2010 legislative changes and should not be relied upon as a complete description of those changes. Some of these changes are much more detailed than can be addressed in this post and there are additional changes to the laws affecting condominium, cooperative, and homeowner associations which are not discussed. You should consult with an attorney for a complete explanation of the legislative changes made by the 2010 legislature.