ALL QUIET ON THELEGISLATIVE FRONT — FOR NOW

A Look at What is (or isn’t) Happening in Vermont, Rhode Island, and Massachusetts

T he new legislative season is well underway now, but when this issue of Condo Media went to press in March, CAI-NE’s

Legislative Action Committees (LACs) were still compiling and reviewing the bills likely to be considered this year. Bearing in mind that some of their assessments were still preliminary, here’s what committee members were reporting at the time:

VermontThe Vermont LAC hasn’t identifi ed any bills directly affecting community associations, but industry executives are concerned about the way some Vermont courts are interpreting the state’s priority lien law. That measure, included in the Common Interest Ownership Act, which Vermont enacted, gives community as-sociations a priority position in a foreclo-sure, allowing them to collect six months of unpaid common area assessments before the lender can begin collecting the amount due under the loan. The state’s courts have split on how that authority can be applied, Carl Lisman, a partner in Lisman Leckerling, P.C., explains. Some have agreed with community associations that they can fi le successive six-month liens when foreclosure proceedings are protracted, as they often are; others have sided with lenders, ruling that the law al-lows only one priority lien covering only six months of assessments.

According to Lisman, the drafters of the Common Interest Ownership Act (he was one of them) anticipated only one priority lien fi ling in a default.

“When we wrote that provision in the 1970s,” he says, “we never considered that foreclosures would take a long time.” Non-judicial foreclosures were often completed “in a few weeks” and never took “more than a few months.” Judicial foreclosures were completed “as soon as the court generated the necessary paperwork,” because, he notes, “there weren’t usually many defenses” a borrower could mount.

“We didn’t foresee the overfl ow of foreclosures in the court system” created by the implosion of the real estate market, Lisman says. “We never [imagined] that there would be a gazillion borrowers saying they did have defenses. And we never assumed it would be in a lender’s best inter-est to stall the foreclosure action,” a strategy many lenders have adopted to avoid assuming the responsibility they would incur for paying taxes and com-mon area assessments until they are able to sell the property.

If the law allows only a single six-month priority lien, Lisman noted, prolonged foreclosure delays will create serious problems for community as-sociations, which depend on common area fees to fi nance their operations. In-dustry attorneys are discussing possible “fi xes” for the problem, he said, but those discussions were just beginning in late February and, he noted at the time, “We are a long way from being ready to recommend solutions.”

A remedy may come sooner from the courts. “There is a reasonable likelihood” that the most recent court

decision will be appealed, Lisman says, and that appeal would go automatically to Vermont’s Supreme Court. In the meantime, he is telling his community association clients to assume that mul-tiple liens are allowed and “we’re citing the cases that support that conclusion.”

Rhode IslandWhen contacted initially about the Rhode Island legislative outlook, Frank A. Lombardi, co-chair of the Rhode Island LAC and a partner in Goodman, Shapiro & Lombardi, LLC, said lawmakers had been quiet in the condominium arena “and I don’t see anything currently on the horizon.” His assessment changed a few days later when he spotted a bill submitted just before the fi ling deadline that the committee plans to oppose in part.

The part they aren’t opposing would make the publication of foreclosure notices easier and less expensive by permitting publication in “any daily newspaper anywhere in the county” if there are no dailies in the city or town in which the property is located. The LAC has no problems with this change, which, Lombardi notes, will create less costly alternatives to pub-lishing in the Providence Journal.

The committee is concerned about and plans to oppose another provi-sion of the bill, which would give foreclosed owners the same redemp-tion rights mortgagees have under the state superlien statute. So if a commu-nity association forecloses on a unit, Lombardi explains, the owner, like the

LEGISLATIVE UPDATE

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47Condo Media • May 2013

by Nena Groskind

lender holding the mortgage, would have 30 days after the foreclosure auction to cancel it and reclaim the property by paying delinquent fees.

There are good reasons for giving lenders and servicers that extra time, Lombardi says, because, with mort-gages frequently originated by out-of-state lenders and sold and re-sold multiple times, the foreclosure notice doesn’t always go to the right entity or reach the right department “until it is too late.” But the condominium owner “has known all along” that the delinquent fees were due, has received multiple notices of the foreclosure threat, and has had multiple oppor-tunities to cure the default before the foreclosure sale, Lombardi says.

The committee’s letter opposing the proposed change in notice requirements says it would “subvert and undercut” the intent of the superlien, potentially delay the foreclosure process, and increase the financial burden on condominiums.

When Lombardi spoke to Condo Media in February, the LAC was dis-cussing several measures but had not decided which ones, if any, to pursue. One bill on the LAC’s “possible” list would revise the procedure for grant-ing owners limited rights to use com-mon areas — to add a patio or screen in a porch, for example. Current law requires 100 percent of the owners to approve those changes. The bill the LAC is considering — actually a re-file of legislation the committee has pro-posed in the past — would eliminate the requirement for a bylaw amend-ment and allow boards to approve these requests as long as abutters do not object. When this measure was filed three years ago, Lombardi says, it got caught in an unrelated dispute between the House and Senate. He thinks it would stand a good chance of winning approval this time.

The committee may also consider a request from association managers to

support a bill clarifying the insurance requirements for community associa-tions. Current state law requires the association’s master policy to cover components in units with “horizontal” boundaries (referring, counter-intui-tively, to stacked units in multi-story buildings) but does not require that coverage for vertical boundaries — townhouse structures sharing common walls. The legislative fix the commit-tee is considering would eliminate the distinction, requiring master policy coverage for both categories.

“The master policy should cover both,” Lombardi says, which, he notes, is how most condominium documents are written. The clarifica-tion would address the relatively few documents that aren’t.MassachusettsMatthew Gaines, chair of the Massa-chusetts LAC and a partner in Marcus, Errico, Emmer & Brooks, P.C. expects that the list of condominium-related

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LEGISLATIVE UPDATE

bills this year “will probably include the same 40 or 50” measures consid-ered last year, many of which were themselves re-fi les from previous years. One measure about which the LAC was particularly concerned, establish-ing a special commission to study the state condominium statute, died last year, as it has in previous sessions, without coming to a vote. The LAC doesn’t oppose the study, Gaines emphasizes, but it does object to the composition of the study committee, which does not include owners who

are board members or attorneys who represent boards.

The committee has initiated three bills of its own this year, introduced on CAI-NE’s behalf by supportive legisla-tors. The most important, Gaines says, would revise the timetable governing the fi ling of construction defect claims, carving out an exemption for condo-miniums. Under the existing rules, property owners must fi le defect claims within three years after discovering the problem (the statute of limitations) or within six years after the structure has

opened (the statute of repose). That framework works fi ne for offi ce build-ings and detached, single-family homes, Gaines says. “The developer builds them and is gone.” But condominium developers retain control of the com-munity association and the decisions made by the board long after the fi rst unit has been sold. Developers who discover defects while they control the board are unlikely to sue themselves, Gaines notes, and their control period could easily “blow past” both statutory deadlines, leaving owners with no rem-edy. “That’s not fair,” Gaines argues.

The legislation the LAC has proposed would establish a different timeline for condominium construction defect suits. It would retain the three-year and six-year deadlines for the statutes of limita-tions and repose, but the clock for both would not start ticking until the “control termination date,” defi ned as either:

• The point at which the associa-tion’s governing board consists of a majority of owners other than the developer or the developer’s appoin-tees; or

• When the developer or the entity the developer controls owns or controls less than 25 percent of the condominium.

“We expect some opposition from home builders and developers,” Gaines says, “but we hope to work with them and agree on a reasonable compromise.”

Priority lien questions similar to those with which Vermont commu-nity associations are grappling have arisen in Massachusetts, as well, and the Massachusetts LAC is seeking legislation to address them. (Unlike Vermont, Massachusetts did not adopt the uniform condominium statute; the law and the language of the priority lien were drafted separately.)

Banks have attacked the Massa-chusetts lien “on two fronts,” Gaines explains. Their fi rst argument is that an association can establish only one prior-

ity lien over the life of a mortgage, re-gardless of how many times the owner defaults. “That is an absurd reading of the statute,” Gaines says, “and I think we have persuaded them of that.”

But they have not resolved the second argument, which, echoing the Vermont dispute, contends that associations can fi le only a single six-month lien on any one default, regard-less of how long it takes to complete the foreclosure. The common practice in Massachusetts since the super lien was adopted in 1993, Gaines says, is to fi le successive liens at the end of each six-month period in order to secure the association’s rights. That interpretation is consistent, he contends, with both common sense and the statutory in-tent, which was to ensure the fi nancial viability of community associations.

The LAC is proposing clarifying language specifying that “priority liens shall mean all six-month lien periods established in accordance with the

statute and not limited to one six-month lien period, whether or not the lien periods are successive.”

While it is likely that banks will “push back” on the issue, Gaines says, he thinks CAI-NE’s position on multi-ple liens is reasonable. “This has been the practice since 1993; it works and it’s fair,” he says, adding, “Condo-miniums need strong authority to col-lect fees for the same reason that local governments need strong authority to collect taxes: Fees are the lifeblood of a condominium community.”

The committee is also supporting a housecleaning measure that would eliminate contradictory language in a provision of the condominium statute dealing with the process for grant-ing easements and limited common areas. That provision was amended several years ago to allow the board to approve those requests, with the ap-proval of abutting owners, eliminating the requirement that 75 percent of the

owners approve the change by amend-ing the documents. But drafters of the legislation forgot to eliminate that owner-approval language, which this new amendment would do. “Shock-ingly in this litigious area,” Gaines notes, “no one has ever raised the issue.” The proposed amendment will eliminate that risk.

The legislation proposing that rem-edy also includes a more substantive change, providing that if the approval of mortgagees is required to amend the condominium documents, their con-sent “shall be deemed given” if they do not respond to a request for approval within 60 days. This change, which Gaines says is included in newer docu-ments, will save associations the “sig-nifi cant time and expense” they incur in trying to obtain “timely responses” to amendment requests. “Fannie Mae and Freddie Mac are OK with it,” he notes, “and we’re hoping there won’t be much objection from lenders.” CM

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