The Maryland legislative session for 2011 ended April 11, 2011. Kathleen M. Elmore chairs the Maryland Legislative Action Committee for Community Associations Institute (MD-LAC). In that position, she has occasion to be on the cutting edge of what is occurring in Maryland with regard to the new laws that will impact condominiums, homeowners’ associations and co-operatives. Following is a list of some of the issues and laws that are of interest.
1. LIMITED PRIORITY LIEN HB1246/SB946 was passed after attempting for the past 17 years to get limited priority lien passed in Maryland. The bill as passed was substantially “watered down” from what the MD-LAC wanted, but in order to get the bill passed, certain compromises had to be made. Look for this law to be “tweaked’ in future years to remove the cap, lengthen the priority period to 6 months and extend the priority to include attorneys’ fees and costs, among other things. This new limited lien priority law, effective 10/01/11, will give liens for condominiums and homeowners’ associations a 4 month or $1,200.00, whichever is less, priority over the lien of first mortgages and deeds of trusts (the banks) recorded on or after October 1, 2011. If the first mortgage holder requests information regarding that portion of a lien that has priority and provides its contact information, the governing body of the association holding the lien must provide information sufficient for the mortgagee to determine the basis of that portion that has priority within 30 days after the filing of the lien among the Land Records, or give up its priority. Currently, if the bank holding the first mortgage or deed of trust forecloses and there is no surplus left to pay the condominium’s or homeowners’ association’s lien, then the lien is wiped out. It will only be effective for liens recorded on or after 10/01/11. It is recommended that the associations keep a database of all mortgagees and their contact information who request notice under this new law. Such information should be reviewed before any lien is recorded and should be promptly conveyed to the attorneys involved in collection for you.
2. AMENDMENT OF CONDOMINIUM BY-LAWS BY 51% APPROVAL FOR PURPOSE OF REQUIRING UNIT OWNERS TO PURCHASE AND MAINTAIN HO6 INSURANCE POLICIES HB679. This bill passed and was signed into law by Governor O’Malley on April 12, 2011. The law becomes effective 10/01/11. It will allow a condominium to amend its bylaws by as little as 51% approval of the unit owners (regardless of a higher percentage required in the documents), for the purpose of requiring the owners of each unit to purchase and maintain condominium unit owner insurance, usually referred to as an HO6 policy, and requires the unit owner to provide proof of same annually to the council of unit owners. It is hoped that condominiums will take advantage of this lower percentage required to amend bylaws to require owners to purchaser the policies which should cover betterments and improvements to the unit as well as coverage for the master policy insurance deductible shift. As you know, the law changed previously allowing for an automatic shift of the master policy deductible of up to $5,000.00 to the unit where the source of the damage originates. The problem is that most of the unit owners do not have the $5,000.00 or insurance to cover it and it becomes another collection problem and often a loss for the condominiums. This law gives condominiums a method to help solve that problem.
3. HOMEOWNERS’ ASSOCIATIONS’ ELECTIONS ENFORCED BY THE CONSUMER PROTECTION DIVISION OF THE ATTORNEY GENERAL’S OFFICE SB532 This law, effective 10/01/11, will enable the Consumer Protection Division of the Attorney General’s Office to enforce certain election procedures contained in the governing documents of a homeowners’ association, if the provisions concern 1) notice about the date, time and place for the election; 2) the manner in which a call is made for nominations; 3) the format of the election ballot; 4) the format, provision, and use of proxies during the election process; or 5) the manner in which a quorum is determined for election purposes. It is recommended that each homeowners’ association Board of Directors and Managing Agent immediately review the details of the election provisions in your bylaws and that you carefully follow those procedures in order to avoid any issue with your elections being scrutinized by the Attorney General’s Office.
4. FORECLOSURE PROCESS LAW CHANGES - There were several changes in the law with regard to the foreclosure process. These changes involved lost note affidavits, mediation timing and notice of intent to foreclose notices, etc. The most important foreclosure process bill to our clients was HB367 which passed the House but failed in the Senate and would have allowed our clients to foreclose on liens in essentially the same manner as they could before all the changes the last two years (like non residential foreclosures). It is our understanding that this bill will come back in 2012 and we hope you will do your part to support it.
5. The 2011 Session also saw the passing of the RECISION OF SALES CONTRACTS - RETURN OF DEPOSITS HB1109 bill and the HOMESTEAD EXEMPTION - BANKRUPTCY SB169 bill. You may email kelmore@elmore-throop.com if you want more information on these bills.
6. Finally, MANAGER LICENSING was discussed extensively with not less than half a dozen bills involving managers being filed. All the bills were held over for summer study. Following is a list of the bills and whether the MD-LAC supported or opposed the bills.
HB592 SUPPORT w/amend Davis, Vaughn - Manager Licensing
03/25 ENV Referred for summer study
HB942 SUPPORT w/amend Beidle - Manager Licensing
04/01 ENV Referred for summer study
SB824 SUPPORT w/amend Kelley - Manager Licensing
Hearing 3/16 JPR - no action as of 4/4
SB264 - SUPPORT w/amend - Manager Fidelity Insurance
PASSED SENATE - 3/31 Hearing ENV - referred for summer study
HB537 OPPOSE - Braveboy - State Manager’s Registry
03/25 ENV Referred for summer study
HB722 OPPOSE - Holmes, Weir - CIO Management Contracts
03/25 ENV Referred for summer study
7. HOMEOWNERS’ ASSOCIATION BUDGET ADOPTION - PASSED 2010 - EFFECTIVE 10/01/10 This bill was passed last year and we informed our clients but the law bears repeating. Please also review the Association’s documents as well. The law requires a homeowners association that has the responsibility under its declaration for maintaining and repairing its common areas, to prepare and submit an annual proposed budget to the lot owners 30 days before its adoption. The annual proposed budget may be sent to each lot owner by electronic transmission, by posting to the homeowners’ association’s home page, or by including the budget in the newsletter. The annual budget must provide information on or expenditures for at least the following items: 1) income, 2) administration, 3) maintenance, 4) utilities, 5) general expenses, 6) reserves, and 7) capital expenses. The budget shall be adopted at an open meeting at which all members have received notice. Notice of the meeting may be sent in the same manner as the budget is sent. Any expenditure during the year that is excess of 15% of the budgeted amount previously adopted, must be approved by amendment to the budget at a special meeting for which at least 10 days written notice is provided to lot owners. The adoption of the budget does not impair the authority of the Association to obligate itself for expenditures for any purpose consistent with the provisions of the Homeowners Association Act.
May 29, 2009
1. HB287/SB201 - REPAIR OR REPLACEMENT OF DAMAGE OR DESTRUCTION BY COUNCIL OF UNIT OWNERS - re: Condominium Master Property Insurance Coverage on Units. In response to the April 2008 Maryland Court of Appeals decision in the Anderson v. Gables on Tuckerman case, this legislation provides that condominium master property insurance policies must cover both common elements and units. Additionally, up to $5,000.00 of the master policy’s deductible will be the responsibility of the unit owner when the cause of damage or destruction originates in a unit. All disclosure statements and POS sent on or after June 1, 2009 must include certain new disclosure information and unit owners must be notified in writing annually. (See information on following pages.) Signed by the governor May 19, 2009, this legislation will take effect on June 1, 2009. Applicable to CONDOMINIUMS ONLY.
Repeals and reenacts with amendments, Sections 11-108.1, 11-114, 11-126(b)(16)(17) and 11-135(a)(4)(xii) and (5) and (b) of the Real Property Code Ann..
Adds to Section11-126(b)(17) and 11-135(a)(6) of the Real Prop. Code Ann.
2. Chapter 78 (HB687) COMMON OWNERSHIP COMMUNITIES - FIDELITY INSURANCE re: Fidelity Insurance For Co-ops, Condominiums and Homeowners Associations. This legislation requires an association to purchase fidelity insurance to provide for the indemnification of the community against loss resulting from fraud, dishonesty, or criminal acts by any officer, director, managing agent, or agent or employee who disburses funds or controls funds for the community. The fidelity insurance policy must cover three months of assessments plus the amount in investment accounts held by the community, all totaling up to $3,000,000. This legislation was signed into law by the Governor on April 14 and takes effect October 1, 2009.
Adds to Section 5-6B-18.6 Corp. & Ass’n Article, and
Adds new Sections 11-114.1 and 11B-111.6 Md. Real Prop. Code Ann.
3. Chapter 144 (HB552) and Chapter 38 (SB171) Closed Meetings of Boards of Directors of Condominiums and Homeowners Associations. This legislation repeals the provision that boards of directors may hold a closed meeting on a two-thirds vote for reasons so compelling as to override the general public policy in favor of open meetings. It adds language that allows boards of directors to close meetings for consultation and discussion on all legal matters, and for discussion of individual owner assessment accounts. These bills were signed into law on April 14, 2009 and are effective October 1, 2009.
Repeals and reenacts Section 11-109.1(a) and 11B-111(1)(4) & (5)
4. HOME FINANCIAL ACCOUNTABILITY ACT of 2009 (HB137) re: Association Books and Records for Condominiums and Homeowners Associations. This legislation requires common ownership communities to provide copies of minutes and financial statements prepared within the past three years to an owner requesting in writing by mail, electronic submission, or personal delivery within 21 days of receiving the written request. If the requested financial statements and minutes were prepared more than three years before the receipt of the written request, the community has 45 days to provide the copies. The charge for copying books and records may not exceed the amount charged by Maryland courts (at this time 50 cents per page). It also changes certain provisions of what kinds of records may be withheld from inspection. Signed by the governor May 19, 2009, the provisions take effect on October 1, 2009.
Repeals and reenacts with amendments Section 5-6B-18.5 Corp. & Ass’n Code Ann., and
Section 11-116(c) and (d) and 11B-112(a)and(b) Md. Real Prop. Code Ann.
5. HB667/SB742 DEVELOPER TRANSITION (effective October 1, 2009) Sets requirements for the election of owner controlled boards and for transition of control and requires certain financial records, contracts, and other documents to be provided by the developer.
6. ELEVATOR INSPECTION law was also passed and will be effective July 1, 2009. Currently, state law requires that periodic annual inspections be performed on all elevator units and the owner of an elevator unit has the option of contracting with an authorized third party inspector or utilizing State resources to comply with the annual inspection requirement. As of July 1, 2009, state inspectors will no longer perform periodic annual inspections on privately owned elevator units. The owner must hire an authorized third party elevator inspector to perform the required periodic annual inspection.
MARYLAND CONDOMINIUM MASTER POLICY COVERAGE CHANGE AS OF 06/01/09
The Maryland General Assembly has acted to overturn the Anderson v Gables on Tuckerman case, 404 Md. 560, 948 A.2d 11 (2008). The Anderson Court held that the Maryland Condominium Act does not require a council of unit owners to maintain master policy insurance coverage on units. The Maryland Legislature acted quickly to overturn this decision. Signed by the governor May 19, 2009, the new law becomes effective June 1, 2009. The enrolled legislation provides that the intent of the General Assembly was to:
a) Overturn the Anderson v Gables on Tuckerman case; and
b) Place an affirmative duty on the Condominium to:
1) repair damage to the condominium that originates in a unit; and
2) purchase insurance that reflects that duty; and
c) Make the cost of the property insurance purchased by the Condominium a common expense, except in the case of damage originating from a unit, the payment of the property insurance deductible up to the maximum provided in the Act shall be the owner of unit where the damage originated responsibility
Maryland Condominium master policy property insurance law, Section 11-114 of the Maryland Condominium Act (Title 11 Md. Real Prop. Code Ann.) “the Act”as of June 1, 2009 will provide:
• Not later than the time the first unit is conveyed to a person other than the developer, Condominiums must obtain and maintain to the extent reasonably available, property insurance on the common elements and units, exclusive of improvements and betterments installed in the units by unit owners other than the developer, insuring against those risks of direct physical loss commonly insured against, in amounts determined by the council but not less than the amounts specified in the documents.
• Master policies shall be the primary insurance and shall provide that for property and casualty losses to the common element and the units, exclusive of improvements and betterments installed in the units by unit owners other than the developer, each unit owner is an insured person under the policy and the insurer waives its right to subrogation against any unit owner or members of the unit owner’s household. An act or omission by any unit owner, unless acting within the scope of his authority on behalf of the council, does not void the policy and is not a condition to recover. Losses shall be adjusted with the council of unit owners and payments shall be made to the council or its insurance trustee. Unit owners may obtain insurance for their own benefit.
• If the cause of any damage to or destruction of any portion of the condominium originates from a unit, the owner of the unit where the cause of the damage or destruction originated is responsible for the council of unit owners’ property insurance deductible, not to exceed $5,000.
• The council of unit owners shall inform each unit owner annually in writing of: 1) the unit owner’s responsibility for the Condominium’s property insurance deductible; and 2) the amount of the deductible.
• Public offering statements required by Section 11-126 of the Act shall contain a written notice of the unit owner’s responsibility fro the Condominium’s property insurance deductible and the amount of the deductible.
• Disclosure packages and resale disclosure packages provided pursuant to Section 11-135 of the Act shall contain a written notice of the unit owner’s responsibility for the Condominium’s property insurance deductible and the amount of the deductible.
• Section 11-108.1 of the Act was also amended to clarify that the maintenance, repair and replacement of units and common elements is subject to the insurance provisions of the Act.
Unit owners must be notified. Please consider using the sample information below to make sure the unit owners in your condominium are notified.
Dear Condominium Unit Owner:
This letter is sent to advise you that effective June 1, 2009, Maryland law provides that individual condominium unit owners will be responsible for up to $5,000.00 of the Condominium’s master policy insurance deductible if the source of the casualty damage originates from a unit. You are encouraged to check your homeowner’s insurance policy and contact your individual insurer to make certain that you are adequately insured. Additionally you should be aware that the Condominium’s master policy insurance does not cover your personal contents and belongings, any betterments or improvements you may have made to your home*, and as noted, the master policy insurance deductible of up to $5,000.00 for repairs to damaged areas when the source of the damage originates from any part of your unit. That master policy insurance deductible amount is currently $____________. Most insurers will provide a rider on your policy that will cover that portion of the master policy insurance deductible for which you may be responsible.
You are encouraged to maintain your unit and all mechanical equipment appurtenant to your home in good working order. In this regard, HVAC condensation lines should be cleared on a regular basis, furnace and clothes dryer filters should be regularly cleaned, outside water lines should be turned off and drained before cold weather occurs, units should be kept warm enough to prevent freezing of pipes, washer hoses should be replaced before they dry rot and burst, hot water heaters should be checked and repaired and care should be taken concerning what is put into the drainage and sewer systems. Your cooperation in maintaining your home and being a responsible homeowner will assist everyone in keeping the costs of insurance as low as possible and will contribute to the overall well being, health, safety, and financial stability of the Condominium community.
* This phrase should be taken out if the specific Condominium where the letter is being sent does cover betterments and improvements. Although the Act does not require insurance for betterments and improvements, some Condominium documents may require it, or the Condominium may provide it with the coverage whether required or not.