Emerging Technologies in Community Associations*
I was recently listening to my 70’s playlist on Spotify, and the Steve Miller Band’s “Fly Like an Eagle” came on. One of the verses we all know form the song suddenly stuck out to me:
Time keeps on slippin’, slippin’, slippin’ … Into the future
Time indeed does slip … into the future. To wit, it’s already 2024 (where did 2023 go? Or 2022, 2021 and/or 2020 for that matter?). As it pertains to the community association world, what exactly is on the horizon for the future – in 2024 and beyond? Let’s discuss some of the emerging technologies in community associations to see how far we’ve come, and what is coming down the road (pun intended, electric vehicle (EV) joke here).
Electric Vehicles
A couple of years ago, I wrote an article for Community Assets entitled “Plug and Play – Solar Panels and Electric Vehicles in Common Interest Communities” (Nov/Dec 2021 issue). It’s still a very hot topic nationally. While there is currently limited pushback related to EV charging in associations with single family detached units (usually related to aesthetics of installing outside of the unit/garage vs. inside the garage), in stacked condominium and townhome communities it’s been a different story.
The debate about EVs in these communities still relates to how and where electric vehicles will be charged if the vehicle is parked away from the unit because, most of the time, the current infrastructure present in older communities will substantially limit the ability to actually install charging stations in common areas, in addition to association-related logistical, legal and technical issues such as the location of the charging stations, use of parking spaces, deeded spaces, limited available parking, insurance, tremendous expense, disturbance of common facilities and common elements, liability, who will pay for the electricity, commercial EV charging providers on the premises, Level 1, Level 2 and Level 3 charging, and more.
The shift to EVs is rapidly accelerating (another EV pun, intended) as the technology evolves and the cost of EVs continues to decrease. Our industry must proactively figure out how to handle EVs – in old communities and in new communities. It will obviously be much easier to deal with this in new communities where the necessary infrastructure required for EV charging stations is installed at the time the improvements are installed in the units, common areas and common facilities.
I am still not aware of any actual EV legislation that has been formally introduced which would impact community associations in Pennsylvania, but I do believe it’s coming at some point soon, in some manner. And when I say soon, I mean, very soon – PA Senator John I. Kane issued a Co-Sponsorship Memorandum on August 31, 2023 entitled “Residential Electric Car Charging Stations.” Pursuant to the Memorandum:
“I am introducing legislation to allow residents of condominiums and common interest communities to install electric car charging stations in their designated parking spaces. Residents will be responsible for the cost of installing the electric car charging stations. The legislation will bar unreasonable restrictions and enforcement against the use and expansion of electric car charging stations as well as the deliberate disregard of applications. Electric Vehicles have major benefits including improving air quality by lowering emissions and creating new jobs in the manufacture and distribution of these products. That is why leading auto manufacturers including General Motors are ramping up production of electric vehicles and are planning to phase out most gasoline or diesel-powered vehicles. My legislation is modeled after New Jersey’s and New York’s efforts to facilitate the expansion of electric car charging stations. Let’s join our neighboring states in their mission to make electric car ownership hassle-free and accessible. It’s time to take important steps to address climate change while also addressing the barriers that may impeded electric vehicle ownership.”
I’ve asked this before for various issues: shouldn’t we be in front of this issue, rather than behind it? Shouldn’t newresidential construction in Pennsylvania be constructed with the necessary infrastructure to support EV charging stations? Yes, it should.
However, for existing communities with old (aging) infrastructure and other limitations, this will be far more difficult, so any legislation requiring existing Associations to allow EV charging in common area parking situations must be carefully reviewed. If a legislator is reading this article and is considering going down this road (pun intended – EV joke # 3) with respect to existing communities, I would recommend that the legislature identify and/or create funding sources (i.e., state energy grants) which community associations could utilize to install the required infrastructure for EV charging. I am happy to discuss this with any legislator that wants to listen.
Solar Energy
Currently, 29 states (including neighboring New Jersey and Delaware) and the District of Columbia have laws which serve to prohibit association covenants or restrictions from applying to homeowners who seek to install solar panels and associated devices on their homes. Twelve more states have laws that protect easements and their establishment on a legal contractual basis without having an express solar rights law in effect. While Pennsylvania currently has no such solar law(s) in effect, solar panel legislation which would impact community associations has previously been introduced multiple times: Senate Bill 1039 – Residential Rights to Solar Energy (2017-2018 Session); Senate Bill 436 – Removing Obstacles to Residential Rights to Solar Energy (2019-2020 Session); and Senate Bill 826 – Ensuring All Residential Homeowners have Access to Solar Energy (2021-2022 Session). The common theme exhibited in the first two Senate Bills is that community associations would not be permitted to prohibit or restrict the installation or use of a solar energy system on a detached unit.
Senate Bill 826 (from the 2021-2022 Session), took it one step further to provide that Associations would not be permitted to prohibit or would not be permitted to prohibit or restrict the installation or use of a solar energy system on a detached roof or a townhouse unit. Currently, in the 2023-2024 Session, similar legislation has been introduced – Senate Bill 31 and House Bill 1759 – Solar Energy Systems. This legislation, as proposed, provides that a community association may not prohibit or restrict the installation or use of a solar energy system on a detached roof or a townhouse unit for which the repair of the of the unit is an owner responsibility and not the responsibility of the community association.
Thus, all of the bills that were previously introduced, as well as the current session’s bills, focus on preventing community associations from prohibiting or restricting the installation or use of a solar energy system on units in the community association. If solar is indeed the future, why are legislators still focusing on preventing associations from acting in some way? Because most community associations (the Boards and/or the owners) still do not want solar in the community and/or do not want to deal with solar issues in any way. Just like the EV issue we just discussed – shouldn’t we be in front of the issue, rather than always behind it? Community associations must begin to reconsider how they look at solar issues because it’s coming, and there will be no looking back.
Management Software
I know, I’m the community association attorney – what do I know about management software? We work with manymanagement companies in representing the interests of our mutual community association clients all over Pennsylvania, and we see that management software solutions have been evolving, and rapidly. Using the latest software solutions, community association managers and staff can:
- Take payments electronically;
- Perform site visits and issue violation notices, with photographs, immediately from their smartphones;
- Communicate directly, and instantaneously, with all of the unit owners in the community via a communication portal and/or email blast; and
- Communicate with vendors regarding association issues.
Management is also able to offer mobile apps to end user unit owners to be able to view their owners portals and communicate directly with the management regarding their accounts, and notify management of any complaints, issues or violations. Board members can also utilize mobile apps to view and conduct Board business, which was unheard of only a few years ago.
Technology is therefore allowing management to do its job better – and faster – than ever before. Expect to see even more positive changes happen in this area in 2024 and beyond.
Electronic Voting and Meetings
At some point, electronic voting and meetings in community associations will be the norm, not the exception, in Pennsylvania. While we still need to work out the wrinkles statutorily for existing communities in Pennsylvania, the Bylaws that are being drafted for new communities in Pennsylvania already reflect the change to allow emerging, electronic technologies to be utilized for voting and/or meetings (Board and/or association). These technologies, as they exist today, were not really being utilized in community associations even just five years ago – yet, today, they have become the norm.
Social Media
In a nutshell, to say that social media has changed the community association landscape is an understatement, and to say that the use of social media in community associations has drastically changed (whether good, bad, ugly or indifferent) is an even bigger understatement. Social media can be used by community associations in a positive manner, and it can also have negative implications (i.e., unofficial social media pages/online presences which are not run by the association). At the end of the day, social media use in community associations is not going away.
I have been discussing social media issues for well over a decade, and one thing that is clear is that social media issues continue to evolve. To say that media has changed the community association landscape is an understatement, and to say that the use of social media in community associations has drastically changed (whether good, bad, ugly or indifferent) is an even bigger understatement. Social media can be used by community associations in a positive manner, and it can also have negative implications (i.e., unofficial social media pages/online presences which are not run by the association). At the end of the day, social media use in community associations is not going away. Be prepared for it, and handle it appropriately.
– Edward Hoffman, Jr., Esq., CCAL
* This Blog post by the author was originally published in the Jan/Feb 2024 issue of Community Assets Magazine, a publication of CAI’s Keystone Chapter.
We Can Work it Out – Dispute Resolution in Community Associations
Life is very short and there’s no time
For fussing and fighting, my friend
I have always thought that it’s a crime
So I will ask you once again
Try to see it my way
Only time will tell if I am right or I am wrong
While you see it your way
There’s a chance that we might fall apart before too long
(We Can Work It Out, The Beatles)
In my career as a community association attorney, I can’t begin to count the number of times I have heard from clients that life in a community association is akin to life in paradise … no muss, no fuss, no bother. Now that I have your attention, let’s talk turkey. Life in a community association is just like life in the rest of the world … while it can be wonderful and rewarding, it can also be challenging to say the least. The distinction is that challenges and disputes that arise in a community association have as their genesis not only ordinary societal issues (including differing attitudes, disagreements and a divided country), in a community association, disputes often arise as a result of non-compliance with the community’s governing documents, covenants and restrictions.
A couple of years ago, I authored a piece entitled “Peace of the Puzzle” which discussed best practices in avoidingconflict in community associations (Common Ground, May/June 2021 issue). But what happens when conflict cannot be avoided and it results in a dispute that needs to be resolved? We will discuss dispute resolution as it applies to community associations in this article.
Communication
Communication by and between the disputing parties is critical to resolving the dispute. Time and time again, I have witnessed parties engaged in a dispute actually stop communicating with one another. A practical question arises as it pertains to this strategy: how in the world will ceasing communication between the parties actually help resolve the conflict? The simple answer is: it won’t. In fact, it will generally make things worse. For clarification, I am not suggesting that parties who are engaged in a dispute where one party is abusing, intimidating or harassing the other (or a situation of such mutual behavior) should attempt to talk it out. I am suggesting (and recommending) that when parties can discuss their dispute professionally and in a civil nature, they should. This may actually lead to resolving the dispute, or may assist in getting to a resolution faster than if the parties were not communicating.
From the perspective of a community association being a party to a dispute with a unit owner (unrelated to the collection of delinquent assessments), I generally recommend that the association (through its Board and/or with a Community Manager) seek to meet with the adverse unit owner either formally or informally to discuss the dispute and try and resolve the matter.
Similarly, a unit owner battling with his or her community association or with another unit owner should strongly consider meeting with representatives of the association or with the other unit owner, as may be applicable, to attempt to resolve their dispute. Communication by and between any of the adverse parties can be worth its weight in gold.
Exhaustion of Internal Remedies
In virtually every community association in every jurisdiction, the governing documents and/or the controlling common interest community statutes will provide that when the association is enforcing its governing documents against a unit owner for a violation, the association must provide notice of the violation to the unit owner, and an opportunity to be heard (due process) on the violation to the unit owner prior to issuing the violation against and/or assessing a fine to the unit owner. (Statutes vary by jurisdiction, but the gist is the same; check with your community association attorney to ensure the required steps are being handled correctly). Following this process correctly would serve to exhaust all of the required internal remedies as it relates to the violation, and, if need be, would permit the association to move forward with further action(s) if the unit owner disputes the violation and relief from the court or some other remedy, such as a form of Alternative Dispute Resolution (ADR), such as mediation or arbitration, is sought to resolve the dispute.
As part of the internal remedy procedure, some states (like New Jersey, where I am licensed to practice) statutorily require that community associations affirmatively offer ADR to unit owners prior to going to court on all, or some, issues. Other states, such as Pennsylvania (where I am also licensed, and primarily practice) statutorily provide for voluntary ADR as part of the internal remedy procedure. The Pennsylvania statutes provide that: (1) All parties must agree to ADR; (2) ADR is not mandatory; any party may seek a private cause of action or other relief; and (3) Costs for ADR (excluding attorneys’ fees) are to be assessed equally against all parties to the dispute.
The common interest community statutes and/or association governing documents in many jurisdictions also permit a unit owner to file a complaint against the association for violations (generally for allegedly failing to enforce the covenants and restrictions) and/or for other disputed issues. In many jurisdictions, the statutes and/or the governing documents also require a unit owner to exhaust internal remedies as may be required prior to filing an agency complaint or taking the association to court on all or some issues. For example, Pennsylvania’s statutes permit a unit owner in good standing to file a complaint with the Pennsylvania Office of Attorney General’s Bureau of Consumer Protection for a limited number of issues (meetings, quorums, proxies, voting and association records). However, before a unit owner can file a complaint with the Pennsylvania Attorney General, all existing internal remedies must first run their course, and, if the association’s governing documents provide for internal ADR to first occur, a unit owner can’t file with the Pennsylvania Attorney General until ADR is exhausted and no resolution results, or one-hundred days have passed with no resolution. A unit owner can immediately file a complaint with the Pennsylvania Attorney General if the governing documents do not contain ADR provisions or if the governing documents provide for ADR but the association refuses to agree to engage in ADR with the unit owner.
It is therefore strongly recommended that parties determine if their governing documents and/or respective jurisdiction’s statutes require ADR or some other dispute resolution mechanism to occur prior to engaging in other dispute resolution efforts or litigation. A final note: the required internal remedies that we have discussed invariably may lead to – you guessed it – some form of communication occurring between the parties that are engaged in the dispute … which, as we know, is better than no communication.
Actively Working to Resolve the Dispute Outside of Court
If communication and the exhaustion of internal remedies do not resolve the dispute, it’s time to seek other options. I generally recommend exploring if a formal or informal meeting with/between the party/parties to try and resolve the dispute is possible (even if attempted in the initial communication phase) – after all, it can’t hurt to try. The best case scenario is that the dispute gets resolved.
If a formal or informal meeting doesn’t work, or simply doesn’t happen, then the parties should explore formal Alternative Dispute Resolution (ADR) using a third party for a non-binding or binding mediation and/or arbitration based on the agreement of the parties (of course this need not be utilized if the parties were required to engage in ADR in exhausting the administrative remedies and it was not successful. The parties can attempt a second ADR session if they so choose at this point, which may or may not be successful). ADR is a popular and often much less expensive choice for associations who seek to resolve disputes without the need for full-blown litigation in court.
The two most popular types of ADR utilized by associations are mediation and arbitration. Mediation is generally heard by a sole mediator and is more of a “summary” proceeding where the parties and the attorneys submit information (usually mediation memoranda) to the Mediator (ahead of time and/or at the mediation) and discuss their cases with the mediator and/or with the mediator and one another without the need for evidence/actual testimony to be introduced/taken at the mediation). The mediator issues a recommendation for resolution at the conclusion of a non-binding mediation that the parties may choose to accept or turn down, or in the situation of a binding mediation, the mediator issues a mediation order which the parties agreed to abide by (sometimes the mediation order gets filed with the court and a judge enters an order, unless the mediation proceeding and/or the result is to remain confidential).
Arbitration is generally a more formal and technical proceeding that can be performed by a sole arbitrator or a panel of arbitrators. Arbitration memoranda are typically submitted by the attorneys prior to the proceeding, testimony is taken and evidence is introduced at the proceeding. The arbitrator or arbitration panel issues a recommendation for resolution at the conclusion of a non-binding arbitration that the parties may choose to accept or turn down, or in a binding arbitration, the arbitrator or arbitration panel issues a binding arbitration order which the parties agreed to abide by (sometimes the arbitration order gets filed with the court and a judge enters an order, unless the mediation proceeding and/or the result is to remain confidential).
I am typically a bigger fan of a non-binding mediation session over a binding ADR session, whether it is a binding mediation or arbitration, except in rare situations where a binding, final outcome is the best available option for the particular dispute. Being a non-binding session allows the parties to attempt to formally resolve the dispute with the assistance of a mediator who is a third party with no vested interest in the outcome (aside from his/or her fee). I have been involved in complex, multi-party litigation where multiple mediation sessions were required to resolve a dispute with finality, but even three, four or five mediation sessions is vastly cheaper and more efficient than participating in a four to six week trial which would be subject to appeal.
The Last Straw: Going to Court
Sometimes, despite our best intentions and attempts at resolving a dispute outside of court – we end up in court – because we have to. While cases often settle on the courthouse steps and/or during the trial itself, cases need to be prepared to go the distance, which is time-consuming and expensive for the litigants. A few thoughts about going to court are as follows:
When to go to court. This seems obvious, but sometimes it isn’t. Court is not just the “last resort” option when all else fails. Parties can actually spin their wheels for a long time attempting to resolve a dispute, where one party is purposefully leading the other party down the primrose path. In this situation, going to court sooner, rather than later, may be more beneficial and actually end up being more cost effective.
Focusing on What’s Important and Picking our Battles. I often tell clients, don’t sweat the small stuff, sweat the big stuff. In other words, focus on what’s important and pick your battles when identifying your litigation strategy – look at what the desired end result, and work to achieve that instead of getting lost in the weeds battling over minutiae.
Cost-Benefit Analysis. Every party in litigation should engage in a cost-benefit analysis as it relates to the desired outcome and the cost to get there. If the cost exceeds the desired outcome, then settlement of the dispute in lieu of trial is likely the best option.
Risk-Benefit Analysis. If the risk of losing at trial is greater than the potential benefit of going to trial, then settlement of the dispute in lieu of trial is likely the best option.
Impact on the Association, Board and Members/Owners. Litigation is expensive, time-consuming and can be emotionally exhausting. The association will need to pay its counsel to go to court and the Board and any impacted members/owners will need to deal with the case from inception through trial – many times this causes Board members to resign and members/owners sometimes move out of communities after being involved in protracted litigation.
After the suit – now what? To the victor go the spoils, or so they say. But is this really true in an association setting where it is association vs. unit owner? While there is a formal “winner” at the end of the litigation, the parties (Board members on behalf of the association and the unit owner) must still live next to one another as neighbors and attempt to coexist amicably. This is tough following a drawn-out court case, but the parties should do their best to put the past behind them and forge a new path moving forward. This is obviously much easier said than done, as human nature and behavior often get in the way. Sometimes the greatest goal following litigation for some parties is that they won’t end up in court again.
Parting Thoughts on Conflict Resolution
I am not trying to sound like a self-help guru, but my advice to association residents would be to keep an open mind, act in good faith and be neighborly – this may go a long way when a dispute arises and a resolution is required. As the Beatles taught us: we can work it out.
– Edward Hoffman, Jr., Esq., CCAL
* Content in this Blog post is also contained in an abbreviated/edited article by Edward Hoffman, Jr., Esq., CCAL, published in the November/December 2023 issue of CAI’s Common Ground magazine, entitled “We Can Work It Out”.
ASSESSMENT COLLECTIONS: REVISITED FOR 2023
July 5, 2023
The Merriam-Webster Dictionary defines “lifeblood” as “a vital or life-giving force or component” (https://www.merriam-webster.com/dictionary/lifeblood). In a community association, assessments are quite literally the lifeblood of the association as they are the vital component related to the association’s ability to operate and maintain the common areas. When owners fail to make timely assessment payments, the deficiency impacts the community as a whole as the community is receiving less money than budgeted for operations, common area maintenance, and reserve funding. The greater the percentage of owners that don’t pay, the greater the impact will be on the association to properly function.
Just how large a problem can assessment delinquencies become in a community association? To put it in perspective, according to CAI’s 2021 National Statistical Review (which is the most recent available), there are 358,000 community associations in United States that collected approximately $106.4 billion in assessments from homeowners. $106.4 billion! While delinquency rates for communities vary widely depending on the type of community, geographic location and a myriad of other specific factors, it is not out of the question for a community to have a delinquency rate between five and ten percent in a well-run community and between ten and twenty percent (or higher) in a community where the collection of delinquent assessments is left unchecked. These delinquency rates would lead to associations collectively receiving a total of $5.32 billion to $21.28 billion less per year in assessments from homeowners – which can lead to large financial problems for many community associations and the owners that live in the communities.
What do owners who live in community associations feel their communities should be doing to properly handle assessment delinquencies? According to CAI’s [April] 2022 Homeowner Satisfaction Survey (which is the most recent available), fifty-nine percent of owners believe that the community should insist that every owner pay assessments, and involve attorneys only if the delinquent accounts are not brought up to date after sufficient notification. Only fifteen percent of owners believe that the loss caused by delinquencies should be made up by increasing assessments for paying owners and ten percent believe that the association should curtail services and amenities and delay improvements and maintenance.
Accordingly, a majority of owners believe that all owners should pay assessments, and should they fail to do so, the delinquent owners should be put into collection after sufficient notification of the deficiency is provided and no payment is made. This is undoubtedly because owners who are delinquent in their assessments typically continue to benefit from the services provided by the association to the detriment of owners who actually are paying their assessments.
Since association boards have a fiduciary duty/responsibility to ensure that assessments are levied and collected, the best thing a community association can do to avoid serious financial issues related to assessment delinquencies is to be (and stay!) proactive as it relates to the collection of delinquent assessments. The first step in being proactive is for the association to adopt a formal collection policy for the collection of delinquent assessments in accord with the association’s governing documents. CAI’s Best Practices, Report # 4, Financial Operations, provides that an effective collection policy should:
1. Be established by a formal resolution of the board that:
a. Specifies the problem to be solved (e.g., collection of delinquent fees);
b. Delineates the procedures to be followed;
c. Designates the circumstances under which the procedures are required or permitted.
2. Specify only actions that are within the power of the community association and its board.
3. Set a firm due date for assessments.
4. Outline the steps to be taken by the person(s) responsible for collecting assessments when a payment is late with a specific timeline for each step of the process.
5. Allow for discretion in special cases (the burden of requesting special consideration should be placed upon the owner). The discretionary power should be under the control of the board of directors.
6. Specify when a delinquent assessment should be referred to legal counsel (this step should be automatic once a delinquent assessment reaches a specific age or amount).
7. Provide for the collection of any costs associated with collecting delinquent assessments.
Once a collection policy is adopted, it must be distributed to every owner in the community. Following distribution, the collection policy must be uniformly enforced as to and against every owner in the community. Consistency is key to effective enforcement, so the board must ensure that the collection policy is utilized and followed as it pertains to every delinquent owner in the community.
Being proactive in assessment collections also means pursuing any and all available legal remedies that are available to the community association (which vary by jurisdiction) including, but not limited to:
- Seeking a personal judgment against the owner(s) of the property in accord with the pertinent statute of limitations which exists in the jurisdiction for such a claim;
- Executing on a personal judgment by way of levy upon and sale of personal property, vehicle sale, bank account garnishment (or wage garnishment in some jurisdictions) and garnishment of rental income (if an owner’s unit is leased to a tenant);
- Filing a lien against the property (if applicable in jurisdiction);
- Foreclosure (judicial sale) of the property on a judgment lien;
- Foreclosure (judicial sale) of the property on a statutory lien.
Since there are times when delinquent owners purposefully ignore delinquency notices, demand letters and even lawsuits, but care about the use of recreational facilities or association amenities (this is especially true in resort communities), associations should also examine their governing documents and review their common interest community statutes to determine what amenities or other privileges may be properly withheld from a delinquent owner. In Pennsylvania, the common interest community statutes were amended in 2018 to provide that, subject to the provisions of the community declaration (covenants), an association has the power to impose charges for late payment of assessments and, after notice and an opportunity to be heard, “[f]or any period during which assessments are delinquent or violations of the declaration, bylaws and rules and regulations remain uncured, suspend unit owners’ rights, including, without limitation, the right to vote, the right to serve on the board or committees and the right of access to common elements, recreational facilities or amenities.”
Associations must also proactively and properly handle issues such as bankruptcy, bank foreclosures, tax sales and short sales of units in order to preserve any claims the association may have in the event any of any of these occurrences. It is recommended that the association utilize counsel as these issues can be complex and there are timelines associated with the claims the association can bring.
With bankruptcy in particular, the automatic stay “freezes” all collections efforts the association is engaged in and the association must adjust its practices pertaining to notices of delinquency and other issues related to the pre-petition assessments. The association also may have to file a Proof of Claim in a Chapter 7 or Chapter 13 bankruptcy proceeding that has been filed by an owner and, in appropriate circumstances, may wish to seek relief from the automatic stay to pursue the real estate pursuant to the association’s statutory lien on the unit even though it cannot pursue the owner (debtor) on his or her personal obligation to pay the assessments because of the protection afforded to the owner from the bankruptcy filing. Associations should know the difference between a “discharge” of the bankruptcy (which discharges the debt of the delinquent owner related to assessments that were owed prior to the bankruptcy filing) and a “dismissal” of the bankruptcy for some reason (which does not discharge the debt of the delinquent owner related to assessments that were owed prior to the bankruptcy filing). Also important is to understand the distinction between a Chapter 7 liquidation proceeding where the owner is typically surrendering the unit in the association to the bank and all debt gets discharged (liquidated) and a Chapter 13 reorganization proceeding where the owner typically attempts to keep the unit (if the owner resides in the unit) and make payments to the creditors, including the association, in accord with a “reorganization” Plan approved by the bankruptcy court. Finally, depending on the jurisdiction (determined by federal Circuit), the bankruptcy courts handle issues pertaining to the owner’s responsibility to pay, and/or the association’s ability to collect, post-petition assessments owed by an owner (i.e., assessments that come due and owing afterthe bankruptcy petition is filed) differently.
Associations must proactively handle bank foreclosures of units so as to attempt to maximize recovery. In a bank foreclosure setting, the association will typically end up with a statutorily prescribed maximum pursuant to any super priority lien which exists in the association’s jurisdiction (for instance, six months of assessments, charges and fees in the author’s state of Pennsylvania). The association lien must be listed on the sale affidavit or other document so the association gets paid from the proceeds of the sale rather than having to chase the bank (or other purchaser) down for the assessments that the association is entitled to receive. It is also noted that after a foreclosure occurs, the bank (or other purchaser) must pay the current assessments owed on the unit until the bank or other purchaser’s ownership interest in the unit ceases.
Tax sales of units can vary tremendously by jurisdiction, but in many jurisdictions there are different levels of tax sale (which keep progressing should a unit remain unsold) and associations must understand how each type of tax sale works in order to properly attempt to collect delinquent assessments that are owed. For instance, in Pennsylvania, there is an upset sale, a judicial sale and a repository sale. At each level of tax sale, the liens and encumbrances (including association liens) vary. At upset sale, the property is sold to the buyer subject to all liens and encumbrances at the time of sale. This means that the association can assert a judgment and/or statutory lien be paid by the buyer if a property is sold at upset sale – obviously a good outcome for the association. The association should always ensure that its lien(s) are listed with the tax claim bureau or other entity selling the property so the association can be paid some or all of its lien amounts if sufficient excess proceeds exist following the sale. If a property is not sold at upset sale and moves to judicial sale or repository sale, it is sold free and clear of all liens and encumbrances, including any that are held by the association – which means the association will typically receive nothing (unless the jurisdiction allows for the association to be paid based on excess proceeds that exist in accord with a prior claim made by the association pursuant to a statutory lien).
It is also recommended that associations implement a general policy for handling short sales of units in the association. A short sale is a private sale of a unit where the unit owner sells the unit for less than the mortgage (or other secured lien) amount that is owed on the unit. To accomplish a short sale, all lien holders, including the association, typically agree to accept less than the amount owed on the unit. In many situations, if a short sale falls through, the unit owner cannot afford to pay the mortgage on the unit and the property will end up in bank foreclosure where the association will end up with the statutorily-prescribed maximum pursuant to any super-priority lien which exists in the association’s jurisdiction. Foreclosure proceedings can take a long time to get to disposition (sometimes years) and during this time, the association is typically not receiving any assessment payments from the delinquent owner. It is therefore generally a better outcome for an association if a short sale occurs instead of a foreclosure, even if the association compromises its claim in some manner, because the association may be able to negotiate to receive an amount in excess of the amount it would receive in foreclosure and because the short sale will occur faster, placing a new owner in the unit that will begin to pay assessments.
Bringing this all together, it is important to remember that assessments are the lifeblood of the association and delinquencies drain the lifeblood away from the association. To ensure the overall health and survival of the association, every association leader and board member must act to fulfill his or her duty to collect delinquent assessments. Through proactive measures, associations can stay on top of delinquencies and collect the lifeblood for the benefit of all owners in the community.
Edward Hoffman, Jr., Esq., CCAL
* The content for this Blog post is based in part upon the prior written work of the author as originally published in the September/October 2019 issue of CAI’s Common Ground magazine.
Interesting Bill Introduced in PA House of Representatives: House Bill (HB) 377 – Protecting Homeowners from Defective or Faulty New Home Construction
June 25, 2023
While this is not a Bill which seeks to amend the three Common Interest Community Statutes in Pennsylvania (PA Condominium Act, PA Uniform Planned Community Act or the PA Real Estate Cooperative Act), this Bill, if it becomes law, could have an impact on new construction community associations in some manner related to residential real property improvements owned by the association, or, at minimum, upon unit owners in the community associations in new construction communities. PA HB 377, found here, provides:
If a builder becomes aware of a construction defect in an improvement to real property constructed or facilitated by the builder, the builder shall notify the owner of the real property. The builder shall also notify the owner of any real property for which the builder constructed or facilitated construction of an improvement if the builder has reasonable cause to suspect the existence of a substantially similar construction defect. The following shall apply:
(1) The notification shall include all of the following:
(i) A description of the construction defect or suspected construction defect.
(ii) The reason that the builder knows or suspects that the construction defect exists.
(iii) Contact information for the builder.
(2) The notification shall be made within 30 days after the builder knows or has reasonable cause to suspect that the construction defect exists.
(3) The builder shall provide the notification by certified mail to the address of record for the owner of the real property.
(4) The notification is not required if at least 15 years have elapsed since completion of construction of the defective improvement.
(5) The notification shall not constitute evidence of the builder’s liability for the construction defect, nor shall the notification relieve the builder from any liability which may exist as the result of the construction defect.
(b) Failure to comply.–A builder who willfully or negligently fails to notify an owner of real property as required by this section shall be liable for the amount of actual damages suffered by the owner as a result of the builder’s failure to notify the owner. This subsection shall not be construed to restrict or expand the authority of a court to impose punitive damages or apply other remedies applicable under another provision of law.
(c) Statute of limitations.–An action for damages as the result of a violation of this section must be commenced within two years of the time that the owner of the real property becomes aware of the builder’s failure to comply with this section.
The definition of “construction defect” provides as follows: “A material defect that results from a deficiency in the design, planning, supervision or observation of construction or construction of an improvement to real property. The term includes a material defect that results from the use of defective building materials or from the improper installation of building materials.“
Interestingly, HB 377 provides that notification of the defect is not required after 15 years since the constriction of the defective improvement has occurred; this is greater than the 12 year statute of repose in Pennsylvania for claims related to construction.
Finally, a builder who fails to notify an owner, would be liable for the amount of actual damages suffered by the owner and the ability to impose punitive damages under some other law would not be limtied by this Bill if it becomes law.
We will continue to monitor PA House Bill 377 and update the Hoffman Law Blog as necessary.
– Edward Hoffman, Jr., Esq., CCAL