Condominium assessments and bankruptcy: What can associations collect?

Courts across the nation are split on whether post-petition community association assessments constitute dischargeable debts under Chapter 13 of the U.S. Bankruptcy Code. To make matters worse, in November, the Supreme Court denied a petition to review the issue, leaving the community association industry wondering if the existing dispute among the courts will ever have a concise national remedy.

This past July, the Ninth Circuit Court of Appeals, which comprise several Western states, had held in Goudelock v. Sixty-01 Ass’n of Apartment Owners, No. 16-35385 (9th Cir. July 10, 2018), that an individual’s pre-petition debt or claim for assessments—created when a property owner takes title to property and which contractually obligates the owner/debtor to pay assessments—is dischargeable when the owner/debtor successfully completes a confirmed Chapter 13 plan. In November, CAI attorneys drafted and submitted an amicus brief in tandem with the (now denied) petition to the U.S. Supreme Court appealing the Ninth Circuit case.

CAI’s amicus brief made it clear to the Supreme Court that the rationale employed by the Ninth Circuit in Goudelock has far-reaching implications for community associations throughout the U.S., as it threatens the lifeblood of community associations—the continued ability to levy and collect assessments and dues for the maintenance and preservation of community property. Due to the Supreme Court denying the association’s petition, the Goudelock decision stands. This decision is already negatively impacting community associations in the Ninth Circuit, as courts have cited the Goudelock decision in their reasoning for denying community associations the ability to collect debts in Chapter 13 bankruptcies.

Yet not all courts across the country agree with this decision. In February, the U.S. District Court in New Jersey handed down a decision that positively impacts the amount of money a condominium association with a properly recorded lien is entitled to receive when a unit owner files for Chapter 13 bankruptcy.

In an appeal filed by the Oaks at North Brunswick Condominium Association, the New Jersey court reinforced that a condominium association lien that is recorded in accordance with the New Jersey Condominium Act is given elevated priority over other claims and that said lien is partially secured and no amount of the lien can be stripped because of the Anti-Modification Clause. This means that condominium associations should receive the full amount of their lien claim when a unit owner files a Chapter 13 bankruptcy.

For now, these conflicting rulings leave our community association attorneys confused and frustrated. Outcomes such as the Oaks at North Brunswick case provide hope for dischargeable debts in our industry. However, Goudelock provides that pre-petition condominium assessments are dischargeable in Chapter 13 proceedings but leaves some critical questions unanswered. This being the first circuit court case on the issue, chances are the other circuits may weigh in. At the end of the day, attorneys need to be aware of Goudelock and its possible application to every Chapter 13 case where the debtor owes community association assessments.

This post also is running on CAI’s Advocacy blog, where you can read about the latest court cases, state and federal advocacy efforts, public policies, and more.

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Pothole Patrol: What community associations can do to maintain pavement

It’s that time of year again, when rain, snow, and changing temperatures cause potholes to form, wreaking havoc on roadways, parking lots, and driveways. According to the American Automobile Association (AAA), pothole damages cost U.S. motorists roughly $3 billion per year. On a per-pothole-incident basis that comes out to about $300 per driver. Additionally, AAA reports two-thirds of U.S. drivers are concerned about potholes on local roadways.

No asphalt or concrete surface will last forever, but it is easy to prolong the life of your association’s pavement. Community association managers and boards of directors have several pavement maintenance and repair options from which to choose.

Crack Filling
Cracks in the asphalt should be cleaned of dirt and vegetation and allowed to dry completely before filling. Cracks should be filled with emulsified asphalt slurry or a light grade of liquid asphalt mixed with fine sand.

Asphalt Patching
Patching is done in areas with severe alligator cracks and/or potholes. When the patch is cut out, the sub-base material should be examined and compacted thoroughly before patching. The patch should be tack coated, to ensure firm bonding between the old and new surfaces. Base course material is laid and compacted first, and new surface asphalt is laid and compacted on top of that. The patch should be rolled to a smooth finish, and all edges should be coated to minimize water penetration.

Overlays
Overlays are placed over existing asphalt to create a new surface. In recent years paving fabric, placed on the existing asphalt prior to the overlay, has gained popularity as an effective agent to bond the new asphalt to the existing asphalt surface. Once the existing asphalt has been prepared, the paving fabric is laid down and a new surface quality asphalt is laid over it. It is then rolled to a smooth finish to match existing grades of asphalt.

Sealcoating
Sealcoating is a controversial aspect of asphalt maintenance. Generally, sealcoating provides an additional 2-3 years of protection against the elements and use by providing an additional layer of protection. It is also cosmetic, in that it covers old and new asphalt to create a uniform look in the community and increases curb appeal. Sealcoating is best done approximately one year after a new surface has been laid. It should be applied by the squeegee method if possible to ensure the sealing of cracks too small to fill by the traditional method.

For more information on repair road and paving, check out The Road Repair Handbook, available for purchase at CAI Press.

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What to know before you rent your home

If you own a home in a community association and want to rent it out, you can make the leasing experience successful and positive for everyone by understanding your responsibilities. This will help preserve your property value specifically and maintain the association’s property value in general.

Before you make your home available for rentals (short-term or long-term), be sure to check your association rules and local laws. Some communities and municipalities specifically prohibit rentals or may regulate the terms (length, frequency, number of renters, etc.). You also should contact your homeowners insurance carrier to be sure you’re covered for any incidents related to rentals.

Assuming all checks out, follow the simple steps below to ensure you, the tenants, and the association all have a positive experience.

Provide your tenants with copies of association rulesYour tenants may not be familiar with common-interest community living. Take a few minutes to explain to them that living in a community association is very different from living in a rental apartment community.

Ensure that tenants comply with association rules. Your tenants, like all residents, are subject to the rules and regulations of the association. The board and manager can assist you in this area, but the responsibility lies with you.

Advise tenants on the proper use of association facilities. Provide your tenants with written copies of all policies and rules regarding community amenities and common areas. You can obtain copies of these and other useful documents from the board or manager.

Use a written lease agreement, and make sure it requires tenants to comply with all association governing documents. As a landlord of a home in a community association, the lease you use must require tenants to comply with the association’s governing documents.

In the event your tenant fails to comply with these documents, including the bylaws, or its rules and regulations, a representative of the association will first contact your tenants in an attempt to remedy the problem. The association will send you a copy of any notice sent to tenants.

If the tenant doesn’t correct the violation, the association will contact you and expect you to remedy the violation using the recourse available to you through your lease agreement. If you are unable to correct the violation, the association may pursue appropriate legal action against the tenant, and possibly against you.

Provide the association with contact information for your tenants. The association will add your tenants to its mailing list, and they will receive the newsletter, invitations to participate on committees, notices of social activities, and general association-related information. This information also will be used in case of emergency.

If you’re a renter and don’t have a copy of the association rules or if you’d like more information about the association, contact a board member or manager.

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Enforce, collect, and hire help: An association board’s biggest responsibilities

A community association board consists of volunteers elected to serve on behalf of residents to execute a wide variety of tasks. It’s a big job, but most board members are happy to serve and make the community a great place to call home.

The board’s biggest responsibilities include enforcing rules, collecting assessments, and hiring help.

Enforcing rules

One of the most important things the board does is enforce the association rules and regulations.

Rules and regulations help community associations maintain property values and protect a quality of life. These standards are typically described in detail in an association’s governing documents, which all homeowners should have an opportunity to review before purchasing a home in a common-interest community.

While some residents may not like being told what they can and can’t do, ultimately the board is looking out for the greater good. By enforcing the rules, the board is doing its best to keep property values up and conflicts down. Of course, the board wants to make sure the rules are beneficial for the majority—and hopefully all—residents.

You are welcome to raise concerns about the rules at open board meetings. Before you do, come prepared to discuss background information, causes, circumstances, desired solutions, and other considerations.

Collecting assessments

Another major responsibility of the board is to collect assessments from homeowners. Collecting this money is important for the financial stability of the association.

The assessments pay for the common elements enjoyed by all residents. Assessments also help to replenish the reserve funds, which pay for any major repairs the association may need.

The board is responsible for the association’s finances, and collecting assessments is how it ensures that the association remains solvent.

Hiring help

Finally, the board acts on behalf of the association by hiring managers, attorneys, contractors, and other professionals who help better the association. Board members also help conceive and lead many of the projects that will improve the community.

Learn more about what these volunteers do by talking to your board members, attending an open board meeting, or even running for a seat on the board during the next election. The more people we have looking out for our associations, the stronger they will be.

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