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COWIE & MOTT, P.A.
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Lawyers Serving Maryland & Washington DC
Lawyers Serving Maryland & Washington DC

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COWIE & MOTT - MARYLAND CONDOMINIUM ATTORNEYS
http://cowiemott.com

410-327-3800 | 202-670-6289 | 301-830-8315

NEW MARYLAND LAW FACILITATES ABILITY OF CONDOS TO SUSPEND COMMON ELEMENT PRIVILEGES AS A MEANS OF COLLECTING DELINQUENT CONDOMINIUM ASSESSMENTS

The Maryland legislature recently made it easier for condominium associations to amend their declarations to authorize the suspension of common element parking and recreational facilities of unit owners whose delinquent condominium assessments are more than 60 days in arrears. The new law allows condominium associations to amend their declarations to include such suspension authorization by approval of 60% of the total eligible votes of a condominium. Under prior law, a minimum of 80% or greater was required for such an amendment. This lowering of the threshold for amending a declaration to include authority to suspend common element privileges of unit owners with delinquent condominium assessments is important because Maryland’s highest court recently held that a condominium may only suspend a unit owner’s common element privileges if such authority is expressly contained in the condominium declaration. Many condominium declarations in Maryland do not contain language that provides such authority.

This article provides background leading to the enactment of this new legislation and sets forth the details that must be followed by a condominium association in order to amend its declaration to include the express authority to suspend parking and recreational facilities of unit owners with delinquent condominium assessments, to the extent such authority does not already exist.

BACKGROUND

Suspension of a unit owner’s common element privileges within a condominium community can be a strong incentive to make timely assessment payments. In Maryland, a condominium association may only suspend a unit owner’s use of communally held common elements facilities for failure to pay assessments if the specific suspension in question is expressly authorized in the recorded condominium declaration. In the case of Elvaton Towne Condominium Regime II, Inc. v. Rose, 453 Md. 684 (2017) (“Elvaton”), the Maryland Court of Appeals struck down a condominium policy that suspended a delinquent owner’s right to use the pool and parking facilities. The court reasoned that Section 11-108(a) of the Maryland Condominium Act only permits a condominium association to restrict a unit owner’s use and enjoyment of the common elements only if such restriction is expressly authorized by the condominium declaration. Elvaton, 453 Md. at 701-06. In Elvaton, the declaration at issue did not expressly authorize suspension of pool and parking privileges of unit owners with delinquent condominium assessments. Instead, the suspension policy was based solely upon the association’s general rule making authority under governing documents, which was insufficient. Elvaton, 453 Md. at 705-06. If not spelled out in the declaration, then such a suspension, according to the Maryland Court of Appeals, constitutes “an impermissible taking” and an unlawful “revocation” and “infringement of [an] owner’s property rights.” Elvaton, 453 Md. at 703-06.

For many Maryland condominium associations who relied on the suspension of common element privileges as an incentive for unit owners to pay delinquent condominium assessments, the ruling in Elvaton presented a problem because their declarations did not expressly authorize such suspensions. Instead, as in the Elvaton case, their suspension policies were adopted based on the association’s general rule-making authority in bylaws, which the Elvaton cases found unlawful. Thus, in order to continue such suspension policies as a means of collecting delinquent condominium assessments, it would be necessary, under the holding in Elvaton, to amend the recorded declaration to add language that expressly authorized such suspension. Traditionally, amending a declaration for this purpose in Maryland has been difficult, if not impossible, because it required a minimum of 80% of eligible unit owners to vote in favor of the amendment or a greater percentage if specified in the declaration. In some older declarations, the voting majority for amending the declaration could be as high as 90% or more.

THE NEW LAW

In response to the Elvaton case, the Maryland General Assembly, in 2018, passed a law known as House Bill 575 making it easier for condominium associations to amend declarations to add language authorizing the suspension common element privileges of unit owners with delinquent condominium assessments. Under the new law, effective October 1, 2018, an association need only obtain the vote of 60% of the total eligible voters of the condominium in order to amend the declaration to expressly authorize the condominium association to suspend the use of common element parking or recreational facilities (e.g., swimming pool and exercise room) of a unit owner whose assessments are more than 60 days in arrears. MD Condo Act §11-103(d)(2). Declarations containing such suspension provisions must also contain language that requires the association to provide delinquent unit owners with specified notice and opportunity to be heard. MD Condo Act §11-103(d)(1)(ii). A suspension of common element parking or recreational facilities may not be implemented unless a condominium association mails the unit owner a demand letter giving them at least 10 days to either pay the delinquent condominium assessment or request a hearing to contest the suspension. Moreover, if a unit owner requests a hearing, the condominium association must provide notice and hold a hearing in accordance with the dispute resolution procedures set forth Section 11-113(b)(2) and (3) of the Maryland Condominium Act.


NOTE ABOUT TERMINOLOGY:

The term “condominium association” is used in this article to describe the organization or entity that governs the affairs of the condominium in accordance with the condominium bylaws and declaration, and whose members consist of all condominium unit owners. “Condominium association” is the terminology commonly used for this purpose. However, the Maryland Condominium Act refers to a condominium association as a “council of unit owners.”

The term “governing documents” is used to refer to the condominium declaration and bylaws which filed in the land records office of the county where the condominium is located. These documents establish the condominium regime and control its governance.

NOTE ABOUT AUTHOR:

Nicholas D. Cowie is a partner in the law firm of Cowie & Mott, P.A. Mr. Cowie and the attorneys of the law firm of Cowie & Mott, P.A. provide legal representation and legal advise to condominiums, co-ops and HOAs throughout the State of Maryland and the District of Columbia, including with regard to delinquent condominium assessments, condominium declaration and bylaw amendments, drafting board resolutions, developing condominium assessment collection policies, contract negotiation, legal opinions, foreclosure actions, litigation, arbitration, mediation services and other general counsel services tailored to condominiums associations, co-ops and homeowners associations.


#MarylandCondominiumAttorneys
#DelinquentCondominiumAssessments
#CondominiumAssesmentCollectionAttorneys
#CondominiumDeclarationAmendmment
#SuspensionofCommonElementPrivileges
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NEW LAW PREVENTS HOA DEVELOPERS FROM RETAINING DISPROPORTIONATE VOTING CONTROL

A new law, effective October 1, 2018, will prevent developers from retaining disproportionate voting control after selling a majority of lots within a homeowner association (“HOA”) subdivision. This law ends the practice where some HOA developers created governing documents that gave them multiple vote for each unsold, developer-owned lot, whereas unit owner purchasers only received a single vote per lot. In this manner, HOA developers retained voting control over the association long after a majority of lots within a subdivision were sold to the homeowners. Under the new law, an HOA developer, regardless of what the governing documents state, will have only one vote for each lot that has been subdivided, recorded in the land records, and not yet sold to a member of the public. The legislation, known as House Bill 669, will be codified at Section 11B-111.7 of the Maryland Homeowners Association Act.

COWIE & MOTT - MARYLAND & DC HOA ATTORNEYS

410-327-3800 | 202-670-6289 | 301-830-8315

http://marylandcondominiumattorneys.com

#MarylandHOAAttorneys
#MarylandHomeownersAssociationAttorneys
#HomeownerAssociationVotingRights
#HOAVotingRights
#DevelopersVotingRights
#CommunityAssociationVotingRights
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HOA ASSESSMENT COLLECTION IN MARYLAND

COWIE & MOTT

HOMEOWNER ASSOCIATION ATTORNEYS

410-327-3800 | 202-670-6289 | 301-830-8315

http://marylandcondominiumattorneys.com/index.php/assessment-collection-homeowners-associations-hoa/

The timely payment and collection of homeowner association assessments is essential to an association’s financial well-being and efficient operation. The association’s Board of Directors has a fiduciary responsibility to stay on top of assessment collection so that delinquent assessments do not accumulate, depriving the association of needed operating capital. This article provides an overview of the assessment collection process for homeowners associations in Maryland. Information is provided to help associations adopt their own assessment collection policies and procedures that work best for their communities within the framework of Maryland homeowners association law.

ANNUAL ASSESSMENTS AND SPECIAL ASSESSMENTS

Assessments are the means by which a Homeowners Association (“HOA”) funds its annual budget. Each year, the HOA board of directors adopts a budget to cover its operating expenses and an amount to be set aside for anticipated future expenses. The total budget cost is divided among the homeowner association lot owners (“HOA members”) in the form of an annual assessment typically due and payable in equal monthly installments on the first day of each month.

Sometimes, an HOA is faced with unanticipated major expenses in excess of the funds raised by the annual assessments. In such cases, governing documents give the board of directors the power to levy a “special assessment,” subject to restrictions imposed by applicable laws. HOA members may be given the option to pay the special assessment in monthly installments.

PAYMENT OF ASSESSMENTS

HOA assessments are traditionally paid by check using payment coupons and envelopes provided by the HOA’s management company. More frequently, management companies send electronic coupons and/or assessment invoices by email and offer online payment by E-check, credit card or recurring ACH payment (direct debit). Coupons and invoices are often used as an opportunity to remind the HOA members that they can avoid late fees and interest by making timely payment on or before the specified due date.

ASSESSMENT COLLECTION POLICIES & PROCEDURES

It is recommended that all HOAs establish written assessment collection policies and procedures based on governing documents and applicable law. Written policies and procedures can be created under the rulemaking authority of the HOA and provide an objective framework under which the HOA can treat all unit owners equally.

Written policies and procedures are a useful aid in the collection of assessments because they can be published and distributed on a regular basis so that all HOA members have ample notice of, and opportunity to understand, what is expected (e.g., due date and manner and method of payment) and the consequences for nonpayment (e.g., late fees, interest, returned check fees, acceleration, suspension of certain common area privileges, referral to legal counsel, and court costs and attorney’s fees if legal action is taken). Policies and procedures should be filed with the Homeowners Association Depository for the county where the HOA is located. See Maryland Homeowners Association Act (“HOA Act”) §11B-113.

Written policies and procedures promote the timely collection of assessments by establishing a timeline for collection actions to be taken once a payment is missed. Written procedures instruct when an HOA should send out late notices and when to refer unresolved delinquencies to legal counsel. A timetable of deadlines for actions to be taken by legal counsel can also be specified, including sending demand letters and commencing proceedings to establish and/or enforce assessment liens, or pursue civil suits when assessments remain unpaid.

ASSESSMENTS PAYMENT INCENTIVES IN GOVERNING DOCUMENTS

Late Fees and Interest

When assessments become past due, an HOA can charge late fees and interest as permitted by governing documents and applicable law. Late fees and interest are not only an incentive to make timely payment, but also to help defray costs associated with delinquencies.

Under Maryland law, where a delinquency in the payment of assessments has continued “for at least 15 calendar days,” the HOA’s declaration or bylaws may provide for the imposition of a one-time “late charge” of $15 or 10% of a delinquent assessment, whichever is greater. HOA Act §11B-112.1. Additionally, whenever an assessment is not timely paid, an HOA board of directors may charge interest as permitted by governing documents and rules and regulations. Governing documents may further define parameters for late charges and interest.

However, under the Maryland Constitution, Article III, Section 57, the legal rate of interest is 6% per annum, unless a statute allows for a higher rate of interest. Unlike the Maryland Condominium Act, the HOA Act is silent on the issue of charging interest on delinquent accounts. Therefore, if no rate of interest for delinquent assessments is set forth in the governing documents, then the maximum interest that can be charged is 6% under the Maryland Constitution.

Acceleration of The Annual Assessment Upon Non-Payment

Acceleration is another incentive for HOA members to make timely payments. Many governing documents permit an HOA to accelerate the entire balance of the unpaid annual assessment following nonpayment of a monthly installment. This means that the board of directors may declare the entire balance of the unpaid annual assessment immediately due and payable, such that monthly installments will no longer be accepted. Any attempt at acceleration must be permitted by governing documents.

Suspension of Common Privileges

Suspension of a unit owner’s privileges within the community can also be an incentive to make timely assessment payments. The HOA governing documents often authorize the Board of Directors to suspend a delinquent unit owner’s common privileges such as use of common areas and facilities, voting rights and/or ability to serve on the board of directors. Before suspending a unit owner’s privileges, the HOA must comply with any notice or hearing requirements set forth in the governing documents.

If the governing documents do not provide notice and hearing protections prior to suspension of common area privileges, or if those notice and hearing requirements are deemed inadequate, an HOA should create, as part of its assessment collection policies and procedures, adequate notice and hearing requirements so as to avoid a successful constitutional argument of unlawful taking of property without due process. The procedures should provide an opportunity for the non-paying HOA member to receive notice of infractions and charges, as well as an opportunity to attend a hearing with the board of directors before a final decision to suspend common element privileges is imposed. The HOA Act does not contain a mandated statutory procedure for providing notice and hearing to HOA members before suspending common privileges. However, the Maryland Condominium Act (§11-113) does contain such a procedure that HOAs can look to as a guideline when creating their own notice and hearing requirements. Compliance with the detailed procedures set forth in §11-113 of the Maryland Condominium Act would presumably be adequate to overcome a constitutional challenge under Maryland or federal law.

LATE NOTICES

A typical first step in the collection procedure is to send out a late notice to any HOA member who has not paid an assessment installment within a specified time following the due date. The late notice is a reminder that the assessment payment is overdue and specifies the amount and any late charges and/or interest due as a result of non-payment. If payment is not forthcoming, follow-up late notices may be sent depending on the association’s collection policy.
DEMAND LETTER (REFERRAL TO LEGAL COUNSEL)

If one or more late notices do not result in a payment, the second step in the typical collection procedure is to refer the assessment delinquency to legal counsel for collection. Legal counsel will attempt to resolve the matter amicably by sending a demand letter to the unit owner. In addition to itemizing the current amount due and requesting payment by a certain date, the demand letter provides notice of any immediate or pending acceleration of the entire remaining balance of the annual assessment and describes other legal actions that may be taken, such as: (1) recording an assessment lien against the non-paying HOA member’s lot that can be enforced by way of foreclosure (i.e., forced sale of the unit to obtain funds to pay the amount due); and/or (2) filing a lawsuit seeking a personal monetary judgment against the unit owner in the amount due, including late fees, interest, costs, and reasonable attorneys’ fees as permitted by governing documents and applicable law.

In 1985, the Maryland General Assembly enacted the Maryland Contract Lien Act (“MD Contract Lien Act”) to govern, among other things, liens arising from unpaid HOA assessments under the terms of governing documents recorded in the land records. Demand letters sent on behalf of HOAs in Maryland must comply with this Act as a precondition to establishing and enforcing an assessment lien against a delinquent lot (discussed below). An HOA member must be provided with specified information about the basis, nature, and amount of the lien owed, as well as the HOA member’s right to contest the establishment of a lien by filing a complaint in the circuit court where the lien is sought to be established within 30 days after receiving notice. MD Contract Lien Act, § 14-203 (b)(1) – (7). The Demand Letter containing this information must be served upon the HOA member as specified in Section 14-203(a) of the Maryland Contract Lien Act (e.g., certified or registered mail, personal delivery, and some cases posting on the property).

COMPLIANCE WITH DEBT COLLECTION AND LICENSING LAWS

Demand letters and many late notices constitute an attempt to collect a delinquent debt and, to the extent applicable, must comply with debt collection conduct and notification requirements imposed by the Federal Fair Debt Collection Practices Act and the Maryland Consumer Debt Collection Act.

In Maryland, persons who fall within the definition of a “collection agency” (e.g., those who collect consumer debt on behalf of another) must be licensed. Maryland Collection Agency License Act (“MCALA”) § 7–301(a). The United States District Court for the District of Maryland has held that a management company is a “collection agency” as defined in Section 7-101(c)(1)(i) of MCALA whenever it seeks to collect a debt on behalf of a homeowner’s association. Fontell v. Hassett, 870 F. Supp. 2d 395, 409 (D. Md. 2012) (“Fontell”). Therefore, any management company sending demand letters to unit owners or otherwise seeking to collect an assessment debt for an HOA in Maryland must have a collection agency license or it could expose itself to criminal misdemeanor imprisonment, fines, or both (MCALA § 7-401(b)), and also subject itself to civil liability under the Maryland Consumer Debt Collection Act, the Maryland Consumer Protection Act, and possibly the Federal Fair Debt Collection Act. Fontell, 870 F. Supp. at 409.

Moreover, in addition to the management company entity itself, an employee of an unlicensed management company can be held personally liable for seeking to collect a debt on behalf of an HOA without a collection agency license in Maryland. Fontell v. Hassett, 891 F. Supp. 2d 739 (2012) (motion to amend earlier court order holding individual management company employees liable was denied). However, once a management company has a collection agency license, its “regular employees” do not require a license, while “acting within the scope of [their] employment.” MCALA § 7-301(b)(2).

ASSESSMENT LIENS AGAINST AN HOA MEMBER’S LOT

If demand letters do not result in payment of the delinquent assessment, an HOA’s board of directors has the power to establish and enforce an assessment lien against the non-paying HOA member’s lot. HOA Act §11B-117(b). Once an assessment lien attaches to the lot, it places a “cloud on title,” by encumbering the ability to sell the lot, similar to a mortgage, such that the lien must be paid off in connection with any future sale before the HOA member receives any part of the remaining sale price. A title company representing the purchaser of a lot with assessment delinquencies will likely discover the assessment lien before settlement and require that it be paid as a condition to issuing a title insurance policy. Without a title insurance policy, an institutional lender will not provide funding for the purchase of a lot in the HOA. Additionally, an HOA member with an assessment lien on their lot will have difficulty obtaining financing. Thus, an assessment, lien, to this extent, serves to secure an HOA’s assessment debt.

Once an assessment lien attaches (and providing that required notices have been provided), it can be used by the HOA to immediately force the sale of the unit as a source of funds to pay the past due amount (the “enforcement and foreclosure of the lien”), without having to wait for a purchaser to come along and acquire the unit.

Foreclosures are expensive and used as a last resort when they make economic sense. However, the prospect of having a lien established against one’s lot, or the desire to have the lien removed, is often enough to resolve any dispute over past due assessment payments without the need for further legal action.

What’s included in a Maryland assessment lien?


In Maryland, assessment liens against a lot may consist of the unpaid “assessment and charges as provided in the declaration.” HOA Act §11B-117(b). If permitted by the governing documents, a failure to pay a single assessment installment can result in the remaining annual assessment coming due (“acceleration”) upon demand of the HOA. In such a case, the full amount of the remaining unpaid annual assessment for the balance of the fiscal year also becomes part of the assessment lien.

How is a Maryland assessment lien created?

In Maryland, an assessment lien must be established or “created” in favor of the HOA by the filing of a “Statement of Lien” in land records of the county where the lot is located in accordance with the procedures set forth in the Maryland Contract Lien Act. Select Portfolio Servicing, Inc. v. Saddlebrook West Utility Company, LLC, 455 Md. 313, 336 (2017). Only then will an assessment lien attach to the delinquent lot. A form Statement of Lien is provided in Section 14-203(j) of the Maryland Contract Lien Act. As a precondition to seeking to create a lien, the lot owner whose property is affected must be given the notices as required by the Maryland Contract Lien Act § 14-203 (a) and (b) (described above), within 2 years of a nonpayment in violation of the governing documents. MD Contract Lien Act § 14-203(a)(1).

In cases where the assessment is uncontested, the lien is created non-judicially by simply filing of the Statement of Lien in land records. MD Contract Lien Act § 14-203(g). In cases where the assessment is contested in court, the lien is created judicially by the filing of a Statement of Lien in land records, upon the order of a court that a lien be imposed. MD Contract Lien Act § 14-203(h).

How is a Maryland assessment lien foreclosed upon?

In Maryland, a residential lot may be foreclosed upon to satisfy an assessment lien in the same manner and subject to the same requirements as the foreclosure of mortgages or deeds of trust on property containing a power of sale or an assent to a decree. MD Contract Lien Act § 14-204(a). See Maryland Real Property § Article 7-105 and Maryland Rules § 14-201 et seq. An action to foreclose on an assessment lien must be brought within 12 years following recordation of the statement of a lien, MD Contract Lien Act § 14-204(c), or within a shorter time period required by the governing documents. However, unlike other real property foreclosures, a foreclosure sale involving an HOA lot in Maryland may only be pursued to the extent that damages secured by the lien consist of: (1) delinquent periodic assessments or special assessments and any interest; (2) reasonable costs and attorney’s fees directly related to the filing of the lien that do not exceed the amount of the delinquent assessments, excluding any interest; and (3) do not include fines imposed by the governing body or attorney’s fees or costs related to recovering the fines. MD Contract Lien Act § 14-204(d)(2). Therefore even if the HOA governing documents impose fines for late payment, such late fees may not constitute the basis of an HOA’s foreclosure sale action.

Super Priority Assessment Liens in Maryland

An HOA’s assessment lien on a lot in Maryland has priority, up to a specified amount, over the liens created by a lender’s earlier-filed first mortgage. This is referred to as a “super priority lien” and references the fact that in the event of a foreclosure sale, the super priority portion of the assessment lien must be paid to the HOA from the sale proceeds before satisfying the lien amount of an earlier-filed lender’s mortgage.

In Maryland, the super priority lien is limited to four months of unpaid regular assessments for common expenses or $1,200.00, whichever is less, and may not include interest, collection costs, late charges, fines, attorneys’ fees, or special assessments or any other costs. HOA Act §11B-117(c)(3)(i). The super priority lien in Maryland only provides priority over “a holder of a first mortgage or deed of trust recorded against the unit on or after October 1, 2011.” MD HOA Act §11B-117(c)(2). An association’s super priority lien does not provide priority over mortgages or deeds of trust recorded before October 1, 2011,nor does it provide priority over liens or secured interest held by the state, county, or municipality (e.g., a tax lien) HOA Act §11B-117(c)(1)(ii) and (c)(2). Additionally, there is no priority over the annual charge assessed under the Columbia Association Declaration dated December 13, 1966, and recorded in the land records of Howard County. MD HOA Act §11B-117(c)(1)(i). If a first mortgage lender requests certain information about the lien, an HOA must provide the information in order to maintain its super priority. MD HOA Act §11B-117(c)(4).

When faced with a foreclosure proceeding, a lender may offer to pay off the super priority lien amount on behalf of the delinquent lot owner in order to prevent the foreclosure and thereby protect its mortgage or deed of trust.

CIVIL LAWSUIT TO OBTAIN PERSONAL JUDGMENT

An HOA can also file a civil lawsuit seeking a personal monetary judgment from a court in its favor and against the delinquent HOA member in the amount of the unpaid assessment, together with authorized late fees, interest, court costs and reasonable attorneys’ fees. A lawsuit seeking a personal judgment can be filed in addition to or in place of a lien foreclosure action, or can be used to make up any deficiencies remaining after foreclosing on the assessment lien. Once the court enters a personal monetary judgment against a delinquent HOA member, the association can seek to collect on the judgment by garnishing the HOA member’s wages or bank accounts and/or rent (if the home on the lot is being rented), subject to restrictions imposed by applicable laws. Additionally, a personal judgment entered against an HOA member by the court and recorded in the courthouse will create a judgment lien not only against the lot in question, but also as to and any other real property of the HOA member located in the county or jurisdiction of filing. The judgment can also be recorded among the land records of a different county or jurisdiction thereby extending the judgment lien to any real property located within the boundaries thereof. As with an assessment lien, a judgment lien also creates a “cloud on title” such that property cannot be transferred “free and clear” of the lien unless it is paid off by prior to transfer of title.

PAYMENT PLANS

During the collection process, it may be appropriate to agree upon a payment plan with HOA members who fall behind on their assessment payments. Payment plans can save the association the time and expense of pursuing legal action and provide an HOA member with time needed to bring their account current. Payment plans should be reserved for those cases where timely repayment of a past due amounts under the proposed plan is feasible and likely, such as where a lot owner is able to pay assessments going forward but needs help catching up on missed payments. Payment plans can also be used as a means of resolving a payment dispute by allowing an HOA member to pay off an accelerated annual assessment together with interest, late fees, costs and attorneys’ fees, if any. Payment plans should be made part of a contractual agreement between the association and the HOA member that sets forth the amount of each payment, its due date, and the mutually agreed-upon consequences of failure to make a scheduled payment. A hierarchy for application of payments pursuant to the association’s collection policy can also be included to specify which fees are paid first (e.g., court costs, return check charges, interest, late fees, and lastly unpaid assessments).

NOTE ABOUT TERMINOLOGY:



The term “board of directors” is used to refer to the administrative entity made up of board members that have authority under the HOA bylaws and declaration to act on behalf of the homeowners association.

The term “governing documents” is used to refer to the HOA declaration and bylaws.

NOTE ABOUT AUTHOR: Nicholas D. Cowie is a partner in the law firm of Cowie & Mott, P.A. and has been representing community associations for over 29 years. The law firm of Cowie & Mott, P.A. provides general counsel legal services to condominiums and homeowners associations throughout the State of Maryland and the District of Columbia, including assessment collection, drafting resolutions, developing assessment collection policies, contract negotiation, legal opinions, foreclosure actions, litigation, arbitration, mediation services, bylaw amendments and other general counsel services tailored to homeowners and condominium associations. The law firm of Cowie & Mott, P.A. offers flat fee assessment collection services with deferred billing. Please contact our firm for references.

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#MarylandHOAAssessmentCollection
#HOAAssessmentCollection
#DelinquentAssessmentColection
#MarylandCondominiumLawyers
#MarylandHOALawyers
#MarylandHomeownersAssociationLawyers
#AssessmentCollectionAttorneys
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NEW LAW PREVENTS SHORTENING STATUTE OF LIMITATIONS
APPLICABLE TO CONDOMINIUM CONSTRUCTION DEFECT WARRANTY CLAIMS IN MARYLAND

COWIE & MOTT

MARYLAND CONDOMINIUM CONSTRUCTION DEFECT ATTORNEYS

410-327-3800 | 202-670-6289 | 301-830-8315

http://cowiemott.com/new-maryland-law-prevents-shortening-statute-of-limitations-applicable-to-claims-for-condominium-construction-defects/

A new Maryland law prevents developers from shortening the time period within which condominium associations and their unit owner members can assert claims for hidden construction defect in newly constructed condominiums. The legislation known as HB 77 and SB 258 passed both houses of the Maryland General Assembly and was signed into law by Governor Lawrence J. Hogan on April 24, 2018 (see photo above). Nicholas D. Cowie, Esq. is the author of the legislation, which will be codified as Section 11-134.1 of the Maryland Condominium Act, effective October 1, 2018.

This article provides background and discusses how this new legislation ends the practice by which some condominium developers used statute of limitations shortening provisions to prevent condominium associations and their unit owner members from asserting warranty and other legal claims for latent construction defects.

THE STATUTE OF LIMITATIONS FOR CONSTRUCTION DEFECTS
The statute of limitations (sometimes referred to simply as “limitations”) is the time period within which a legal claim must be filed in a court of law or be forever barred. Under Maryland law, condominium associations and their unit owner members have anywhere from two (2) to four (4) years to assert various statutory warranty claims (warranty period plus the limitations), and a three (3) years to assert most other claims for construction defects. These statute of limitations time period commence at different times depending on the type of legal claim and the facts and circumstances of each case. For example, in the case of statutory express and implied warranties, the statute of limitations time period usually does not commence or “begin to run” until after the expiration of the warranty period. The statute of limitations on most other construction defect legal claims (e.g., negligent construction, negligent misrepresentation, breach of contract, and violation of the Maryland Consumer Protection Act) commences when a hidden defect or evidence thereof is discovered or reasonably apparent.

LATENT CONSTRUCTION DEFECTS
Construction defects that occur during construction of a condominium (e.g., building code violations, deviations from plans and specifications, and other faulty workmanship and use of improper materials) are often concealed behind exterior walls or hidden from sight by subsequent layers of construction work. Any evidence of their existence may be unrecognizable to the average home purchaser. These hidden construction defects are sometimes referred to as “latent defects.” They are not apparent at the time of purchase and may go unnoticed for months or years until they begin to manifest (e.g., leaks that appear at windows, doors and roofs, stones dislodging and falling from the exterior walls, full depth cracks developing in foundation walls, etc.).

Warranty periods and statutes of limitations afford Maryland condominium associations and their members an opportunity to discover latent construction defects so they can be brought to the attention of the developer for correction before warranties expire. If the developer refuses to repair construction defects, a lawsuit can be filed, or, if applicable, stayed while the parties arbitrate or mediate. If suit is not filed within the statute of limitations, construction defect claims will be barred and the cost of repairing developer construction defects will fall upon the unit owners.

STATUTE OF LIMITATION SHORTENING PROVISIONS
In an effort to prevent condominium associations and unit owners from making timely claims for latent construction defects, some condominium developers use provisions in their contracts of sale that impose a shortened statute of limitations of one year or less from the date of settlement on the unit. In more extreme examples, these shortening provisions result in the statute of limitations expiring before a unit owner even gets to settlement. These provisions contain legalese that is incomprehensible to unit owners who typically have no idea that their legal rights terminate in such a short time frame.

The effect of these statute of limitations shortening provisions is to bar all legal claims that a unit owner may have, known or unknown, unless they file a lawsuit against the developer within the shortened limitations period. As a consequence, a unit owner’s structural warranty rights become time-barred before the two-year structural statutory warranty period provided by Maryland law even expires, and other legal claims for latent construction defects become time-barred years before they normally would be under applicable Maryland law.

Condominium communities are especially vulnerable to these statute of limitation shortening provisions because they are initially under developer control for the first few years such that there is no opportunity for unit owner members to conduct independent assessments of building construction (e.g., roof, exterior walls, etc.) until the developer turns over control of the association. By the time control of the condominium association is turned over to the unit owners, the shortened statute of limitations has usually long expired, thereby barring the unit owners’ legal claims for construction defects discovered in their condominium.

THE NEW LEGISLATION
HB 77 and SB 258 renders statute of limitations shortening provisions unenforceable as a legal defense to a claim by a condominium association or unit owner for any construction defect resulting from a failure to comply with: (1) applicable building codes; (2) county-approved plans and specifications; (3) manufacturer’s installation instructions; or (4) implied statutory warranties created by Maryland law, which, among other things, require that construction be free from defective materials, performed in a workmanlike manner and in accordance with applicable industry standards (a “covered construction defect”). The legislation applies to statute of limitations shortening provisions contained in developer contracts for the initial sale of a new residential condominium unit or contained in “any other instrument made by a developer or vendor” in accordance with the Maryland Condominium Act, including a condominium declaration and by-laws.

The legislation also renders unenforceable other similar provisions used in condominium declarations, bylaws, and contracts of sale to shorten the normal time period for bringing a construction defect claim. These consist of the following, which are unenforceable under the new law in connection with any covered construction defect claim:

1. Advancing the Limitations Commencement Date: Provisions that advance the normal statute of limitations commencement date in order to make the statute of limitation expire sooner than it normally would under applicable law.

2. Shortening the Time Allowed to Seek Arbitration: Provisions that require claims subject to arbitration to be submitted to arbitration within a period of time that is shorter than the statute of limitations applicable to the claim. This prevents developers from imposing arbitration and then requiring condominium associations and their unit owners to waive their claims if they don’t bring an arbitration proceeding within a period of time that is shorter than the normal statute of limitations applicable to the claim.

3. Procedural Roadblocks Designed to Prevent Timely Claims from Being Made: Provisions that operate to prevent a condominium association or unit owner or from timely filing a lawsuit, initiating arbitration, or otherwise asserting a claim within applicable statute of limitations. This prevents developers from imposing unreasonable procedural roadblocks in condominium documents that must be overcome before an association or unit owner can pursue a legal claim, if those roadblocks would operate to prevent timely pursuit of legal claims for covered construction defects.

The legislation does not apply to the settlement of disputed claims between developers, condominium associations, and unit owners. This allows associations, unit owners, and developers to freely enter into settlement agreements to resolve construction defect claims.

Note about Author: Nicholas D. Cowie, Esq., a partner in the law firm of Cowie & Mott, P.A., is the author of HB 77 and SB 258. Mr. Cowie worked closely with the bill’s sponsors, Delegate Marvin E. Holmes, Jr. and Senator Delores G. Kelley, and with the help of many other organizations, government agencies, and individuals to obtain passage of this important legislation.

Note about Statue of Limitations and Condominium Construction Defect Claims: The application of the statute limitations to a condominium construction defect claim is a highly complex area of law requiring sophisticated analysis of multiple claims and the particular facts and circumstances of each case. Condominium associations and unit owners experiencing construction defect claims should consult with an attorney experienced in handling construction defect cases as soon as possible in order to plan a course of action to protect their rights, including entering into tolling agreements that can stop the statue of limitations from running on claims while parties attempt to negotiate repairs. In our firms practice we find that many attorneys that represent condominiums as general counsel do not understand the statute of limitations how it applies to the multiple different types of construction defect claims available to condominium association and their unit owner members. Sadly, we are often asked to review cases where well know condominium legal counsel have allowed the statue limitations to expire as to all or multiple potential claims without even realizing it. Having legal counsel that specializes in this area of law is therefore extremely important.

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CONDOMINIUM ASSESSMENT COLLECTION IN WASHINGTON DC

COWIE & MOTT, P.A.

WASHINGTON DC CONDOMINIUM CONDOMINIUM ATTORNEYS

202-670-6289 | 410-327-3800 | 301-830-8315

MarylandCondominiumAttorneys.com

CONDOMINIUM ASSESSMENT COLLECTION IN THE DISTRICT OF COLUMBIA

The timely payment and collection of condominium assessments is essential to the financial well-being and efficient operation of a condominium association. The association’s Board of Directors has a fiduciary responsibility to stay on top of condominium assessment collection so that delinquent condominium assessments do not accumulate. Excessive delinquencies not only deprive a condominium association of needed operating capital, but also affect its ability to borrow money and obtain FHA approval. This article provides an overview of the condominium assessment collection process for condominium associations in the District of Columbia. Information is provided to help associations adopt their own condominium assessment collection policies and procedures that work best for their communities within the framework of Washington DC condominium law.

 ANNUAL ASSESSMENTS AND SPECIAL ASSESSMENTS

Condominium assessment collection is the means by which a condominium association board of directors funds the annual budget. Each year the condominium association adopts a budget to cover its operating expenses and an amount to be set aside for anticipated future expenses. The total budget cost is divided among the unit owners in the form of an annual assessment typically due and payable in equal monthly installments on the first day of each month.

Sometimes condominium associations are faced with unanticipated major expenses in excess of the funds raised by the annual assessments. In such cases, governing documents give the board of directors the power to levy a “special assessment,” subject to restrictions imposed by applicable laws. Unit owners may be given the option to pay the special assessment in monthly installments.

PAYMENT OF ASSESSMENTS

Condominium assessments are traditionally paid by check using payment coupons and envelopes provided by the condominium association’s management company. More frequently, management companies send electronic coupons and/or assessment invoices by email and offer online payment by E-check, credit card or recurring ACH payment (direct debit). Coupons and invoices are often used as an opportunity to remind the unit owners that they can avoid late fees and interest by making timely payment on or before the specified due date.

ASSESSMENT COLLECTION POLICIES & PROCEDURES

It is recommended that all associations establish written condominium assessment collection policies and procedures based on governing documents and applicable law. Written policies and procedures can be created under the rulemaking authority of the association and provide an objective framework under which the condominium association can treat all unit owners equally.

Written policies and procedures are a useful aid in the collection of assessments because they can be published and distributed on a regular basis so that all unit owner members have ample notice of, and opportunity to understand, what is expected (e.g., due date and manner and method of payment) and the consequences for nonpayment (e.g., late fees, interest, returned check fees, acceleration, suspension of common element privileges, referral to legal counsel, and court costs and attorney’s fees if legal action is taken).

Written policies and procedures promote the timely collection of assessments by establishing a timeline for collection actions to be taken once a payment is missed. Written procedures instruct when an association should send out late notices and when to refer unresolved delinquencies to legal counsel. A timetable of deadlines for actions to be taken by legal counsel can also be specified, including sending demand letters and commencing proceedings to establish and/or enforce assessment liens, or pursue civil suits when assessments remain unpaid.

ASSESSMENTS PAYMENT INCENTIVES IN GOVERNING DOCUMENTS

1. Late Fees and Interest

When assessments become past due, a condominium association can charge late fees and interest as permitted by governing documents and applicable law. Late fees and interest are not only an incentive to make timely payment, but also to help defray costs associated with delinquencies.

The District of Columbia Condominium Act does not regulate the amount or timing of late fees imposed for nonpayment of condominium assessment. Thus, reference should be made to the governing documents. A condominium association in the District of Columbia can charge interest after an assessment payment is 15 days late, unless the governing documents provide otherwise. District of Columbia Condominium Act (“DC Condo Act”) § 42–1903.12(e). Interest runs from the due date at either 10% per year or the maximum first mortgage loan rate in DC, whichever is less. DC Condo Act § 42–1903.12(e).

2. Acceleration of The Annual Assessment Upon Non-Payment

Acceleration is another incentive for unit owners to make timely payments. Most governing documents permit a condominium association to accelerate the entire balance of the unpaid annual assessment following nonpayment of a monthly installment. This means that the board of directors may declare the entire balance of the unpaid annual assessment immediately due and payable, such that monthly installments will no longer be accepted. Any attempt at acceleration by a condominium association must be permitted by governing documents and consistent with applicable laws.

In Washington DC, governing documents can provide for acceleration after one unpaid installment, which can be automatic or at the option of the association, board, or manager. DC Condo Act § 42–1903.12(d)

3. Suspension of Common Privileges

Suspension of a unit owner’s privileges within the community can also be an incentive to make timely assessment payments. The condominium governing documents often authorize the Board of Directors to suspend a delinquent unit owner’s common privileges such as use of common elements (e.g., swimming pool, exercise facilities, recreational amenities and parking), voting rights and/or ability to serve on the board of directors. Before suspending a unit owner’s privileges, the condominium association must comply with any notice or hearing requirements set forth in the governing documents and/or as require by statute.

In Washington DC, a board of directors has the statutory “power to suspend the voting rights … of any unit owner who is in arrears in … payment of … assessments by more than 30 days.” DC Condo Act § 42-1903.12(j). A condominium association in the District of Columbia also has general rule making authority under § 42-1903.08 of District of Columbia Condominium Act to established a policy that provides for the suspension of a delinquent unit owners common element privileges. However, in order to avoid a successful constitutional argument of unlawful taking of property rights without due process, a condominium association in the District of Columbia should adopt, publish and regularly distribute written policies and procedures regarding the suspension of common area privileges so that all unit owners have prior notice. These procedures should also ideally include written notice and an opportunity for the non-paying unit owner to attended or request a hearing before the board within a specified time (even if not required by the governing documents), before a final decision to suspend common element privileges is imposed.

LATE NOTICES

A typical first step in the condominium assessment collection procedure is to send out a late notice to any unit owner who has not paid an assessment installment within a specified time following the due date. The late notice is a reminder that the assessment payment is overdue and specifies the amount and any late charges and/or interest due as a result of non-payment. If payment is not forthcoming, follow-up late notices may be sent depending on the association’s collection policy.

DEMAND LETTER (REFERRAL TO LEGAL COUNSEL)

If one or more late notices do not result in a payment, the second step in the typical condominium assessment collection procedure is to refer the assessment delinquency to legal counsel for collection. Legal counsel will attempt to resolve the matter amicably by sending a demand letter to the unit owner. In addition to itemizing the current amount due and requesting payment by a certain date, the demand letter provides notice of any immediate or pending acceleration of the entire remaining balance of the annual assessment and describes other legal actions that may be taken, such as: (1) recording an assessment lien against the non-paying unit owner’s condominium unit that can be enforced by way of foreclosure (i.e., forced sale of the unit to obtain funds to pay the amount due); and/or (2) filing a lawsuit seeking a personal monetary judgment against the unit owner in the amount due, including late fees, interest, costs, and reasonable attorneys’ fees as permitted by governing documents and applicable law.

In 2017, the District of Columbia enacted amendments to the Condominium Act known as the “Condominium Owner Bill of Rights and Responsibilities Act of 2016.” Under this Act, condominium associations must provide specified information whenever notifying a unit owner of its intention to take legal action to collect any past due amount. DC Condo Act § 42–1903.12a. Therefore, a demand letter sent on behalf of a Washington DC condominium that notifies a unit owner of pending or potential legal action for nonpayment of past due assessments must contain the following information: (1) a statement of account showing the total amount past due, including a breakdown of the categories of amounts claimed to be due and the dates those amounts accrued; (2) contact information for a representative whom the unit owner can contact to settle the past due amount; and (3) information regarding resources which the unit owner may utilize at the District of Columbia Department of Housing and Community Development and the United States Department of Housing and Urban Development (form language is provided by the statute). DC Condo Act § 42–1903.12a.

COMPLIANCE WITH DEBT COLLECTION AND LICENSING LAWS

Demand letters and many late notices constitute an attempt to collect a delinquent debt and, to the extent applicable, must comply with debt collection conduct and notification requirements imposed by the Federal Fair Debt Collection Practices Act and/or the District of Columbia Fair Debt Collection Act.

There is currently no collection agency license in the District of Columbia, however, management companies doing business in the District of Columbia are required to obtain a general business license with the Department of Consumer and Regulatory Affairs. D.C. Code 47-2851.03d.

ASSESSMENT LIENS AGAINST A CONDOMINIUM UNIT

If demand letters do not result in payment of the delinquent assessment, a condominium association’s board of directors has the power to establish and/or enforce an assessment lien against the non-paying unit owner’s condominium unit. Once an assessment lien attaches to the unit, it places a “cloud on title,” by encumbering the ability to sell the unit, similar to a mortgage, such that the lien must be paid off in connection with any future sale before the unit owner receives any part of the remaining sale price. A title company representing the purchaser of the delinquent unit will likely discover the assessment lien before settlement and require that it be paid as a condition to issuing a title insurance policy. Without a title insurance policy, an institutional lender will not provide funding for the purchase of a unit. Additionally, a unit owner with an assessment on their unit will have difficulty obtaining financing. Thus, an assessment, lien, to this extent, serves to secure an association’s assessment debt.

Additionally, once an assessment lien attaches (and providing that required notices have been provided), it can be used by the condominium association to immediately force the sale of the unit as a source of funds to pay the past due amount (the “enforcement and foreclosure of the lien”), without having to wait for a purchaser to come along and acquire the unit.

Foreclosures are expensive and used as a last resort when they make economic sense. However, the prospect of having a lien established against one’s unit, or the desire to have the lien removed, is often enough to resolve any dispute over past due assessment payments without the need for further legal action.

1. What’s included in a Washington DC assessment lien?

In the District of Columbia, an assessment lien may consist of “the assessment levied against the condominium unit … along with any applicable interest, late fees, reasonable expenses and legal fees actually incurred, cost of collection and any other reasonable amounts payable by the unit owner under the condominium instruments.” DC Condo Act § 42-1903.13(a). If condominium assessments are paid in installments, governing documents can provide for acceleration of the entire assessment after one or more unpaid assessment installments. DC Condo Act § 42–1903.12(d). However, whether or not monthly installments are accelerated, the full amount of the annual assessment becomes part of the assessment lien “from the time the first installment becomes due and payable.” DC Condo Act § 42-1903.13(a).

2. How is a Washington DC assessment lien created?

In the District of Columbia, unlike Maryland, an assessment lien in favor of the condominium association attaches to the unit automatically “from the time the assessment becomes due and payable,” DC Condo Act § 42-1903.13(a), and lasts for a period of three years, DC Condo Act § 42-1903.13(e). Unlike Maryland, no recording of a statement of lien in the land records is required in the District of Columbia to create the lien because “the recording of the [original governing documents in the land records] shall constitute record notice of the existence of such lien.” DC Condo Act § 42-1903.13(b). Nonetheless, a condominium association can choose to file a notice of lien in the land records to put prospective purchasers, lenders and others on notice of the existence and or subsequent release of an assessment lien. The Recorder of Deeds publishes forms online for this purpose entitled “Notice of Condominium Lien for Assessments Due” and “Release of Condominium Lien."

Even if no formal action has been taken to record or enforce the lien, any unit owner or contract purchaser of a condominium unit can find out whether there are unpaid assessments by requesting that the condominium association provide “a recordable statement setting forth the amount of unpaid assessments levied against that unit.” DC Condo Act § 42-1903.13(h). Failure of the condominium association to provide such a statement within 10 days of receipt of the request “shall extinguish the lien.” DC Condo Act § 42-1903.13(h).

3. How is a Washington DC assessment lien foreclosed upon?

The District of Columbia Condominium Act sets forth the procedure for foreclosing on a condominium unit to satisfy an assessment lien. The board president of the condominium association (also known as the “chief executive officer of the unit owners’ association) is deemed by statute to be a “trustee” for purposes of exercising the power to sell and transfer title to a delinquent unit owner’s condominium unit. DC Condo Act § 42-1903.13(c)(1) and (3). However, such a foreclosure sale cannot be held until at least 31 days after a “Notice of Foreclosure Sale of Condominium Unit for Assessments Due” (a/k/a “NFSCUAD”) is recorded in the land records and served upon the unit owner. DC Condo Act § 42-1903.13(c)(4)(A). The NFSCUAD must contain information specified by the statute, including detailed information about the amount due, the amount being foreclosed on, and assistance that may be available to the unit owner from the District of Columbia Department of Housing and Community Development and the United States Department of Housing and Urban Development. DC Condo Act § 42-1903.13(c)(4)(B) and (D). The NFSCUAD must also be provided to the mayor or the mayor’s designated agent, any and all junior lienholders of record, any holder of a first deed of trust or first mortgage of record (including successors, assigns, and trustees), and the Mortgage Electronic Registration System (“MERS”). DC Condo Act § 42-1903.13(c)(4)(E).

4. Super Priority Assessment Liens

Assessment liens in Washington DC have priority, up to a specified amount, over the liens created by a lender’s earlier-filed first mortgage or deed of trust. This is referred to as a “super priority lien” and references the fact that in the event of a foreclosure sale, the super priority portion of the assessment lien must be paid to the condominium association from the sale proceeds before satisfying the lien amount of an earlier-filed lender’s mortgage or deed of trust.

In the District of Columbia, the super priority lien is limited to the most recent six months’ worth of common expense assessments. DC Condo Act § 42-1903.13(a)(2). The super priority lien in Washington DC only provides priority over first mortgages or first deeds of trust recorded after March 7, 1991 for the benefit of an institutional lender. DC Condo Act § 42-1903.13(a)(1)(B) and (a)(2). An association’s super priority lien does not provide priority over mortgages and deeds of trust recorded before March 7, 1991, a lien for real estate taxes or municipal assessment charges, nor does it affect the priority of a mechanics’ or materialmen’s lien. DC Condo Act § 42-1903.13(a)(1)(C) and (2).

When faced with a foreclosure proceeding, a lender may offer to pay off the super priority lien amount on behalf of the delinquent unit owner in order to prevent the foreclosure and thereby protect its mortgage or deed of trust.

CIVIL LAWSUIT TO OBTAIN PERSONAL JUDGMENT

A condominium association can also file a civil lawsuit seeking a personal monetary judgment from a court in its favor and against the delinquent unit owner in the amount of the unpaid assessment, together with authorized late fees, interest, court costs and reasonable attorneys’ fees. A lawsuit seeking a personal judgment can be filed in addition to or in place of a lien foreclosure action, or can be used to make up any deficiencies remaining after foreclosing on the assessment lien. Once the court enters a personal monetary judgment against a delinquent unit owner, the association can seek to collect on the judgment by garnishing the unit owner’s wages or bank accounts and/or rent (if the unit is being rented), subject to restrictions imposed by applicable laws. Additionally, a personal judgment entered against unit owner by the court and recorded in the courthouse will create a judgment lien not only against the unit in question, but also as to and any other real property located in the jurisdiction of filing. The judgment can also be recorded among the land records of a different county or jurisdiction thereby extending the judgment lien to any real property located within the boundaries thereof. As with an assessment lien, a judgment lien also creates a “cloud on title” such that property cannot be transferred “free and clear” of the lien unless it is paid off by prior to transfer of title.

PAYMENT PLANS

During the condominium assessment collection process, it may be appropriate to agree upon a payment plan with unit owners who fall behind on their assessment payments. Payment plans can save the association the time and expense of pursuing legal action and provide a unit owner member with time needed to bring their account current. Payment plans should be reserved for those cases where timely repayment of a past due amounts under the proposed plan is feasible and likely, such as where a unit owner is able to pay assessments going forward but needs help catching up on missed payments. Payment plans can also be used as a means of resolving a payment dispute by allowing a unit owner to pay off an accelerated annual assessment together with interest, late fees, costs and attorneys’ fees, if any. Payment plans should be made part of a contractual agreement between the association and the unit owner that sets forth the amount of each payment, its due date, and the mutually agreed-upon consequences of failure to make a scheduled payment. A hierarchy for application of payments pursuant to the association’s collection policy can also be included to specify which fees are paid first (e.g., court costs, return check charges, interest, late fees, and lastly unpaid assessments).

NOTE ABOUT TERMINOLOGY:

The term “condominium association” is used in this article to describe the organization or entity that governs the affairs of the condominium in accordance with the condominium bylaws and declaration, and whose members consist of all condominium unit owners. “Condominium association” is the terminology commonly used for this purpose. However, the District of Columbia Condominium Act refers to a condominium association as a “unit owners’ association.”

The term “board of directors” is used to refer to the administrative entity made up of board members that have authority under the condominium bylaws and declaration to act on behalf of the condominium association. The District of Columbia Condominium Act refers to a board of directors as an “executive board.”

The term “governing documents” is used to refer to the condominium declaration and bylaws. The District of Columbia Condominium Act refers to the condominium bylaws and declaration as “condominium instruments.”

NOTE ABOUT AUTHOR:

Nicholas D. Cowie is a partner in the law firm of Cowie & Mott, P.A. and has been representing condominiums for over 29 years. The law firm of Cowie & Mott, P.A. provides general counsel legal services to condominiums throughout the State of Maryland and the District of Columbia, including condominium assessment collection, drafting resolutions, developing condominium assessment collection policies, contract negotiation, legal opinions, foreclosure actions, litigation, arbitration, mediation services, bylaw amendments and other general counsel services tailored to condominiums associations and homeowners associations. The law firm of Cowie & Mott, P.A. offers flat fee condominium assessment collection services with deferred billing. Please contact our firm for references.

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COWIE & MOTT - MARYLAND CONDOMINIUM ASSESSMENT COLLECTION ATTORNEYS

410-327-3800 | 202-670-6289 | 301-830-8315

http://marylandcondominiumattorneys.com

ASSESSMENT COLLECTION FOR MARYLAND CONDOMINIUM ASSOCIATIONS

The timely payment and collection of condominium assessments is essential to the financial well-being and efficient operation of a condominium association. The association’s Board of Directors has a fiduciary responsibility to stay on top of assessment collection so that delinquent condominium assessments do not accumulate. Excessive delinquencies not only deprive a condominium association of needed operating capital, but also affect its ability to borrow money and obtain FHA approval. This article provides an overview of the assessment collection process for condominium associations in Maryland. Information is provided to help associations adopt their own assessment collection policies and procedures that work best for their communities within the framework of Maryland condominium law.

ANNUAL ASSESSMENTS AND SPECIAL ASSESSMENTS

Assessment collection is the means by which a condominium association board of directors funds the annual budget. Each year, the condominium association adopts a budget to cover its operating expenses and an amount to be set aside for anticipated future expenses. The total budget cost is divided among the unit owners in the form of an annual assessment typically due and payable in equal monthly installments on the first day of each month

Sometimes condominium associations are faced with unanticipated major expenses in excess of the funds raised by the annual assessments. In such cases, governing documents give the board of directors the power to levy a “special assessment,” subject to restrictions imposed by applicable laws. Unit owners may be given the option to pay the special assessment in monthly installments.

PAYMENT OF ASSESSMENTS

Condominium assessments are traditionally paid by check using payment coupons and envelopes provided by the condominium association’s management company. More frequently, management companies send electronic coupons and/or assessment invoices by email and offer online payment by E-check, credit card or recurring ACH payment (direct debit). Coupons and invoices are often used as an opportunity to remind the unit owners that they can avoid late fees and interest by making timely payment on or before the specified due date.

ASSESSMENT COLLECTION POLICIES & PROCEDURES

It is recommended that all associations establish written assessment collection policies and procedures based on governing documents and applicable law. Written policies and procedures can be created under the rulemaking authority of the association and provide an objective framework under which the condominium association can treat all unit owners equally.

Written policies and procedures are a useful aid in the assessment collection effort because they can be published and distributed on a regular basis so that all unit owner members have ample notice of, and opportunity to understand, what is expected (e.g., due date and manner and method of payment) and the consequences for nonpayment (e.g., late fees, interest, returned check fees, acceleration, suspension of common element privileges, referral to legal counsel, and court costs and attorney’s fees if legal action is taken).

Written policies and procedures promote timely assessment collection by establishing a timeline for collection actions to be taken once a payment is missed. Written procedures instruct when an association should send out late notices and when to refer unresolved delinquencies to legal counsel. A timetable of deadlines for actions to be taken by legal counsel can also be specified, including sending demand letters and commencing proceedings to establish and/or enforce assessment liens, or pursue civil suits when assessments remain unpaid.

ASSESSMENTS PAYMENT INCENTIVES IN GOVERNING DOCUMENTS

     1.  Late Fees and Interest

When assessments become past due, a condominium association can charge late fees and interest as permitted by governing documents and applicable law. Late fees and interest are not only an incentive to make timely payment, but also to help defray costs associated with delinquencies.

Under Maryland law, where a delinquency in the payment of condominium assessments has continued “for at least 15 calendar days,” the condominium’s governing documents may provide for the imposition of a one-time “late charge” of $15 or 10% of a delinquent assessment, whichever is greater. Maryland Condominium Act (“MD Condo Act”) § 11-110(e)(2). Additionally, whenever an assessment is not timely paid, a condominium association board of directors may charge interest from the due date until paid at a rate of “18% per annum,” unless a lesser amount is specified in the condominium’s governing documents. MD Condo Act § 11-110(e)(1). Governing documents may further define parameters for late charges and interest.

     2.  Acceleration of The Annual Assessment Upon Non-Payment

Acceleration is another incentive for unit owners to make timely payments. Most governing documents permit a condominium association to accelerate the entire balance of the unpaid annual assessment following nonpayment of a monthly installment. This means that the board of directors may declare the entire balance of the unpaid annual assessment immediately due and payable, such that monthly installments will no longer be accepted. Any attempt at acceleration by a condominium association must be permitted by governing documents and consistent with applicable laws.

In Maryland, the governing documents can provide for acceleration after one unpaid installment, if the association demands payment of the remaining annual assessment and notifies the non-paying unit owner within 15 days of nonpayment that the entire annual assessment will become due and constitute a lien on their unit if the monthly installment is not paid within 15 days of the notice. MD Condo Act § 11-110(e)(3)

     3.  Suspension of Common Privileges

Suspension of a unit owner’s privileges within the community can also be an incentive to make timely assessment payments. The condominium governing documents often authorize the Board of Directors to suspend a delinquent unit owner’s common privileges such as use of common elements (e.g., swimming pool, exercise facilities, recreational amenities and parking), voting rights and/or ability to serve on the board of directors. Before suspending a unit owner’s privileges, the condominium association must comply with any notice or hearing requirements set forth in the governing documents and/or as require by statute.

In Maryland, a condominium association may only suspend a delinquent unit owner’s use of communally held common elements facilities for failure to pay assessments if the specific suspension in question is expressly authorized in the recorded condominium declaration. In the case of Elvaton Towne Condominium Regime II, Inc. v. Rose, 453 Md 684 (2017) (“Elvaton”), the Maryland Court of Appeals struck down a condominium policy that suspended a delinquent owner’s right to use the pool and parking facilities. The court found that Section 11-108(a) of the Maryland Condominium Act only permits a condominium association to restrict a unit owner’s use and enjoyment of the common elements if such restriction is expressly authorized by the condominium declaration. Elvaton, 453 Md. at 701-06. In Elvaton, the declaration did not expressly authorize suspension of pool and parking privileges; instead, the suspension policy was based solely upon general rule making authority under governing documents, which was insufficient. Elvaton, 453 Md. at 705-06. The court did acknowledge that a condominium board has authority to generally adopt reasonable rules for parking, assessment collection, and use of the common elements. However, when it comes to suspending a specific unit owner’s right to use the common elements generally available to others, the authorization for such action must be expressly set forth in the condominium declaration, which is, in essence, an agreement of all unit owners who become members of the association. If not spelled out in the declaration, then such a suspension constitutes “an impermissible taking” and an unlawful “revocation” and “infringement of [an] owner's property rights.” Elvaton, 453 Md. at 703-06.

The Maryland condominium Act contains a statutory “dispute settlement mechanism” that also must be taken into consideration when suspending a unit owners common privileges. Unless the governing documents state otherwise, the statue sets forth the procedure for providing notice and a hearing to a delinquent unit owner before the condominium association may “impose a fine, suspend voting, or infringe upon any other rights of the unit owner or other occupant for violation of rules….”.MD Condo Act § 11–113.

LATE NOTICES

A typical first step in the assessment collection procedure is to send out a late notice to any unit owner who has not paid an assessment installment within a specified time following the due date. The late notice is a reminder that the assessment payment is overdue and specifies the amount and any late charges and/or interest due as a result of non-payment. If payment is not forthcoming, follow-up late notices may be sent depending on the association’s collection policy.

DEMAND LETTER (REFERRAL TO LEGAL COUNSEL)

If one or more late notices do not result in a payment, the second step in the typical assessment collection procedure is to refer the assessment delinquency to legal counsel for collection. Legal counsel will attempt to resolve the matter amicably by sending a demand letter to the unit owner. In addition to itemizing the current amount due and requesting payment by a certain date, the demand letter provides notice of any immediate or pending acceleration of the entire remaining balance of the annual assessment and describes other legal actions that may be taken, such as: (1) recording an assessment lien against the non-paying unit owner’s condominium unit that can be enforced by way of foreclosure (i.e., forced sale of the unit to obtain funds to pay the amount due); and/or (2) filing a lawsuit seeking a personal monetary judgment against the unit owner in the amount due, including late fees, interest, costs, and reasonable attorneys’ fees as permitted by governing documents and applicable law.

In 1985, the Maryland General Assembly enacted the Maryland Contract Lien Act (“MD Contract Lien Act”) to govern, among other things, liens arising from unpaid condominium assessments under the terms of governing documents recorded in the land records. Demand letters sent on behalf of condominium associations in Maryland must comply with this Act as a precondition to establishing and enforcing an assessment lien against a delinquent unit (discussed below). A unit owner must be provided with specified information about the basis, nature, and amount of the lien owed, as well as the unit owner’s right to contest the establishment of a lien by filing a complaint in the circuit court where the lien is sought to be established within 30 days after receiving notice. MD Contract Lien Act, § 14-203 (b)(1) – (7). The Demand Letter containing this information must be served upon the unit owner as specified in Section 14-203(a) of the Maryland Contract Lien Act (e.g., certified or registered mail, personal delivery, and some cases posting on the property).

COMPLIANCE WITH DEBT COLLECTION AND LICENSING LAWS

Demand letters and many late notices constitute an attempt to collect a delinquent debt and, to the extent applicable, these and other assessment collection efforts must comply with debt collection conduct and notification requirements imposed by the Federal Fair Debt Collection Practices Act and the Maryland Consumer Debt Collection Act.

In Maryland, persons who fall within the definition of a “collection agency” (e.g., those who collect consumer debt on behalf of another) must be licensed. Maryland Collection Agency License Act (“MCALA”) § 7–301(a). The United States District Court for the District of Maryland has held that a management company is a “collection agency” as defined in Section 7-101(c)(1)(i) of MCALA whenever it seeks to collect a debt on behalf of a homeowner’s association. Fontell v. Hassett, 870 F. Supp. 2d 395, 409 (D. Md. 2012) (“Fontell”). The same rationale applies to condominium associations. Therefore, any management company sending demand letters to unit owners or otherwise seeking to collect an assessment debt for a condominium association in Maryland must have a collection agency license or it will expose itself to criminal misdemeanor imprisonment, fines, or both (MCALA § 7-401(b)), and also subject itself to civil liability under the Maryland Consumer Debt Collection Act, the Maryland Consumer Protection Act, and possibly the Federal Fair Debt Collection Act. Fontell, 870 F. Supp. at 409.

Moreover, in addition to the management company entity itself, an employee of an unlicensed management company can be held personally liable for seeking to collect a debt on behalf of an association without a collection agency license in Maryland. Fontell v. Hassett, 891 F. Supp. 2d 739 (2012) (motion to amend earlier court order holding individual management company employees liable was denied). However, once a management company has a collection agency license, its “regular employees” do not require a license while engaging in assessment collection efforts if “acting within the scope of [their] employment.” MCALA § 7-301(b)(2).

ASSESSMENT LIENS AGAINST A CONDOMINIUM UNIT

If demand letters do not result in payment of the delinquent assessment, a condominium association’s board of directors has the power to establish and enforce an assessment lien against the non-paying unit owner’s condominium unit. Once an assessment lien attaches to the unit, it places a “cloud on title,” by encumbering the ability to sell the unit, similar to a mortgage, such that the lien must be paid off in connection with any future sale before the unit owner receives any part of the remaining sale price. A title company representing the purchaser of the delinquent unit will likely discover the assessment lien before settlement and require that it be paid as a condition to issuing a title insurance policy. Without a title insurance policy, an institutional lender will not provide funding for the purchase of a unit. Additionally, a unit owner with an assessment on their unit will have difficulty obtaining financing. Thus, an assessment, lien, to this extent, serves to secure an association’s assessment debt.

Additionally, once an assessment lien attaches (and providing that required notices have been provided), it can be used by the condominium association to immediately force the sale of the unit as a source of funds to pay the past due amount (the “enforcement and foreclosure of the lien”), without having to wait for a purchaser to come along and acquire the unit.

Foreclosures are expensive and used as a last resort in the collection assessmnet process when they make economic sense. However, the prospect of having a lien established against one’s unit, or the desire to have the lien removed, is often enough to resolve any dispute over past due assessment payments without the need for further legal action.

     1.  What’s included in a Maryland assessment lien?

In Maryland, assessment liens may consist of unpaid assessments, “together with interest, late charges, if any, costs of collection, and reasonable attorneys’ fees.” MD Condo Act § 11-110(d). If permitted by the governing documents (and provided 15 days’ notice of acceleration has been given), a failure to pay a single installment will result in the remaining annual assessment coming due (“acceleration”) upon demand of the condominium association. MD Condo Act § 11-110(e)(3). In such a case, the full amount of the remaining unpaid annual assessment for the balance of the fiscal year also becomes part of the assessment lien. MD Condo Act § 11-110(e)(3).

     2.  How is a Maryland assessment lien created?

In Maryland, an assessment lien against a unit must be established or “created” in favor of the condominium association by the filing of a “Statement of Lien” in land records of the county where the unit is located in accordance with the procedures set forth in the Maryland Contract Lien Act. Select Portfolio Servicing, Inc. v. Saddlebrook West Utility Company, LLC, 455 Md. 313, 336 (2017). Only then will an assessment lien attach to the delinquent unit. A form Statement of Lien is provided in Section 14-203(j) of the Maryland Contract Lien Act. As a precondition to seeking to create a lien, the unit owner whose property is affected must be given the notices as required by the Maryland Contract Lien Act § 14-203 (a) and (b) (described above), within 2 years of a nonpayment in violation of the governing documents. MD Contract Lien Act § 14-203(a)(1).

In cases where the assessment is uncontested, the lien is created non-judicially by simply filing of the Statement of Lien in land records. MD Contract Lien Act § 14-203(g). In cases where the assessment is contested in court, the lien is created judicially by the filing of a Statement of Lien in land records, upon the order of a court that a lien be imposed. MD Contract Lien Act § 14-203(h).

     3.  How is a Maryland assessment lien foreclosed upon?

In Maryland, a residential unit may be foreclosed upon to satisfy an assessment lien in the same manner and subject to the same requirements as the foreclosure of mortgages or deeds of trust on property containing a power of sale or an assent to a decree. MD Contract Lien Act § 14-204(a). See Maryland Real Property § Article 7-105 and Maryland Rules § 14-201 et seq. An action to foreclose on an assessment lien must be brought within 12 years following recordation of the statement of a lien, MD Contract Lien Act § 14-204(c), or within a shorter time period required by the governing documents. However, unlike other real property foreclosures, a foreclosure sale involving a condominium unit in Maryland may only be pursued to the extent that damages secured by the lien consist of: (1) delinquent periodic assessments or special assessments and any interest; (2) reasonable costs and attorney’s fees directly related to the filing of the lien that do not exceed the amount of the delinquent assessments, excluding any interest; and (3) do not include fines imposed by the governing body or attorney’s fees or costs related to recovering the fines. MD Contract Lien Act § 14-204(d)(2). Ironically, although a condominium association in Maryland may impose fines for late payment (the “late fees” discussed above under MD Condo Act § 11-110(e)(2)) which may be made part of the lien itself under MD Condo Act § 11-110(d)(1), such late fees may not constitute the basis of a condominium association’s foreclosure sale action.

     4.  Super Priority Assessment Liens in Maryland

Assessment liens in Maryland have priority, up to a specified amount, over the liens created by a lender’s earlier-filed first mortgage or deed of trust. This is referred to as a “super priority lien” and references the fact that in the event of a foreclosure sale, the super priority portion of the assessment lien must be paid to the condominium association from the sale proceeds before satisfying the lien amount of an earlier-filed lender’s mortgage or deed of trust.

In Maryland, the super priority lien is limited to four months of unpaid assessments or $1,200.00, whichever is less, and may not include interest, collection costs, late charges, fines, attorneys’ fees, or special assessments or any other costs. MD Condo Act § 11-110(f)(3). The super priority lien in Maryland only provides priority over “a holder of a first mortgage or deed of trust recorded against the unit on or after October 1, 2011.” MD Condo Act § 11-110(f)(2). An association’s super priority lien does not provide priority over mortgages or deed of trust recorded before October 1, 2011,nor does it provide priority over liens or secured interest held by the state, county, or municipality such as a tax lien. MD Condo Act § 11-110(f)(1) and (2).

When faced with a foreclosure proceeding, a lender may offer to pay off the super priority lien amount on behalf of the delinquent unit owner in order to prevent the foreclosure and thereby protect its mortgage or deed of trust.

CIVIL LAWSUIT TO OBTAIN PERSONAL JUDGMENT

A condominium association can also file a civil lawsuit seeking a personal monetary judgment from a court in its favor and against the delinquent unit owner in the amount of the unpaid assessment, together with authorized late fees, interest, court costs and reasonable attorneys’ fees. A lawsuit seeking a personal judgment can be filed in addition to or in place of a lien foreclosure action, or can be used to make up any deficiencies remaining after foreclosing on the assessment lien. Once the court enters a personal monetary judgment against a delinquent unit owner, the association can seek to collect on the judgment by garnishing the unit owner’s wages or bank accounts and/or rent (if the unit is being rented), subject to restrictions imposed by applicable laws. Additionally, a personal judgment entered against unit owner by the court and recorded in the courthouse will create a judgment lien not only against the unit in question, but also as to and any other real property located in the county or jurisdiction of filing. The judgment can also be recorded among the land records of a different county or jurisdiction thereby extending the judgment lien to any real property located within the boundaries thereof. As with an assessment lien, a judgment lien also creates a “cloud on title” such that property cannot be transferred “free and clear” of the lien unless it is paid off by prior to transfer of title.

PAYMENT PLANS

During the assessment collection process, it may be appropriate to agree upon a payment plan with unit owners who fall behind on their assessment payments. Payment plans can save the association the time and expense of pursuing legal action and provide a unit owner member with time needed to bring their account current. Payment plans should be reserved for those cases where timely repayment of a past due amounts under the proposed plan is feasible and likely, such as where a unit owner is able to pay assessments going forward but needs help catching up on missed payments. Payment plans can also be used as a means of resolving a payment dispute by allowing a unit owner to pay off an accelerated annual assessment together with interest, late fees, costs and attorneys’ fees, if any. Payment plans should be made part of a contractual agreement between the association and the unit owner that sets forth the amount of each payment, its due date, and the mutually agreed-upon consequences of failure to make a scheduled payment. A hierarchy for application of payments pursuant to the association’s collection policy can also be included to specify which fees are paid first (e.g., court costs, return check charges, interest, late fees, and lastly unpaid assessments).

NOTE ABOUT TERMINOLOGY:

The term “condominium association” is used in this article to describe the organization or entity that governs the affairs of the condominium in accordance with the condominium bylaws and declaration, and whose members consist of all condominium unit owners. “Condominium association” is the terminology commonly used for this purpose. However, the Maryland Condominium Act refers to a condominium association as a “council of unit owners.”

The term “board of directors” is used to refer to the administrative entity made up of board members that have authority under the condominium bylaws and declaration to act on behalf of the condominium association.

The term “governing documents” is used to refer to the condominium declaration and bylaws. The District of Columbia Condominium Act refers to the condominium bylaws and declaration as “condominium instruments.”

NOTE ABOUT AUTHOR:

Nicholas D. Cowie is a partner in the law firm of Cowie & Mott, P.A. and has been representing condominiums for over 29 years. The law firm of Cowie & Mott, P.A. provides general counsel legal services to condominiums throughout the State of Maryland and the District of Columbia, including assessment collection, drafting resolutions, developing assessment collection policies, contract negotiation, legal opinions, foreclosure actions, litigation, arbitration, mediation services, bylaw amendments and other general counsel services tailored to condominiums associations and homeowners associations. The law firm of Cowie & Mott, P.A. offers flat fee assessment collection services with deferred billing. Please contact our firm for references.

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CONDOMINIUM ASSESSMENT COLLECTION IN MARYLAND

Legal "dos and don'ts" of assessment collection and guidelines for adopting assessment collection policies in Maryland and the District of Columbia.

COWIE & MOTT, P.A.

MARYLAND CONDOMINIUM ATTORNEYS

410-327-3800 | 202-670-6289 | 301-830-8315

http://marylandcondominiumattorneys.com/index.php/assessment-collection-maryland-condominiums/
ASSESSMENT COLLECTION FOR CONDOMINIUMS IN MARYLAND AND WASHINGTON DC

The timely payment and collection of condominium assessments is essential to the financial well-being and efficient operation of a condominium association. The association’s Board of Directors has a fiduciary responsibility to stay on top of assessment collection so that delinquent condominium assessments do not accumulate. Excessive delinquencies not only deprive a condominium association of needed operating capital, but also affect its ability to borrow money and obtain FHA approval. This article provides an overview of the assessment collection process for condominium associations in Maryland and the District of Columbia. Information is provided to help condominium associations adopt their own assessment collection policies and procedures that work best for their communities within the framework of Maryland and Washington DC condominium law.

ANNUAL ASSESSMENTS AND SPECIAL ASSESSMENTS

Condominium assessments are the means by which a condominium association board of directors funds the annual budget. Each year, the condominium association adopts a budget to cover its operating expenses and an amount to be set aside for anticipated future expenses. The total budget cost is divided among the unit owners in the form of an annual assessment typically due and payable in equal monthly installments on the first day of each month.

Sometimes condominium associations are faced with unanticipated major expenses in excess of the funds raised by the annual assessments. In such cases, governing documents give the board of directors the power to levy a “special assessment,” subject to restrictions imposed by applicable laws. Unit owners may be given the option to pay the special assessment in monthly installments.

PAYMENT OF ASSESSMENTS

Condominium assessments are traditionally paid by check using payment coupons and envelopes provided by the condominium association’s management company. More frequently, management companies send electronic coupons and/or assessment invoices by email and offer online payment by E-check, credit card or recurring ACH payment (direct debit). Coupons and invoices are often used as an opportunity to remind the unit owners that they can avoid late fees and interest by making timely payment on or before the specified due date.

ASSESSMENT COLLECTION POLICIES & PROCEDURES

It is recommended that all condominium associations establish written assessment collection policies and procedures based on governing documents and applicable law. Written policies and procedures can be created under the rulemaking authority of the association and provide an objective framework under which the condominium association can treat all unit owners equally.

Written policies and procedures are a useful aid in the collection of assessments because they can be published and distributed on a regular basis so that all unit owner members have ample notice of, and opportunity to understand, what is expected (e.g., due date and manner and method of payment) and the consequences for nonpayment (e.g., late fees, interest, returned check fees, acceleration, suspension of common element privileges, referral to legal counsel, and court costs and attorney’s fees if legal action is taken).

Written policies and procedures promote the timely collection of assessments by establishing a timeline for collection actions to be taken once a payment is missed. Written procedures instruct when an association should send out late notices and when to refer unresolved delinquencies to legal counsel. A timetable of deadlines for actions to be taken by legal counsel can also be specified, including sending demand letters and commencing proceedings to establish and/or enforce assessment liens, or pursue civil suits when assessments remain unpaid.

ASSESSMENTS PAYMENT INCENTIVES IN GOVERNING DOCUMENTS

1. Late Fees and Interest

When assessments become past due, a condominium association can charge late fees and interest as permitted by governing documents and applicable law. Late fees and interest are not only an incentive to make timely payment, but also to help defray costs associated with delinquencies.

Under Maryland law, where a delinquency in the payment of condominium assessments has continued “for at least 15 calendar days,” the condominium’s governing documents may provide for the imposition of a one-time “late charge” of $15 or 10% of a delinquent assessment, whichever is greater. Maryland Condominium Act (“MD Condo Act”) § 11-110(e)(2). Additionally, whenever an assessment is not timely paid, a condominium association board of directors may charge interest from the due date until paid at a rate of “18% per annum,” unless a lesser amount is specified in the condominium’s governing documents. MD Condo Act § 11-110(e)(1). Governing documents may further define parameters for late charges and interest.

In the District of Columbia, the Condominium Act does not regulate the amount or timing of late fees imposed for nonpayment of condominium assessment. Thus, reference should be made to the governing documents. A condominium association in Washington DC can charge interest after an assessment payment is 15 days late, unless the governing documents provide otherwise. District of Columbia Condominium Act (“DC Condo Act”) § 42–1903.12(e). Interest runs from the due date at either 10% per year or the maximum first mortgage loan rate in DC, whichever is less. DC Condo Act § 42–1903.12(e).

2. Acceleration of Annual Assessment

Acceleration is another incentive for unit owners to make timely payments. Most governing documents permit a condominium association to accelerate the entire balance of the unpaid annual assessment following nonpayment of a monthly installment. This means that the board of directors may declare the entire balance of the unpaid annual assessment immediately due and payable, such that monthly installments will no longer be accepted. Any attempt at acceleration by a condominium association must be permitted by governing documents and consistent with applicable laws.

In Maryland, the governing documents can provide for acceleration after one unpaid installment, but only if the association demands payment of the remaining annual assessment and notifies the non-paying unit owner within 15 days of nonpayment that the entire annual assessment will become due and constitute a lien on their unit if the monthly installment is not paid within 15 days of the notice. MD Condo Act § 11-110(e)(3).

In Washington DC, governing documents can provide for acceleration after one unpaid installment, which can be automatic or at the option of the association, board, or manager. DC Condo Act § 42–1903.12(d)

3. Suspension of Common Privileges

Suspension of a unit owner’s privileges within the community can also be an incentive to make timely assessment payments. The condominium governing documents often authorize the Board of Directors to suspend a delinquent unit owner’s common privileges such as use of common elements (e.g., swimming pool, exercise facilities, recreational amenities and parking), voting rights and/or ability to serve on the board of directors. Before suspending a unit owner’s privileges, the condominium association must comply with any notice or hearing requirements set forth in the governing documents and/or as require by statute.

In Maryland, a condominium association may only suspend a delinquent unit owner’s use of communally held common elements facilities for failure to pay assessments if the specific suspension in question is expressly authorized in the recorded condominium declaration. In the case of Elvaton Towne Condominium Regime II, Inc. v. Rose, 453 Md 684 (2017) (“Elvaton”), the Maryland Court of Appeals struck down a condominium policy that suspended a delinquent owner’s right to use the pool and parking facilities. The court found that Section 11-108(a) of the Maryland Condominium Act only permits a condominium association to restrict a unit owner’s use and enjoyment of the common elements if such restriction is expressly authorized by the condominium declaration. Elvaton, 453 Md. at 701-06. In Elvaton, the declaration did not expressly authorize suspension of pool and parking privileges; instead, the suspension policy was based solely upon general rule making authority under governing documents, which was insufficient. Elvaton, 453 Md. at 705-06. The court did acknowledge that a condominium board has authority to generally adopt reasonable rules for parking, assessment collection, and use of the common elements. However, when it comes to suspending a specific unit owner’s right to use the common elements generally available to others, the authorization for such action must be expressly set forth in the condominium declaration, which is, in essence, an agreement of all unit owners who become members of the association. If not spelled out in the declaration, then such a suspension constitutes “an impermissible taking” and an unlawful “revocation” and “infringement of [an] owner's property rights.” Elvaton, 453 Md. at 703-06.

The Maryland condominium Act contains a statutory “dispute settlement mechanism” that also must be taken into consideration when suspending a unit owners common privileges. Unless the governing documents state otherwise, the statue sets forth the procedure for providing notice and a hearing to a delinquent unit owner before the condominium association may “impose a fine, suspend voting, or infringe upon any other rights of the unit owner or other occupant for violation of rules….”.MD Condo Act § 11–113.

The District of Columbia Condominium Act does not have a statutory provision like Maryland’s Section 11-108(a), and, therefore, the rationale in Elvaton (i.e., authority to suspend use of common elements must be expressed in the declaration) would likely not apply. In fact, a Washington DC condominium association has general rule making authority under § 42-1903.08 of District of Columbia Condominium Act to established a policy that provides for the suspension of a delinquent unit owners common element privileges, even if not specifically set forth in the recorded condominium declaration. However, in order to avoid a successful constitutional argument of unlawful taking of property rights without due process, a Washington DC condominium association should adopt, publish and regularly distribute written policies and procedures regarding the suspension of common area privileges so that all unit owners have prior notice. These procedures should also ideally include written notice and an opportunity for the non-paying unit owner to attended or request a hearing before the board within a specified time (even if not required by the governing documents), before a final decision to suspend common element privileges is imposed.

In Washington DC, a board of directors has the statutory “power to suspend the voting rights … of any unit owner who is in arrears in … payment of … assessments by more than 30 days.” DC Condo Act § 42-1903.12(j).

LATE NOTICES

A typical first step in the assessment collection procedure is to send out a late notice to any unit owner who has not paid an assessment installment within a specified time following the due date. The late notice is a reminder that the assessment payment is overdue and specifies the amount and any late charges and/or interest due as a result of non-payment. If payment is not forthcoming, follow-up late notices may be sent depending on the association’s collection policy.

DEMAND LETTER (REFERRAL TO LEGAL COUNSEL)

If one or more late notices do not result in a payment, the second step in the typical assessment collection procedure is to refer the assessment delinquency to legal counsel for collection. Legal counsel will attempt to resolve the matter amicably by sending a demand letter to the unit owner. In addition to itemizing the current amount due and requesting payment by a certain date, the demand letter provides notice of any immediate or pending acceleration of the entire remaining balance of the annual assessment and describes other legal actions that may be taken, such as: (1) recording an assessment lien against the non-paying unit owner’s condominium unit that can be enforced by way of foreclosure (i.e., forced sale of the unit to obtain funds to pay the amount due); and/or (2) filing a lawsuit seeking a personal monetary judgment against the unit owner in the amount due, including late fees, interest, costs, and reasonable attorneys’ fees as permitted by governing documents and applicable law.

1. Required Lien Notice to be Provided in Maryland Demand Letter

In 1985, the Maryland General Assembly enacted the Maryland Contract Lien Act (“MD Contract Lien Act”) to govern, among other things, liens arising from unpaid condominium assessments under the terms of governing documents recorded in the land records. Demand letters sent on behalf of condominium associations in Maryland must comply with this Act as a precondition to establishing and enforcing an assessment lien against a delinquent unit (discussed below). A unit owner must be provided with specified information about the basis, nature, and amount of the lien owed, as well as the unit owner’s right to contest the establishment of a lien by filing a complaint in the circuit court where the lien is sought to be established within 30 days after receiving notice. MD Contract Lien Act, § 14-203 (b)(1) – (7). The Demand Letter containing this information must be served upon the unit owner as specified in Section 14-203(a) of the Maryland Contract Lien Act (e.g., certified or registered mail, personal delivery, and some cases posting on the property).

2. Required Information to be Provided in Washington DC Demand Letter

In 2017, the District of Columbia enacted amendments to the Condominium Act known as the “Condominium Owner Bill of Rights and Responsibilities Act of 2016.” Under this Act, condominium associations must provide specified information whenever notifying a unit owner of its intention to take legal action to collect any past due amount. DC Condo Act § 42–1903.12a. Therefore, a demand letter sent on behalf of a Washington DC condominium that notifies a unit owner of pending or potential legal action for nonpayment of past due assessments must contain the following information: (1) a statement of account showing the total amount past due, including a breakdown of the categories of amounts claimed to be due and the dates those amounts accrued; (2) contact information for a representative whom the unit owner can contact to settle the past due amount; and (3) information regarding resources which the unit owner may utilize at the District of Columbia Department of Housing and Community Development and the United States Department of Housing and Urban Development (form language is provided by the statute). DC Condo Act § 42–1903.12a.

COMPLIANCE WITH DEBT COLLECTION AND LICENSING LAWS

Demand letters and many late notices constitute an attempt to collect a delinquent debt and, to the extent applicable, must comply with debt collection conduct and notification requirements imposed by the Federal Fair Debt Collection Practices Act, Maryland Consumer Debt Collection Act, and/or the District of Columbia Fair Debt Collection Act.

In Maryland, persons who fall within the definition of a “collection agency” (e.g., those who collect consumer debt on behalf of another) must be licensed. Maryland Collection Agency License Act (“MCALA”) § 7–301(a). The United States District Court for the District of Maryland has held that a management company is a “collection agency” as defined in Section 7-101(c)(1)(i) of MCALA whenever it seeks to collect a debt on behalf of a homeowner’s association. Fontell v. Hassett, 870 F. Supp. 2d 395, 409 (D. Md. 2012) (“Fontell”). The same rationale applies to condominium associations. Therefore, any management company sending demand letters to unit owners or otherwise seeking to collect an assessment debt for a condominium association in Maryland must have a collection agency license or it will expose itself to criminal misdemeanor imprisonment, fines, or both (MCALA § 7-401(b)), and also subject itself to civil liability under the Maryland Consumer Debt Collection Act, the Maryland Consumer Protection Act, and possibly the Federal Fair Debt Collection Act. Fontell, 870 F. Supp. at 409.

Moreover, in addition to the management company entity itself, an employee of an unlicensed management company can be held personally liable for seeking to collect a debt on behalf of an association without a collection agency license in Maryland. Fontell v. Hassett, 891 F. Supp. 2d 739 (2012) (motion to amend earlier court order holding individual management company employees liable was denied). However, once a management company has a collection agency license, its “regular employees” do not require a license to engage in assessment collection activities while “acting within the scope of [their] employment.” MCALA § 7-301(b)(2).

There is currently no collection agency license in the District of Columbia, however, management companies doing business in the District of Columbia are required to obtain a general business license with the Department of Consumer and Regulatory Affairs. D.C. Code 47-2851.03d.

ASSESSMENT LIENS AGAINST A CONDOMINIUM UNIT

If demand letters do not result in payment of the delinquent assessment, a condominium association’s board of directors has the power to establish and/or enforce an assessment lien against the non-paying unit owner’s condominium unit. Once an assessment lien attaches to the unit, it places a “cloud on title,” by encumbering the ability to sell the unit, similar to a mortgage, such that the lien must be paid off in connection with any future sale before the unit owner receives any part of the remaining sale price. A title company representing the purchaser of the delinquent unit will likely discover the assessment lien before settlement and require that it be paid as a condition to issuing a title insurance policy. Without a title insurance policy, an institutional lender will not provide funding for the purchase of a unit. Additionally, a unit owner with an assessment on their unit will have difficulty obtaining financing. Thus, an assessment, lien, to this extent, serves to secure a condominium association’s assessment debt.

Additionally, once an assessment lien attaches (and providing that required notices have been provided), it can be used by the condominium association to immediately force the sale of the unit as a source of funds to pay the past due amount (the “enforcement and foreclosure of the lien”), without having to wait for a purchaser to come along and acquire the unit.

Foreclosures are expensive and used as a last resort when they make economic sense. However, the prospect of having a lien established against one’s unit, or the desire to have the lien removed, is often enough to resolve any dispute over past due assessment payments without the need for further legal action.

1. Creation of Assessment Liens and Foreclosure in Maryland

a. What’s included in a Maryland assessment lien? In Maryland, assessment liens may consist of unpaid assessments, “together with interest, late charges, if any, costs of collection, and reasonable attorneys’ fees.” MD Condo Act § 11-110(d). If permitted by the governing documents (and provided 15 days’ notice of acceleration has been given), a failure to pay a single installment will result in the remaining annual assessment coming due (“acceleration”) upon demand of the condominium association. MD Condo Act § 11-110(e)(3). In such a case, the full amount of the remaining unpaid annual assessment for the balance of the fiscal year also becomes part of the assessment lien. MD Condo Act § 11-110(e)(3).

b. How is a Maryland assessment lien created? In Maryland, unlike the District of Columbia, a condominium assessment lien does not automatically attach to a unit upon non-payment of an assessment installment. Rather, an assessment lien must be established or “created” in favor of the condominium association by the filing of a “Statement of Lien” in land records of the county where the unit is located in accordance with the procedures set forth in the Maryland Contract Lien Act. Select Portfolio Servicing, Inc. v. Saddlebrook West Utility Company, LLC, 455 Md. 313, 336 (2017). Only then will an assessment lien attach to the delinquent unit. A form Statement of Lien is provided in Section 14-203(j) of the Maryland Contract Lien Act. As a precondition to seeking to create a lien, the unit owner whose property is affected must be given the notices as required by the Maryland Contract Lien Act § 14-203 (a) and (b) (described above), within 2 years of a nonpayment in violation of the governing documents. MD Contract Lien Act § 14-203(a)(1).

In cases where the assessment is uncontested, the lien is created non-judicially by simply filing of the Statement of Lien in land records. MD Contract Lien Act § 14-203(g). In cases where the assessment is contested in court, the lien is created judicially by the filing of a Statement of Lien in land records, upon the order of a court that a lien be imposed. MD Contract Lien Act § 14-203(h).

c. How is a Maryland assessment lien foreclosed upon? In Maryland, a residential unit may be foreclosed upon to satisfy an assessment lien in the same manner and subject to the same requirements as the foreclosure of mortgages or deeds of trust on property containing a power of sale or an assent to a decree. MD Contract Lien Act § 14-204(a). See Maryland Real Property § Article 7-105 and Maryland Rules § 14-201 et seq. An action to foreclose on an assessment lien must be brought within 12 years following recordation of the statement of a lien, MD Contract Lien Act § 14-204(c), or within a shorter time period required by the governing documents. However, unlike other real property foreclosures, a foreclosure sale involving a condominium unit in Maryland may only be pursued to the extent that damages secured by the lien consist of: (1) delinquent periodic assessments or special assessments and any interest; (2) reasonable costs and attorney’s fees directly related to the filing of the lien that do not exceed the amount of the delinquent assessments, excluding any interest; and (3) do not include fines imposed by the governing body or attorney’s fees or costs related to recovering the fines. MD Contract Lien Act § 14-204(d)(2). Ironically, although a condominium association in Maryland may impose fines for late payment (the “late fees” discussed above under MD Condo Act § 11-110(e)(2)) which may be made part of the lien itself under MD Condo Act § 11-110(d)(1), such late fees may not constitute the basis of a condominium association’s foreclosure sale action.

2. Creation of Assessment Liens and Foreclosure in Washington DC

a. What’s included in a Washington DC assessment lien? In the District of Columbia, an assessment lien may consist of “the assessment levied against the condominium unit … along with any applicable interest, late fees, reasonable expenses and legal fees actually incurred, cost of collection and any other reasonable amounts payable by the unit owner under the condominium instruments.” DC Condo Act § 42-1903.13(a). If condominium assessments are paid in installments, governing documents can provide for acceleration of the entire assessment after one or more unpaid assessment installments. DC Condo Act § 42–1903.12(d). However, whether or not monthly installments are accelerated, the full amount of the annual assessment becomes part of the assessment lien “from the time the first installment becomes due and payable.” DC Condo Act § 42-1903.13(a).

b. How is a Washington DC assessment lien created? In the District of Columbia, unlike Maryland, an assessment lien in favor of the condominium association attaches to the unit automatically “from the time the assessment becomes due and payable,” DC Condo Act § 42-1903.13(a), and lasts for a period of three years, DC Condo Act § 42-1903.13(e). Unlike Maryland, no recording of a statement of lien in the land records is required in the District of Columbia to create the lien because “the recording of the [original governing documents in the land records] shall constitute record notice of the existence of such lien.” DC Condo Act § 42-1903.13(b). Nonetheless, a condominium association can choose to file a notice of lien in the land records to put prospective purchasers, lenders and others on notice of the existence and or subsequent release of an assessment lien. The Recorder of Deeds publishes forms online for this purpose entitled “Notice of Condominium Lien for Assessments Due” and “Release of Condominium Lien.”

Even if no formal action has been taken to record or enforce the lien, any unit owner or contract purchaser of a condominium unit can find out whether there are unpaid assessments by requesting that the condominium association provide “a recordable statement setting forth the amount of unpaid assessments levied against that unit.” DC Condo Act § 42-1903.13(h). Failure of the condominium association to provide such a statement within 10 days of receipt of the request “shall extinguish the lien.” DC Condo Act § 42-1903.13(h).

c. How is a Washington DC assessment lien foreclosed upon? The District of Columbia Condominium Act sets forth the procedure for foreclosing on a condominium unit to satisfy an assessment lien. The board president of the condominium association (also known as the “chief executive officer of the unit owners’ association) is deemed by statute to be a “trustee” for purposes of exercising the power to sell and transfer title to a delinquent unit owner’s condominium unit. DC Condo Act § 42-1903.13(c)(1) and (3). However, such a foreclosure sale cannot be held until at least 31 days after a “Notice of Foreclosure Sale of Condominium Unit for Assessments Due” (a/k/a “NFSCUAD”) is recorded in the land records and served upon the unit owner. DC Condo Act § 42-1903.13(c)(4)(A). The NFSCUAD must contain information specified by the statute, including detailed information about the amount due, the amount being foreclosed on, and assistance that may be available to the unit owner from the District of Columbia Department of Housing and Community Development and the United States Department of Housing and Urban Development. DC Condo Act § 42-1903.13(c)(4)(B) and (D). The NFSCUAD must also be provided to the mayor or the mayor’s designated agent, any and all junior lienholders of record, any holder of a first deed of trust or first mortgage of record (including successors, assigns, and trustees), and the Mortgage Electronic Registration System (“MERS”). DC Condo Act § 42-1903.13(c)(4)(E).

3. Super Priority Assessment Liens

Assessment liens in Maryland and Washington DC have priority, up to a specified amount, over the liens created by a lender’s earlier-filed first mortgage or deed of trust. This is referred to as a “super priority lien” and references the fact that in the event of a foreclosure sale, the super priority portion of the assessment lien must be paid to the condominium association from the sale proceeds before satisfying the lien amount of an earlier-filed lender’s mortgage or deed of trust.

In Maryland, the super priority lien is limited to four months of unpaid assessments or $1,200.00, whichever is less, and may not include interest, collection costs, late charges, fines, attorneys’ fees, or special assessments or any other costs. MD Condo Act § 11-110(f)(3). The super priority lien in Maryland only provides priority over “a holder of a first mortgage or deed of trust recorded against the unit on or after October 1, 2011.” MD Condo Act § 11-110(f)(2). An association’s super priority lien does not provide priority over mortgages or deed of trust recorded before October 1, 2011,nor does it provide priority over liens or secured interest held by the state, county, or municipality such as a tax lien. MD Condo Act § 11-110(f)(1) and (2).

In the District of Columbia, the super priority lien is limited to the most recent six months’ worth of common expense assessments. DC Condo Act § 42-1903.13(a)(2). The super priority lien in Washington DC only provides priority over first mortgages or first deeds of trust recorded after March 7, 1991 for the benefit of an institutional lender. DC Condo Act § 42-1903.13(a)(1)(B) and (a)(2). An association’s super priority lien does not provide priority over mortgages and deeds of trust recorded before March 7, 1991, a lien for real estate taxes or municipal assessment charges, nor does it affect the priority of a mechanics’ or materialmen’s lien. DC Condo Act § 42-1903.13(a)(1)(C) and (2).

When faced with a foreclosure proceeding, a lender may offer to pay off the super priority lien amount on behalf of the delinquent unit owner in order to prevent the foreclosure and thereby protect its mortgage or deed of trust.

CIVIL LAWSUIT TO OBTAIN PERSONAL JUDGMENT

A condominium association can also file a civil lawsuit seeking a personal monetary judgment from a court in its favor and against the delinquent unit owner in the amount of the unpaid assessment, together with authorized late fees, interest, court costs and reasonable attorneys’ fees. A lawsuit seeking a personal judgment can be filed in addition to or in place of a lien foreclosure action, or can be used to make up any deficiencies remaining after foreclosing on the assessment lien. Once the court enters a personal monetary judgment against a delinquent unit owner, the association can seek to collect on the judgment by garnishing the unit owner’s wages or bank accounts and/or rent (if the unit is being rented), subject to restrictions imposed by applicable laws. Additionally, a personal judgment entered against unit owner by the court and recorded in the courthouse will create a judgment lien not only against the unit in question, but also as to and any other real property located in the county or jurisdiction of filing. The judgment can also be recorded among the land records of a different county or jurisdiction thereby extending the judgment lien to any real property located within the boundaries thereof. As with an assessment lien, a judgment lien also creates a “cloud on title” such that property cannot be transferred “free and clear” of the lien unless it is paid off by prior to transfer of title.

PAYMENT PLANS

During the assessment collection process, it may be appropriate to agree upon a payment plan with unit owners who fall behind on their assessment payments. Payment plans can save the association the time and expense of pursuing legal action and provide a unit owner member with time needed to bring their account current. Payment plans should be reserved for those assessment collection cases where timely repayment of a past due amounts under the proposed plan is feasible and likely, such as where a unit owner is able to pay assessments going forward but needs help catching up on missed payments. Payment plans can also be used as a means of resolving a payment dispute by allowing a unit owner to pay off an accelerated annual assessment together with interest, late fees, costs and attorneys’ fees, if any. Payment plans should be made part of a contractual agreement between the association and the unit owner that sets forth the amount of each payment, its due date, and the mutually agreed-upon consequences of failure to make a scheduled payment. A hierarchy for application of payments pursuant to the association’s collection policy can also be included to specify which fees are paid first (e.g., court costs, return check charges, interest, late fees, and lastly unpaid assessments).

NOTE ABOUT TERMINOLOGY:

The term “condominium association” is used in this article to describe the organization or entity that governs the affairs of the condominium in accordance with the condominium bylaws and declaration, and whose members consist of all condominium unit owners. “Condominium association” is the terminology commonly used for this purpose. However, the Maryland Condominium Act refers to a condominium association as a “council of unit owners” and the District of Columbia Condominium Act refers to a condominium association as a “unit owners’ association.”

The term “board of directors” is used to refer to the administrative entity made up of board members that have authority under the condominium bylaws and declaration to act on behalf of the condominium association. The District of Columbia Condominium Act refers to a board of directors as an “executive board.”

The term “governing documents” is used to refer to the condominium declaration and bylaws. The District of Columbia Condominium Act refers to the condominium bylaws and declaration as “condominium instruments.”

NOTE ABOUT AUTHOR:

Nicholas D. Cowie is a partner in the law firm of Cowie & Mott, P.A. and has been representing condominiums for over 29 years. The law firm of Cowie & Mott, P.A. provides general counsel legal services to condominiums throughout the State of Maryland and the District of Columbia, including assessment collection, drafting resolutions, developing assessment collection policies, contract negotiation, legal opinions, foreclosure actions, litigation, arbitration, mediation services, bylaw amendments and other general counsel services tailored to condominiums associations and homeowners associations. The law firm of Cowie & Mott, P.A. offers flat fee assessment collection services with deferred billing. Please contact our firm for references.

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MODERNIZING CONDOMINIUM DOCUMENTS TO STREAMLINE ASSESSMENT COLLECTION

Condominium and HOA Law Attorneys in Maryland and Washington DC

410-327-3800 | 202-670-6289 | 301-830-8315

MarylandCondominiumAttorneys.com

This article provides an overview of important provisions and issues to be considered in modernizing condominium governing documents in order to streamline the collection of delinquent assessments 

By Stanford L. Kimmel III, Esq.

Assessment collection is critical to the efficient operation of a condominium. Governing documents play an important part in the collection process by establishing a condominium association’s assessment collection authority and collection procedures. Therefore, it is important that governing documents clearly define procedures and comply with current laws. Some assessment collection procedures in condominium governing documents are outdated, or lack specificity. For example, governing documents often afford broad discretion to directors and management, permitting them to set interest rates, late fees, and apply acceleration. While such provisions can provide flexibility in administration, they can also create additional work and risk inconsistent application.

Modernizing governing documents to clarify and update assessment collection provisions can provide continuity and consistent application for owners, directors, and management. Below are some provisions and issues that should be considered when modernizing governing documents for the purpose of streamlining condominium assessment collections.

Assessment Calculations & Condominium Assessment Collection

Some governing documents use formulas to calculate assessments, including, for example, to address shared utilities or units of varying types and sizes. Such formulas can be complicated and sometimes result in assessments being calculated and collected incorrectly. An association should review any assessment calculation methods in its governing documents and attempt to clarify or correct any ambiguities or errors so as to foster simplicity and avoid miscalculations.

Interest, Late Fees & Condominium Assessment Collection

Associations should consider updating governing documents to include clearly defined interest rates and late fees, consistent with state law.

In DC, after a payment is 15 days late, interest can be charged from the due date at either 10% per year or the maximum first mortgage loan rate in DC, whichever is less. DC Code §§ 42–1903.12(e).

In Maryland, interest can be charged from the due date at up to 18% per year, or less if specified in the governing documents. Md. Ann. Code, Real Property (“RP”) § 11-110(e)(1). In Maryland, bylaws can also impose a one-time late charge of $15 or 10% of a delinquent assessment, whichever is greater, after 15 days. RP § 11-110(e)(2).

In Virginia, after 60 days a late fee can be charged in an amount equal to the penalty for unpaid taxes, currently 5%. Va. Code §§ 55-79.83 & 58.1-3915. In Virginia, 6% interest from the due date can also be recovered for sums secured by a lien. VA Code §§ 55-79.84 & 6.2-301.

Acceleration & Condominium Assessment Collection

Most governing documents provide for a yearly assessment to be paid in monthly installments and permit an association to accelerate the entire remaining annual assessment following nonpayment of an installment. Associations should considering updating governing documents to include clear acceleration provisions that specify when an annual assessment will be accelerated, consistent with applicable laws.

In DC, governing documents can provide for acceleration after one unpaid installment, which can be mandatory or at the option of the association, board, or manager. DC Code § 42–1903.12 (d).

In Maryland, a declaration or bylaws can provide for acceleration after one unpaid installment, but only if the association notifies an owner within 15 days of nonpayment that if not paid in 15 more days, the entire annual assessment will become due and constitute a lien on their unit. RP § 11-110(e)(3).

The Virginia Condominium Act does not specifically address acceleration.

Liens & Condominium Assessment Collection

DC, Maryland, and Virginia associations can lien condominium units for unpaid assessments. DC Code §42-1903.13; Md. Ann. Code RP § 11-110(d). Va. Code § 55-79.84. Maryland’s highest court recently held, however, that governing documents alone are ineffective to create a lien unless an association complies with the procedures in the Maryland Contract Lien Act. Select Portfolio Servicing, Inc. v. Saddlebrook West Utility Company, LLC, 455 Md. 313 (2017); RP § 14–201 et seq. Therefore, governing documents should be updated to specify when and how unpaid assessments constitute a lien on a unit consistent with applicable laws, including, in Maryland, the Maryland Contract Lien Act.

The above is intended as an overview of areas where condominium assessment procedures can be improved. Each individual condominium association will need to consider its community’s particular circumstances, needs, and location when contemplating modernizing collections provisions in governing documents.



Note about Author: Stanford Kimmel, a Maryland attorney and partner in the law firm Cowie & Mott, P.A. He has been practicing community association law for more than 10 years and leads the firms General counsel practice providing condominium and homeowners associations with comprehensive legal services and advice in a range of matters, including governance, contracts, litigation, and assessment collection. Cowie & Mott, P.A.practices community association law throughout the state of Maryland and the District of Columbia. Please contact Stanford Kimmel should your commumity have questions about governing documents and condominium assessment collection policies. This article also appears in the February 2018  issue of the Quorum published by the Community Associations Institute, Washington Metro Chapter, under the title: "Modernizing Condominium Governing Documents to Streamline Assessment Collection."

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http://www.caidc.org/3495-2/
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COWIE & MOTT, P.A. - Attorneys practicing construction law, business law, condominium law, mechanics lien law and litigation in Maryland and Washington DC (District of Columbia).

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