DEFENDING CONDOMINIUM FORECLOSURES BASED ON FINES
Welcome to your source for condominiums in Connecticut.
Rather than just jumping into issues, let's start with some background.
Do you know that condominium documents in Connecticut have generations?
The current generation are created under the Connecticut Common Interest Ownership Act (“CIOA”) which became effective on January 1, 1984. Prior to that, condominiums were created under the Connecticut Condominium Act and before that, the Unit Ownership Act. It seems reasonable that each newer law would replace the older, but that is not the case. Both the Condominium Act and the Unit Ownership Act are still in existence and apply to the condominiums that were created under that law.
CIOA is codified in Chapter 828 of the Connecticut General Statutes. The Condominium Act is in Chapter 825. The Unit Ownership Act is not in the General Statutes, but still remains as applicable law. If you would like to look at these laws, the Connecticut General Assembly site has links to all of the Statutes.
Connecticut CIOA is based on the Uniform Common Interest Ownership Act. The Uniform Act is the creation of the Uniform Law Commission. Here is a direct quote from their website:
“Diversity of Thought, Uniformity of Law
The Uniform Law Commission provides states with non-partisan, well conceived, and well drafted legislation that brings clarity and stability to critical areas of state statutory law.”
The Commissioners review, compare, criticize and assemble the best and the worst of all state laws on a particular subject. Then, they draft and redraft a new law with the best and eliminating the problems. They provide a detailed commentary on the reasons for every section and what they were thinking.
So, why is the law called the “Common Interest Ownership Act” and not just “Condominiums?” Because CIOA is a combination of three other acts, the Condominium Act, the Cooperative Act and the Planned Community Act. What do condominiums, cooperatives and planned communities have in common? In each type of community, there is commonly owned property. In a condominium, the owners own their own units and the rest of the property is owned by all of the owners as tenants in common. In a planned community, the owners own their own units and the rest of the property is owned by the homeowner’s association. In a cooperative, the home owners association owns the whole thing and the “unit owners” own a share of the association and are given a right to live in a private residence.
As a lawyer friend once said, the differences types of ownership are no more than a “flick of a pen” under the Common Interest Ownership Act. The impacts of having one type of ownership over another could be profound.
Why Many Condominium Foreclosures Brought After October 1, 2013 May Be Defective.
Unit owners may feel powerless when the Condominium Association forecloses on units. Associations may be complacent about their foreclosures. Lenders may be paying Associations a higher priority than necessary. Why? Statutory condominium foreclosure requirements that became effective on October 1, 2013 have been consistently ignored.
The condominium Association has a lien on units for fees and fines imposed against a unit owner. The Association can foreclose on this lien and collect its reasonable attorneys’ fees and collection costs, charges, late charges, fines and interest. This lien is prior to the first and second mortgage holders in an amount equal to nine months of regularly assessed common charges. The lien does not have to be recorded; it automatically arises when the unit owner owes any money to the condominium.
Courts have determined that the financial operations of the condominium Association are so important, that the unit owner has almost no equitable defense against the foreclosure, except payment. Even if the Association has not maintained the condominium property or paid its bills, the Association will still be able to foreclose its lien. Unit owners who withhold common charge payments in protest can still have their units foreclosed.
By amending Section 47-258 of the Connecticut General Statutes, the Legislature has imposed conditions that the Association must fulfill before it begins a foreclosure against a unit. In 2013, the Legislature imposed additional notice requirements upon the Association. The notice requirements became effective on October 1, 2013 and apply to all foreclosure actions brought by the Association after that date.
Section 47-258(m) (1) states that the Association cannot commence a foreclosure action unless:
(1) the unit owner, at the time the action is commenced, owes a sum equal to at least two months of common expense assessments based on the last adopted budget;
(2) the Association has made a demand for payment in writing and has simultaneously provided a copy of the written notice to the holders of first and second mortgages on the unit; and
(3) the executive board has either voted to commence a foreclosure action specifically against the unit or has adopted a standard policy that provides for foreclosure against that unit.
If the Association does not allege in its foreclosure complaint that it complied with these requirements, the unit owner, and perhaps even the lenders and other lien holders, may move the court to strike the foreclosure action against the unit. If the Association has not followed these requirements, then the unit owner can successfully defeat the foreclosure. This interpretation was made by the Litchfield Superior Court in Hemlock Hill Camp Resort Coop Ass'n, Inc. v. Hughes.
A quick review of the pending condominium foreclosure complaints filed after October 1, 2013, indicates that almost all of the complaints do not contain allegations that the Association has complied with Section 47-258(m)(1). Discussions with boards and managers reveal that few are even aware of the requirements. Depending on the status of the cases, unit owners could bring motions to strike the foreclosure complaints or successfully move for summary judgment to have the foreclosure actions defeated.
In the vast majority of condominium foreclosure actions, the first or second mortgage holder will pay the amount of the nine month priority and the attorneys fees and costs either during or at the completion of the foreclosure action. Section 47-258 (m)(2) states that if the Association fails to provide a copy of the written notice sent to the unit owner or fails to send a notice to the first and second mortgage holders 60 days prior to commencing the foreclosure, the mortgage holders to not have to pay the Association’s costs or attorney’s fees. The notice to the lender must contain:
(1) the amount of unpaid common expense assessments owed to the Association as of the date of the notice;
(2) the amount of any attorney’s fees and cost incurred by the Association in the enforcement of its lien as of the date of the notice;
(3) a statement of the Association’s intention to foreclose its lien, if it is not paid the assessments and the attorney’s fees and costs stated in the notice;
(4) the Association’s contact information, including the name of the person acting on behalf of the Association and the Associations manager, telephone number and electronic mail address, if any; and
(5) instructions concerning the acceptable means of making payment.
The notice to the lenders must be delivered by mail using the last name and address recorded on the land records. An examination of the land records of the town in which the unit is located is necessary to obtain this information. If, however, the holder of the security interest is a plaintiff in an action pending in the Superior Court to enforce the security interest, the written notice must go to the attorney appearing on behalf of the holder of the security interest in that action. The holder of the security interest may no longer be the lender listed on the land records, because the loan may have been sold. To ensure that the notice goes to the proper addressee, the court records must be searched to determine if any vendor has brought an action to enforce the mortgage against the unit.
Failure to provide the notice to the unit owner simultaneously to the mortgage holder will deprive the Association of its right to maintain its own foreclosure against a unit owner. Failure to provide the 60 day notice deprives the Association of the right to collect the attorneys fees and costs from the lender after the Association begins a foreclosure.
Unit owners who are being foreclosed in actions brought after October 1, 2013 can hire an attorney to determine if the foreclosure requirements were met. Associations should make sure that there collection policies and foreclosure procedures comply with the requirements and question their foreclosure attorneys about the statuses of the Association’s foreclosures brought after October 1, 2013. Lender counsel may be able to avoid paying attorney’s fees and cost that are normally part of the priority.
Federal regulations were changed to address harassment and discrimination claims to “housing providers.” Even though associations are not really housing providers, they are covered by the regulations.
As of October 14, 2016, boards of directors are required to address members' claims of harassment on the basis of race, color, religion, national origin, sex, familial status, and disability. Harassment may be by other residents, board members, managers, and vendors. Boards are required to take prompt steps to eliminate discriminatory harassment..
In determining if harassment occurred, boards can evaluate the nature of the unwelcome conduct, the context in which the incidents occur, the severity, scope, frequency, duration, and location of the conduct, and the relationships of the people involved. The person who is harassed does not have to suffer any economic, physical or psychological harm.
Complaints can be made to HUD and in Connecticut, to CHRO.
Harassment can include board actions, like comments at meetings or the imposition of fines. If one resident harasses another and the Board does not properly act, the harassed resident can file a claim against the Board. Even creating a hostile environment could be harassment. Harassment can involve unit owners, tenants and family members.
If harassment is alleged, boards must investigate. Even if the board determines a complaint is unfounded, its findings must be carefully documented. A claim as to the Board findings can still be filed and investigated by HUD or CHRO. The resident’s cost of filing a claim is zero. The Board’s cost of defending a discrimination claim can be very high. Associations need insurance coverage to pay for the defense of these claims.
It is imperative that Boards adopt anti-harassment rules that cover everyone in the Association. There should be procedures for reporting harassment and standards for investigating harassment. The Board also need to adopt procedures for their determinations and remedies if harassment is found.
The Florida Appellate Court has established a test to determine whether communications between the Association attorney and a management company are subject to the condominium Association's attorney-client privilege.
The case is Las Olas River House Condominium Association Inc. vs. Lorh, LLC, 2015 WL 8347977 (4th DCA 2015). In this case, the adverse party sought discovery of communications between the Association and unit owners. The communications were received by and copied to the Association's manager and the manager's supervisor. The adverse party insisted the fact that these communications were received by the management company was a waiver of the attorney-client privilege that protects communications from discovery The trial court held that the communications were not privileged because the client was the condominium Association and receipt by the management company, a non-client person, was a waiver of the attorney-client privilege.
The Appellate Court overturned the decision and found that the communications were still subject to the attorney-client privilege. The Court applied the five prong test set forth in Southern Bell Telephone & Telegraph Co. v. Deason, 632 So.2d 1377 (Fla.1994), in which the issue was communications to employees within a corporation.
The Deason five-part test for determining client-attorney privileged communications is:
1. whether the communication would not have been made but for the contemplation of legal services;
2. whether the employee making the communication did so at the direction of his or her corporate superior;
3, whether the superior made the request of the employee as part of the corporation’s effort to secure legal advice or services;
4. whether the content of the communication relates to the legal services being rendered, and the subject matter of the communication is within the scope of the employee’s duties; and
5. whether the communication is not disseminated beyond those persons who, because of the corporate structure, need to know its contents.
Under the Deason case, it is clear that the Association attorney must take certain actions to protect privileged communications that are received by the management company.
First, communications from the attorney should only go to persons who are directly involved in the management of the condominium and the specific legal services being provided to the Association.
Second, the attorney should have clear written instructions from the Association as to the role of the manager in the legal affairs of the Association and that identifies persons in the management company who should receive the communications.
I have just posted some information on condominium collections and foreclosures on my website. I am hoping that someone finds this information about the Common Interest Ownership Act interesting.