For condo associations, help collecting dues under a novel idea from Howard

May 4, 2012

A member of the Howard County Council has proposed a novel approach to give community associations a way to crack down on a segment of homeowners who neglect to pay their condo fees.

The Federal Housing Authority — which has become the preeminent lender in community associations — has significantly tightened its requirements. Based on the massive mortgage failures in California, Nevada and Florida, the FHA now requires that at least 50 percent of the association be owner occupied, that the annual budget include at least 10 percent allocated to replacement reserves and that no more than 15 percent of the units be delinquent on assessments (although on a case-by-case basis this can be slightly modified). And to get an FHA loan, the association must be certified by the Department of Housing and Urban Development and FHA.

Calvin Ball (D-East Columbia) is an elected Howard County Council member. He discovered that of the 25 community associations in his district, 18 of them were not certified by FHA. Accordingly, on March 19, along with others on the council, he introduced Bill 10.

In Howard homeowners seeking to rent their property must obtain a rental license from the county Department of Inspections, Licenses and Permits, and many other jurisdictions have similar requirements. The bill would allow the county to reject a license application or even cancel an existing license if the homeowner is at least 60 days delinquent in paying the association assessments.

According to Ball, his bill does not solve the entire issue. He concedes there are many owners who are delinquent but do not rent their units. However, “this bill aims at protecting the investments we all have in our communities.” His office has been contacted by many condominium or homeowner associations “expressing the frustration they experience with homeowners who have chosen to rent their properties but fail to satisfy association obligations. FHA financing factors in delinquency rate, reserve funds and owner-occupied limits, all of which are impacted by the failure of these homeowners to pay association fees.”

“CB-10,” adds Ball, “attempts to establish a recourse that associations could use to collect unpaid dues from homeowners applying for a rental license from the county or who already possess a rental license.”

This bill may be voted on as early as Monday, and the council member is urging community association owners and leaders to attend the session starting at 7:30 p.m. in the Banneker Room of the George Howard Building.

Howard County is the only Maryland jurisdiction taking on this issue, but homeowners and boards of directors throughout the state — and throughout the country — are watching this legislation with interest.

Collection of delinquent accounts is difficult, time consuming and often expensive since it frequently requires court involvement. And it is especially galling to boards of directors when a tenant is paying rent to the owner, but the owner is not paying monthly dues.

There is, however, in addition to legislation, a way to resolve this. Many associations have enacted what we call a “lease addendum.” The board enacts a rule (consistent with the procedures of applicable law), which requires all landlords and potential tenants to include an addendum to their existing lease. This document — signed by the landlord, the tenant and an association board member — states at least the following:

●The tenant has been provided with a copy of the association legal documents.

●The tenant agrees to be bound by the legal requirements.

●The tenant agrees that the association has the right to bring action against the tenant should there be violations of the legal requirements, and should the landlord not pay the association’s assessment, the tenant will, upon demand by the association, start paying the rental amount to the association.

Associations, especially in Howard, should consider whether to endorse CB-10. But associations throughout the area should also consider enacting the lease addendum. That way, if the landlord refuses to pay the monthly assessment, you can get the money from the tenant.

Benny L. Kass is a Washington lawyer. This column is not legal advice and should not be acted upon without obtaining legal counsel. For a free copy of the booklet “A Guide to Settlement on Your New Home,” send a self-addressed stamped envelope to Benny L. Kass, 1050 17th St. NW, Suite 1100, Washington, D.C. 20036.

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