Prompted by a number of recent foreclosures of condominium projects in the Washington area, two Maryland state representatives have proposed legislation to clarify the foreclosing bank's obligations at these developments.
In addition, a division of the District of Columbia Bar has convened a committee to consider revisions to the District's condominium act, including homeowner protections in project foreclosures, said Robert M. Diamond, a local condominium law expert.
Maryland Delegates Jerry H. Hyatt (D-15A) and Joel Chasnoff (D-14A), both up for reelection this year, have said they plan to introduce a bill that requires the lender taking over a project to take on the developer's obligations to homeowners. The original developer would remain responsible for any misrepresentions already made and for warranties on work done before the transfer.
Joan Hatfield, an unsuccessful candidate for Montgomery County Council, developed the bill, a statement issued from her office said.
The issue arose only recently. Foreclosures on condo developers were virtually unheard of while the condo boom of the late '70s was in full flower. But as rising interest rates softened the condo market , some developers defaulted on their loans.
The takeover of the 1,072-unit Promenade in Bethesda is only the latest -- and largest -- in a string of bank foreclosures on projects in this area.
McLean Gardens, the District's largest condo conversion, was taken over by Continental Illinois National Bank from the developer in May. Earlier, the deluxe Chancellor condo at Washington Circle, a new project in the process of construction was foreclosed on by First National Bank of Maryland.
In addition, the Letterman House tenant conversion in Foggy Bottom and a 10-unit project at 15th and Q have had unsold units taken over by the lender.
A model statute on the issue has been developed for state governments. In general, that legislation makes the original developer responsible for what he does, and the lender responsible for actions and representations after the takeover.
Virginia has adopted a law along the lines of the uniform act. It went into effect in July.
But the District and Maryland do not yet have laws specifically dealing with the question.
At McLean Gardens, Continental Illinois apparently has agreed to take over all of the developer's obligations anyway; and Chase has done the same at the Promenade.
But at the Chancellor, the bank has fought efforts to make it fulfill the developer's obligations.
Chasnoff said the bill to be introduced would apply to both new condo projects as well as conversions and probably would be extended to cooperative apartments such as the Promenade. The Promenade itself would not be affected, however, because that foreclosure has already taken place.