Your Association’s Legal Questions, Answered!
An interview with Craig Zaller, Managing Partner and Principal at Nagle & Zaller, P.C.
We recently sat down with Attorney Craig Zaller from Nagle & Zaller, P.C. to get his thoughts on trends in the community association industry and important legal issues facing homeowners and the communities that they live within.
WPM: Given the breadth and depth of experience in the community association industry, what trends do you see that you feel communities should be aware of?
Zaller: First, I see a lot of aging infrastructure within communities, and a lack of funding for a Board of Directors to make the necessary repairs. This is a huge concern for many communities, and, in Maryland, there has been at least one Condominium that was terminated due to these issues. I worked on that case. As communities age, there is more and more need for physical improvements, especially for communities with common amenities, such as condominiums. If communities have not sufficiently funded their reserves, and do not have assessments that cover all their expenses and funding to their reserves, the Boards will not have the funds necessary to maintain the common amenities. The community then starts to deteriorate and falls into disrepair.
To avoid these issues, I strongly urge communities to obtain reserve studies which address the components within each community, their life expectancy, and the estimated costs of replacement at the end of each component’s estimated life. A Board must take this into account in its budget and in setting its assessments. And, if a Board does not have the funds necessary to put money away in reserves and/or pay its bills, it needs to discuss increasing assessments, obtaining a loan and/or special assessing its owners so that the community has the funds needed to preserve, protect and enhance the property values within the community.
Secondly, we are seeing significant issues with delinquent owners which can exacerbate the issues noted above and cause serious financial problems in these communities. There are more people today who are buying into communities that they struggle to afford. As such, many owners put less priority on paying their assessments. And, often, these owners do not have the funds necessary to maintain their properties themselves. If owners do not have enough money to paint their home, fix their siding, or install a new roof, for example, when necessary, then the property values of homes within that community may likely decrease. As such, Boards must enforce their “maintenance covenants” and ensure that all owners are properly maintaining their homes. The Board should budget for enforcement issues such as this, anticipating that many owners will not comply with their obligations.
This brings up another important point: one of the most important jobs of the community association are the collection of assessments. Funds to operate the community only come from one source – the owners and their assessment payments. Assessments are the lifeblood of the community, and without these funds, a community cannot survive. Boards and their community association managers must aggressively pursue all owners who are delinquent. That can often include foreclosing on non-paying owners if the standard filing of liens and lawsuits does not resolve a case.
Third, I see a lot more litigation today than I saw over twenty-five years ago when I started working in the community association industry. Homeowners seem to have become much more litigious. For example, owners are fighting boards and communities over things like covenant enforcement matters. Issues that should be very clear-cut, such as installing a property feature without permission, are rising to the level of litigation. Owners are now employing bodies of the law and coming up with creative arguments engineered by attorneys to try to get their clients/owners around the rules they agreed and consented to when they moved into the community. Some owners are using and/or manipulating the Fair Housing Act, as an example, to try to skirt the provisions in the Declaration and Bylaws of a community to obtain approval for a structure that would normally not be approved. This is not to say that there are not people who deserve to be protected in the manner that the Fair Housing Act was intended. Owners are obtaining notes from doctors to support requests for a
“reasonable accommodation,” but the owner may not have a disability and they may be abusing the process.
Oftentimes we can challenge these issues, but, the Fair Housing Act is a very complex area of the law and challenging an owner regarding issues such as this can be costly and risky, even if the owner is wrong. Boards are forced to make decisions that they would not otherwise have to make to avoid risky and costly litigation over these issues. This is an area where Attorney advice early is advisable. The point is that when you buy into a community, you are buying into the governance of that community and you should abide by the rules.
Finally, most properties for sale today are in planned communities. It’s harder and harder for potential buyers to find properties that are not bound to covenants like you see in a community association. This makes for more owners that may wish to live as they please but are forced in a sense to comply with covenants that they do not personally care about.
This sets the groundwork for internal struggle within a community and often creates disputes with owners who fundamentally do not agree with the concept of community association governance.
WPM: Are there commonly overlooked issues or areas of legal risk that you see with community associations?
Zaller: Failure to have an attorney review contracts with vendors is a grave legal risk. An Association may have large contracts with vendors, but the provisions in the contract do not necessarily protect the Association. They are drafted to protect the vendor. Opting not to have your attorney review the contract to save money in the end can be far more costly. Because of agreed upon contractual provisions, a community’s recourse, and the right to recover the legal fees expended fighting the vendor, even if you are right, can change the whole strategy in a case and may limit recovery should something go wrong. Using attorneys and having them review and revise contracts to protect an association should be deemed a necessary line item in each community’s budget. Too many communities do not budget the proper funds to use attorneys when needed, and, therefore, avoid using them, taking on great and unnecessary risks.
I also see communities that do not fully understand their governing documents and the statutory and case law that override the same. Communities often think that the answer to any legal question can always be found in the community’s Declaration or Bylaws. But the provisions in the Declaration and Bylaws are often not correct, as there may be statutory law at the federal, state, or local level that overrides what is set forth in those documents. There is also case law to consider. Communities need to be aware of this and should have their documents reviewed by their attorney who can best advise them of the current state of law.
WPM: How often should a community association revisit its legal documents?
Zaller: While I don’t believe there is a set timeframe, I do think that your attorney should periodically review your governing documents to provide feedback on how to improve or respond to changes in the law and issues the community is facing. I often suggest a community review their governing documents with counsel as soon as they come out of developer control, as the governing documents for a community are often written from a developer’s angle and to protect the developer. However, everything changes once an owner- controlled board is in place and their goals are often very different than a developer’s. In addition, make sure that your attorney is publishing regular updates in the law through special client letters or on their websites and stay informed. The law can change quickly.
WPM: What do you believe are the most important legal issues or protections a community association should implement, plan for, or prepare to address?
Zaller: The most important thing a community can do is to protect itself financially and be financially sound. In addition, they need to ensure that their community’s governing documents provide the board with the power to do what is necessary to properly run the community. Finally, they need to be aware of and comply with insurance provisions in their governing documents and statutes on point including, most importantly, obtaining the proper fidelity insurance so that if their funds are stolen, as has happened many times in this industry, they will have coverage.
WPM: What advice would you provide to a new incoming Community Association Board president?
Zaller: First, it is important that they read all their governing documents. They should join the Community Associations Institute (CAI). They should seek the advice of their professionals when necessary. This includes talking to their managers, attorneys, accountants, and other board members, as well, to get the full picture of how their community operates. Finally, they need to always remember that their job is to preserve, protect and enhance the property values within the community. And, that includes enforcing the covenants, collecting assessments, looking out for the best interests of the community, and making the best reasonable decisions that they can for the community.
Craig Zaller is the Managing Partner and Principal at Nagle & Zaller, P.C., a Columbia -based law firm that serves over 700 hundred communities in the Baltimore/ Washington area. The firm boasts more than 150 years of combined legal experience, provided in a personalized setting so you have access to the legal resources your community needs. Learn more about Craig and his team at www.naglezaller.com.