Bill Summary – FastDemocracy

HB 25
                      Department of Legislative Services
                              Maryland General Assembly
                                    2020 Session
                           FISCAL AND POLICY NOTE
                                 Third Reader
House Bill 25                (Delegate Holmes)
Environment and Transportation                                         Judicial Proceedings
    Condominiums and Homeowners Associations - Amendments to Declarations
                        and Governing Documents
This bill establishes that, if a declaration of a condominium or the governing document of
a homeowners association (HOA) contains a provision requiring any action on the part of
the holder of a mortgage or deed of trust on a unit in the condominium or a lot in the
HOA in order to amend the declaration or governing document, the provision must be
deemed satisfied if specified procedures are followed. The bill’s requirements do not apply
to an amendment that (1) alters the priority of the lien of the mortgage or deed of trust;
(2) materially impairs or affects the unit or lot as collateral; or (3) materially impairs or
affects the right of the holder of the mortgage or deed of trust to exercise any rights under
the mortgage, deed of trust, or applicable law.
                                    Fiscal Summary
State Effect: The bill does not materially affect State operations or finances.
Local Effect: The bill does not materially affect local government operations or finances.
Small Business Effect: Minimal.
                                         Analysis
Bill Summary/Current Law: Under the bill, if the declaration or governing document
contains a provision requiring any action on the part of a holder of a mortgage or deed of
trust on a unit in a condominium or a lot in an HOA in order to amend the declaration or
governing document, the council of unit owners of a condominium, or the HOA, must
facilitate the delivery of a copy of the proposed amendment to each holder of a mortgage
or deed of trust entitled to notice. If a holder of the mortgage or deed of trust that receives
the proposed amendment fails to object, in writing, within 60 days after the date of actual
receipt of the proposed amendment, the holder is deemed to have consented to the adoption
of the amendment.
Statute includes provisions similar to the bill, which apply only to amendments to the
bylaws of a condominium.
The bill also repeals language that specifies that no provision of the Maryland
Condominium Act may be construed to degrade any requirement in the declaration or
bylaws of a condominium that all or a specified number of the mortgagees of the
condominium units approve specified actions contemplated by the council of unit owners.
There is no similar provision in statute applicable to HOAs.
Background: For more information about condominiums and HOAs, which are broadly
referred to as common ownership communities, see the Appendix – Common Ownership
Communities.
                                 Additional Information
Prior Introductions: HB 825 of 2019 passed the House and received a hearing in the
Senate Judicial Proceedings Committee, but no further action was taken.
Designated Cross File: SB 293 (Senator West) - Judicial Proceedings.
Information Source(s): Office of the Attorney General (Consumer Protection Division);
Judiciary (Administrative Office of the Courts); Department of Legislative Services
Fiscal Note History:       First Reader - January 24, 2020
an/jkb                     Third Reader - February 21, 2020
Analysis by: Donavan A. Ham                              Direct Inquiries to:
                                                         (410) 946-5510
                                                         (301) 970-5510
HB 25/ Page 2
          Appendix – Common Ownership Communities
When a person purchases a single-family home, condominium, or an interest in a
cooperative housing corporation, he or she may also be required to join an association of
owners, which is intended to act in the common interests of all the homeowners,
condominium unit owners, or cooperative owners in the community. Collectively, these
associations are often referred to as common ownership communities (COCs). In
Maryland, a growing number of newly constructed or newly converted residences are
located in some form of a COC.
The affairs of a condominium are governed by a council of unit owners, which comprises
all unit owners. Among other powers, the council of unit owners has the power to impose
assessments on the unit owners to pay common expenses. A council of unit owners may
delegate its powers to a board of directors, officers, or a managing agent. Condominiums
are governed under Title 11 of the Real Property Article.
Many new housing developments are subject to a homeowners association (HOA) that is
created by a governing document and has the authority to impose mandatory fees on lots
in the development in connection with the provision of services or for the benefit of the
lots, the lot owners, or the common areas. HOAs are governed under Title 11B of the Real
Property Article.
A “cooperative housing corporation” or “cooperative” is a corporation that owns real
property. A resident of a cooperative does not own his or her unit; rather, the person owns
an interest in the corporation, which leases the unit to the person for residential use.
Cooperatives are governed by the laws in Title 5, Subtitle 6B of the Corporations and
Associations Article.
Condominiums and HOAs may be authorized by their governing documents to impose
liens on units or lots to collect unpaid assessments or fees. In a cooperative, the governing
documents usually provide for the collection of delinquent fees, and evictions for unpaid
fees are generally pursued by way of a landlord-tenant action.
Number of Common Ownership Communities in Maryland
Since registration of the various COCs is not required statewide, the exact number of COCs
in Maryland is unknown. However, public offering statements for condominium regimes
are required by law to be registered with the Secretary of State (SOS). SOS registration
records show that, as of December 2019, 2,713 condominium regimes have been registered
with the State. The State Department of Assessments and Taxation, which maintains
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assessment records based on class of property, reports there were 225,038 condominium
units (both commercial and residential) in the State as of July 2019. The Foundation for
Community Association Research estimated there were 1.0 million residents living in
6,775 community associations in the State in 2018.
Task Force on Common Ownership Communities
With a growing number of Marylanders residing in COCs, and evidence that some COCs
had issues with governance, dispute resolution, and financial stability, the
General Assembly created the Task Force on Common Ownership Communities in 2005
(Chapter 469 of 2005). The issues addressed by the task force included the education and
training needs of COC boards and prospective buyers, availability of alternative dispute
resolution services, special considerations of aging COCs, collection of assessments, and
resale of homes within COCs. The task force met 10 times, held five public hearings, and
submitted its final report in December 2006. The report’s findings and recommendations
have served, in subsequent years, as the basis for numerous pieces of legislation intended
to improve the operation of COCs. This legislation, enacted from 2007 through 2017:
      authorized a group of three or more unit or lot owners in a condominium or HOA
       to petition a circuit court to appoint a receiver in specified situations frequently
       found in aging communities (Chapter 321 of 2007);
      gave the Consumer Protection Division within the Office of the Attorney General
       increased authority over violations of the Maryland Homeowners Association Act
       (Chapter 593 of 2007);
      eased restrictions on the ability of condominiums and HOAs to amend their
       governing documents (Chapters 144 and 145 of 2008 and Chapter 480 of 2017);
      strengthened the transition process from developer to the governing body of a
       condominium or HOA by allowing the governing body to terminate specified
       contracts and requiring the developer to provide specified documents (Chapters 95
       and 96 of 2009);
      required the governing body of a COC to purchase fidelity insurance or a fidelity
       bond covering various acts of malfeasance by COC officers, directors, and other
       specified employees and agents (Chapters 77 and 78 of 2009 and Chapter 615 of
       2010);
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      granted priority to a specified portion of a lien of a condominium or HOA over the
       claim of a holder of a first mortgage or first deed of trust in the event of a foreclosure
       on a unit or lot (Chapter 387 of 2011);
      limited the amount of damages for which the governing body of a condominium or
       HOA may foreclose on a lien against a unit owner or lot owner (Chapters 448 and
       449 of 2013);
      expanded the purposes for which a condominium’s board of directors may hold a
       closed meeting, similar to the law for an HOA, by allowing a meeting to be closed
       to consider terms or conditions of a business transaction in the negotiation stage if
       disclosure could adversely affect the economic interests of the council of unit
       owners (Chapter 110 of 2013);
      established meeting standards and standards for late charges for delinquent
       payments, eviction restrictions, an auditing process for books and records, and a
       dispute settlement mechanism for cooperatives under specified circumstances
       (Chapter 567 of 2014); and
      altered the contents of a required disclosure for the resale of a condominium unit,
       authorized the assessment of specified fees by a condominium council of unit
       owners or an HOA for providing specified information, and required the
       Department of Housing and Community Development to adjust the maximum
       authorized fees every two years (Chapter 735 of 2016 and Chapter 817 of 2017).
The task force’s report also featured findings and recommendations relating to the creation
of an ombudsman in local governments. Since the report’s release, Prince George’s County
created its Common Ownership Communities Program in 2007 with the stated purpose of
assisting governing bodies as well as owners and residents of HOAs, residential
condominiums, and cooperative housing corporations with education, training, and
alternative dispute resolution. Charles and Montgomery counties have offices dedicated to
COCs that predate the task force.
Finally, findings and recommendations of the report that have not been codified in statute
pertain to reserves of COCs, an insurance deductible cap for unit owners, and the
uniformity of COC depository requirements.
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