HB 108
Department of Legislative Services
Maryland General Assembly
2020 Session
FISCAL AND POLICY NOTE
Third Reader
House Bill 108 (Delegate Stein)
Environment and Transportation Judicial Proceedings
Condominiums - Responsibility for Property Insurance Deductibles
This bill specifies that the council of unit owners’ property insurance deductible is a
common expense if the cause of any damage to the condominium originates from an event
outside of the condominium units and common elements. The bill also increases, from
$5,000 to $10,000, the maximum amount of the council of unit owners’ property insurance
deductible that a unit owner is responsible for when the cause of damage to the
condominium originates in a specific unit. The bill applies to all policies of property and
casualty insurance issued, delivered, or renewed in the State to a condominium council of
unit owners on or after the bill’s October 1, 2020 effective date.
Fiscal Summary
State Effect: The bill does not materially affect State finances or operations.
Local Effect: The bill does not materially affect local government finances or operations.
Small Business Effect: Minimal.
Analysis
Current Law: If any portion of the common elements and the units is damaged or
destroyed, the common elements and the units must promptly be repaired or replaced by
the council of unit owners unless (1) the condominium is terminated; (2) repair or
replacement would be illegal under any State or local health or safety statute or ordinance;
or (3) 80% of the unit owners, including every owner of a unit or assigned limited common
element which will not be rebuilt, vote not to rebuild.
Generally, the cost of repair or replacement in excess of insurance proceeds and reserves
is a common expense. A property insurance deductible is not a cost of repair or replacement
in excess of insurance proceeds.
If the cause of any damage originates from the common elements, the council of
unit owners’ property insurance deductible is a common expense. If the cause of any
damage originates from a unit, the owner of the unit is responsible for the council of
unit owners’ property insurance deductible up to $5,000. The council of unit owners must
inform each unit owner annually in writing of (1) the unit owner’s responsibility for the
council of unit owners’ property insurance deductible and (2) the amount of the deductible.
The council of unit owners’ property insurance deductible amount exceeding the
$5,000 responsibility of the unit owner is a common expense. The council of unit owners
may make an annual assessment against the unit owner responsible for any damage.
If the damaged or destroyed portion of the condominium is not repaired or replaced, the
insurance proceeds attributable to the damaged common elements must be used to restore
the damaged area to a condition compatible with the remainder of the condominium. The
insurance proceeds attributable to units and limited common elements that are not rebuilt
must be distributed to the owners of those units and the owners of the units to which those
limited common elements were assigned. Any remaining proceeds must be distributed to
all the unit owners in proportion to their percentage interest in the common elements.
Background: For more information on condominiums, a type of common ownership
community, see Appendix – Common Ownership Communities.
Additional Information
Prior Introductions: HB 249 of 2019, as amended, passed the House and received a
hearing in the Senate Judicial Proceedings Committee, but no further action was taken.
Designated Cross File: SB 175 (Senator West) - Judicial Proceedings.
Information Source(s): Judiciary (Administrative Office of the Courts); Department of
Legislative Services
Fiscal Note History: First Reader - January 24, 2020
md/jkb Third Reader - February 21, 2020
Analysis by: Donavan A. Ham Direct Inquiries to:
(410) 946-5510
HB 108/ Page 2
 (301) 970-5510
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
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with the State. The State Department of Assessments and Taxation, which maintains
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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Statutes affected:
Text - First - Condominiums - Responsibility for Property Insurance Deductibles: 11-114 Real Property, 11-112 Real Property
Text - Third - Condominiums - Responsibility for Property Insurance Deductibles: 11-114 Real Property, 11-112 Real Property