Unusual Disputes for Condo/Townhome Owners
Legal Matters: Condo/Townhome Living can Lead to Unusual Disputes
Jeffrey C. O'Brien, Justin P. Short, Mansfield & Tanick, Thomas P. Carlson
December 14, 2011
While much of the media attention during the ongoing economic doldrums has been focused on the single-family home part of the real estate landscape, the market for townhomes and condominiums has been volatile as well.
Owners and management companies in this market, often referred to as common-interest communities (CICs), are finding themselves in legal scrapes more frequently as association bylaws and shrinking owner rosters lead to fiscal crises and disputes in these communities.
That’s where an attorney with a background in CICs can be helpful. Many lawyers with a real estate practice also work with associations, owners, developers and others involved with the development and maintenance of these properties, and they say the legal pitfalls in this area are often unique.
“The difference, of course, is most people buy a house and have to deal with city ordinances dictating what they can and can’t do,” said Jeffrey C. O’Brien, an attorney with Mansfield & Tanick in Minneapolis. “With a condo association, you almost have a quasi-governmental entity whose rules you also have to comply with.”
Unlike some states, Minnesota treats condos and townhomes under the same statutory framework, which helps lend consistency to legal issues in this area. But while residents in a CIC have voting rights and other means of helping dictate a community’s policies, common-interest communities have rules and bylaws that can conflict with the desires of individual unit owners. That can create tension when one owner wants to make improvements that are contrary to association bylaws.
“Issues arise when people realize they don’t have free rein and unlimited control over what they want to do with their property,” said Thomas P. Carlson of Carlson & Associates in Vadnais Heights. “They’re governed by architectural control committees. If you’re in a single-family home and you decide you want to expand your deck or build a patio, you just go ahead and do it. In an association there might be avenues to get approval for those things, but sometimes there’s not. If there is you have to follow the proper procedures.”
Every CIC association has a thick — sometimes very thick — book of bylaws that dictate exactly what can and cannot be done by owners. Trouble, including monetary penalties or even litigation, can arise when owners don’t do their homework about what is allowed.
“Property rights being what they are, people want to do what they want to do,” O’Brien said. “Sometimes, though, you find out that that book they handed you at your closing means something.”
People sometimes don’t realize that those responsibilities come with living in a CIC, added Carlson, who works mostly with associations and management companies. “They just think it means free snowplowing and yard maintenance, but you’re exchanging some freedom for those conveniences.”
Foreclosures a growing issue
The tension between the desires of the individual and the greater good of the community can lead to litigation. So can more mundane matters such as wet basements — in fact, construction defect suits are a significant part of the practice of most attorneys who handle CIC matters.
Another growing legal issue is a variation on the flurry of loan defaults and foreclosures that dominated headlines a few years ago. The twist is that in CICs, foreclosures and high vacancy rates can have a more direct effect on neighbors. If fewer owners are around to pay for necessary assessments and other expenses, the burden for each owner increases.
“As your neighbors fail to pay their assessments, that burden has to be made up somewhere in order for the association to continue to function and supply the services and insurance they need to provide,” Carlson said. “If one or two of your neighbors stop paying their assessments, that burden gets spread around.”
Market collapses have led to another growing area for CIC attorneys: collections. Carlson said mortgage foreclosures and declining equities in real estate values have become a larger part of his workload.
“We used to foreclose pretty much across the board as a way to collect unpaid assessments, but now with so many people having no equity in their property, we’re pursuing judgments more often than foreclosure,” he said.
The key to avoiding legal hassles for owners and associations lies in making sure everyone is informed and up to date about their rights and responsibilities in those roles, said Justin P. Short, an attorney with Best & Flanagan in Minneapolis.
Most times, the cost of assessments or repairs is shared by association members.
“If something breaks in the pool, or a piece of equipment in the community gym needs to be replaced, or the roof needs fixing, those are common elements,” O’Brien said. “Sometimes the board might elect to raise dues. Owners have to realize that there are those sorts of ongoing charges that can pop up at any time.”
If the association representing an older condo decides that all the windows in the development need replacing, but there’s nothing dictating who should pay for such a thing, it can lead to bitter disputes.
“That’s a big part of avoiding trouble — just making sure everyone knows the difference between common elements and limited common elements, and knowing your responsibility as a unit owner versus what the association covers,” Short said. “If windows are defined in a common element, it comes out of the association’s reserve account. If it’s an owner responsibility, then it’s on you.”
SOURCE: www.finance-commerce.com