During
the 2014 legislative session, the Connecticut General Assembly enacted two
public acts concerning community associations, one of which also concerns
managers.
Amendments
to the Common Interest Ownership Act-Public Act No. 14-215 amends a number of
provisions to the Common Interest Ownership Act ("CIOA") as
follows. The majority of these
amendments become effective on October 1, 2014, and apply to all communities in
Connecticut, regardless of when created.
A small number of these amendments are more limited in scope. Some of these more limited amendments become
effective immediately, while others will not take effect until January 1, 2015:
- Amendments
Taking Effect on October 1, 2014. The
following amendments apply to all common interest communities in Connecticut,
regardless of when created:
- Meeting
Minutes and Voting Records. Public Act
No. 14-215 amends Subsection 47-250(b) of CIOA to require that the minutes of
all board meetings contain a record of how each board member cast his or her
vote on any final action proposed to be taken by the board, unless:
- The
proposed action is approved by the unanimous consent of the board; or
- The
proposed action is approved without objection by any member of the board.
- Given
these new requirements, it will be the duty of the secretary of the
association, or whomever else is taking the minutes of the meeting, to
carefully record a tally of how each board member cast his or her vote on any
final action
Election
of Directors by Plurality Vote. Public
Act No. 14-215 amends Subsection 47-252(b) to permit associations to elect
directors by a plurality vote.
- When
there are more candidates seeking election than there are open seats, it is
possible for one candidate to receive the greatest number of the votes, but for
that number to still be less than a majority of the total number of votes
cast. Plurality voting permits the
candidate who receives the greatest number of votes to be elected, even if that
number of votes is not a majority.
Many
associations have long conducted elections by plurality vote. However, when the
General Assembly amended CIOA in 2009, in part to clarify what constitutes a
majority vote of the unit owners, it inadvertently called into question the
permissibility of conducting an election by plurality vote.
Subsection
47-252(b) of CIOA presently states that at a meeting of the unit owners, a
majority of the votes cast shall be the decision of the association, unless
either the governing documents or CIOA requires a higher number. This provision works well when the unit
owners are asked to vote either in favor of or against a certain action.
However, Subsection 47-252(b) does not work as well when it comes to elections
when there are more candidates seeking election than there are open seats.
Public
Act No. 14-215 amends Subsection 47-252(b) to make it clear that associations
may elect board members by a plurality vote.
The
amendment to Subsection 47-252(b) also applies to the election of officers, but
only if the governing documents of the community require that officers are
elected by the unit owners, rather than the board members. In most Connecticut
communities, the officers are elected by the board members, not by the unit
owners.
-
Disclosing
Financial Reports in Resale Certificates.
Public Act No. 14-215 amends Subsection 47-270(a) of CIOA to add a new
disclosure that associations must include in any resale certificates that they
issue.
If
the association has had a certified public accountant report on its financial
statement during the five years preceding the date on which the resale
certificate is issued, then the certificate must disclose the following:
- The
fiscal period represented by that financial statement; and
- Whether
the report prepared by the accountant was a compilation, review or audit
If
the association has not had an accountant report on its financial statement,
then the certificate should state so.
- Increase
in the Maximum Amount of Fines That May Be Levied Against Managers. Public Act No. 14-215 increases the maximum
amount of fines that the Department of Consumer Protection may levy against
managers, from $500 to $1,000.
- Clarification
on Permitting Private Transfer Fees.
During the 2013 legislative session, the General Assembly enacted
Section 47-17a of the General Statutes, which prohibits private transfer fees
payable to third parties on the sale of real estate. This statute specifically excluded from the
prohibition fees paid to a community association “organized under CIOA.” This
means that the association of a community formed under CIOA could impose a
transfer fee paid to the association on the sale of a unit. Unfortunately, the language of the statute
left open the question of whether the association of a community created prior
to the effective date of CIOA could also charge a transfer fee.
Public
Act No. 14-215 amends Section 47-17a to clarify that the association of any
common interest community, regardless of when created, may charge a transfer
fee on the sale of a unit.
- Correction
of Internal Cross-References. CIOA has
been amended many times since it was first enacted 30 years ago. New provisions have been added, and existing
provisions have moved. Public Act No.
14-215 amends CIOA to correct certain internal cross-references to account for
these changes.
- Amendments
Taking Effect Immediately. Public Act
No. 14-215 contains amendments to clarify the procedures by which only
communities having 2,400 or more units adopt budgets and special assessments. These amendments will have no impact on any
other association.
- Amendments
Taking Effect on January 1, 2015. Public
Act No. 14-215 contains amendments that only apply to master associations that
meet the following qualifications.
Generally speaking, a master association is an association that is
charged with operating a group of individually-formed common interest
communities, referred to as constituent communities, which are governed and
operated collectively, in whole or in part, as one single community:
- The
constituent communities contain at least 400 units in total;
- The
master association is governed by a board of directors consisting of one
individual from each constituent community, who serves on the board of that
community and represents its interests on the board of the master association;
and
- The
master association board members have votes that are weighted in proportion to
the number of units in the constituent community that they represent.
These
amendments will have no impact on any other association.
Optional
Method of Foreclosure-Public Act No 14-84, which becomes effective on October
1, 2014, creates a new process for conducting a foreclosure by market
sale. The Act is purportedly designed to
make it easier for homeowners and first mortgage holders to approve and
complete short sales, by making it more difficult, if not impossible, for the
holder of a junior lien to negotiate to receive at least some payment from the
proceeds of the sale.
When
the holder of a mortgage completes a foreclosure, the association will receive
payment of the its priority lien, equal to nine months' of common charges plus
attorneys’ fees and costs.
Unfortunately, in many or most cases, the association is unable to
collect the junior portion of its lien, which does not enjoy priority over the
mortgage.
As an
alternative to foreclosure, some homeowners will attempt to conduct a short
sale. The owner will put the home on the market and hope to find a buyer that
is willing pay an amount that is close to market value. The owner then asks the mortgage holder to accept,
as payment in full, an amount that is less than what is owed on the mortgage.
Because
there is no foreclosure, any liens that were junior to the mortgage have not
been extinguished. The owner and the
mortgage holder must negotiate with the junior lien holders to accept some
amount, often discounted, as payment in full.
If the homeowner, mortgage holder, and junior lien holders cannot reach
an agreement, then the short sale will not be completed. Instead, the mortgage holder will proceed
with a foreclosure and the junior liens will be extinguished in the
process. Thus, junior lien holders have
some incentive to negotiate with the homeowner and mortgage holder.
Public
Act 14-84 essentially eliminates the need for homeowners and mortgage holders
to reach an agreement with the junior lien holders. The Act will not have any impact on the
ability of associations to collect their priority liens. However, it eliminates the possibility of
negotiating for payment of at least a portion of the junior portion of the
association's lien if the homeowner is able to complete a short sale.
The
Act applies to situations that meet the following criteria:
- The
homeowner has one or more mortgages on his or her home, which he or she is
using as a primary residence. In other
words, this bill does not apply to property held by someone for solely for
investment purposes.
- The
homeowner is delinquent in paying the first mortgage on the home, and the
holder of the first mortgage intends to proceed with a foreclosure.
- The
home is worth less than the total amount of the outstanding balance of the
first mortgage plus any liens that enjoy priority over that mortgage, based on
an appraisal obtained by the mortgage holder.
If
these criteria are met, then the homeowner and the holder of the first mortgage
may agree to attempt to sell the unit on the open market. Any proposed purchase and sale agreement must
meet the approval of both the homeowner and the mortgage holder, and
subsequently be ratified by the court.
The process is designed to permit the mortgage holder to obtain a
judgment within three or four weeks of filing the action, and for the sale to
take place within a month or two thereafter.
If
the home is a unit in a common interest community, the association should
receive notice of the foreclosure, just as it does now with other mortgage
foreclosures. When the court enters its
judgment, the association and all other any junior lien holders are given a
right of first refusal. This means that
a junior lien holder may choose to purchase the unit on the same terms and
conditions as the proposed purchase and sale agreement already approved by the
homeowner and mortgage holder. In most
cases, it will likely make no sense to exercise this right.
If
the association does not exercise this right, then the junior portion of its
lien will be extinguished. The
association will still collect the nine-month priority from the new owner of
the unit after the sale is completed.