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Insurance Companies Should Review & Require Revision of Condominium Documents Prior to Policy Issuance

massachusetts condo law

Condominium Law AttorneyAs important as a review of condominium documents is for condominium purchasers, it may be even more important for the insurance companies that insure {condominium, condo} {associations, trusts, boards} or {condominium, condo} units, or even the mortgage companies that lend to them.

Ultimately, it may be insurers and mortgage holders who are the only ones that can stem the tide against the erosions of unit owner sovereignty over their ‘fee simple’.

The extent of {Trustee, Board} power reinforced by Massachusetts Courts combined with some law firms drafting {condominium, condo} documents that (a) place outrageous restrictions on unit owner conduct inside and outside the privacy of their own units and (b) impose hefty punitive fines, increase the likelihood of costly {condominium, condo}litigation. Such litigation places enormous time and money burdens on the {condominium, condo} {associations, trusts, boards}as well as the insurance companies that insure them. In addition, the high punitive fines, super-liens and collections-related attorney’s fees and costs that {condominium, condo} {associations, trusts, boards} can get against a {condominium, condo} unit put mortgage holders’ interests in the {condominium, condo} unit at risk.

As a result, insurance and mortgage companies may want to start paying closer attention to the language of the {condominium, condo} documents of the units and, more importantly, the  {condominium, condo} {associations, trusts, boards} that they insure and lend to. Ultimately, it may be insurers and mortgage holders who are the only ones that can stem the tide against the erosions of unit owner sovereignty over their ‘fee simple’.

In my experience, {condominium, condo} litigation between unit owners and {condominium, condo} {associations, trusts, boards} are often the result of onerous, oppressive and overly punitive {condominium, condo} documents. These types of {condominium, condo} documents tend to give rise to more litigation than others. To be sure, the more oppressive of unit owners, the more punitive, the higher the punitive fees and penalties, and the more extensive the restrictions on unit owner conduct within and/or outside of the walls of their {condominium, condo} unit, the more likely unit owners are to challenge the {condominium, condo} documents or simply fight them on principle. They also increase the likelihood that {condominium, condo} {associations, trusts, boards} will sue unit owners for enforcement or collection of high-dollar punitive fines, making {condominium, condo} {associations, trusts, boards} subject to counterclaims by the unit owner, the defense of which will be covered by the {condominium, condo} {association’s, trust’s, board’s} insurance policy.

3 Main Types of {Condominium, Condo} Lawsuits

Condo LawsuitsThere are 3 main or common types of {condominium, condo} disputes in which insurers are forced to insure against and pay the {condominium, condo} {association’s, trust’s, board’s} legal fees and costs:

  1. in an action against a unit owner for collection of unpaid {condominium, condo} fees, punitive fines or unit owner misconduct where a unit owner will often file counterclaims against the {association, trust, board}, as the defendant in a primary lawsuit by a unit owner against the {condominium, condo} {associations, trusts, boards} contesting imposition of a fine or restriction on conduct, and as a defendant in a lawsuit by a non-unit owner third party.

condominium litigation costs and expensesIn all three examples, it is the {condominium, condo} {association’s, trust’s, board’s} liability insurance company that is responsible for paying the {association’s, trust’s, board’s} attorney’s fees, court costs, expenses and any judgment that is awarded against the {association, trust, board}.

Litigation = Big Losses for Insurers and Mortgage Companies

It is no secret that litigation places an enormous burden in time and money on all parties involved, but perhaps none more than the insurers of {condominium, condo} {associations, trusts, boards}. {Condominium, Condo} litigation can even diminish the market value or marketability of units within the {condominium, condo} association. Let’s be honest – who wants to buy a {condominium, condo} unit in a litigious {condominium, condo} or one that is in the midst of litigation over a {condominium, condo} {association’s, trust’s, board’s} exercise of excessive of power or imposition of high punitive fines.

Finally, unit owners that get overburdened with excessive punitive fines and assessments can easily fail to pay. All it takes is a loss of job, costly medical condition, paying for a kid’s college tuition, unexpected vehicle repairs to put some families into the red. Whereas monthly {condominium, condo} fees are anticipated or budgeted family expenses, punitive fines and most special assessments are, by their very nature, unexpected and unanticipated. Punitive fines, to be sure, are not necessary to cover operational, maintenance or management expenses of the condominium – those are covered by monthly {condominium, condo} fees.

When {condominium, condo} {associations, trusts, boards} seek to collect the fine, all the attorney’s fees and costs also incurred are added to the fine amount due from the unit owner, and can be added to the super-lien against the {condominium, condo} unit which the {condominium, condo} {association, trust, board} can use to foreclose on the unit. A $1,000 punitive fine can easily mushroom into $25,000 in fines, attorney’s fees and costs. That kind of financial burden can put an already struggling family on the street – all over a punitive fine which the {condominium, condo} does not require for operations, maintenance or management.

Collection of Condo Fees

Because a mortgage company’s interest is subordinate to the {condominium, condo} {association’s, trust’s, board’s} super lien, once obtained, the super lien puts mortgage companies at risk of loss as well. If a mortgage company holds a $300,000 mortgage on a unit valued at only $330,000, a judgment of punitive fines, attorney’s fees and costs can result in significant losses to the mortgage company.

And it should come as no surprise that very often the law firms that drafted the overly restrictive provisions on unit owner conduct and impose high-dollar punitive fines are the same law firms hired by the {condominium, condo} {association, trust, board} to collect the unpaid fines.

MA Case Law Reinforces Near-Limitless Trustee Authority

The problem has materialized slowly, in part, due to the fact that courts in Massachusetts have, over and over, reinforced the almost limitless power and authority of {condominium, condo} {associations, trusts, boards}, the trustees that run them, and the infallibility of the ‘master deed’, ‘declaration of trust’ and ‘rules and regulations’ (i.e. the condominium documents).

Law firms that typically represent {condominium, condo} {associations, trusts, boards} have used these court rulings to justify the restrictions on unit owner conduct and high punitive fines that they draft into new {condominium, condo} documents. And it only takes one or two inflexible, my-way-or-the-highway trustees to push through rules and regulations that prohibit and/or levy high-dollar punitive fines for everything they don’t like (like animals, children making noise after 5pm, smoking in a unit, smoking on the property at all, feeding pigeons, putting trash in the wrong spot, failing to shovel a deeded parking space, hanging a flag in your window, etc., etc.  The restrictions and dollar amounts of punitive fines for anything from moving boxes or furniture in or out of the unit without permission to leaving snow-covered boots outside a unit door have become outrageous. Two cases on point (a Virginia condominium board now requires pets to undergo DNA testing at the unit owners’ cost so that the board can ‘catch’ the unit owners that fail to scoop poop or a Massachusetts condominium board that charges $800 for moving boxes out of a unit without prior approval and a pre-paid ‘supervisor’).

UPDATE 4/21/2015 – the latest set of condominium documents that have come though TJL give a Condominium {Trust, Board, Association} the power to prevent a unit owner from leasing their unit if the unit owner is delinquent on ANY bill even if the bill is solely related to the unit itself – water/sewer bill, property taxes, insurance, electric bill, etc. – and if the unit owner becomes delinquent while a tenancy is in existence, the Condominium {Trust, Board, Association} has the power to evict the tenant. Outrageous.

The problem has materialized slowly, in part, due to the fact that courts in Massachusetts have, over and over, reinforced the almost limitless power and authority of {condominium, condo} {associations, trusts, boards}, the trustees that run them, and the infallibility of the ‘master deed’, ‘declaration of trust’ and ‘rules and regulations’ (i.e. the condominium documents).

Some {condominium, condo} documents are so oppressive of unit owners’ rights that they seriously threaten the concept of ‘ownership’ over the unit known as the ‘fee simple’. Of course, {condominium, condo} ownership is a hybrid form of the ‘fee simple’ where some control by the unit is subordinate to the control of the {association, trust, board}.

But one set of {condominium, condo} documents recently reviewed by TJL  mandates that the unit owner provide the {condominium, condo} {association, trust, board} with the power to evict a unit owner’s rental tenants and to sue the rental tenants in the name of the landlord/unit owner.

The present state of intrusion into the sovereignty of the unit cannot possibly be what the Legislature intended.

Why Have Condominium Documents Become So Restrictive and Punitive?

As stated above, the problem seems to have materialized slowly through the development of condominium case law.

And the issue may be self-perpetuating – case law which expands or reinforces the power of {condominium, condo} {associations, trusts, boards} results in condo documents that incorporate that power and may push its limits.

punitive condo documentsThe issue may also be social or cultural – much like our politicians these days, unit owners who become trustees seem to be less willing to compromise to work out issues and simply impose across-the-board-rules: one unit owner’s failure to scoop poop results in a no pets order or forced pet DNA tests and hefty fines; noise from children becomes a no-noise rule after 3pm instead of 8pm; snowy/muddy boots outside a unit door becomes a hefty fine for obstructing common areas; smoking anything in a unit becomes a no smoking rule throughout the entire condominium with hefty fines; a unit owner damages a wall when he/she moves out bjecomes a rule against even partial move-outs without {association, trust, board} permission, with day and time restrictions, pre-payment for a move-out ‘supervisor’ and hefty fines for failure to comply.)

The issue may also be the intended result of law firm strategies or simply an unintended consequence of the development of condominium case law.  Law firms that typically represent {condominium, condo} {associations, trusts, boards} draft new, and revise old, {condominium, condo} documents with these provisions that are highly restrictive of unit owner conduct and impose high-dollar punitive fines. These types of {condominium, condo} documents then result in more condo litigation. The {associations, trusts, boards} retain the same law firms to collect the fines and/or defend against unit owner lawsuits or counterclaims.

In collections cases, the law firms are paid by the {associations, trusts, boards} or through super liens on the unit  that earn 12% statutory interest per year. In defense  of claims or counterclaims, it is the insurance companies that insure the {associations, trusts, boards} who are forced to pay the attorney’s fees, costs and expenses incurred.

Whether or not it is the result of a strategy or simply an unintended consequences, the {condominium, condo} law firms make money by drafting the {condominium, condo} documents, and far more in litigation defense.

A Solution – Review, Raise, Reject

Insurance and mortgage companies should seriously consider retaining legal counsel to review {condominium, condo} documents prior to issuing coverage or even lending purchase funds. Policy renewals could contain a questionnaire that identifies whether changes or amendments were made to any {condominium, condo} documents during the previous coverage year or are planned. A relatively inexpensive independent review could assist the insurer in setting premiums – highly restrictive or punitive {condominium, condo} documents deemed more likely to give rise to litigation would result in higher insurance premiums to account for the higher risk.

Condo Law SolutionsThis would properly incentivize {condominium, condo} {associations, trusts, boards}.  This simple change in practice would actually encourage {condominium, condo} {associations, trusts, boards} and unit owners to avoid implementing, or work together to eliminate, overly restrictive and purely punitive provisions in {condominium, condo} documents. Further still, it may encourage {condominium, condo} {associations, trusts, boards} to implement internal review or appeal processes that are cost-effective and avoid litigation.

Given the state of {condominium, condo} law in Massachusetts, the only other force that can stem the erosion of unit owner sovereignty is legislative action. Unfortunately,  such action is unlikely to occur without significant public outcry or an overzealous {condominium, condo} {association, trust, board} imposes restrictive and punitive provisions on a legislator who quickly discovers how absolutely powerless he or he is.

If you are:

(1) A Condominium Insurance Company, and would like to retain The Jacobs Law to review and render legal evaluations or legal opinion letters regarding Condominium Documents for Condo {Trusts, Boards} you plan to (or already) insure pending a renewal, please do not hesitate to contact us at Condo@TheJacobsLaw.com or click here for our contact information.

(2) A Condo-buyer planning to purchase a Condominium Unit and would like an independent legal evaluation of the prospective condominium’s master deed, bylaws, declaration of trust and/or rules & regulations, click here for our contact information. It is better, and sometimes easier, to convince the existing unit owner to work with the Condo Trust, Board and Trustees to modify or wholly revise the existing Condominium Documents, if necessary. A new unit owner who immediately attempts to do so after purchase will be seen as ‘butting in’ or ‘ruffling feathers’ or nothing but a ‘pain in the neck’, and existing unit owners will push back with no incentive (like the desire of the selling unit owner whom the other owners may have a relationship with) to accommodate you.

(3) A Condominium {Trust, Board} or Trustee that would like an independent evaluation of your {Trust’s, Board’s} Master Deed, Bylaws, Declaration of Trust and/or Rules & Regulations or legal assistance and advice to amend and revise the condominium documents, then click here to contact a Condominium Lawyer at The Jacobs Law.

Boston Business Lawyers

Your Attorneys for Condominium Law, Condo Dispute Representation & Review of Condominium Documents

Posted by TJLs Boston Business Lawyers

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