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Author Archives: Francis J. McGovern, Jr., Esquire

IMPORTANT ALERT From NJ-LAC Regarding Proposed DCA Regulations

Posted on Author By Francis J. McGovern, Jr., Esquire

On June 3, 2019, the New Jersey Department of Community Affairs (“DCA’) published proposed regulations concerning association elections among other matters.

The public may comment on the proposed regulations until August 2, 2019.  The full text of the proposed regulations can be seen here: https://www.nj.gov/dca/divisions/codes/codreg/pdf_rule_proposals/PRED_Election_Regs.pdf

 

Written comments can be submitted by email to geraldine.callahan@dca.nj.gov.

 

Or Mailed to:

Geraldine Callahan

Department of Community Affairs

P.O. Box 800

Trenton, NJ 08625

 

Your LAC has fully analyzed the proposed regulations and has submitted a letter of in response. View the letter submitted by CAI- NJ LAC HERE.

 

While there are numerous areas of serious concern, the NJ LAC draws your attention to these particularly troubling provisions:

  • Fines – Section 5:26-8.14 provides that DCA may fine any person who violates the regulations, even if only a technical violation.  This includes violations by board members and managers!  Fines can range from $50 to $50,000!
  • Public Ballot Tallying – Section 5:26-8.9(h)(2) states that all ballots shall be publicly tallied and open to inspection by any member for a period of 90 days.
  • All Votes Must be Anonymous Including Absentee and Proxy Ballots – While some association bylaws require anonymous balloting, Section 5:26-8.9(h)(3) mandates that all forms of votes be anonymous, which can create serious, practical election issues.
  • Removal of Board Members by Petition – Section 5:26-8.11(d) allows automatic removal of one or more board members upon presentation of a petition signed by 51% of the members.
  • No Binding Board Votes in Executive Session – Section 5:26-8.12(e)(2) mandates that matters that could have previously been voted on in executive session (pending litigation, matters of personal privacy, personnel matters, etc.) must now be voted on in a meeting open to the members.
  • 7-Day Notice of Board Meeting with Agenda of All Items for Discussion and Action – Section 5:26-8.12(c)(3) requires posting of a notice of board meetings seven days in advance (current regulations provide for 48 hour advance posting) and fails to include current regulation’s provision that agendas must be posted only “to the extent known.”
  • Associations with Affordable Housing Units Must Reserve a Board Seat for Affordable Owners – Section 5:26-8.10(a)(2) provides that when the bylaws do not set aside a board seat for affordable owners, the Association must amend its bylaws to provide for an affordable-owner reserved seat.

 

While these are not all of the troubling proposed regulations, they are some of the more important ones.  Write to the DCA to voice your objections.

PLEASE TAKE A FEW MINUTES AND SEND AN EMAIL TO THE DEPARTMENT OF COMMUNITY AFFAIRS EXPRESSING YOUR CONCERN WITH THE PROPOSED REGULATIONS. 

Objections to the Proposed DCA Regulations

Posted on Author By Francis J. McGovern, Jr., Esquire

On July 18, 2019 the New Jersey CAI Legislative Action Committee (“LAC”) submitted its comments to the Department of Community Affairs with respect to the proposed regulations.

The full submission is in the following link:

https://www.cainj.org/wp-content/uploads/2019/07/Ltr-from-CAI-LAC-NJ-to-DCA-re-proposed-regulations-7.16.19.pdf

Please submit your objections to the proposed regulations by August 2, 2019 to:

Geraldine Callahan

Department of Community Affairs

P.O. Box 800

Trenton, NJ 08625

e-mail: Geraldine.callahan@dca.nj.gov

(fax) (609)984-6696   

 

Thank you to the CAI-NJ’s Legislative Action Committee for its hard work. The LAC Committee members are:

George Greatrex

A. Christopher Florio

Joseph Chorba

Michael Pesce

Lisa Rayca

Elizabeth Comando

Barbara Drummond

Matthew Earle

Vincent Hager

Sue Howe

Steve Kroll

Christine Li

James Magrid

Thomas Martin

Glen Masullo

Jack McGrath

Paul Raetsh

J. David Ramsey

Caroline Record

 

Please contact me with any questions. Fran

DCA Proposes New Association Regulations

Posted on Author By Francis J. McGovern, Jr., Esquire

DCA Proposes New Association Regulations Including Fines & Penalties

On June 3, 2019 the New Jersey Department of Community Affairs published proposed new association regulations. A copy of the DCA’s summary and the full text of the proposed amendments and new rules can be found here:

https://www.nj.gov/dca/divisions/codes/codreg/pdf_rule_proposals/PRED_Election_Regs.pdf

The proposed requirements are granular, and the proposed enforcement and penalty provisions should be carefully considered by board members, managers, management companies and professionals.

If you desire to submit an opinion, your opinions on the proposed amendments and new rules must be submitted in writing by August 2, 2019 to:

Geraldine Callahan

Department of Community Affairs

P.O. Box 800, Trenton, NJ 08625

e-mail: Geraldine.callahan@dca.nj.gov

(fax) (609)984-6696

Some proposed sections of note include:

N.J.A.C. 5:26-8.9(h)3 which proposes that: “All ballots shall be cast in an anonymous manner.”

N.J.A.C. 5:26-8.9(h)4 which proposes that: “If the bylaws permit, and the association member consents, a ballot may be cast electronically if it is administered by a neutral third party and anonymity is maintained.”

N.J.A.C. 5:26-8.10(a)2 which proposes that: “When affordable units represent a minority of units in the development, the bylaws shall reserve a seat or seats on the executive board for election by owners of affordable units.”

N.J.A.C. 5:26-8.12(a)2 which proposes that: “The board shall provide a brief explanation of the basis for and cost entailed in the matter that is the subject of any binding vote and include the explanation in the minutes for the meeting.”

N.J.A.C. 5:26-8.12(e)2. which proposes that: “A vote taken at a closed meeting shall not be binding. If the matter requires a binding vote, it shall be taken at a subsequent open meeting in a manner that does not disclose any confidences.”

N.J.A.C. 5:26-8.14(e) which proposes that: “The Department may levy and collect fines and may issue penalties as set forth in N.J.A.C. 5:26-11. 1. For associations that are controlled by unit owners, the Department may issue cease and desist orders, may issue a monetary penalty, may transmit the case to the Office of Administrative Law, or may file and action in the Superior Court.”

Please contact me with any questions.

Francis J. McGovern, Jr., Esquire

Nick Foles On Leadership

Posted on Author By Francis J. McGovern, Jr., Esquire

In his article this morning, Inc.com journalist Justin Bariso highlighted Eagles’ Nick Foles’ team leadership style.  During the post-game Press conference, Foles said “I think that the big thing that helped me was knowing that I didn’t have to be Superman. I have amazing teammates, amazing coaches around me and all I had to do was just go play as hard as I could and play for one another and play for those guys…”.

Bariso’s application of Foles’ comments to corporate leadership generally is also applicable to Association leadership in particular.  Associations are administered, lead, by a team.  Each team member has a role.  The manager leads day to day by implementing the global policies set by the board.  The vendors: legal, financial, engineering and trades are called upon as needed to counsel and make specific things happen.

Too often today, management services have been bid down to unrealistic rates.  This leaves a leadership vacuum where a Board Member is compelled to step in as Superman/Wonderwoman, vendor expenses spiral as vendors struggle to fill the void, and the Membership loses its mind as things don’t get done in a timely manner.  Associations are real corporations, intimately impacting their Members’ lives.

Board members should not be Superman or Wonderwoman running the day to day affairs.  Instead, Management, suited to the task and paid its worth, should manage.  Team is what it’s about and, with the right team, everybody wins.  Justin Bariso’s article is available at Inc.com and Nick Foles’ post-game Press conference is available at Youtube.com.

Bankruptcy Filing Doesn’t Discharge Association’s Lien

Posted on Author By Francis J. McGovern, Jr., Esquire

In its January 29, 2018 decision captioned Indian Field at Hardyston HOA, Inc. v. Trudnos, New Jersey’s Appellate Division reaffirmed the common-sense concept that (with certain exceptions) bankruptcy only discharges a debtor’s personal debt, not an Association’s lien on the property.  In doing so, the Court also affirmed a significant Association attorney fee award noting that the Debtor’s actions greatly increased the Association’s “expenses for what otherwise would have been relatively straightforward litigation to collect about $6,500 in overdue assessments”.  We often pursue foreclosure as New Jersey’s Foreclosure Unit is processing cases more quickly and homeowners’ equity has often risen to the point where debtors will settle and pay rather than risk losing their equity.  Foreclosure also remains a valuable tool in addressing non-paying vacant homes where the debtor has died or abandoned the home.

Bipartisan Legislation Limits Municipalities Ability to Protect Associations

Posted on Author By Francis J. McGovern, Jr., Esquire

Senate Bill 3233/Assembly Bill A1425 from the 2016-2017 Legislative Session was signed into law by Governor Christie on January 16, 2018.

Unfortunately, per the Assembly Judiciary Committee Statement, and with very limited exception, “a municipality will only be able to require developers to post performance guarantees that cover improvements being dedicated to a public entity”.  One has to wonder where this legislation came from.  Presumably not the League of Municipalities as municipalities are in the best position to help associations and their members during build-out.  Especially with respect to typically-bonded items like grading and drainage, roadways, sidewalks and storm sewers.

Perhaps the builders?  But won’t the lack of bonding just lead to more litigation by Associations directly?  In the past, often (but not always) defects in these items were corrected as part of the bond reduction/release process.  Suffice it to say, going forward, Associations and their members will have one less protection and will face greater challenges in making sure they get what they paid for.

What’s The Buzz On Drones

Posted on Author By Francis J. McGovern, Jr., Esquire

Eric Koehler, Vice President of Falcon Drone Services and Fran McGovern from McGovern Legal Services along with Access Property Management presented the benefits of using drones in community associations on Wednesday April 12. The demonstration was open to both board members and property managers in the Hills Communities. All were excited to see how the new technology worked. The presentation provided a demonstration of the drone in use. All participants were encouraged to provide comments and questions.

Highlights of Drone Technology

Eric Koehler explained that drones are amazing pieces of technology. They allow community associations the ability to survey their communities in a cost effective way. A drone makes it easier to survey roofing projects, check gutters, and examine roads among other things. The technology of the drone allows for a more effective and efficient way of viewing the community. This technology allows the property manager, contractors, and board members to review the video on their own time.

Privacy is Important

A privacy oriented homeowner may have questions about drone usage. The community association treats the footage collected like any other site inspection or photograph that is taken while on site. All information collected would not be distributed or made public. Fran McGovern explained the legal aspect of using drones, expressing that it is important that homeowners are notified prior to the usage of drones, just as they would be during any other project. Continual updates from the community manager will provide homeowners with the times and dates of all activity.

Community associations are also very interested in keeping their interests safe and secure. The association must be sure that it maintains the rights to all data that is collected when using the drone. In addition, the association will ensure that the drone operator retains the proper insurance to indemnify and hold the association harmless like any other vendor.

The popularity of drones is increasing. As the technology advances, community associations can grow along side of it by adopting smart usage policies and encouraging a safer, more cost effective way to survey their community.

Transition – Evaluate, Communicate, Negotiate, Litigate

Posted on Author By Francis J. McGovern, Jr., Esquire

Transition is the due diligence process required by the board members’ fiduciary duty. In sum, the homeowner-elected board members must determine if the sponsor did what it was supposed to do and, if not, take action to get the deficiencies corrected.

Upon assuming board control homeowner-elected board members must:

  1. evaluate the association’s physical and financial condition
  2. communicate the findings to the members and the sponsor
  3. negotiate for repairs, money or a combination of repairs and money.

Evaluate.

Due diligence begins with evaluating the association’s physical and financial conditions. These evaluations must be undertaken promptly. Delay may result in losing some or all claims due to expiration of warranties, statutes of limitation and/or the statute of repose.

Engineers, architects, accountants and other experts are enlisted by the board and the association’s attorney to ferret out deficiencies and “connect the dots”. “Connecting the dots” requires experts to:

  1. Identify the duty – statutes, architectural drawings and specifications, building codes, industry standards, manufacturer’s specifications, etc.
  2. Specify how the duty was breached – for example, required building wrap was not installed
  3. Specify the damage – for example, moisture got behind the siding and was not shed down and out; instead the moisture damaged the substrate and structural members
  4. Specify how the breach caused the damage – for example, if the required building wrap had been properly installed, water that got behind the siding would have been shed down and out of the building envelope without damage to the substrate and structural members. Instead, the water was absorbed by the substrate and structural members resulting in rot and mold growth.

After “connecting the dots”, the association’s experts should carefully determine how much it will cost the association to fix the various physical and financial defects. This “cost to cure” report provides the board with a basis for prioritizing the deficiencies and evaluating how much the association should spend on attempting to compel the sponsor and others to remedy particular deficiencies. Without reputable experts solidly connecting the dots and determining the cost to cure, the association has little prospect of transition success. Assuming the experts connect the dots and accurately estimate the cost to cure, the board, its experts and counsel must finally evaluate the probability of recovery.

Is there an individual or entity that has the resources to cure the deficiencies or pay the association so that it may cure the deficiencies. Is it the sponsor? Is it the sub-contractors? Is it one or more insurance companies? Typically transition is resolved with contributions by all of these but, if there is little or no prospect of recovery, the association should carefully consider other options such as self-funding repairs, obtaining a bank loan to fund repairs or phasing repairs over time while using “Band-Aid” fixes in the meantime.

Communicate.

Many boards are reluctant to communicate expert findings to the membership. This is a mistake. Everyone hopes that the transition process will be smooth and amicable. However, transition can be long, contentious and expensive. If the membership does not support the board, management, its attorneys and experts, half of the battle is already lost. The board must share as much information as possible with the membership during the transition process so that the members know what it going on, know why various items have not yet been fixed and know why it is important for the association to spend the time and money to see the transition process through to resolution.

Negotiate.

Once the board has a comfort level with the experts’ findings and recommendations, the board and counsel will negotiate with the sponsor, developer, sub-contractors and others. In most cases this negotiation results in an amicable transition agreement whereby the sponsor and other responsible entities make repairs and/or pay the association so that it may make the repairs. In exchange, the association gives the responsible entities a release and hopefully everyone lives happily ever after.

But…should we litigate? If there is no amicable resolution, should the association litigate? This is a big decision and the “cost to cure” and “viability of recovery” evaluations become that much more important. There are many times where a litigated transition is necessary. The board should not shrink from turning to the courts on behalf of itself and its members. But, before doing so, a cost-benefit analysis must be carefully considered.

If the cost to cure and probability of recovery outweigh anticipated expert fees, attorney fees and other expenses, litigation likely makes sense but if the board finds that it is more economical, certain and timely to merely fix the deficiencies itself, it may do so and sign no release. In any case, transition releases should not be signed in exchange for nominal or no consideration. In sum transition is due diligence involving attorneys, experts, managers, board members and association members to cost-effectively resolve physical and financial deficiencies.

Associations’ Right To Sell Units

Posted on Author By Francis J. McGovern, Jr., Esquire

Along with associations’ ability to sell units by foreclosing on liens, they can also sell units to satisfy money judgments – if they can prove the owner has no other personal assets.  A New Jersey court rule and statute both permit a judgment creditor to levy upon a debtor’s real property if the creditor cannot find assets to satisfy the judgment elsewhere.  In other words, if the association sends an information subpoena to the debtor, performs asset searches and sends the Sheriff to the debtor’s property to inventory personal property, and there are no assets found that can satisfy the judgment, the court rules and statute allow the association to levy the debtor’s real property and sell it at Sheriff’s sale. At Sheriff’s sale, either a third party will purchase the property or ownership will revert back to the association and the association can rent the property.

This process was recently confirmed by the Appellate Division.  On behalf of an association, this firm filed a motion to permit sale since no personal assets could be found.  The motion judge denied the motion because there was an outstanding mortgage on the property and the judge felt that it would not be fair for the association to sell or rent the property and collect its judgment while the mortgagee was foreclosing.  This firm appealed the motion judge’s decision and argued the matter before the Appellate Division.  The Appellate Division reversed the motion judge’s decision in the unpublished opinion, Birch Glen Condominium Association, Inc. v. Boahene.  We successfully argued that the outstanding mortgage on the property is irrelevant to the association’s motion.  The Appellate Division agreed with this firm’s position that the motion judge erred by failing to base his decision on whether the association had taken adequate steps to try to satisfy the judgment out of personal property.  The case was remanded back to the motion judge with instructions that the judge determine whether the association made reasonable efforts to located the defendants’ assets to satisfy its judgment.

Developer Guilty of Consumer Fraud

Posted on Author By Francis J. McGovern, Jr., Esquire

In Etelson v. Shore Club Urban Renewal LLC, a Hudson County jury found that the developer, the LeFrak Organization, Inc., Newport Associates Development Company and James LeFrak violated the Consumer Fraud Act and Planned Real Estate Development Full Disclosure Act (“PREDFA”) in their advertising and marketing of a luxury high rise riverfront condominium in Jersey City (Shore Complex, North and South Towers). The jury found that the developer and its marketing materials misled purchasers of condominium units by advertising breathtaking and panoramic views of the water and Manhattan skyline when the developer knew those views would be blocked in the near future.

The jury relied upon several key facts in order to find the Developer liable for consumer fraud.  The developer’s marketing materials included a painting of the Shore Complex showing a smaller 11- 12 story building to be constructed across the street and northeast, between the Shore Complex and the Hudson River.  The developer’s sales brochure and website did not show any buildings located between the shore Complex and the Hudson River. There were some drawings that showed a smaller building to be constructed in the future.  In addition, to the Developer’s marketing materials, the developer’s sales staff told potential purchasers that a smaller building (12-15 story) might be constructed on the nearby parcel. All the while the Developer was constructing a larger building that would block the view of the river and the Manhattan skyline.

The unit owners testified that they purchased these units for the views of the river and the Manhattan skyline. The unit owners also testified that they would not have purchased the units if they were informed that a taller building was going to be constructed across the street blocking their views.

The jury awarded the unit owners $1,253,420 in damages representing the reduction in value of their units without the views. Because the jury found that the developer violated the Consumer Fraud Act, the plaintiffs were awarded treble damages, plus their costs and attorneys fees for a total damage award of $4,817,638.12.  The developer appealed and the Appellate Division affirmed the jury verdict and found that it was supported by the evidence.

The evidence at trial showed that while actively marketing the Shore Complex, the developer had submitted plans to the City planning board seeking approval for a 31 story rental apartment building tower to be constructed which would block the Shore Complex unit owners’ views of the river and the Manhattan skyline. The developer did not change its marketing material and did not disclose this to potential purchasers. Instead the developer continued to market the units by advertising spectacular views knowing that they would not last for long.

The jury found that the developer had misrepresented the views and failed to disclose their plan to develop the taller 31 story tower that would block the views. None of the developer’s sales agents told prospective purchasers that a taller building would be constructed between the Shore Complex and the Hudson River.  The Developer’s sales staff was not told about the plans to construct a 31 story tower.  They assured potential purchasers that the building to be constructed in the future would not block views for anyone residing on the 15th floor or higher.  Interestingly, the Developer’s sales staff testified that if they had known of plans to construct a 31 story tower between the Shore Complex and the river, they would have disclosed this to potential purchasers.

At trial, the developer argued that it did not mislead the purchasers because there were disclaimers on the marketing material and in the Public Offering Statement. The Appellate Court noted that these disclaimers were not dispositive on the issue of misrepresentation and indicated that the developer would still be liable if the jury found that there were misrepresentations or omissions that induced a purchaser to buy a unit.

This case is significant to Associations who are in the process of transition, the transfer of control from the developer to the Association and the identification and resolution of construction defects and financial defects.  The court affirmed that a developer can be liable to individuals for consumer fraud in the marketing and advertising of the condominium. The court also noted the significance of marketing materials, advertisements and conversations that were not part of the sales contract or the POS.

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