Cowie Law Group, P.C.

Maryland and Washington DC Condominium and HOA AttorneysMaryland

New Maryland laws impacting condominiums (“condos’), homeowners associations (“HOAs”) and cooperative housing corporations (‘co-ops”) took effect on October 1, 2022, including changes to the Maryland Condominium Act, the Maryland Homeowners Association Act and the Maryland Cooperative Housing Corporation Act. In short, these new Maryland Laws:

1. – Require reserve studies and funding statewide for condominiums, HOAs and Co-ops

2. – Impose new procedures on condos and HOAs for enforcing fines and penalties

3. – Require condos to disclose warranty defect settlement agreements

4. – Limit the ability of associations to question debtors in assessment collection actions.

Below is a general overview of the new laws. Boards of directors for condominium associations, HOAs and co-ops should review existing policies and amend or create new policies as needed to comply with these new laws.

I.

MANDATORY RESERVE FUNDING & REGULAR

RESERVE STUDIES

 

A. Mandatory Replacement / Repair Reserve Accounts

As of October 1, 2022, all Maryland condo, HOA, and co-op associations must establish and fund reserve accounts (“reserves”) to set aside cash allocated to pay for future required replacements and major repairs of capital components, such as common structural, mechanical, electrical, and plumbing systems, and other common infrastructure the association is obligated to repair or replace. Reserves were previously mandated only in Prince George’s and Montgomery Counties, but the new law alters existing requirements for those counties and expands mandatory reserve funding based on regular 5 year reserve studies mandatory for all community associations statewide.

The specific new law which creates these changes is House Bill No. 107. This law: (1) amends the Maryland Condominium Act, Sections 11-109, 11-109.2, 11-109.4 and 11-110; (2) amends the Maryland Homeowners Association Act, Sections 11B-106.1, 11B-112.2, 11B-112.3 and 11B-117; and (3) amends the Maryland Cooperative Housing Corporation Act, Section 5–6B–26.1.

B. Mandatory Reserve Studies Every 5 Years

All Maryland condominium, HOA, and co-op associations will now be required by law to obtain a professional reserve study that identifies: (1) the capital components the association is required to repair and replace, (2) the normal and remaining useful life and cost to replace/repair each capital component, and (3) the estimated amount of money the association has allocated and will need to set aside annually to fund the required repair and replacement of capital components.

The new laws set minimum credentials for professionals who can perform the required reserve studies, mandating that they: (1) be a state-licensed architect or engineer, (2) be professionally designated as a reserve specialist or analyst by one of two trade associations, the Community Associations Institute or the Association of Professional Reserve Analysts; or (3) have prepared at least 30 reserve studies in the past 3 years or participated in preparing at least 30 reserve studies while employed buy a firm that prepares reserve studies.

C. Deadlines to Obtain Reserve Studies Generally

Associations Created Before October 1, 2022

Starting October 1, 2022, the new laws set deadlines for all Maryland condominium, HOA, and co-op associations statewide to obtain the required reserve studies. All associations that have not obtained a reserve study since October 1, 2018, must obtain one by October 1, 2023 (next year). Associations that have obtained a reserve study since October 1, 2018, must obtain an updated study within 5 years of that last study. All reserve studies must be updated every 5 years thereafter.

Associations Created On or After October 1, 2022

New condominium and co-op associations created on or after October 1, 2022 must have an independent reserved study completed no less than 30 days before the date of the transition meeting at which the developer first turns over control of the association to the homeowners by allowing a homeowner majority to be elected to the association’s board (a/k/a “turnover meeting”). Newly formed HOAs must have a reserve study completed between 90 and 30 days before the transition meeting. As such, in all newly created associations, the developer-controlled association board will be required to obtain the initial reserve study in advance of the transition meeting to elect a homeowner majority board for the association. In this manner, the first homeowner-controlled board of directors of a new association will already have a reserve study in hand upon taking over control. The new association’s initial reserve study must then be updated every 5 years thereafter.

D. Deadlines to Obtain Reserve Studies in PG & Montgomery County

Prince George’s and Montgomery County associations created before October 1, 2022 will have earlier reserve study deadlines than other counties in Maryland because reserve studies were already mandated in Prince George’s and Montgomery County before the mandate became statewide under the new law effective October 1, 2022.

Prince George’s County

Prince George’s County Associations were already required to obtain reserve studies by pre-existing laws that became effective on October 1, 2020. Specifically, all Prince George’s County associations created before October 1, 2020 that had not obtained a reserve study since October 1, 2016, were already required to obtain one by October 1, 2021; those that obtained a reserve study since October 1, 2016, are already required to obtain an updated study within 5 years of that last study. Once the reserve study has been obtained under these deadlines, it must thereafter be updated every 5 years.

Also, for new associations in Prince George’s County created on or after October 1, 2020, the developer-controlled association is already required to obtain a reserve study for the future major repairs and replacements 30 days before the transition meeting, which is required to be updated by the association every five years thereafter. This pre-existing reserve study requirement for new associations in Prince George’s County continues under the new law effective October 1, 2022 as discussed above.

Montgomery County 

Montgomery County Associations were already required to obtain reserve studies by pre-existing laws that became effective on October 1, 2021. Specifically, all Montgomery County associations created before October 1, 2021 that had not obtained a reserve study since October 1, 2017, are already required to obtain one by October 1, 2022; those that obtained a reserve study since October 1, 2017, are already required to obtain an updated study within 5 years of that last study. Once the reserve study has been obtained under these deadlines, it must thereafter be updated every 5 years.

Also, for new associations in Montgomery Georges County created on or after October 1, 2021, the developer-controlled association is already required to obtain a reserve study for the future major repairs and replacements 30 days before the transition meeting, which is required to be updated by the association every five years thereafter. This pre-existing reserve study requirement for new associations in Montgomery County continues under the new law effective October 1, 2022 as discussed above.

E. Homeowner Access to Reserve studies

Copies of all reserve studies obtained by associations under the new laws as discussed above must be made available to all association members.

F. Mandatory Budgeting to Fund Reserves

The new laws also require all association boards of directors to fund reserves per the most recent study and take the following actions every year when preparing the association’s annual budget:

1. The board must review the most recent reserve study in connection with the preparation of the annual proposed budget. Co-op boards are also required to review their reserve studies “annually for accuracy.”
2. The board must budget to make annual reserve contributions as recommended in the most recent reserve study. The new law gives boards authority to increase assessments levied to cover required reserve funding, regardless of anything in an association’s governing documents that might limit, restrict, or cap assessments, such as requirements for member approval, essentially overriding any existing assessment limitations. Note that if a board intends to borrow money to fund reserves, it must still comply with any governing documents requirements regarding loans.
3. Associations that obtain an initial reserve study for the first time have 3 fiscal years (budget cycles) to fully fund reserves as recommended in that study. While the new law does not include any specific funding deadline for other, non-initial, reserve studies, it is recommended that all associations fully fund their reserve accounts per the most recent reserve study within 3 fiscal years of the study or sooner.
4. The board must submit a summary of the most recent reserve study to all homeowners with the proposed annual budget.

G. Reserve Study Exception for Certain HOAs

Certain HOAs are exempt from the requirements of the new reserve study and funding legal requirements because they have a little or no common area facilities they are responsible for maintaining, repairing and replacing. Specifically, the reserve study requirements under the new law only apply to HOAs that are responsible for maintaining and repairing common areas for which the total initial purchase and installation cost was $10,000 or more.

II.

VIOLATIONS & ENFORCEMENT PROCEDURES

FOR FINES AND PENALTIES

 

As of October 1, 2022 all condominium associations and HOAs must follow certain notice and hearing procedures before imposing fines or penalties for violations, unless the association’s governing documents provide otherwise. The new laws update existing notice and hearing procedures required for condominiums and impose newly required notice and hearing procedures for HOAs. Below is a general summary of the required procedures:

1. Before fining or imposing a penalty, associations must send an alleged violator a written demand to correct the violation and give them 15 days to do so without penalty (for condominiums, the time period for correction without penalty was increased from the 10 days previously required). The demand must advise the alleged violator of the penalty that may be imposed, after notice and the opportunity for a hearing by the board, if the violation is not corrected or recurs in the next 12 months.
2. If the violation is not timely corrected or recurs within a year, then associations must send the alleged violator a second written notice advising of the penalty to be imposed and notifying them that they can request a hearing where they will be able to present evidence and witnesses to the board. The notice must give the violator at least 10 days to request a hearing and specify the procedures for making a hearing request.
3. If a hearing is requested, the board must hold the hearing within10 days of the request and send the alleged violator an invitation to the hearing.
4. If requested, the board must hold a hearing in executive session and give the alleged violator a reasonable opportunity to be heard and to present evidence and question any witnesses. The hearing minutes must describe the hearing results and any penalty imposed. If the alleged violator doesn’t attend the hearing, the minutes must include a copy of the hearing notice and a statement by the person who delivered the notice of when and how it was delivered.
5. If a hearing is not requested, the board must decide at its next meeting whether the violation occurred and any penalty imposed.
6. The board’s decision can be appealed to a court.
7. Violators who don’t comply with the board’s decision can be sued for a court order and/or money damages and the loser in any court case can be required to pay the winner’s attorneys’ fees.

The new law only applies to enforcement actions relative to violation complaints or demands formally arising on or after October 1, 2022.

The specific new law which creates these changes is House Bill No. 615. This law amends the Maryland Condominium Act, Section 11-113 and creates a new section 11B-111.10 for the Maryland Homeowners Association Act.

III.

DISCLOSURE REQUIREMENT FOR

CONDOMINIUM COMMON ELEMENT

WARRANTY DEFECT

SETTLEMENT AGREEMENTS

 

Background: The Maryland Condominium Act requires that developers of newly constructed or converted condominiums provide associations certain warranties, including but not limited to warranties against design and construction defects in a condominium’s roof, foundation, external and supporting walls, mechanical, electrical, and plumbing systems, and other structural elements. These warranties require that the developer is responsible for correcting any defect in materials or workmanship, and that the specified common elements are within acceptable industry standards in effect when the building was constructed. Common element warranty claims are often resolved by a settlement of the claims, usually spelled out in a written settlement agreement between an association’s board of directors and the developer. Developers often attempt to include in these settlement agreements confidentiality provisions that would prevent or restrict disclosing the settlement terms to the association’s unit owner members and others.

New changes to the Maryland Condominium Act now require that, as of October 1, 2022, before an association can settle a common element warranty claim, the board must disclose to all unit owners its intention to do so at least 21 days before signing a settlement agreement. Any settlement agreement provision that tries to prohibit disclosure of a common element warranty claim settlement to unit owners will now be legally unenforceable.

The law also adds a new disclosure requirement for resale certificates that condominium associations must provide to prospective unit buyers. Condominium resale certificates must now disclose whether the association has agreed to settle or release common element warranty claims and whether the board has disclosed to the unit owners its intention to enter into such a settlement. Developers selling new condominium units must also disclose to prospective buyers whether the association has settled or released a common element warranty claim.

The specific new law which creates these changes is House Bill No. 40. This law amends the Maryland Condominium Act, Sections 11-109.1, 11-126, 11-134.1 and 11-135.

IV.

LIMITS ON USE OF LEGAL PROCEDURES

TO QUESTION DEBTORS IN

ASSESSMENT COLLECTION LAWSUITS

 

Background: Generally, once a court determines that someone (a debtor) owes delinquent assessments, the court can enter a money judgement against the debtor. The law provides various  legal procedures to assist in finding a debtor’s assets that might be used to satisfy a judgement. Two such legal procedures involve: (i) requiring a debtor to provide written answers two written questions about their assets; and (2) requiring a debtor to appear in court to answer questions about their assets. Associations sometimes use these legal procedures  in order to attempt to collect delinquent assessments from their members.

Under the new law, such questioning of a debtor is no longer permitted in small claims, where the amount of a judgement is under $ $5,000 not including interest, costs, and attorney’s fees. For judgments over $5,000, debtors can still be required to answer such questions.

The specific new laws which creates these changes are House Bill No. 349 and Senate Bill No. 452. These laws amend the Courts and Judicial Proceedings Article, Section 11-704.

 

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