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Tougher Federal And State Laws Needed To Protect Condominium Owners

July 6, 2015

The condominium lifestyle has been glorified as carefree, chic and glamorous. However, condo ownership in Chicago and across the nation has problems, including steep community association maintenance fees, restrictions on day-to-day living and limited personal freedoms.

 

These very real costs to the 67 million Americans living in association-governed communities may require consumer-targeted legislative changes and more proactivity by community association residents in the future, according to Sara E. Benson, co-author of “Escaping Condo Jail,” a new book that outlines the keys to navigating the risks and surviving the perils of association-governed living.

 

 

“Proactive involvement by owners and legislative solutions would protect consumers and their investments at the most sacred level—at the heart of their homes,” Benson said. Here are three key recommendations, outlined in the book that if put in force would free millions of home and condo owners from Condo Jail:

 

• Owner involvement. Owners in individual condominium and homeowner associations (HOAs) should take proactive and affirmative steps to ensure owner involvement in the governance of their associations.

 

• State consumer protection. The second solution would require states to amend existing condominium and homeowner association laws to require community association registration to protect consumers in terms of public safety and ordinance enforcement.

 

• Federal consumer protection. The third and most logical solution involves steps at the federal level. This is the most powerful of the three solutions and if properly enacted, would offer the most consumer protection of all.

 

Specific details on the three new consumer-protection “solutions” follow:

 

• Mandate Education & Voluntary Board Service. The nation’s 367,000 association-governed communities—all condo and HOAs—should require mandatory board service by all owners in a random selection process. This would promote member equality and prevent unfair board service terms due to lack of volunteers. It also would prevent voting fraud and help thwart undisclosed business arrangements by board members.

 

“Do you risk ending up with the ‘village idiot’ as a board officer? Of course, but nothing could possibly be any worse than some of the politicians who have held office in Washington. D.C.,” quipped Benson.

 

Every condo or homeowner association bylaws or declaration should be amended to include a mandatory disclosure and the requirement for condominium buyers to become educated and to perform service. In order to be enforceable, the essential changes to the bylaws—or to the declaration—should be recorded where the original declaration was recorded.   

 

And, every single owner must be willing and able to take a required basic educational class on board functions and fiduciary duties. “Education and training should be absolutely mandatory for anyone who purchases in a community association, as the vast majority of owners do not understand anything about the importance of governance—of voting—and keeping an eye on the financials,” Benson writes. “The rampant lack of knowledge is overwhelming.”

 

• Create a State Registration System for Associations. Every state must have a mandatory condominium registration system. A state association registration system should be created for the purpose of ensuring public safety, structural soundness, sanitation, building code ordinance enforcement and homeowner assistance in all community associations.

 

Registration would ensure public safety of properties by identifying law enforcement, fire department access, and public-utilities which provide water, sewer, gas and electric.

 

Registration also would ensure structural soundness via elevator-safety inspections, porch and balcony safety, building-code compliance. The registration system should provide ordinance enforcement that requires filing of annual corporation documents with the state, filing of tax returns, and compliance with state ordinances.

 

“It also would provide theft prevention via mandatory transparency of all board financial records to unit owners,” Benson said. “There should be swift judicial process and potential incarceration for directors that knowingly and willingly break state ordinances.”

 

Registration also is necessary to provide homeowner assistance, including: hot-line telephone and Internet portal to report statute violations and lodge complaints and whistleblower protection.
There also should be mandatory training for property managers, including self-governed associations and mandatory initial arbitration for disputes.

 

• Federal Condo-Risk Disclosure & Oversight. A federal condo-risk disclosure and oversight law is needed to protect consumers. This should provide full disclosure of risk of loss of investment and assist in maintaining community associations as a viable form of housing in America.
Consumers already have some federal protection through loan-cost disclosure via the Real Estate Settlement Procedures Act (RESPA), and through the Federal Fair Housing Act. However, condos were excluded from the Interstate Land Sales Act (ILSA) in 2014, so condo buyers need more federal protection, consumer advocates say.

 

The strongest argument for a comprehensive national federal law covering condo-risk disclosure and oversight is that abuses are so widespread that virtually every state has failed to effectively curb the violations. Common-interest community ownership is analogous to a security. And federal legislation is needed to protect the consumer.

 

The federal government has been proactive in mandating full disclosure of all costs associated with a real-estate closing, disclosure of lead-based paint hazards, and property-report disclosures. Failure to obtain these disclosures prior to signing a contract or loan document carries heavy penalties.

 

“Further consumer protection is needed at the federal level,” Benson declared. “To ensure compliance and to promote fair housing, every existing and projected condo association should be registered with the U.S. Department of Housing. Not only projects in excess of 100 units—but each and every individual association.”

 

A federal pamphlet outlining the dangers of investing and how to protect your condo association against abuse, neglect, theft and mismanagement should be given to every prospective purchaser of a condominium or property governed by a homeowners association.

 

Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. For more information, visit www.escapingcondojail.com.

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“The book is Escaping Condo Jail by Sara Benson and Don DeBat. I would say that anybody thinking about buying a condo, or even anybody serving on a condo board, or anybody who has any connection to a condo, this is must reading—all 600 and something pages. Thanks a lot for a great book!”

 

Steve Sanders, “Your Money Matters” WGN TV, December 22, 2014

By Don DeBat

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