We’ve posted articles in the past about the importance of associations maintaining adequate reserves for the repair and replacement of the capital components in their communities that the association has the duty to maintain, repair and replace.  Section 55.1-1965 of the Virginia Condominium Act and Section 55.1-1826 of the Virginia Property Owners Association (POA) Act both require that associations conduct a reserve study every five (5) years.  Both Acts also require that the Board of Directors review the reserve study on an annual basis to determine if the association is collecting adequate reserves in the annual budget to make sure funds are available each time a capital component needs major repairs or replacement and to adjust the reserve budget annually if necessary. 
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Recently we posted the first of two parts about the changes in qualifications for FHA loans for condominiums. In this part we provide information on the rest of the changes.

 

REDUCTION IN OWNER OCCUPANCY REQUIREMENTS FOR ELIGIBLE PROJECTS

 

FHA’s primary motive for requiring that at least fifty percent (50%) of the units in a project be owner occupied or secondary residences is because it is statistically more likely that condominiums with a high percentage of rentals will have higher foreclosure and assessment delinquency rates than condominiums that are primarily owner occupied. It appears that FHA has settled on a compromise in order to avoid penalizing projects with higher rentals but lower delinquency rates.  FHA currently requires that no more than fifteen percent (15%) of the units can be sixty (60) days or more in arrears in the payment of assessments.  Effective October 15, if only ten percent (10%) or fewer owners are sixty (60) days or more in arrears, FHA will accept owner occupancy rates of only thirty five percent (35%).  This could be a significant boost for Hampton Roads.  We have seen many projects with strong financials rejected for FHA certification simply because of owner occupancy requirements.  Because of the high concentration of the military in our area, many condominium projects can have a higher percentage of rentals but still maintain low delinquency rates.

FHA has also expanded on what qualifies as an owner occupied or secondary residence which we believe will also help increase the rate of owner occupancy in some projects and take the guess work out of defining which units qualify as owner occupied and which do not.  These expanded definitions include {emphasis added}:

  • “any Unit that is occupied by the owner as his or her place of abode for any portion of the calendar year and that is not rented for a majority of the calendar year;
  • any Unit listed for sale, and not listed for rent, that was previously occupied by the owner as his or her place of abode for any portion of the calendar year and that is not rented for a majority of the calendar year; or
  • any Unit sold to an owner who intends to occupy the Unit as his or her place of abode for any portion of the calendar year and has no intent to rent the Unit for a majority of the calendar year.”

 
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ASSOCIATION DISCLOSURE NOTICES EFFECTIVE JULY 1, 2019

 

A couple of months ago we told you about changes to the Property Owners Association (POA) Act and the Condominium Act regarding the Disclosure Notices.  We want to remind Association managers and board members that every association should now be using these revised Disclosure Notices.

Effective July 1, 2019 the Property Owners Disclosure Packet Notice prepared by the Virginia Common Interest Community (CIC) Board that is required to be included in every HOA Association Disclosure Packet for the initial sale by the developer and all subsequent resales pursuant to §55-509.5 of the Virginia Residential Disclosure Act was amended.  The Condominium Unit Owners’ Association Resale Certificate Notice that is required to be included in every condominium resale certificate pursuant to §55-79.97 was also amended.  Both Disclosure Notices now inform purchasers, under the section entitled “Assessments,” that mandatory fees collected by condominium associations may include the cost of “construction or maintenance of stormwater management facilities.”  
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For the last several years I have been honored to serve as one of SEVA-CAI’s Delegates to the Virginia Legislative Action Committee (VALAC).  The VALAC does important work in educating legislators about the needs of community associations and in helping to craft or block legislation which affects those community associations.  The process begins each year in the Fall and the most significant work ends in the Spring, with new laws slated for implementation on July 1 of each year.  This year the VALAC started by evaluating hundreds of bills to see what would impact our constituency and then narrowed our focus to 134 bills, the majority of which we viewed as an unreasonable interference with the rights of community associations and which were subsequently withdrawn or defeated.  Significant among the defeated bills were those which would have (1) removed licensing requirements for community association managers (which have been in place for only a few years), (2) permitted the imposition of criminal penalties for violations of the Condominium Act by community associations (among others) and (3) established the right of political candidates to engage in campaign activities on condominium property.

A summary of the new laws which will be taking effect is provided below.

Last month we posted a summary of other new laws in Virginia to be effective on July 1, 2019.


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WHAT YOU DON’T KNOW CAN HURT YOU!

The Virginia General Assembly has wrapped up another busy year so it’s time to take stock of what new laws and changes to existing laws will affect community associations.  All board members and association managers need to be aware of these new and revised laws in order to avoid the legal pitfalls of doings things “the way we always have” instead of the way the new laws require it to be done.  All of these new or revised laws have been passed by both the Virginia House and Senate, have been signed by the Governor, and will go into effect on July 1, 2019.  We will break the changes down into several categories and send you the “need to know” information in several installments over the next couple of months.  In this issue we will discuss resale disclosure changes and child care businesses in HOAs.
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COME JOIN US AT CA DAY ON MARCH 9

We hope the new year is going well for you all.  We are looking forward to the Southeastern Virginia Chapter of CAI’s annual Community Associations Day which will be held on March 9, 2019 from 7:30 to 4:30 at the Virginia Beach Convention Center.  Our CA Team will be there in full force. Mike Inman will be speaking on a new and unique topic – dealing with municipalities on such things as condemnation of property, rezoning of neighboring property, storm water management and enforcement of ordinances. Jeanne Lauer will be hosting a discussion on “Influencing Legislation that Impacts Your Community and the Importance of VALAC” (the Virginia Legislative Action Committee).  Greg Montero will be hosting a round table discuss on “Almost Free Legal Advice.”  Also, as usual, we will have our booth to give us a chance to greet you.  We hope to see you there. Information on the event can be found at www.cadayvirginia.com.

WHY DOES MY CONDOMINIUM NEED FHA CERTIFICATION

Federal Housing Administration (FHA) loans currently account for a large percentage of the available financing options for condominium units in today’s market.  Other than VA loans (which are only available to active or retired military), FHA loans offer one of the lowest down payments and interest rates available which makes them attractive to a lot of new buyers and current owners who wish to refinance.
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Like any other business, community associations are often faced with delinquent owners seeking bankruptcy protection. In fact, as of May 2018, over 9,800 bankruptcies have been filed in Virginia alone.  As such, community associations should be aware of the implications of being an unwilling bankruptcy creditor.

Types of Bankruptcies

 

The two most common types of bankruptcy that impact community associations are a Chapter 7 and a Chapter 13.

Chapter 7:  Liquidation

 

The Chapter 7 bankruptcy is commonly referred to as the liquidating bankruptcy and is what most people think of when they hear the term “bankruptcy.” The idea behind a Chapter 7 is that the court assigns a third-party (a trustee) to review the debtor’s assets and exemptions and sell any non-exempt assets to pay the debtor’s debts. Unfortunately, Most of the time, that doesn’t actually happen. Most chapter 7 cases are “no-asset” cases, meaning there are no un-exempt assets for the trustees to sell. In a rare “asset” chapter 7 cases, the trustee will notice creditors by sending a letter asking for creditors to file “proofs of claim.” A proof of claim is a standard form that a creditor fills out listing the amount and type of debt. A proof of claim must also have “proof” attached detailing the basis of the debt. The trustee then classifies the types of debt and pays those debts based on their classification or priority until the funds are depleted. The end result is a chapter 7 discharge which wipes away all qualifying unsecured debt incurred prior to the debtor filing bankruptcy.  However, there are debts that survive a chapter 7 discharge including secured debt, priority debt, and non-dischargeable debt. The easy way for community associations to prevent loss of assessments to a chapter 7 discharge is to speak with an attorney as soon as an owner is 30 days delinquent.
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There seems to be some confusion about this new addition to the resale provisions in the Condominium Act and the Property Owners Association Act. As of July 1, 2017 there is a new Virginia law, passage of which was promoted by the Virginia Association of Realtors, which will impact unit owners and lot owners in nearly all community associations as to “For Sale” signs. (No other types of signs, like “For Rent” signs, are covered by these new laws.).


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Revock v. Cowpet Bay West Condominium Association

Third Circuit Court of Appeals, 2017

A very instructive case was decided last month in a Federal Appeals Court which will demonstrate almost everything not to do with respect to compliance with the Fair Housing Act relative to emotional support animals. This case dealt with a suit brought by two emotionally disabled unit owners in a condominium community that had a no pet rule. The association had no policy regarding service animals or emotional support animals. The residents seeking approval of their dogs provided appropriate paperwork supporting their need for the dogs.  Certain residents were upset by the violation of the no pet rule expressing their views on strongly worded and insulting blog postings and called for these violators to be fined.


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A few months ago we informed you that both houses of Congress voted unanimously to pass the Housing Opportunity Through Modernization Act (HOTMA) which, in part, required FHA to lower the required percentage of owner occupied units in condominiums from 50% to 35% unless FHA could prove that a higher percentage of owner occupancy was justified. 


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