Bio Link
My name is D. Ryan McCabe. I am a shareholder of Rogers, Townsend and Thomas, PC in Columbia, South Carolina. I primarily practice in the areas of Community Association Law, Construction Law and Business Law. I am a former drywall, stucco, steel stud framing, and painting contractor. I was a USG Certified EIFS Contractor and currently hold a SC Residential Specialty Contractors licenseSyndicate
Proposed FHFA Regulation Affecting Community Associations
On August 12, 2010, the Federal Housing Finance Agency (FHFA) issued a news release unveiling its proposed guidance to restrict Fannie Mae, Freddie Mac and the Federal Home Loan Banks from investing in mortgages in communities with private transfer fee covenants.
A private transfer fee covenant is a fee attached to real property, typically by the developer in the form of a deed or covenant restriction that must be paid each time the title to the property is transferred. The fee is usually a percentage of the sales price and is often used to fund the homeowners’ association or project developments. Once private transfer fee covenants are implemented, they are very difficult to remove. Oftentimes, the community must obtain the consent of every property owner before such a covenant can be changed.
If enacted, the proposed regulation could have a huge effect on community associations that implement such fees. If Fannie Mae, Freddie Mac and the Federal Home Loan Banks cannot purchase mortgages for properties encumbered by private transfer fees from banks, then the banks will be reluctant to issue such mortgages to homebuyers. This inevitably leads to a decline in property values and an increased burden in buying and selling affected real property.
As of now, the FHFA has not disclosed if or when this regulation will go into effect. It is, however, soliciting comments and concerns from interested parties. Comments can be submitted by email to regcomments@fhfa.gov. Please include “Guidance on Private Transfer Fee Covenants, (No. 2010-N-11)” in the subject line of the message. Comments must be submitted by October 15, 2010.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Fannie Mae Lending Guidelines Affecting Condos
- A condo project is established if: at least 90% of the total units in the project have been conveyed to the unit purchasers; the project is 100% complete, including all units and common elements; the project is not subject to additional phasing or annexation; and control of the homeowners’ association has been turned over to the unit owners.
- A condo project is new if: fewer than 90% of the total units in the project have been conveyed to the unit purchaser; the project is not fully completed, such as proposed construction, new construction, or the proposed or incomplete conversion of an existing building to a condo; the project is newly converted; or the project is subject to additional phasing or annexation.
- For new projects:
- At least 70% of the total units in the project must have been conveyed or are under a bona fide contract for purchase.
- Individual units must be available for immediate occupancy at the time of the loan closing.
- For established projects:
- At least 51% of the total units in the project must be conveyed to purchasers as principal residences or second-homes.
- At least 90% of the total units must have been conveyed to the unit purchasers.
- The developer may not retain ownership in any facilities related to the project
- No more than 20% of the total square footage of the project can be used for commercial purposes.
- The HOA budget must:
- be adequate (i.e., it includes allocations for line items pertinent to the type of condo),
- provide for the funding of replacement reserves for capital expenditures and deferred maintenance equal to at least 10% of the budget,
- provide adequate funding for insurance deductible amounts.
- No more than 15% of the total units in an attached condo project can be 30 days late on the payment of their condo/association fee payments.
- The project must be covered by hazard, flood, liability, and fidelity insurance (if applicable). Fidelity insurance is required for condo projects consisting of more than 20 units.
- Unless the master policy covers the unit’s interior, the borrower must obtain a “walls-in” or HO-6 policy. This policy must provide coverage in an amount no less than 20% of the condo’s appraised value.
- Fannie Mae will continue to purchase FHA-insured loans secured by condo units located in FHA-approved projects.
- No single entity may own more than 10% of the total units in the project.
- Projects are considered ineligible where the homeowners’ association is named as a party to current litigation or the developer is named as a party to current litigation that relates to the project.
Is an Association Liable for Third-Party Criminal Acts on the Property?
A condominium owner brought suit against her condominium association after she was raped and robbed within the confines of her individual unit. Frances T. v. Village Green Owners Ass’n , 42 Cal. 3d 490, 723 P.2d 573, 574 (1986). The Plaintiff’s three causes of action against the association: negligence, breach of contract, and breach of fiduciary duty, were based on the fact that when the intruder entered her condo, the unit was without exterior lighting. Id.
The association was on notice of the particular dangers posed against its residents because of the “exceptional crimewave” in the development during the prior year. Id. at 575. In fact, Plaintiff’s unit had been robbed once before this incident, a fact that she attributed to the poor lighting in her building. Id. After issuing several ignored requests to the association for improved exterior lighting, Plaintiff installed additional lights outside her individual unit. Id. at 576. Shortly thereafter, the board requested that Plaintiff remove the lighting, as it constituted a violation of the CC&RS. Id. Further, the association demanded that Plaintiff cease using the lights until such time as they were removed. Id. Unfortunately, this meant that Plaintiff’s unit was in complete darkness the night of her attack. Id.
The court in this case determined that the association owed its owners the same duty of care as that of a landlord, meaning it had a duty to exercise due care for its resident’s safety in those areas over which it exerted control. Id. at 577. The association breached its duty of care to Plaintiff by failing to respond in a timely manner to the need for additional lighting and by requiring Plaintiff to disconnect the additional lighting she installed herself. Id. at 580.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Bad Fences Make Bad Neighbors
Spite fences are tall, unsightly barriers erected between neighbors for the purpose of annoying, irritating, or perhaps putting a neighbor out of sight and out of mind. These eyesores often crop up after a dispute between property owners and can cause a lot of controversy. Many states have enacted statutes regarding spite fences. California, for example, identifies as a private nuisance a fence over ten feet high, built maliciously to annoy an adjoining landowner.
While South Carolina does not have a statutory restriction on spite fences, community associations are not without remedy. Most likely the Covenants, Conditions and Restrictions (CC&Rs) govern the height and design of fences constructed on property within the community. If the spite fence falls outside the architectural conformity of the community, then the association can seek to have it removed. The association’s first step might be to bring the infraction to the offending property owner’s attention. If he refuses to voluntarily comply with the association’s governing documents, the association can hire an attorney to petition the court for an injunction to have the fence removed.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Homeowner Injured in Common Area: What Duty Does the Association Owe?
The South Carolina Court of Appeals determined that a homeowner injured in a common area of her community association was classified as an invitee for the purposes of determining the association’s duty to the homeowner. Landry v. Hilton Head Plantation Prop. Owners Assoc., Inc., 452 S.E.2d 619, 204 (1994). An invitee is defined as “one who enters upon the premises of another at the express or implied invitation of the occupant, especially when [she] is upon a matter of mutual interest or advantage.” Id. at 203. By virtue of the fact that the homeowner paid dues into the Association, she was a member of the Association and had a right to use the common areas without first seeking permission. Id. at 204. This distinguishes a homeowner from a mere visitor. The dues paid by the homeowner confer a benefit on the Association and are for the purpose of maintaining the common areas. Id.
The homeowner injured her wrist when she fell into a hole while walking across a common area sidewalk. She brought suit against the Association for negligence in failing to discover, remedy and warn her of this latent and dangerous condition. Because the court determined that the homeowner was an invitee, the Association had the “duty to discover risks and to warn of or eliminate foreseeable unreasonable risks.” Id. at 203.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
New Fannie Mae Underwriting Guidelines For Condominium Developments
The new guidelines also permit Fannie Mae to exclude mortgages in existing condominium developments where more than 49% of the condominium units are being leased or rented. Fannie Mae has recently began requiring that 70% of the units be sold to non-investors before it will accept a mortgage. These underwriting guidelines will make it more difficult for condominium owners to sell their units.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Enforce Covenants Consistently to Avoid Waiver
The South Carolina Court of Appeals agreed with the Master-in-Equity and found an association waived its right to enforce certain covenants. See Arcadian Shores Single Family Homeowners Ass'n v. Cromer, 2007 S.C. App. LEXIS 98 (Ct. App. 2007).
The Association's declaration of covenants allowed association members to construct fencing upon "submitting plans and specifications to and obtaining written approval of the plans by the Developer," and later by the Association. One member built a three foot high solid stucco wall instead of the three foot masonry lattice wall the plans called for. The Association sought to compel the owner to tear down the fence. See id. at *4.
The Court concluded the Association waived the right to require approval of fencing plans and specifications, if any was granted by the declaration. See id. at *12.
A waiver is the "intentional relinquishment of a known right." Id. at *13 (citing Gibbs v. Kimbrell, 311 S.C. 261 (Ct. App. 1993). An association does not necessarily have to ensure every lot looks identical to maintain its enforcement rights. However, a neighborhood scheme must be apparent.
In this case, the Court found that the Association inconsistently enforced its right to require approval of fencing plans and specifications. Some members had obtained approval, others had not. Moreover, evidence showed that the Master himself visited the subdivision and could not determine the existence of a neighborhood theme. By repeatedly failing to require approval, the Association waived or lost its right to make plans and specifications conditional upon its approval. See id. at *14.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Gated Communities May Need to Remove or Replace Their Gates
On April 18, 2009, The Island Packet, a South Carolina publication based out of Bluffton and Hilton Head, reported the unfortunate death of one of the members of a gated community. The person had a heart attack. While the paramedics got to the community's gates in four minutes, they were held up for a few minutes because of not being able to open the gates right away. To read the full article, you may click here.
This unfortunate and sad incident may serve as a strong incentive for state officials to consider disallowing the use of such "unmanned" gates. State authorities may exercise their general police power granted by the federal and state constitutions for the protection of the public health, welfare, and morals. See Denene, Inc. v. City of Charleston, 359 S.C. 85, 93 (2004). Such broad powers allow local authorities to enact legislation prohibiting the use of the gates. Even if no legislation has yet been enacted, communities should consider how to prevent potential incidents such as that in Bluffton to avoid risking liability to injured parties. It is also prudent to make sure that this type of incident does not occur so as to endanger a community association's valid and beneficial use of a gate.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
An Association Must Be Represented by a Licensed Attorney
Section 40-5-320 of South Carolina Code of Laws Annotated makes it unlawful for corporations and voluntary associations to "practice or appear as an attorney at law for a person other than itself in a court in this State or before a judicial body." S.C. Code Ann. Section 40-5-320(A)(1).
South Carolina Supreme Court clarified the statute in Renaissance Enterprises, Inc. v. Summit Teleservs., Inc., 334 S.C. 649 (1999). The issue presented before the Court was "[w]hether a non-lawyer can represent a corporation in circuit and appellate courts." Id. at 651. Specifically, the question was whether a corporation's officer or designated employee may represent the corporation if he or she is not licensed to practice law in South Carolina.
The Court noted that a corporate non-lawyer agent may represent the corporation in small claims actions only. Id. at 652. South Carolina Administrative Court Rule 405 authorizes a non-lawyer corporate officer, agent, or employee to represent the business in civil magistrate's court proceedings. Id. at 651. However, the Supreme Court found that no such authorization is granted in circuit and appellate courts within our state. Id. at 653.
Therefore, an association's director or any other of its agents may not offer legal representation on behalf of the association unless he or she is authorized to practice law in South Carolina. Doing so without an attorney license would constitute unlawful practice of law and subject the association representative to civil liability.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.