2010 Maryland Legislation Impacting Common Interest Communities

July 7, 2010

The 2010 Maryland Legislative Session resulted in a number of changes in the law that will significantly impact developers of residential communities and community associations. We have highlighted below some of the more important changes. Upon your review, if you wish to discuss any of these changes in more detail and how such changes may affect your business practices or the operations of an association, please contact a member of the Common Interest Practice Group.

Amendments to Maryland Condominium Act
Effective October 1, 2010

Common Element Implied Warranties (Section 11-131)

This amendment expands the commencement date of the implied warranty on common elements of a condominium to begin either three (3) years from the first transfer of title to a unit owner or completion of such common element or two (2) years from the date on which the unit owners, other than the developer, first elect a controlling majority of the members of the Board of Directors for the Council of Unit Owners, whichever occurs later.

Description of Common Elements in Condominiums Created after October 1, 2010 (Section 11-103)

For any new condominiums that are created by the recording of the declaration, bylaws and plats on or after October 1, 2010, the description of the common elements shall include the following improvements to the extent that the improvements are shared by or serve more than one unit or serve any portion of the common elements: (i) roofs; (ii) foundations; (iii) external and supporting walls; (iv) mechanical, electrical, and plumbing systems; and (v) other structural elements. This amendment requires a more traditional drywall to drywall definition of a unit rather than a more expanded definition.

Fidelity Bond (Section 11-114.1)

This amendment authorizes a condominium to purchase a fidelity bond as an option other than fidelity insurance. The amount of the bond is the same as fidelity insurance, at least the lesser of 3 months' worth of gross annual assessments and the total amount held in all investment accounts at the time the fidelity bond is issued or $3,000,000.00.

Amendments to Maryland Homeowners Association Act
Effective October 1, 2010

Common Area Implied Warranties (Section 11B-110)

This amendment expands the warranty period to two (2) years to begin either from the first transfer of title to a lot or the completion of the common area improvement or two (2) years from the date on which the lot owners, other than the declarant, first elect a controlling majority of the governing body of the Homeowners Association, whichever occurs later.

Annual Budget - Notice, Information and Adoption (Section 11B-112.2)

This amendment imposes a requirement on Homeowners Associations to prepare and submit to the lot owners an annual proposed budget at least 30 days prior to adoption. The annual budget may be sent to each lot owner by electronic transmission, by posting on the Homeowners Association's home page or by including within the Homeowner's Association's newsletter.

Fidelity Bond (Section 11B-111.6)

This amendment authorizes a homeowners association to purchase a fidelity bond as an option other than fidelity insurance. The amount of the bond is the same as fidelity insurance, at least the lesser of 3 months' worth of gross annual assessments and the total amount held in all investment accounts at the time the fidelity bond is issued or $3,000,000.00.

ATTENTION: SALES CONTRACTS IN PRINCE GEORGE'S COUNTY FOR RESIDENTIAL REAL PROPERTY MUST INCLUDE DISCLOSURE STATEMENT OF AGREEMENT TO PROVIDE COMMUNITY AMENITY

Effective October 1, 2010. This amendment adds a new Section 10-708 of the Real Property Article that requires a home builder to include within a contract of sale for residential real property that provides for an agreement by the home builder to provide a community amenity shall include a disclosure statement that identifies the community amenity provided in the contract of sale and specifies when the community amenity will be completed in accordance with a recreational facilities agreement recorded with the Prince George's County Planning Department. Such disclosure statement must be dated and signed by the purchaser and the home builder, and included in or attached to the contract of sale. If the purchaser does not receive the disclosure statement on or before entering into the contract of sale, the purchaser has an unconditional right, on written notice to the home builder, to rescind the contract of sale at any time before the receipt of the disclosure statement or within 5 days after receipt of the disclosure statement. Further, any advertising for a community development in Prince George's County that will include a community amenity shall include disclosure of the requirements under this section.

ATTENTION: SALES CONTRACTS FOR SINGLE FAMILY RESIDENTIAL REAL PROPERTY IMPROVED BY FOUR OR FEWER SINGLE FAMILY UNITS SHALL CONTAIN NOTICE OF THE RIGHT TO APPEAL PROVIDED UNDER § 14-502(A)(2) OF THE TAX - PROPERTY ARTICLE.

Effective October 1, 2010. This amendment inserts new Section 10-708 to the Real Property Article that requires the following notice be inserted in any contract for single family residential property improved by four or fewer single family units:

"If any real property is transferred after January 1 and before the beginning of the next taxable year to a new owner, the new owner may submit a written appeal as to a value or classification on or before 60 days after the date of the transfer."

ATTENTION: MANAGEMENT COMPANIES WITH COMMUNITY ASSOCIATIONS IN PRINCE GEORGE'S COUNTY

Effective October 1, 2010. Prince George's County - Community Association Property Management Services - Registration

Any entity that provides community association management services for community associations (condominium council of unit owners, homeowners association, or a cooperative housing corporation) located in Prince George's County shall register with the Community Association Managers Registry and renew its registration by January 31 of each year. The annual fee charged shall be set at $100 and the Prince George's County Office of Community Relations shall provide the registration form.

ATTENTION: RESIDENTIAL FORECLOSURE PROCEDURES AMENDED TO REQUIRE LOSS MITIGATION ANALYSIS AND OPPORTUNITY FOR FORECLOSURE MEDIATION

Effective July 1, 2010. This amendment significantly alters the foreclosure process applicable to owner-occupied residential property utilized as the owner's primary residence. Prior to the filing of a complaint or order to docket, the notice of intent to foreclose must include a loss mitigation application that is intended to provide an opportunity for the lender to determine if the debtor is eligible for any loss mitigation programs or loan modification applicable to the loan secured by the mortgage or deed of trust that is subject of the foreclosure action. The lender must file with the court a final loss mitigation affidavit attesting to whether the subject loan is eligible for loss mitigation prior to conducting the foreclosure sale. The debtor has an opportunity to request for foreclosure mediation upon receipt of the final loss mitigation affidavit. The foreclosure mediation is conducted by the Office of Administrative Hearings within 60 days after the request, and may be extended for good cause not to exceed another 30 days. Further, an additional filing fee of $300.00 is required that will fund a "Housing Counseling and Foreclosure Mediation Fund" to provide support and funding for the mediation program. These procedures will substantially delay the foreclosure process particularly if a request for foreclosure mediation is made by the debtor. Please note that such amended foreclosure procedures do not apply to residential property that is leased or used as a secondary residence.

ATTENTION: INSTALLATION AND USE OF CLOTHESLINES ON RESIDENTIAL PROPERTY

Effective October 1, 2010. This amendment adds a new Section 14-130 to the Real Property Article that provides that a contract, deed, covenant, restriction, instrument, declaration, rule, bylaw, lease agreement or any other document may not prohibit a homeowner or tenant on "single-family property" from installing or using clotheslines on single-family property. "Single-family property" includes a single-family detached home; townhouse; and any property subject to a condominium regime or homeowners association or cooperative association. This section does not prohibit reasonable restrictions on the dimensions, placement, or appearance of clotheslines for the purpose of protecting aesthetic values or the placement of clotheslines for the purpose of protecting persons or property in the event of fire or other emergencies.