Category Archives: Legal Compliance

Court of Appeals Finds for Developer in Homeowner Uprising

    The South Carolina Court of Appeals handed down a decision last week against a group of disgruntled homeowners who attempted to create their own property owners’ association. 

    The homeowners live in Phase I of Wright’s Point Plantation, a waterfront community in Beaufort County. Wright’s Point was purchased by the developer in 1997, and in 1998 the Declarations of Covenants, Conditions, Restrictions, and Easements (“Declarations”) were recorded. Subsequently, the Wright’s Point Homeowners’ Association was incorporated. In 2003, several property owners from Phase I decided to band together and form a new entity: The Wright’s Point Property Owners’ Association. The Phase I owners disapproved of certain Architectural Committee Requirements and did not wish to share Phase I amenities with owners in future phases of the development. 

    The newly founded Property Owners’ Association held it’s first annual meeting, which the developer attended with his attorney. The developer contested the existence of the new association under the Declarations and stated that only the developer could appoint and remove directors, the meeting was not official, several owners had not been provided with notice of the meeting, and any meetings done without the developers’ knowledge were “not legal.”

    The homeowners then filed suit asking the court to declare, among other things, that the developer’s authority to control appointment of directors and officers had terminated, the Wright’s Point Property Owners’ Association was valid, and only the owners in Phase I had a right of use and access to the common areas owned by the Association. The homeowners also sought an injunction against the developer to prevent him from trying to control the business of the Association. The developer counter claimed for damages in multiple causes of action to include civil conspiracy, breach of contract, breach of implied covenant of good faith and fair dealing, conversion, tortious interference with contractual relationships,

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Insurance Policy Excludes Water Damage From Construction Defects

    The Sixth Circuit Court of Appeals ruled that an insurer was not obligated to pay for water damages to a condominium building because the insurance policy specifically excluded coverage for damages caused or resulting from building construction and design defects. TMW Enterprises, Inc. v. Federal Ins. Co., No. 09-1542, (6th Cir. Aug, 25, 2010). Substandard construction on an exterior wall allowed the water intrusion which resulted in damages of $4 million.

    After discovering the water damage and defects, the Plaintiff filed a claim with its insurer to cover the costs of repair. The insurer performed an inspection of the building but refused covered based upon this exclusion. Both the lower court and appellate court agreed with the insurer. The appellate court grappled with the interpretation of the policy, but finally determined that any other explanation of the policy language would render it ambiguous.

    This site and any information contained herein is intended for informational purposes and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

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Recent New York Times Article on Sales Contracts

    This is a very interesting article on the effect of the Interstate Land Sales Full Disclosure Act (Act) on a recent luxury condo purchase. According to the Act, any development with 100 or more units must produce a purchase contract in a form that can be filed in the city registry prior to executing the contract. 15 U.S.C. § 1404(c) provides: “In the case of any contract or agreement for the sale or lease of a lot for which a property report is required by this title and the property report has not been given to the purchaser or lessee in advance of his or her signing such contract or agreement, such contract or agreement may be revoked at the option of the purchaser or lessee within two years from the date of such signing, and such contract or agreement shall clearly provide this right.”

    A federal judge in Manhattan determined that because the agent of a luxury condo building did not comply with the Act, the buyers were entitled to rescind their contract and get back their $510,000 deposit with interest. This decision comes as a shock to many developers and agents nationwide.

    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.

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Recent FHA Guidance on Condo Recertification

    Condominium projects must be certified by the Federal Housing Association (FHA) to be eligible for mortgages backed by the FHA. The FHA is the single largest mortgage insurer in the world; thus, the importance of FHA approval for condo projects cannot be overstated.

    Recently, the FHA released new guidance concerning the certification process. Getting a condo project approved is the first step, but maintaining certification is also very important. 
    FHA certification expires two years after the project has been approved. A condo project is eligible to seek recertification six months before the certification expires. If the project is not recertified six months after the expiration date, it must seek full certification. The determination of a project’s eligibility to complete the recertification process also depends on when the project received its initial approval.

Initial Approval Prior to January 1, 2000
Full certification is required

Initial Approval After January 1, 2000
    The project is eligible for the streamlined recertification process, which ensures the condo project maintains compliance with FHA standards. For recertification, the following documents are required:    

  • Cover letter
  • Financial documents (one of the following)
    • Budget
    • Reserve study
    • Fannie Mae Form 1037(a), Analysis of Annual Income and Expenses-Operating budge signed by an authorized individual
  • Management agreement (if applicable)
  • FEMA flood map
  • LOMA, LOMR or an Elevation Certificate (if applicable)
  • Evidence of required insurance coverage

For the full FHA recertification packet click here.

    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.

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