MASSACHUSETTS APPEALS COURT DECISION GIVES ASSOCIATIONS A VICTORY AGAINST DEVELOPER
May 16, 2019 – As everyone knows, or should know by now, owning a condominium unit means that the owner not only has the complete ownership interest in the unit but, along with the other owners, has an undivided interest in the common area. This form of ownership leads to the question: what is the effect on undeveloped common area as the result of an issuance of partial mortgage releases to unit purchaser where the mortgage, recorded prior to the Master Deed, is never completely discharged? What could happen to that undivided interest if the holder of a mortgage recorded prior to the Master Deed foreclosed on an undeveloped portion of the common area? On Wednesday, May 14, 2019, the Massachusetts Appeals Court addressed that question in Trustees of the Beechwood Village Condominium Trust vs USAlliance Federal Credit Union & others.
When a lender lends money to a developer for the development of a condominium, the loan is secured by the grant of a mortgage to the lender which is then recorded prior to the condominium’s Master Deed. It would then follow that the land is subject to that mortgage and, should the developer default on payment of the note secured by the land, the lender could foreclose on its mortgage. Typically, shortly after the recording of the Master Deed or upon the sale of the first unit, the Developer’s mortgage is then subordinated to the condominium. After all, who would buy a unit if a mortgage holder (other than the unit owner’s mortgage holder) could foreclose on the unit because the Developer defaulted on her obligation to make payment even though the owner was paying her own mortgage. Subordination eliminates that problem…it operates to “rearrange” the recording dates so that the unit purchaser’s mortgage is not subject to that prior Developer’s mortgage. If the Developer defaults, the subordination agreement serves to protect the unit owner as the foreclosing lender could take unsold units and/ or any rights reserved to the developer in the Master Deed.
In Beechwood, the developer granted a mortgage on his land as security for a loan. The lender recorded the mortgage and, after constructing three units, the developer recorded the Master Deed, establishing the condominium. All the land was submitted to Chapter 183A, the “Condominium Statute”, and was common area. As each unit was sold, the lender issued a partial release of its mortgage.
However in Beechwood, there was no subordination agreement. As units were sold, partial releases of that prior mortgage were issued. Unfortunately, the condominium was not completed and a portion of the common area as submitted to Chapter 183A remained vacant. USAlliance argued that its issuance of partial releases on those units which had been constructed and sold did not release all the common area and that it could foreclose on that vacant portion of the land. It argued that the partial releases only operated to release the exclusive use common area appurtenant to the unit released. However, the winning argument advanced by Beechwood was that when a partial release of a mortgage on a unit is granted, it releases not only that unit but 100% of that unit’s undivided interest in the common area. In fact, as the Appeals Court stated, “the effect of the subsequent mortgage discharges by the relevant lenders upon the sale of each unit was to release the lenders’ mortgage interest in all of the common area.” (Emphasis added) The Court held that while the interest in the physical land was released, the mortgage holder’s interest in the development and easement rights reserved by the developer in the Master Deed remained. In Beechwood, while the Court found that the development rights remained, there was no way for the Developer to access the land and construct additional units as the easement rights to use the common area to access the undeveloped portion of the common area had expired.
The significance of this case cannot be emphasized strongly enough. Had the Court held otherwise there would be a real possibility that title to many units in condominiums other than Beechwood would have been “clouded” and of even greater concern, that entire associations could be wiped out by a foreclosure on undeveloped land for which no partial releases had been granted.
Just as condominiums represent the best of community living and spirit, this decision too represents the best of community spirit in the legal community. Ellen A. Shapiro, principal of GSL, had handled the case from its inception to the appellate level. Through her many years of friendship with Tom Moriarty, principal of Moriarty, Troyer and Malloy, she knew that he had long advanced the theory of the effect of partial releases in the condominium setting. Rather than simply adopting that theory as her own, she enlisted Tom on behalf of Beechwood. Not only were the best interests of Beechwood served but those of condominium communities throughout the Commonwealth.
The full opinion can be found at Trustees of the Beechwood Village Condominium Trust v. USAlliance Federal Credit Union (AC 18-P-0089)
If you have any questions about Beechwood and how it applies to your condominium, or any other condominium matters, please contact Attorney Ellen A. Shapiro at (781) 251-9800 or via email at email@example.comRead More
Please Come See Us at Booth 121
Are you going to the 2019 NE Condominium EXPO? If you are, plan to attend our co-sponsored breakout sessions. This year, we have GSL’s Henry Goodman co-presenting “Lien Enforcement & Recovering Unpaid Assessments” and GSL’s Ellen Shapiro co-presenting “Short-Term Rentals & Electric Charging Stations – Legal Update.” Ellen will be presenting in Rm. 1 at 10:45-11:45am and Henry in Rm. 1 at 12:45-1:45pm, so please plan to be there!
Next Wednesday, May 22nd at the Seaport World Trade Center, GSL is once again proud to sponsor the 2019 New England Condominium Expo! We look forward to seeing our clients, our friends and any condominium owners and board members attending this year’s event. If you haven’t yet, you can CLICK HERE to register to attend.
We Hope To See You There!
On Wednesday, May 22nd at the Seaport World Trade Center, GSL is once again proud to sponsor the 2019 New England Condominium Expo! We look forward to seeing our clients, our friends and any condominium owners and board members attending this year’s event. If you haven’t yet, you can CLICK HERE to register to attend.
If you are already going, don’t forget to plan on attending our co-sponsored breakout sessions. This year, we have GSL’s Henry Goodman co-presenting “Lien Enforcement & Recovering Unpaid Assessments” and GSL’s Ellen Shapiro co-presenting “Short-Term Rentals & Electric Charging Stations – Legal Update.” Ellen will be presenting in Rm. 1 at 10:45-11:45am and Henry in Rm. 1 at 12:45-1:45pm, so please plan to be there!Read More
Parking Can Be Taxing
November 26, 2018 – The Massachusetts Appeals Court just issued a decision in Rauseo v. Board of Assessors of Boston, 18-P-288 (Nov. 26, 2018) concerning the taxation of parking space easements retained by the developer of a condominium in Boston. The developer appealed a decision of the Appellate Tax Board that ruled the retained parking easements, which were not appurtenant or associated with any condominium unit, were taxable and did not qualify for the real estate tax exemption provided by M.G.L. c. 183A, §14 afforded to a condominium’s common areas.
M.G.L. c. 183A, §14 states that common areas of a condominium are not subject to real estate taxes, under the theory that common areas are already taxed through the real estate taxes assessed to each of the individual condominium units, which have an undivided percentage interest in the condominium’s common areas. Section 14 prevents the local municipality from ‘double-dipping’ by taxing both the units and the common areas of a condominium. Parking garages and parking spots associated with a condominium are generally defined as common areas, and one would think that they would be disqualified from separate taxation from the local tax board.
In Rauseo, the Court held that the parking easements were taxable because the easements retained by the developer were not associated with any of the condominium units, but rather were easements “in gross”, which simply means they are standalone easements not attached or “appurtenant” to a unit. The developer and the owners that purchased the easements did not pay common area expenses on the parking spaces, nor were the condominium’s common fees applied to the upkeep of the parking easements. The Court reasoned that while the parking easements were physically located in what is part of the limited common areas of the condominium, the easements themselves were reserved by the developer from the property submitted to condominium status under M.G.L. c. 183A. As such, the parking easements were individually taxable by the City of Boston since they were not declared as part of the condominium and not associated with any condominium unit.
The Court acknowledged that all costs incurred by the condominium in connection with these easements were to be borne by the easement holders, given that they are not part of the condominium’s common fees. However, the court did not discuss how these costs are to be collected by the condominium; accordingly, the question of collectability remains open.
This is but the latest in a line of major dispute concerning parking spaces or reserved easement rights in the condominium context. If you have any questions about Rauseo and how it applies to your condominium, or any other condominium matters, please contact Attorney Alex Levine at (781) 251-9800 or via email at firstname.lastname@example.org.
For a link to the case decision CLICK HERERead More
GSL is Offering FREE ADMISSION to CAI-NE’s 2018 Exposition
As a Proud Diamond Sponsor of CAI-NE, Goodman, Shapiro & Lombardi, LLC is pleased to offer free admission to friends and clients of the firm
If you are planning to attend this year’s Community Association Institute New England Chapter’s 2017 Annual Condo Conference & Exposition this October, GSL is pleased to offer you registration free of charge. The event will be held this year at:
One Burlington Mall Road
Burlington, MA 01803
Saturday, October 27, 2018 from 9:00 AM to 3:00 PM
For more information and to register for the event,
Be sure to enter the Promo Code: GSLPASS for your free registration.
This year, we have GSL’s Ellen Shapiro presenting with Ronda Ziner of EP Management on the topic of board governance in Boards Rule… Board Governance Issues. Ellen and Ronda will be presenting from 1:30pm – 3:00pm so please plan to be there!
Don’t forget to stop by and see us at Booth #19. We look forward to seeing you there!Read More
Sex Offenders in Condominiums
Does a condominium association have a duty to warn unit owners of a resident with a dangerous past? Judge Gregg J. Pasquale of the Massachusetts Superior Courts just last week issued a decision that certainly hinted at such a duty. The court case is between the estate of a unit owner that was killed in 2012 by a Level 3 sex offender, the condominium association, and the attacker’s brother, the unit owner.
Judge Pasquale did not issue a full decision on such a controversial Summary Judgment Motion, however, counsel for the Plaintiff, the estate of the murdered unit owner, stated to the press that the Plaintiff was heartened that the Judge implicitly endorsed the imposition of a duty on the condominium to warn unit owners of someone with a dangerous past in their midst. The condominium association moved for Summary Judgment and the estate of the murdered unit owner opposed. By the Judge denying the condominium’s Motion for Summary Judgment and allowing the case to proceed to Trial, there is an implicit suggestion that condominium associations may have had some duty to warn.
According to the lawsuit, in 2012 John Dacey Looney, a tenant in the Cape Code condominium assaulted Richard Steele and a female companion with a baseball bat, killing Steele. Looney was a registered Level 3 Sex Offender. He was convicted in 1992 for an attempted rape, in which he stabbed the victim in the arm, and was also on probation for another attempted rape in the mid-1980’s at the time of the early 90’s incident. Looney, who is alleged to suffer from paranoid schizophrenia, moved into the condominium unit owned by his brother in 2005.
It is alleged that the condominium association distributed letters to all the residents in December 2005 and January 2006, advising of Looney’s arrival and of his sex offender status. The crux of the lawsuit from the estate of the deceased victim is that not only did the condominium association discontinue the notifications, but it actively sought to quiet the matter to protect real estate values. Allegedly, the Yarmouth Police Department’s requests to post community notices were refused by the association. During the discovery phase of the lawsuit, when the representative from the association was asked what harm would have come from continuing to alert the community to Looney’s status, the individual cited the negative impact on real estate values. It is hard to imagine a scenario in which a Board would not openly cooperate with the local authorities, however, it is unknown if the association discussed this with counsel.
While the lawsuit is far from over, this is an issue that every condominium association in Massachusetts and Rhode Island needs to think about. The issue is more complex than simply banning sex offenders from the building or being careful and always notifying residents of registered sex offenders and those with violent pasts. An association runs a risk of discriminating against an individual with a mental illness and violated both state and federal law. Being a registered sex offender is a not a protected class in terms of discrimination laws, however having a diagnosed mental illness is. In this case Looney was diagnosed with paranoid schizophrenia.
Furthermore, it was not long ago when a South Carolina man was awarded $890,000 in damages when his condominium association started posting signs and fliers implying that he was a registered sex offender. The problem was that the fliers were of a different, although similar looking individual with the same name. The resident was humiliated, and alleged in the defamation lawsuit that the acts of the association were done maliciously.
In dealing with such a complicated issue, any hard line approach by a Board that ignores the complicated factors that are unique to a specific community could result in an enormous exposure to liability. Make the right call to a GSL attorney before your association becomes the subject of the next breaking development in the law.Read More
Ellen A. Shapiro of GSL together with colleague Janet Aronson of MEEB presented a seminar “Is it Fine to Fine?” to a standing room only crowd of more than 150 attendees at the New England Condominium Expo on Tuesday, May 22, 2018. Because the crowd was so large they ran out of handouts … sign of a truly successful presentation! For anyone who did not get a handout or could not attend, you can download the material from the seminar.Read More
Goodman’s Rules of Order
Henry Goodman, Esq. of Goodman, Shapiro & Lombardi, LLC and Mark Einhorn, Esq. of Marcus, Errico, Emmer & Brooks, P.C. co-presented a talk at the New England Condominium EXPO held on May 22, 2018 at the Seaport World Trade Center in Boston, MA.
Their topic focused on the importance of bringing condominium documents up-to-date, enumerating many areas where documents are weak or defective due to amendments to the statutes and related laws; changes in practices, (such as in insurance and the lending industries); certain practical issues that have vexed associations; along with court decisions that have left distinct impressions on law and practice.
One of the key topics touched upon by Goodman was the importance of conducting orderly and efficient meetings of both Boards and Homeowners. He suggested that the use of parliamentary rules of order were quite complex and recommended a simpler set of rules. He provided a handout explaining them, along with some pointers on conducting orderly and efficient meetings; however, due to the unexpectedly large turnout, Goodman had to assure attendees that he would post his “Goodman’s Rules of Order” on the www.goshlaw.com website for those desiring to download them.Read More
Brower v. Burns
“Do something!!!” are words frequently heard by the Board or management when a unit owner complains about a leak coming into his or her unit from another unit. But what duty does a Board really have when a problem arises with a unit Owner’s failure to maintain elements within his own unit? Superior Court Justice William C. Barrett addressed this issue recently in his opinion in Brower v. Burns, et al., on a Condominium Association’s Motion for Summary Judgment. Among the questions presented to the Court was what duty, if any, does a Board of Trustees of the Condominium Association have to maintain or repair elements within a unit that the Unit Owner has the responsibility to maintain, but is not maintaining. In Brower, Justice Barrett held the Board had no duty to affirmatively repair, or require a Unit Owner to repair, defective elements within the Unit that the Unit Owner has the responsibility to maintain.
The Brower case involved a not uncommon dispute between two Unit Owners over a water leak. The Unit owned by the Plaintiff – Brower – was directly underneath the Unit owned by the Defendant – Burns. The alleged leaks spanned a course of close to seven years before the filing of the lawsuit. Brower sued Burns and the Board of Trustees of the Condominium Association. The gist of the complaint against the Board was that the Board was negligent in upholding its duty to require the Unit Owner with the leak to permanently correct the leak. The Board asserted in its Summary Judgment Motion that it had no such duty to require a Unit Owner to maintain their Unit. The Court agreed.
The analysis centered on the section of the condominium documents that discusses and is titled “Maintenance and Repair of Units.” The section stated that a Unit Owner has a duty to maintain their Unit and the utility fixtures within and serving the Unit. The section further provided that the Board had the right to require a Unit Owner to maintain their Unit, including the utility fixtures within each Unit, when a hazardous condition exists and the Unit Owner has failed to make the repairs on his or her own.
Justice Barrett analyzed this part of the condominium documents that granted the Board the right to require the Unit Owner to correct the defective condition, and concluded that while the Board had the right, it did not have the duty to force Burns to correct the leak. The Court stated: “Section 5.2 gives the Board the right to force a unit owner to correct a hazardous condition in the interior of his/her unit or to enter and fix the hazard itself at the unit owner’s expense, but it does not require that the Board do so.” The Court further stated the “Board is not responsible for the repair and maintenance of individual privately owned units within the Condominium; it is responsible for the care and upkeep of the Condominium’s common areas.”
Therefore, the Court concluded that while the Board could have acted, it had no duty to force Burns to fix the leak. Therefore, the Board had no duty to Brower that was somehow breached by the Board’s inaction. As such, Brower’s negligence claim against the Board failed, and was dismissed on Summary Judgment.
A copy of the Brower v. Burns, et al., MICV2015-06084 Summary Judgment Decision can be found here. For more information on this or any other related issue, contact Attorney Alex W. Levine at email@example.com.Read More
GSL Principals Ellen Shapiro and Frank Lombardi are attending the Community Associations Institute Law Seminar in Palm Springs, CA this week. The three-day event provides an excellent opportunity for community association attorneys across the nation to learn about and discuss emerging trends and legislative issues important to the practice of community association law. This year, GSL attorney Frank Lombardi will be presenting his perspectives on “A Day in the Life of a Community Association Lawyer.”
For more information on the annual event or to speak to Ellen Shapiro or Frank Lombardi about the latest trends and issues facing community associations, please email Ellen at firstname.lastname@example.org or Frank at email@example.com.Read More