MHA and CCOC: Promoting Good Governance in Montgomery County1 By Rand H. Fishbein, Ph.D. First Vice-President Maryland Homeowners’ Association (MHA) I t was just over twenty years ago that the founders of the Maryland Homeowners’ Association (MHA)2 and a task force of concerned Montgomery County residents gave birth to an idea that would become the Commission on Common Ownership Communities (CCOC). At the time, few could have imagined that the CCOC quickly would emerge as one of the most important innovations in Maryland jurisprudence since the advent of the District Court system in 1971. With only three paid staff members and fifteen volunteer commissioners, the CCOC soon earned a state-wide reputation as the pacesetter in the burgeoning field of alternative dispute resolution. Today, few would argue with the proposition that the Commission provides county homeowners with an important venue for both alternate dispute resolution and legal redress. It also is one that is both affordable and accessible to the average citizen. To date, few counties in the United States have an office or agency comparable to the CCOC. The citizens of Montgomery County are fortunate, indeed. The Genesis of the Modern Common Ownership Community The conditions that gave rise to the Montgomery County CCOC began with the residential building boon of the 1950s and the growth of modern suburbia. Virtually overnight, America found itself transformed from a nation of primarily coastal cities and rural farms into a sprawling patchwork of planned communities. Servicemen returning from World War II, and later the children of the baby boom generation, found the American dream in neighborhoods and tract developments built to meet their particular needs. Many offered features such as swimming pools, golf courses, tennis courts, walking trails, club houses, and gated entrances, amenities that at one time only the privileged could afford. In these “exclusive” neighborhoods, new 1 This views expressed in this article are those of the author and many not necessarily reflect those of the CCOC or the MHA Executive Committee. This article is an elaboration of a presentation delivered by Dr. Fishbein to the Commissioners of the CCOC on May 2, 2012. 2 For information on the Maryland Homeowners’ Association, Inc. please go to: http://www.marylandhomeownersassociation.info/Site/Welcome.html or contact MHA at: Tel: (301) 654-9242 or mail@marylandhomeownersassociation.info 2 home buyers also could be assured of consistency in architectural expression, controlled growth and a prescribed standard of common area maintenance. For home buyers raised in urban apartment blocks or clustered row homes, this new living arrangement had an instant appeal. Developers were only too eager to meet the demand. For most middle-class Americans, their home is the single largest investment they ever will make. As such, it is not surprising that new buyers are particularly eager to ensure that their property values increase with time and that the communal lifestyle they support is maintained. Responding to this economic imperative, developers from the 1950s up to the present have continually looked for ways to set their projects apart. One successful approach was to market their communities as self-governing enclaves inside of which a strict set of architectural and land-use covenants ensures that the distinct character of the neighborhood or condominium is protected. In a stroke, the modern version of the homeowners’ association was born. Typically, responsibility for enforcing neighborhood guidelines falls to an elected association Board of Directors. They, in turn, appoint residents to fill a host of committees responsible for approving architectural modifications, setting standards for new construction, overseeing Board elections, addressing infractions of the governing documents and recommending changes to the bylaws. Often a management company is hired to oversee the day-to-day operations of the community, particularly with respect to common area maintenance, assessment fee collection, recording-keeping and other administrative duties. Today, there are an estimated 1,045,000 Marylanders living in 5,226 Common Ownership Communities (COC) across the state. According to statistics compiled by the Community Associations Institute (CAI) and the U.S. Census Bureau in 2011, the value of homes in Maryland COCs totaled $69 billion. The annual operating revenue for Maryland COCs was $696 million with some $609 million held in investment accounts for long-term maintenance.3 Of COCs in Maryland, Montgomery County accounts for over a thousand condominium, cooperative, and homeowner associations covering over 126,000 housing units and approximately 340,000 residents.4 This number continues to grow, with some estimates projecting that in twenty years nearly one third of all County homeowners could be living in common ownership communities. 3 Community Associations Institute (CAI), Maryland Association Data, January, 2011. http://www.caidc.org/hoa/assn221/documents/lacbrochure%28pubjan11%29%282%29.pdf. 4Montgomery County Commission on Common Ownership Communities, Common Ownership Community Manual & Resource Guide, 2011, p. ii. http://www.montgomerycountymd.gov/content/ocp/ccoc/pdf/manual_resource_guide_2011.pdf. 3 Association Disputes on the Rise It is against this backdrop that the Maryland Homeowners’ Association (MHA), was established in 1981. MHA was formed to give voice to homeowners frustrated with the manner in which their communities are run and are hungry for an independent, unbiased source of information on how to address issues of governance. Not surprisingly, as the number of common ownership communities has ballooned so, too, have the number of disputes between homeowners and the boards that oversee their operation. According to statistics compiled by the Maryland Attorney General’s Office of Consumer Protection (OCP), between 2009 and 2011 there were 79 cases filed by Montgomery County residents against their associations.5 This is the second highest number in the state. Only Prince George’s County had more. But this is far from the whole story. MHA estimates that the actual number of COC disputes at any single time could number in the thousands. There are many reasons for this in addition to the fact that a sizeable number of conflicts go unreported. Many homeowners tell MHA that they have neither the time nor the resources to appeal their cases to an outside authority. A significant number are reluctant to challenge their boards, while others simply lack the knowledge of how to confront their associations or even where to turn for help. As a consequence, many conflicts remain unresolved. They fester and grow until life becomes unbearable for one or more of the parties involved. Homeowner frustration can build to the point where it leaves owners traumatized, neighborhoods divided, and the reputations of communities sullied. The lesson is clear; when disputes between homeowners and association boards are not fairly and expeditiously addressed, it is the entire community that suffers. This becomes clear as essential maintenance is deferred to pay for legal counsel, home values drop and the association develops a reputation for scandal, mismanagement or discontent. A community that took years to build can be thrown into chaos overnight. Rebuilding trust can be a long and tortured process. Community associations that are able to avoid these perils frequently are those that eschew the immediate use of lawyers in favor of an administrative style that stresses reasonableness, common sense, civility, mutual respect and compromise over confrontation and the arrogant exercise of authority. The Education Imperative It is during times of emergent conflict that Maryland Homeowners’ Association stands as the first line of inquiry for Marylanders seeking to understand their rights 5 Maryland Office of Consumer Protection, Office of the Attorney General, Baltimore, 2011. 4 under the law and the avenues open to them for a redress of their grievances. In most jurisdictions across the state, the options open to residents are limited to appeals to the county office of consumer affairs, if one exists, the Maryland Attorney General’s Office of Consumer Protection (OCP), private dispute mediation, the media or local political officials in cases where public policy is affected. Typically, the courts are a choice of last resort since even a small case often can exceed twenty thousand dollars in legal fees and take years before a decision is rendered. At the heart of the problem is the fact that many, if not most, residents elected to association boards come to the job without any fundamental understanding of best practices or even the requirements of their community’s own governing documents. While Americans expect that everyone from doctors to attorneys and engineers to plumbers will undergo extensive training and certification before being initiated into their respective professions or trades, there are no such requirements when it comes to administering common ownership communities, whose assets may run into the tens of millions of dollars. To be clear, while many association boards may be composed of volunteer members eager to contribute their time and energy to enhancing the value of their communities, they also shoulder a fiduciary responsibility to manage their communities in conformance with their governing documents and in compliance with applicable state and local laws. When board members are unschooled in the hierarchy of these codes and the nuances they embody, the stage often is set for conflict. In Maryland, the statutory authority that controls the operation of condominium associations is the Maryland Condominium Act, codified as part of the Real Property Article, Title 11.6 Similarly, it is the Homeowners’ Association Act codified as part of the Real Property Article, Title 11B of the Annotated Code of Maryland that governs the working of HOAs in the state.7 The MHA Mission The Maryland Homeowners’ Association is a non-profit, non-partisan, all volunteer organization. It exists to educate citizens on their rights as homeowners under the law and to help those living in common ownership communities wade through the complex issues and options open to them as they pursue disputes with their associations. MHA helps homeowners make sense of their governing documents and provides guidance on where to turn for expert help in a particular jurisdiction. MHA explicitly refrains from proffering legal advice, but in instances where it is called for, the organization will refer homeowners to attorneys specializing in COC law. However, it is more common for MHA first to recommend that homeowners go to 6 7 http://statutes.laws.com/maryland/real-property/title-11. http://statutes.laws.com/maryland/real-property/title-11b. 5 mediation with their associations. Additionally, MHA provides guidance on how to interpret governing documents and advises homeowners on ways in which the Attorney General, and other government offices, might be able to assist with an investigation of an alleged violation of law or regulation. MHA is the only organization of its kind in the state to serve as an advocate of homeowners’ rights. MHA was the lead advocate behind the enactment of an HOA Owners Bill of Rights and Condominium Unit Owners Bill of Rights, which were incorporated into the Maryland Annotated Code in the 1990s.8 MHA maintains an evolving web site that tracks changes in Maryland law as they relate to COC’s. It serves as a clearinghouse for news from around the country on matters of homeowner rights, and provides links to partnering groups and government offices responsible for overseeing the welfare of local communities. The quarterly MHA Communicator and the digital E-Communicator keep homeowners current on the organization’s work as well developments occurring around the state. MHA is active year-round in Annapolis promoting legislation that supports good governance in common ownership communities.9 In the just concluded 2012 General Assembly session, MHA advocated vigorously on behalf of over a dozen key pieces of legislation including the following: HB 77, SB 78: bills that would prohibit associations from foreclosing for unpaid fines and/ or attorney fees while allowing for payments to go to assessments first; HB 433, SB 372: bills that would require association managers to be licensed and provides a manager complaint procedure; HB 79, SB 202: bills that would ensure that a developer keeps a Council of Unit Owners books, records and accounts separate from the developer’s books, records and accounts; and HB 76, SB 184: bills that would move the Condominium Act dispute settlement mechanism to the Homeowners Act. MHA responds to hundreds of inquiries a year from distressed homeowners. In just the first eight months of tracking, the MHA web site garnered a total of 10,000 hits. It currently receives well-over 1,500 hits per month. Among the most common issues brought to the attention of MHA are those that involve: 8 9 Closed board meetings, Unfair election practices, http://www.marylandhomeownersassociation.info/Site/Maryland_Homeowner_Rights.html. http://www.marylandhomeownersassociation.info/Site/Condo_HOA_News.html. 6 Financial mismanagement, Nepotism, Harassment by neighbors, Retribution by association boards, The inconsistent application of architectural guidelines, Levying of unfair fees and the inappropriate imposition of liens, Arbitrary and capricious application of governing documents, Failure to abide by HOA/Condo Acts, governing documents or County Code, and The false belief by many Maryland associations that HOA/Condo governing documents take precedence over state or county law. MHA is committed to doing what it can to expand the alternative dispute resolution options for homeowners. As such, its top priority for the coming year is to encourage adoption of a CCOC-type model in each of the remaining 22 counties in the state. Already Prince George’s County, Howard County and Charles County are taking steps in this direction. The CCOC has demonstrated a track record of success over the last two decades, building upon an impressive body of decisions that have stood the test of time. This achievement is evidenced by the fact that CCOC decisions appealed to the courts have been upheld well over ninety percent of the time. Several have served as landmark opinions that have helped to shape public policy in Montgomery County. As the demand for the Commission’s services grows, it is imperative that funding for its work continue apace. County Executive, Ike Leggett, has proposed increasing the CCOC’s annual registration fee of $3.00 per unit/lot per year to $3.25, to ensure that the Commission’s full staffing and programmatic needs are met. At the same time, it is vital that all of the funds earmarked for the Commission be made available for its exclusive use. This includes the approximately $170,000 retained by the Department of Housing and Community Affairs to cover its own administrative expenses ostensibly related to the collection of the CCOC’s registration fee. This money could be used for programs designed to educate association boards on best practices and to fund additional Commission staff. Compared to the huge cost to the taxpayer of homeowner litigation through the courts, the small sum required to fund a vigorous CCOC is exceptional value. Other recommendations that could strengthen the CCOC include: 7 Holding quarterly instruction sessions for Complainants on the CCOC process; Establishing a Citizens’ Advisory Board; Employing a community outreach liaison, similar to the Montgomery County Police Dept., to appear at annual association meetings; Encouraging the creation of a group to monitor HOA/Condo association elections; Strengthening enforcement of CCOC decisions; Monitoring follow-on harassment of homeowners who file complaints with the CCOC; Instituting “exit” surveys following the conclusion of its cases to gain valuable feedback on the process; and Creating an evolving web page that provides links to key cases in Maryland and Montgomery County law upon which homeownerassociation disputes often are decided. A short discussion of the significance of these decisions, their origins and opposing commentary would be useful for the reference of homeowners and associations. Conclusion In Montgomery County, as in countless jurisdictions across the state, local government has been only too eager to divest itself of responsibility for common ownership communities, preferring instead to allow the residents themselves to battle over the fine points of architectural style and appropriate administration. But as history has shown, many governing boards are ill-equipped to navigate the tangled web of statutes, regulations, bylaws and guidelines that regulate life in common ownership communities. With so much at stake, it is perhaps inevitable that conflicts between homeowners and boards will occur. When they do, it is important that citizen organizations like MHA and government offices like the CCOC remain ready to assist the public in ensuring accountability, transparency and good governance on the part of those who oversee the operation of common ownership communities. In doing so, they not only help to level the playing field when disputes do occur, but they also provide the oversight essential to ensuring that America’s promise of life, liberty and the pursuit of happiness is one that every citizen of HOA and condo associations can enjoy to the fullest. 8 Rand H. Fishbein, Ph.D. is President of Fishbein Associates, Inc., a national security consulting firm based in Potomac, Maryland. He is a former Professional Staff Member of the U.S. Senate Appropriations Committee. Dr. Fishbein has lived with his wife and children in Montgomery County, Maryland for the past twenty-five years. In 2006 Dr. Fishbein and his wife won a landmark case against his homeowners’ association before the CCOC: Rand H. Fishbein, Ph.D. v. Avenel Community Association Inc., Case No. 744-0, http://www.montgomerycountymd.gov/content/ocp/ccoc/Decisions/pdf_files/744.pdf. Dr. Fishbein may be contacted at: fishnet@pipeline.com. 9 Maryland Homeowners’ Association (MHA) Accomplishments10 2011: Lobbied successfully for SB 532, a law which authorizes a lot owner who believes his board of directors has failed to comply with the election provisions of the association’s governing documents to submit the dispute to the Division of Consumer Protection, OAG. 2010: Conceived of and lobbied successfully for the enactment of HB 695, which requires that a homeowners association’s proposed budget be submitted 30 days before adoption at an open announced meeting. Condominium associations already have this right. 2009: Awarded an Official Citation from the Maryland General Assembly for “dedication and commitment to protecting the rights of homeowners, leading the cause for beneficial social change, and being a stellar example of Public Service.” (Attached) 2009: Conceived of and lobbied successfully for the enactment of H.B. 137, the Association Books and Records Act, requiring associations to provide board minutes, financial statements and employee salaries within 21 days of a written request. 2008: Initiated publication of the E-Communicator, the MHA electronic newsletter. 2007: Lobbied successfully for an amendment to the Maryland Homeowners Association Act that provided that violations of this Act fall within the enforcement powers of the Division of Consumer Protection of the Office of the Attorney General. 2006: Presented information and testimony to the 2006 Maryland Task Force on Common Ownership Communities. 2005: Created an information resource web site for homeowners at: www.marylandhomeownersassociation.info. 1998: Conceived of the Maryland Homeowner’s Bill of Rights, which was incorporated into the Maryland Condominium Act and the Maryland Homeowners Association Act. 1987: Encouraged Montgomery Country to establish the Commission on Common Ownership Communities. 1983: Initiated publication of the Communicator, a newsletter sent to MHA members, Maryland legislators and every Maryland library. 1982: Persuaded the Montgomery County Council to establish the successful Task Force for condominiums and homeowner associations. 1982-Present: Organizes educational seminars, HOA tutorials and lectures on homeowner rights and responsibilities, answers hundreds of telephone and e-mail inquiries each year from homeowners across the State of Maryland. 1982-Present: Conceives of, encourages and lobbies for legislation on the State, county and local levels that protects the rights of Maryland homeowners. Courtesy of Maryland Homeowners’ Association. http://www.marylandhomeownersassociation.info/Site/MHA_Accomplishments.html 10