In Community Associations, there is a Best Practice to not enact any rule you cannot enforce. When contemplating rules for community harmony, Boards and management also must contemplate who will enforce the regulation and what penalty will come to the rule breaker.
In October 2023, Maryland Community Associations were required to complete reserve studies and fund them adequately within three years.
Reserve studies have always been a best practice tool for condominium associations. Smaller associations tended to forgo professional studies, adopting a pay-as-you-go approach of maintenance and repair to budget funding.
Although this new regulation is intended to ensure responsible upkeep and safety, the potential for steep fees and assessments has everyone –– homeowners, board members, reserve study specialists, engineers, real estate brokers, and Insurance agents –– discussing the ramifications of these requirements on our communities.
One big question being discussed: What will happen if the community DOESN’T comply with the new regulations?
At the State Level
Maryland Condominium Act, a state statute, is enforced by the Maryland Attorney General’s Office. In January, Karen Straughn, Sr. Assistant Attorney General and Director of Mediation Unit for the Consumer Protection Division, attended a meeting of the Delmarva Community Managers Association to discuss possible ramifications of not following the regulations in the Maryland Condo Act. Those included:
- Fines up to $10,000
- Issuance of Discontinuance
- Educational Discourse
For more information, contact Department of Housing and Community Development for Legislative Updates or call the Consumer Protection Division hotline at 410-528-8662.
The Delaware Uniform Common Interest Ownership act, a state statute, can be mediated by the Attorney General’s office, or more specifically the Office of the Ombudsperson for the Common Interest Community. The Ombudsman’s office can help resolve disputes without recourse to the judicial system.
At the Federal Level
Most federal mandates on condominiums are enforced by loan requirements through Freddie Mac and Fannie Mae. For example:
- Insurance to Value
- Flood Insurance Requirements
- Crime or Employee Theft
- Reserve Contributions equal to 10% of the budget
If the association fails to meet these requirements, loans could be denied, and the community resale value could be diminished due to inability to finance with a conventional mortgage.
At the Local Level
The Local Government level provides regulations and can enforce with actions including fines. Examples include:
- Grilling too close to the property
- Noise Ordinances
- Rental regulations and taxation
- Building codes
At the Community Level
Communities set rules and then enforce rules through the governing documents. Some allow for fines or penalties. Examples of community regulations include:
- Pool Rules
- Architectural Guidelines
- Parking Regulations
Truth and Consequences
Most often, regulation of community associations is complaint driven. A complaint from a resident or neighbor could lead to enforcement procedures and fines to gain compliance with laws and regulations.
Volunteer Boards may not be aware of every regulation passed or adopted at the different levels of government, creating a scenario ripe for accusations from multiple parties.
The Directors & Officers liability policy can protect the association’s Board and Committee Members from retribution after enforcement action. An unequitable approach to enforcement frequently causes claims. When enforcing a regulation, the Board wants to make sure they are enforcing against any party breaking the regulation, and not solely the one who had a complaint filed against them.
Looking Ahead
Now that you know the potential penalties for non-compliance of regulatory statutes, your next steps should be:
- Consider professional management; they will know and follow the statutes and be sure your association complies.
- Review the Directors & Officers liability policy to make sure you are provided defense if you inadvertently are not compliant with any statute.
- Communicate clear enforcement policies to owners and guests, and enforce them consistently for all residents.
This reserve study legislation is active and ongoing. At the time of this writing (February 2024), Maryland is again considering extending the timeline to fund the reserves from 3 to 5 years. You can follow along at the Maryland General Assembly’s site: Senate Bill SB1157 cross-filed with House Bill HB0281
