Monday, October 19, 2015

"What Happens Now"-Condo Smoking Restrictions

A condominium board is receiving complaints from unit owners about second-hand cigarette smoke emanating from within a unit owner’s unit into adjacent units.  The board wants to put a stop to the second-hand smoke but is afraid that it will violate an owner’s rights.  What can be done?
            Most association governing documents (usually in the By-Laws) give express power to the Board to adopt rules and regulations which govern the administration, management, operation and use of the common elements.  This power allows the Board to adopt restrictions which regulate behavior, use of amenities and common areas within the association, and impose fines to enforce violations.   The association Master Deed and By-Laws also normally have provisions within them on how to amend these documents.

Tennessee’s Non-Smoker Protection Act (the “Act”) prohibits smoking in public buildings, museums, banks, child care facilities, elevators and pretty much any place else which is “customarily used by the general public.” Violations of the Act are punishable by fines.  The Act however, expressly excludes private homes and private residences.  So how can an association protect its members?

            Membership in associations is created by the acceptance of a deed for a unit within the association.  The association members or the association, through its elected board, may vote to make the condominium common areas and/or individual units, smoke free by either amending the association master deed or adopting rules and regulations which prohibit smoking, and defines second-hand smoke as a nuisance, the violation of which is enforceable in the same manner as other restrictions in the governing documents.

            So that existing owners and occupants who wish to smoke are not unduly burdened, smoking restrictions may identify designated smoking areas within the association.  In the alternative, the association may adopt a complete ban on smoking anywhere (including within individual units) within the association property.

            All rules and regulations should have a violation notice requirement, reasonable fine policy and enforcement provision.  Once the members vote to amend the master deed or the Board adopts Rules and Regulations, the document created by the association attorney should be recorded at the County Register of Deeds’ office, and a copy should be mailed to all owners.  If the association has a website, a copy of the recorded document should be posted there as well.

Friday, October 16, 2015

"What Happens Now"-Association Lien Enforcement (Post Bankruptcy)

       There are generally two recognized types of legal jurisdiction in Tennessee.  Personal jurisdiction (in personam) and jurisdiction against property (in rem).    

       Bankruptcy is jurisdiction over the person (in personam).  The idea is that debts owed by the debtor get discharged and the debtor (homeowner) may start over fresh. 

       When an association records a lien, the lien secures the homeowner’s unit or house as collateral for the amount of unpaid association assessments and related fees (in rem). 

       What that means to your association is that a homeowner who receives a discharge in bankruptcy, is relieved from the personal obligation to pay any of the unpaid assessments which accrued prior to the date that he filed his bankruptcy petition.  The lien filed by the association however, is not discharged in the bankruptcy. 

       Although the association cannot pursue a homeowner (personally) for debts discharged in bankruptcy, if the lien was recorded prior to the bankruptcy, and the homeowner requests a full release of the lien after his bankruptcy discharge, the association may require the homeowner to pay ALL unpaid association assessments and related fees (including those which accrued prior to the homeowner’s bankruptcy petition), before a full release of lien will be recorded.


"What Happens Now"-Association Fees in Bankruptcy (In a Nutshell)

     The two main chapters under the US Bankruptcy Code which homeowners most frequently file under, are Chapter 7 and Chapter 13. 

     What are the differences and what do they mean to your community association?

Chapter 7 (complete discharge): 

    If the homeowner fulfills all of the requirements of Chapter 7, he gets a complete discharge from all “pre-petition” association assessments and related fees.

    All association assessments (including late fees, interest, etc) which accrue after the date of the homeowner’s Chapter 7 petition, are non-dischargeable in bankruptcy.

    Most Chapter 7 bankruptcies are completed within 4-5 months.  When the homeowner gets a Chapter 7 discharge, the association may then contact its attorney to begin the collection process.

     If the homeowner does not fulfill all of the requirements for a Chapter 7 discharge (which is not uncommon), the Bankruptcy Trustee will file a motion with the Bankruptcy Court to dismiss the homeowner’s case.  If the order is granted, the association attorney may then begin the collection process for all (pre and post-petition) unpaid association assessments, late fees, interest, etc.

Chapter 13 (re-payment plan):

      If the homeowner files for Chapter 13 protection, you should immediately notify the association attorney.  GOOD NEWS!  In most cases, because of the lien created by the association’s Declaration of Covenants, Conditions and Restrictions, and/or Master Deed (for condo’s), the association is treated as a “secured creditor”.  As such, the association will most likely receive monthly payments as a part of the homeowner/debtor’s re-payment plan once the plan is confirmed. 

     To ensure that the association participates as a secured creditor in the re-payment plan, the association’s attorney must file a Proof of Claim with the Bankruptcy Court. In most cases, after the Proof of Claim is filed and the homeowner/debtor’s re-payment plan is confirmed by the Bankruptcy Court, the association will begin to receive payments for the delinquent and ongoing association assessments.

     Any time bankruptcy is involved there is never a guarantee that the association will receive 100% of the delinquent and unpaid assessments from the homeowner.  It is essential for the association to have an attorney who is knowledgeable in bankruptcy law to ensure that the association has the best chance of recovery after the homeowner files bankruptcy.

     If the association was fortunate enough to have filed a Notice of Lien before the homeowner filed bankruptcy, all is not lost.  See the next edition of “What Happens Now?” for how the association may be able to recover 100% of the unpaid assessments and related fees.