Condo Board Members Invited to Seminar on Condominium Law Legislative Updates

Kevin Hirzel_8x10@300Condominium board members are invited to attend a free seminar presented by Kevin Hirzel on Condominium Law Legislative Updates and Legal Questions and Answers.  Mr. Hirzel will be discussing the current legislation impacting associations and answering questions regarding to the legislation changes or other legal topics. The seminar is being sponsored by the Michigan Chapter of the Community Association Institute Legislative Action Committee.

Condominium Law Legislative Update and Legal Q & A
Presented by Kevin Hirzel
Tuesday, October 4, 2016 at 9:00 a.m.
Farmington Hills Manor
3666 Orchard Lake Road – Farmington Hills, MI 48336

Please RSVP to lloude@cmda-law.com no later than September 30, 2016 to reserve your seat.

Kevin Hirzel is a partner in our Livonia and Clinton Township offices where he concentrates his practice on commercial litigation, community association law, condominium law, construction law, real estate law, and probate and estate planning. He may be reached at (734) 261-2400 or khirzel@cmda-law.com.

Factors to Consider in Maintaining and Maximizing the Value of Your Condominium

Matt Heron colorDevelopers in the City of Detroit recently announced a plan to open an eleven (11) story 83 unit luxury condominium complex in Detroit known as The Ashton Detroit.  Construction is expected to start in 2017 and it is to be ready for occupancy by 2018.  The $35 million project is significant because it is the first free-standing condominium complex in downtown Detroit in the past twenty (20) years.  Renderings of the intended complex portray expansive living spaces, units flooded with bright, natural lighting, and modern common areas including an indoor pool.  Units are expected to be large, between 1,500 and 2,200 square feet, and in addition to a pool and fitness area, the developers have indicated that the complex will have unspecified ground-floor retail space.

The announcement of The Ashton Detroit brings excitement, and were it to be built its presence would add significantly to the downtown area in which it is intended to be located.  Regardless of the actual prices of the units that are eventually sold, the purchasers (and, to a certain extent, the developers), are most likely going to be concerned about the very same things that other condominium owners are concerned with – namely, how to maximize the value of their investment by maintaining the value of their condominium.

Discussion

Target prices for the units to be sold at The Ashton Detroit have not yet been announced.  However, assuming that its intended market is millennials and Gen-Xers seeking to live in an urban community, (whatever you do, don’t use the term young, urban, professionals), the developers will most likely need to keep costs at least at the upper ranges of affordability for a median-income family, which would put the lowest potential cost of a unit (excluding regular assessments), around $350,000.  Assuming this to be the low end of the purchaser’s investment, each owner will have a significant stake in ensuring that the condominium thrives and that they can recover their investment (and more) when they decide to sell.  This article discusses different factors that can affect the long-term value of a condominium unit.

One of the most important aspects in determining the value of a condominium complex to a prospective purchaser is the upkeep of its common elements.  A well run condominium will make capital improvements as they become necessary, address maintenance issues immediately, and keep the grounds neat and orderly.  In order to be able to afford the costs associated with these expenses, an association must make sure that its budget is adequate, and that its reserve funds are sufficient to address any necessary capital improvements.  This requires a board of directors to be involved and to ensure that co-owners are timely paying their assessments.  On the other hand, if an association fails to maintain its common elements, or fails to increase assessments sufficiently to maintain the project, then not only will the board of directors have contributed to the potential devaluation of the project as a whole, but the board may have also exposed themselves to potential liability for a breach of fiduciary duty, as the New Jersey Court of Appeals found in Ebert v. Briar Knoll Condominium Association.

At the time units are initially sold, a condominium’s assessments are most likely as low as they will ever be.  In an effort not to scare away potential purchasers, a developer has an incentive to portray the recurring costs associated with owning a unit as minimally as possible.  These initial assessments may reflect the maintenance costs of a brand-new condominium complex, but may not reflect the true costs associated with a condominium complex that requires capital improvements or significant maintenance over time.  In addition, these initial low assessments do not alter the fundamental principle that the value of the condominium units within the condominium are maximized by adequately maintaining the common elements and portraying the condominium as an attractive place to live.  Accordingly, it is important that purchasers of new condominium units engage in adequate long-term planning which takes into account the true cost of maintaining the complex, and, if necessary, adjust their assessments to take into account those costs not considered by the developer but vital for the condominium project’s long-term success.

Another potential factor in maintaining the long-term value of an investment in a condominium project is whether potential purchasers of units within the condominium project qualify for government insured mortgages, an important resource for many first time home-buyers.  This is significant because the national share of first time home-buyers with either a Fannie Mae, Freddie Mac, or Federal Housing Association (“FHA”) mortgage was 54% of all purchase mortgages in 2014.  Especially with respect to FHA financing, however, there is a concern that a restrictive regulatory environment has forced a number of potential purchasers out of the marketplace.  While the FHA helped finance roughly 80,000 to 90,000 condominium mortgages a year over the past decade and a half, this number has more recently been reduced to a quarter of that volume.  In addition, the FHA requires condominium projects to go through a certification process every two years, but according to the Community Associations Institute less than 14,000 of the 152,000 condominium associations eligible for FHA loans actually attain FHA certification.  Undoubtedly, removing 60,000 potential purchasers from the condominium market will have an effect on value.  To a certain extent, the FHA’s restrictive policies arise out of lessons learned from the collapse in housing values in the late 2000s, when the typical U.S. condominium lost 33.2 percent of its value.  Further, there is an argument to be made that these restrictive policies do not have a materially adverse effect on values since, at least as of late 2015, condominium value appreciation was still outpacing single-family homes.

Nonetheless, steps are being made to make condominiums available to more potential purchasers within the current regulatory framework.  A major issue in this area tends to revolve around rentals.  For several years the FHA has required a non-owner occupancy percentage of no more than fifty (50%) percent in order for a potential buyer to be approved for an FHA-approved mortgage.  Fannie Mae and Freddie Mac have similar requirements.  In late 2015 the FHA rules interpreting its requirements were temporarily relaxed to allow non-investor owner second homes to be considered “owner occupied.”  In addition, in July 2016 Congress passed legislation (H.R. 3700) which reduces the minimum owner-occupancy ratio from 50% to 35%, unless the FHA can provide justification for a higher percentage, and also requires the FHA to streamline its certification process.  If a project does not allow for an FHA mortgage, or a Fannie Mae or Freddie Mac mortgage, then an entire market of potential purchasers is excluded, potentially decreasing the value of the units within the project as less purchasers are available to compete with one another.  Accordingly, these changes may assist in maintaining condominium values by increasing the pool of potential purchasers.

In addition to meeting FHA eligibility, there are additional reasons why a condominium may want to limit the number of rental units within the condominium.  More anecdotal concerns regarding rentals relate to the incentive (or lack of incentive) for a non-owner occupant to adhere to and comply with condominium rules and regulations pertaining to usage of the common elements and maintenance requirements, and to work on building a long-term relationship between the unit occupant and the project.  This rationale presumes that an owner occupant has more of a personal stake in the ownership of his or her unit than a non-owner occupant, and in the long-term success of the condominium project as a whole.  This is part of the thinking behind the FHA’s requirement that a minimum percentage of units be owner-occupied.  To this argument, however, there is a counter-argument, at least as to value.  If a condominium prohibits sales to non-occupant owners due to a maximum rental threshold having already been reached, then such prohibition will also exclude a market of potential purchasers (i.e., investors), who might otherwise be interested in purchasing a unit.  In theory, this too could have a potential adverse effect on the value of a unit, though the effect would most likely only be felt if the price-point for a condominium unit were already at a price-point that an investor were willing to pay.  In other words, the adverse effect of a rental limitation may, as a practical matter, only be felt when prices are trending downwards and investors are seeking to purchase units at discounted prices.  Further, this could potentially actually have a positive effect, as it could prevent disillusioned owners from “dumping” their units at bargain-basement prices when the market turns south, thus preventing an influx of comparable sales with low sale prices.  In stock market parlance, a rental cap could act as a “trading curb” or a “circuit breaker” to help prevent crashing prices (by preventing owners from being able to sell to investors who will only purchase at low prices).

Finally, because of its location, The Ashton Detroit may be able to tap into what has been called a “pent-up demand” for walkable housing in metropolitan Detroit which is believed to correlate to a 50% premium for residential housing.  If retail shops are opened and the project becomes a true “mixed use” development, then this may also assist in keeping values high.  These comparative advantages over similar projects in other areas may help maintain the values of the units sold in the project even in economic instability.  Undoubtedly, this concept was attractive to the developers as they embarked on their development project, and similar factors can be considered by condominium boards as they observe the development that takes place in their particular areas.

Summary

Whether to attain FHA certification and whether to impose a rental cap are issues that may affect condominium value.  Location is a factor in value, but is mostly fixed and difficult to change internally.  Ultimately, as with every condominium project, it will be incumbent on the condominium association to fulfill its responsibilities in maintaining the condominium in order to preserve property values over time.  This involves an adequate reserve fund, a realistic budget, timely collection of assessments, adherence to the condominium documents, and an involved board of directors.  So long as these core principles are followed, then a condominium project should thrive indefinitely.

Matthew W. Heron is an attorney in our Livonia office where he focuses his practice on dispute avoidance, condominium law, commercial litigation, commercial real estate, large contractual disputes, and title litigation. He has extensive litigation and trial experience in state and federal courts involving commercial litigation issues and real estate matters.  He can be reached at (734) 261-2400 or mheron@cmda-law.com.  You can also follow him on Twitter at @mwheron75.

Experienced Elder Law and Estate Planning Attorney Joins Firm

gene-richardsWe are pleased to announce that Norman E. Richards (Gene) has joined our Livonia office as a partner.  Gene primarily focuses his practice on elder law and estate planning. Drawing on 20 years of experience, his mission is to help clients safely navigate life’s transitions through the skillful, practical, and compassionate application of comprehensive elder law and estate planning services.

As an elder law attorney, Gene guides senior clients in planning for their future care needs. This includes maximizing financial resources to pay for care. As an estate planning attorney, Gene develops customized legal documents for each client’s unique needs, such as wills, trusts, and power of attorneys; disability and special needs trusts; estate plans for blended families; and business succession plans.

Christopher Schultz, managing partner of the Firm, explains, “Gene has substantial experience in the areas of estate planning and elder law.  He is a significant asset to CMDA’s growing elder law practice group and a welcome addition to our Firm.”

Mr. Richards may be reached at (734) 261-2400 or nrichards@cmda-law.com.

Attorneys Selected as 2016 Michigan Super Lawyers and Rising Stars

super-lawyer-rising-star-2016We are pleased to announce that several CMDA attorneys have been selected for inclusion in the 2016 Michigan Super Lawyers & Rising Stars List.  Please join us in congratulating the following attorneys:

2016 Michigan Super Lawyers
Jeff Clark, Top Rated State, Local and Municipal Attorney
Haider Kazim, Top Rated State, Local and Municipal Attorney
Carla Testani, Top Rate Family Law Attorney
Jim Schuster (Of Counsel), Top Rated Elder Law Attorney
Allan Vander Laan, Top Rated State, Local and Municipal Attorney
The Super Lawyers List recognizes no more than five percent of attorneys in Michigan.

2016 Michigan Rising Stars
Kevin Hirzel, Top Rated Real Estate Attorney
Joe Wloszek, Top Rated Real Estate Attorney
The Rising Stars List recognizes no more than 2.5 percent of attorneys in Michigan.

Christopher Schultz, managing partner of the Firm, explains, “Having many attorneys from CMDA selected as Michigan Super Lawyers and Rising Stars is validation for the hard work they put into the Firm and the superb level of service they offer clients.  Congratulations to each of them on their well-deserved title.”

Hoarding: steps to take if a hoarder is living near you

Joe Wloszek_8x10@300Joe Wloszek, an attorney in our Livonia office, recently wrote an article on hoarding and some practical steps condominium associations or property managers may take should they be faced with a hoarding issue.  The article was published in the Michigan Chapter of the Community Associations Institute’s publication Community Association News.

In “Hoarding” Mr. Wloszek examines compulsive hoarding, which is a repeated pattern of behavior of acquiring large quantities of materials or objects coupled with the inability or unwillingness to discard those materials or objects.  He discusses some practical steps associations can take when learning of a hoarder, including contacting the association’s board of directors and/or property manager in writing and contacting local public officials, such as police, fire department, and/or health officials.  If those options don’t work, Mr. Wloszek outlines a variety of legal options that can be taken.

Mr. Wloszek focuses his practice on dispute avoidance, condominium law, commercial litigation, commercial real estate, large contractual disputes, and title litigation.  He may be reached at (734) 261-2400 or jwloszek@cmda-law.com.

Acho Quoted on ESPN.com regarding NFL Concussion Case

Jim Acho 2016Jim Acho, a partner in our  Livonia office, was recently quoted in an article on ESPN.com regarding a last-minute appeal in the NFL concussion case. Mr. Acho represents about two dozen clients in the concussion case and is disappointed with this latest development since CMDA has clients with meritorious claims who have been waiting patiently to file them.

The family of late Buffalo Bills fullback Carlton “Cookie” Gilchrist asked the U.S. Supreme Court court on Tuesday to review whether the judge should have approved the potential $1 billion settlement without a full challenge to the scientific evidence presented jointly by both sides. This appeal, even if rejected by SCOTUS as Mr. Acho predicts, will delay payouts for at least several months. As stated, Mr. Acho disagrees with this latest appeal and sees it as an unnecessary and senseless delay to providing much-needed help to former players who are suffering and in need of assistance. Nonetheless, he will remain optimistic in his fight for these much-needed benefits to ex-players. CMDA’s philosophy has always been to stay the course, and stay the course we will.

Click here to read the full article.

James R. Acho is a partner in our Livonia office where he concentrates his practice on sports and entertainment law, labor and employment law, law enforcement defense and plaintiff’s personal injury.  He is a nationally respected sports law attorney.  He may be reached at (734) 261-2400 or jacho@cmda-law.com.

Michigan COA: Seller of Boat was not Owner during Accident

Jennifer RichardsThe sale of a boat is a commonplace transaction in Michigan, especially during the summer months. According to the United States Coast Guard 2014 Recreational Boating Statistics, Michigan had 789,458 registered watercraft, one of the highest numbers of registrations in the country.

As we near the end of the 2016 boating season, the Michigan Court of Appeals in Williams v. Kennedy et. al, issued Aug. 2, 2016 (Docket No. 325267), recently held that the seller of a boat does not qualify as the owner of the boat during the period after the seller delivers the certificate of title, but before the transfer of title is registered with the Secretary of State. This is significant due to Michigan’s imposition of liability on the “owner” of a watercraft for injuries caused by negligent operation of the watercraft under MCL 324.80157.

This case, not handled by CMDA, arose out of a boating accident in 2013 that caused severe injuries to a minor. Michael Metcalf sold his boat to Mark Kennedy on August 26, 2013. In exchange for the sale price of the boat, Metcalf signed and delivered a “Watercraft Certificate of Title” containing a “Title Assignment by Seller.” Kennedy left the transaction with the boat and the Certificate of Title. Kennedy was then supposed to apply to transfer the legal title with the Secretary of State as is required by statute. Kennedy attempted to do so on August 28th and August 30th, but was unable due to long lines. Before the transfer paperwork was submitted to the Secretary of State, on September 1, 2013, Kennedy piloted boat and injured a minor after striking her with the boat. Kennedy was later able to complete the transaction at the Secretary of State on September 5, 2013.

The injured minor’s mother filed a negligence action naming both the seller and the buyer of the boat. She alleged that Metcalf, the seller, was liable as an owner for the alleged negligent operation of the boat under MCL 324.80157 which imposes liability on the owner of a watercraft for its negligent operation. Because the transaction had not been completed with the Secretary of State, the Court was faced with the question of “whether the seller of a boat qualifies as an ‘owner’ during the period after a seller delivers the certificate of title to a purchase but before the transfer of title had been registered with the Secretary of State.”

The Court ultimately held that Metcalf did not qualify as an owner before the transfer of title of the watercraft was registered with the Secretary of State. The Court construed the Natural Resources and Environmental Protection Act which sets forth the requirements for applying for a certificate of title for watercraft with the Secretary of State. The Court noted that this application must be filed within 15 days after the date of the purchase, and Kennedy fulfilled this requirement. The Court also noted that the Act provides that “[i]f satisfied that the applicant is the owner of the watercraft and that the application is in the proper form, the secretary of state shall issue a certificate of title.”  The Court reasoned that this suggested that ownership precedes the legal transfer of title with the Secretary of State.

Lastly, the Court construed the definition of “owner” under the Act. It noted that an owner is “a person who claims or is entitled to lawful possession of a vessel by virtue of that person’s legal title or equitable interest in the vessel.” The Court concluded that Metcalf could only qualify as an “owner” if he was entitled to lawful possession as a result of his legal title at the time of the accident. But, the Court determined that Metcalf was not entitled to lawful possession of the boat because he had already expressly transferred his possessory interest in the boat to Kennedy when he sold him the boat. Accordingly, Metcalf was not the owner of the boat at the time of the accident.

Based upon this decision, a seller of a watercraft is not an owner during the period after a seller delivers the certificate of title to a purchaser, but before the transfer of title has been registered with the Secretary of State. Although this decision seems to protect the seller of a watercraft from liability during the transfer of title, a seller of a watercraft can avoid liability for negligent operation under MCL 324.80157 by making sure that the application of a certificate of title for a watercraft is made with the Secretary of State.

Jennifer Richards is an attorney in our Livonia office where she concentrates her practice on appeals, law enforcement defense and litigation, municipal law and insurance defense.  She may be reached at (734) 261-2400 or jrichards@cmda-law.com.