Success in Harrisburg – CAI Legislative Action Committee
Throughout 2014, members of the Community Associations Institute, Pennsylvania and Delaware Valley Chapter, Legislative Action Committee (“LAC”) continued their efforts to assure the legal, financial, and administrative sustainability of Pennsylvania’s community associations. In support of this endeavor, the LAC drafted and sought sponsors for legislation requiring fair treatment of associations in obtaining governmental and municipal services, and reversing the impact of erroneous decisions made by appellate courts. And, as the legislature repeatedly demonstrates its failure to comprehend even basic elements of association governance, the LAC opposed certain bills to prevent them from becoming law. Success of the LAC is thus not only measured by progress made on legislation it has proposed, it is also measured by CAI’s ability to protect associations from detrimental new law.
Among the LAC’s defensive accomplishments is the complete revision to Senate Bill 1302, which was introduced on March 26, 2014 by State Senator Folmer. As is often the case, SB1302 was created in response to a vocal constituent’s complaint about the association in which she resides. Based on information provided to members of the LAC during numerous meetings, the board of the constituent’s association apparently amended its documents without meetings, held meetings without a quorum present, and threatened her with legal bills if she brought suit against the association. Clearly, if accurately described, her association had already broken the law. SB1302 was nonetheless intended to prevent this kind of board behavior by amending a number of sections of the Uniform Planned Community Act (68 PA.C.S.A. Section 5101 – et seq – the “Act”).
However, as originally drafted, SB1302 would have drastically altered existing requirements for meeting quorums, created legislative inconsistencies regarding the adoption of budgets and imposition of fines, and erected unnecessary pitfalls to hinder an association’s ability to collect assessments. SB1302 essentially proposed unworkable solutions to non-existent problems. The Act authorizes association boards to levy assessments through an annual budget process. Section 5303 (b) of the Act requires that notice of the adoption of the annual budget or approval of a capital expenditure be delivered to each unit owner promptly after such approval; and furthermore provides that the owners may vote to reject same. Section 5302(a)(11) of the Act requires that fines and penalties be preceded by notice and an opportunity to be heard. SB1302 would have implemented a requirement that assessments, fines and penalty amounts be approved by the membership at an annual meeting. Stripping boards of management and enforcement powers is not only impractical, it is clearly inconsistent with concepts of association governance as set forth in the Act and the declarations of communities. Furthermore, implementing a requirement for unit owner vote on basic financial decisions would seriously impact an association’s ability to maintain revenue necessary to meet the association’s fiscal obligations.
In addition to the foregoing amendments, Senator Folmer’s Bill would have required associations to send two notices for all annual and special meetings. The Act and virtually all association documents already require that written notice of meetings be delivered to each unit owner. Mandating a second notice is financially and administratively burdensome. Unit owners who ignore a first notice are no more likely to read a second notice. SB1302 also sought to increase quorum requirements from 20% to 50%, and in no event less than 40%. The intent of this change was to foster increased participation. However, as associations often have difficulty achieving quorums at their annual or special meetings even at current levels, increasing attendance requirements would not foster a rise in participation. Instead, the repeated inability to obtain a quorum would have hindered associations from properly conducting business.
Finally, Senator Folmer’s legislation would have imposed restrictions on an association’s ability to collect assessments. Essentially, it would have prohibited an association from advising unit owners of its right to collect attorneys’ fees and costs incurred in efforts to collect assessments. This kind of limitation runs contrary to existing collection laws, which require accurate disclosure of the amounts sought. SB1302 would thus have prevented associations from recovering attorneys’ fees, and as a result, impacted its ability to function financially. The addition of further limitations upon an association’s ability to collect assessments is also contrary to most governing documents and existing provisions of the Act.
By educating the legislature of the negative, albeit unintended, impact adoption of SB1302 would have had on associations, members of the LAC successfully negotiated removal of all objectionable provisions. This process also provided a forum for the LAC to work with Senator Folmer’s staff on revisions to permit voting by electronic means, the only portion of SB1302 responsive to its original intent – fostering unit owner participation. CAI’s response to SB1302 illustrates the continued need to monitor legislative activity. Fortunately, with the help of its lobbyist, the LAC has established itself as a recognized leader on association law topics. CAI’s position on association relevant legislation is thus significant.
As stated above, LAC accomplishments were not all defensive. On June 9, 2014, the United States Court of Appeals for the 3rd Circuit, in a bankruptcy matter titled In re Kelly L. Makowka, held that the lien for assessments created by Section 5315 of the Act, can only be preserved for statute of limitation purposes, by an in rem foreclosure action. This essentially means that unless associations file foreclosure actions within three years of a delinquency, the lien for assessments is extinguished. Makowka held that money judgment suits do not preserve the lien. As a result, associations will be required to resort to much more drastic, aggressive, and expensive foreclosure proceedings to assure continued financial viability. Obviously, this will make collection activity substantially more expensive and inefficient, and will prevent associations from resorting to less drastic and appropriate enforcement methods. Makowka ignores decades of practice, and would turn small collection cases into major foreclosure actions. Associations must continue to have the ability to avail themselves of the appropriate collection method. The LAC has proposed legislation to correct the result reached by Makowka through simple amendments to Sections 3315 of the UCA and 5315 of the UPCA. These amendments will preserve the ability of associations to collect assessments through money judgment actions.
Condominium and homeowner associations rely solely on unit owner assessments to fund various obligations imposed by their governing documents. In most cases, these obligations entail not only unit maintenance such as roofs and siding, but also infrastructure components including roads, storm water management and utility systems. For decades, associations have paid for these municipal services twice – once through monthly assessments and again through property taxes. Curing this fundamental fairness issue is the goal of House Bill 551 (2013), which would permit unit owners to deduct a portion of their association assessments on their personal income taxes. However, the fiscal impact of HB551 could not be studied without an accurate inventory of associations in the Commonwealth. Attempts by the Joint State Government Commission (JSGC) to gather this data failed miserably, and evidenced an absolute lack of information on associations within Pennsylvania. While it is estimated that 3 million Pennsylvanians reside in an association, the actual number and location of these communities is, with rare exception, unknown. Therefore, in order to gather very basic information on name, location and size of all associations, the LAC has proposed amendments to the Pennsylvania Municipalities Planning Code to implement this simple reporting requirement. Although CAI has demonstrated that this data is easily harvested from existing electronic assessment records, municipal lobbying groups have mounted opposition. Legislators have nonetheless expressed an interest in sponsoring a bill.
Fairness in the provision of governmental services is not limited to trash and infrastructure. Pursuant to Pennsylvania law, all amendments to a declaration must be recorded. Unfortunately, what has historically been an administrative act at minimal expense has become a large financial burden. A number of counties have implemented a requirement to index amendments against each individual unit parcel number. And, for indexing amendments against each parcel number, these counties have adopted a “per parcel” fee. In Montgomery County, for example, the fee is $10.00 per parcel. Accordingly, an amendment to a 250-unit Association will cost, at a minimum, $2,500.00. Other counties in the Commonwealth have adopted similar fees, and further increases to $15 or $20 per parcel have been proposed. Such fees are not only absurdly high, they bear no relation to the work required to record documents. Moreover, as recording is a legal requirement, such fees could prevent associations from complying with law. The LAC is currently working on legislation to bring filing fees down to reasonable levels, and to prevent counties from imposing these exorbitant charges.
Another issue which was brought to the LAC’s attention this year by several Pocono area community associations is changes to regulations pertaining to private dams. Many associations with lakes, including a large number in the Poconos, have dams for which they are responsible. The State Department of Environmental Protection (DEP), without much notice to affected communities, made substantial changes to Chapter 105 of the State Code dealing with Dam Safety and Waterways. These changes and accompanying fee schedules now require an Annual Dam Registration fee of $800 and the posting of bonds for each dam – costing in many cases in the tens of thousands of dollars. Failure to comply can result in DEP enforcement procedures which carry severe penalties. CAI is having constructive conversations with Poconos area legislators on ways to reduce the financial burden of these new regulations.
Finally, for the first time, the LAC issued a Legislative Scorecard prior to the November General Election. While neither CAI nor the PA LAC make candidate endorsements, educating members on candidates seeking your vote at election time is important. Thus, the LAC created a short questionnaire soliciting candidate opinions on issues important to community associations. Surveys were sent by electronic mail to candidates in each legislative district and the results were published on our website. While the response rate from candidates was lower than anticipated, it was a good first start for on efforts to educate legislators and voters on issues of critical importance to community associations.
Clearly, the LAC has been busy and will continue advocate on behalf of Pennsylvania condominium and homeowners associations. We encourage you to share our efforts with your association members, as their support – financial, vocal, and emotional – is vital to our success. Work of the LAC directly impacts their quality of life in very real and meaningful ways.
This article appeared in the November/December 2014 edition of Community Assets Magazine, a Community Associations Institute publication
This article is not legal advice and is provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction.