D.C.'s "Post-Condominium" Era?

Has the District of Columbia’s real estate market entered a “post-condominium” era? Could be, according to testimony at the D.C. Council’s December 2015 hearing on proposed legislation to strengthen the rights of condominium owners vis-a-vis Condominium Boards (“The Condominium Owners Bill of Rights Amendment Act of 2015,” 2015 Bill Text DC 443). Although the condo form of home ownership was originally intended to expand affordable housing options in D.C., the drive for profit-taking through the mechanism of non-judicial foreclosure of condo liens has created opportunities for abuse. So much so that, at the December 2015 hearing, a D.C. Council Member emphasized that one of the Council’s purposes for the hearing was to determine WHETHER THE CONDOMINIUM FORM OF HOME OWNERSHIP REMAINED A VIABLE ONE FOR THE DISTRICT ...

By Catherine Park

A steady stream of condo owners testified at the hearing about intimidation tactics by Condo Boards (such as exorbitant penalties for technical infractions, illegal lock-outs, filing false liens, insider profit-taking through non-judicial foreclosures, votes conducted in secret, contracts awarded to relatives, etc.).

The hearing was conducted in the shadow of the D.C. Court of Appeals’ landmark ruling in
Chase Plaza Condominium Ass’n v. JPMorgan Chase Bank, 98 A.3d 166 (D.C. August 28, 2014). In the Chase Plaza case, D.C.’s highest municipal court held that foreclosure of a condo association’s “super-priority lien” for a mere 6 months’ worth of condo assessments extinguished a first mortgage (or deed of trust). Chase had argued that allowing the condo associations’ “super-priority” liens to extinguish bank liens would cripple mortgage lending on condo properties in D.C.

At the D.C. Council hearing, the competing interests were portrayed as “condo owner vs. condo association,” despite the fact that an owner is a member of the association, as well. The owner isn’t always a member of the Board of Directors, however. The Board, which is comprised of Officers (President, Vice President, Treasurer, and Secretary, in most condominiums), governs the rest of the association. During the hearing, numerous condo lawyers who represent “condo associations” (but who report to Condo Board Members) attempted to portray the divide as one between “owner vs. association.” Such antics demonstrate why the proposed legislation is so necessary to protect the rights of individual condo owners.

Among the bill’s provisions is the imposition of a fiduciary standard of conduct (the highest ethical standard under the law)
for Board Members. The bill would require Board Members to (1) “uphold their fiduciary duty to refrain from promoting personal interests, gain, or biases, and shall only use the power and resources of their position to advance the interests of the members of the unit owners’ association”; (2) “ensure that the governance of the unit owners’ association is conducted openly, transparently, efficiently, equitably, and honorably”; (3) “governance shall be in a manner that permits unit owners to make informed judgments, and to be able to hold officers and members of the executive board accountable for their actions”; (4) neither request or grant to, or withhold from, any person any special consideration, treatment, or advantage or disadvantage different from that which is available to every other unit owner in similar circumstances”; and (5) “always remain mindful that the appearance of impropriety can be as corrosive of a unit owners’ confidence in the unit owners’ association as an actual impropriety ....”

But to hear Condo Boards tell it, individual owners who don’t pay their condo assessments are the culprits. Because assessments remain unpaid, so the assertion goes, basic services (such as garbage collection, snow removal, maintenance, cleaning, etc.) can’t be provided. Allegedly that’s why Condo Boards are cracking down, despite the fact that basic services
don’t cost very much (and therefore overpriced assessments are a huge factor when people forego paying assessments). Many condo lawyers at the hearing advocated that the Council vote down the bill’s requirement that a mandatory mediation be conducted before a Condo Board can non-judicially foreclose its super-priority lien and obtain clear title to a condo property worth several hundreds of thousands of dollars without ever having to explain the validity of the lien to a judge or mediator.

On the alleged exorbitant costs of basic services: One public witness testified that a prohibition against “self-management” is written into the bylaws of some condominiums, to prevent unit owners (even in very small communities of 4 units) from soliciting bids for competitively-priced garbage collection, maintenance, snow clearing, etc. Such small communities may be forced under their bylaws to hire a management company, which uses vendors with whom they have cozy relationships. Many condominium associations operate on the erroneous assumption that basic services must be exorbitantly priced. As the witness emphasized, “[The provision of overpriced services through the management company] is a racket ....”

The proposed legislation also would require the establishment of an Advisory Council, reporting to the Mayor, the Council, and District agencies. The Advisory Council would include community members and appointees. Such an Advisory Council could be very beneficial to D.C. condo communities, if empowered to provide education to D.C.’s Condo Board Members on how to solicit competitively-priced basic services, how to avoid ethical conflicts, how to establish procedures for transparency, how to keep financial and other records, etc.