Dealing with Absent Owners in Communities
A condominium association works as a whole because each separate unit is individually owned but has an undivided interest in the common elements appurtenant to each unit. But what happens when a Unit Owner decides to leave for an extended period of time or chooses to lease its individual unit out to someone else? For example, there was a Unit Owner who was oversees and she was leasing her unit out to a tenant who vacated, without providing notice. The absent Unit Owner had no ability to find a new tenant, especially being out of the country. Since there was no one paying rent or maintenance fees to the association, it was essentially an abandoned unit.
In the event of an abandoned unit, we may recommend to an association that they file a lawsuit and a foreclosure action simultaneously. This saves both time and money. In order to serve Unit Owners of abandoned units with a lawsuit, the association runs into the problem of having to track down the Unit Owner (who typically does not reside in the community) and has an especially difficult time if they need to be served internationally.
In a normal case, in the United States, a Plaintiff association will bring suit in a U.S. court. In cases where this is not possible, Federal Rule of Civil Procedure 4(f) addresses serving defendants in a foreign country. Additionally, the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents (“Hague Convention”) establishes a process to serve defendants sued in foreign nations to ensure they receive actual and timely notice of suit. This international treaty seeks to simplify, standardize, and generally improve the process of serving documents abroad, specifying certain approved methods of service and preempting “inconsistent methods of service” wherever it applies, Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 699, 108 S. Ct. 2104, 100 L.Ed.2d 722. As defined by the Hague Convention, “service of process” refers to formal delivery of documents that is legally sufficient to charge defendant with notice of pending action. Id. In one Supreme Court case, the Court found that service of process by mail is not prohibited under the Hague Convention. In cases governed by the Hague Convention in Civil and Commercial Matters, service by mail is permissible if two conditions are met: (1) the receiving state has not objected to service by mail; and (2) service by mail is authorized under otherwise-applicable law. Water Splash, Inc. v. Menon, 137 S. Ct. 1504, 197 L. Ed. 2d 826 (2017).
Usually, most companies and associations will designate an agent who will accept legal mail on behalf of the entity. Because the Hague Convention seeks to ease the process of international suits, designating an agent in the United States to accept service of process is vitally important. An agent would be known to the association and would be willing to accept service on behalf of the association so prompt action can be taken. If an association is served with a lawsuit and does not promptly respond, it could be defaulted for failing to respond by the deadline. To avoid this, associations should designate their attorneys to serve as their registered agents. The association can enact a Resolution allowing this and stating the same. Some community associations list one of their directors as their registered agent, but this is not recommended as directors may move, resign, or be recalled.
When it comes to Unit Owners leasing their units, the Board will typically have some control over this if permitted by the governing documents, primarily due to maintenance, fees, and upkeep of the unit. If the governing documents are silent on leasing of units, we recommend enacting a resolution to clarify the association’s position on leasing and to provide Unit Owners with a clear set of rules and regulations to refer to.
Another concern with absentee owners, whether they are leasing the unit to a tenant or just absent from the community, is whether payments are being made to the association for the unit. In the event owners are absent and not making payments, the unit must be foreclosed upon. An abandoned unit does not pay maintenance fees, which in turn affects the association. This leads to a case of something called a “zombie foreclosure”: when houses sit abandoned, with the homeowners gone, and the bank not yet in possession of the properties. A vacant unit can pose a major issue for an association. Homes quickly fall into poor condition, yards become overgrown, and abandoned units are a great place vandalism and squatters. This can affect the association’s overall property value and aesthetics.
Another concern of having a vacant unit is access to the unit in case of an issue, especially in those cold winter months. Because the common elements of the units are shared, some issues affecting one unit may also affect another adjacent unit, such as freezing pipes, and the association has an obligation to act. If the temperature is not maintained or the unit is not winterized, this can pose a serious concern to other surrounding units in the community. In the event something does go wrong, outside personnel may be required to enter the unoccupied unit to address the problem before it gets worse. If the Unit Owner is not present for an extended period of time, the necessary repairs are likely to become delayed resulting in a very expensive bill for either the association or the Unit Owner to handle.
Vacant units and absentee owners are clearly a problem. By enacting specific community rules and regulations, including rules on collection efforts a Board will take, it is less likely for units to remain unoccupied. Some ways to deal with these issues is the imposition of fees and regulations, a requirement to keep up to date contact information with Management, leaving keys with a designated known individual if the Unit Owner is planning to be gone for an extended period of time, and communicating with the Board and Management regarding same.
Some Unit Owners purchase a property to simply lease it out or use it as an investment property. This leads to another situation where a unit could remain vacant for an undisclosed amount of time or until a prospective tenant comes along. A solution to this would be the imposition of a leasing restriction on units, which some governing documents include. For those governing documents that do not have a leasing restriction, Griffin Alexander can research your options and provide other solutions, such as an Amendment or Resolution to the association’s governing documents.
The information in this Client Alert is provided solely for information purposes. It should not be construed as legal advice on any specific matter and is not intended to create an attorney-client relationship. The information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based upon particular circumstances. Each legal matter is unique, and prior results do not guarantee a similar outcome.
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