When breaking ‘house rules’ is OK

Condo manager says temporary parking space is not a violation

DEAR BENNY: I manage a condominium property where a previous board of directors had put in the appendix that when changes are made to the rules they must be submitted to the members for input prior to being passed and going into effect.

At a board meeting it was stated that someone in the building was upset because the manager (me) was parking in the front of the building instead of in the space in the rear of the building that was designated for the manager. I informed the people present that I was parking in front of the building because we are in the middle of a fan coil and riser replacement project and the workmen needed my space in the back.

I then stated that the board had the authority to allow the violation of any house rule that was not derived from the declaration or bylaws because, although it is admirable and probably politically savvy to get input from the community prior to amending the house rules, it was legally not necessary since the bylaws clearly give the board of directors the authority to create and amend the house rules.

I have one board member who disagrees with all that and says the board must go through the amendment procedure set up in the house rules to allow any violation or amendment to the house rules. I have tried to tell her, based on the hierarchy of the declaration, bylaws and then rules, that the bylaws that give the authority trump the rules that a previous board may have passed.

This kind of surprised me because I even referenced to this board member about a year ago when we suspended the "no bicycles allowed on balconies" rule for three weeks while we were involved in a previous phase of the fan coil and riser replacement project.

This was a perfect case of the board using its authority to "allow a violation of a rule" or suspend a rule for the benefit of the building. I believe that is why developers’ lawyers don’t put all the rules in the bylaws, because it would shackle the hands of the board when it might be necessary to suspend or change a rule.

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Could you tell me who is right? –Ed

DEAR ED: There is no "right" or "wrong"; it is all spelled out in the legal documents of every association. You are correct that there is a hierarchy in condominium law. The primary source is the Condominium Act enacted by your state legislature. Next comes the declaration, then the bylaws, and finally the rules and regulations.

Typically, you need a supermajority vote of the members to amend the declaration and the bylaws. And generally, the board enacts the rules and regulations and does not need input from the owners. However, in Maryland, for example, the Maryland Condo Act does impose a requirement that owners get involved in the rule-making process.

So, the answer is: Read your legal documents including your state statute. I have found, based on my law practice experience as well as letters from readers of this column, that all too often no one really pays attention to those documents until it is too late. I actually had a board of director once tell me, "I don’t have to read the bylaws; that’s your job."

Can the board waive violations of the rules and regulations? That’s a good question. I maintain that under certain circumstances, the board can ignore violations, especially when there are compelling reasons to do so. I also know that some of my fellow attorneys in the community association field disagree, but, as we all know, when there are two lawyers, there are at least three opinions.

Finally, I do believe firmly that when the board plans to enact (or amend) a rule, even if it has the absolute authority to do so, it should submit the proposal to the membership. I tell my condo board clients: "Enact the rule but have it go into effect 30 days from now. In the meantime, send it out to all owners, and give them an opportunity to comment within the 30-day period. If there are serious objections and concerns, the board can go back to the drawing board."

DEAR BENNY: I am interested in your input on the government-sponsored Home Equity Conversion Mortgage that seniors can use to purchase a home.

At this time the only knowledge I have is that it is for persons age 62 and older, no qualifications other than being able to put 50 percent down and the rest if financed with no payments on the part of the applicant. The applicant must live there at least six months and one day out of the year. There is a 2 percent closing cost. Also the applicant pays for an inspection that has to pass FHA qualifications.

Do you believe this is too good to be true? –Rose

DEAR ROSE: The Housing Recovery Act of 2008 allows seniors to purchase a home using a reverse mortgage. There is a lot of confusion among real estate brokers and lenders as to how this works.

But yes, it is a good concept. I don’t know much about it, so I went to the Internet, typed in "reverse mortgage purchase" and found a lot of useful information.

My suggestion: Talk with a mortgage lender in your area; if that lender does not handle this type of loan, I suspect it will be able to provide you with a referral.

You will have to meet with a financial counselor before the loan can be finalized. This is to make sure that you fully understand and appreciate the terms and conditions (and consequences) of such a mortgage.

DEAR BENNY: I just inherited a house that is in a trust. How do I get the property out of the trust? –Harry

DEAR HARRY: If this is a "revocable living trust," by its terms it should end on the death of the person who created the trust, typically call the "settlor" or the "grantor." The assets of the trust are then administered by a successor trustee.

You have to carefully read the terms and conditions of the trust document. Some trust documents may contain restrictions on removing the property from the trust. If you are the successor trustee, and you are satisfied that there are no such restrictions, then all you really have to do is prepare a new deed conveying the property from you (as successor trustee) to yourself and have the deed recorded among land records where the property is located.

I do recommend, however, that you consult with your legal and financial advisers before taking any action.

DEAR BENNY: In a recent column a reader had obtained an investment property by way of a Starker exchange and after renting for several years moved into the house and now claims the property as his personal residence. Part of the answer you gave to the reader was not factually accurate:

"You have now abandoned the investment. The bad news is that you cannot take advantage of the up-to-$250,000 exclusion of gain (or if you are married and file taxes jointly up to $500,000) for any property that you exchanged.

"So while you may be able to claim the exclusion on your principal home (assuming you owned and used it for two out of the five years before sale), you will have to pay capital gains on the portion of the property that was exchanged."

The Internal Revenue Service will not automatically challenge an investor who converts investment property acquired in an exchange to a primary residence to take advantage of the up-to-$500,000 exclusion of gain. In order to qualify for safe harbor treatment, the investor must maintain the property as an investment for a minimum of 24 months. Once that period has passed, a taxpayer is free to convert the property to a primary residence. If the investor satisfies the five-year use and occupancy requirement, he qualifies for the exclusion.

If the investment property was acquired prior to Jan. 1, 2009, the investor would qualify for 100 percent of the exclusion, according to the Housing Assistance Tax Act of 2008.

I hope that this information is helpful. –Neil.

DEAR NEIL: Many thanks. I appreciate when readers call attention to errors that may occur once in a while.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

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