Can Delinquent Condo Owners Be Exposed?

Written by Posted On Tuesday, 19 August 2014 11:45

If you live in a condominium and you are delinquent on your monthly assessment, can your association disclose your name? If you live in a Montgomery County, Maryland condominium, the answer is yes.

That's the decision of the Montgomery Commission on Common Ownership Communities (CCOC), which was affirmed recently by the Sixth Judicial Circuit Court of Maryland.

Carl Brown is an owner at Americanna Finnmark Condominium Association in Silver Spring, Maryland. A couple of years ago, he raised several concerns with the association's management company, including a request for a complete delinquency report, which would list the names and unit numbers of the owners who are delinquent. Brown's legal argument in support of his request was based on the By-laws of his Association, which specifically state that "the Board of Directors may post a list of members who are delinquent..."

When the association refused to honor any of Brown's requests, he filed a complaint with the CCOC. This is a governmental agency with authority to adjudicate disputes between homeowners and their associations. It is a unique operation, in that there are very few -- if any -- such bodies anywhere else around the country. Dispute resolution is binding on all parties, and the process often is less painful -- and less expensive for owners -- than having to go to court.

The CCOC referred the matter to a Montgomery Country Hearing Examiner, who concluded that Mr. Brown could obtain a delinquency report but with names of the delinquent owners redacted -- i.e crossed off. Furthermore, the Examiner denied Brown's request that the Association publically post a list of delinquent owners. Her reasoning was based on the language of the Bylaws, namely that the Board "may" post. This, according to the Examiner, "left the matter to the discretion of the Board... and thus comes within the scope of the business judgment rule."

That rule -- which applies in many States -- basically means that "courts will not second-guess the actions of directors unless it appears that they are the result of fraud, dishonesty or incompetence." (citing from a 1992 Maryland court case entitled Black v Fox Hills North Community Condominium.)

The CCOC reviewed the Examiner's report and rejected her recommendation regarding the disclosure of the names of delinquent owners. According to the CCOC, and based on Section 11-116 of the Maryland Condominium Act, "a unit owner is entitled to examine the books and records of the Association, including the Association's delinquency reports, without redaction of the names. Redaction of names also conflicts with the Complainant's right under the Association's governing documents to sue the Association and any of its members to enforce those documents."

However, the CCOC agreed with the Examiner that the Association is under no duty to publically post the names of its delinquent members.

Publication of delinquent association names is a hot topic in community associations. If a unit owner is delinquent, proponents of disclosure argue they will be shamed into bringing themselves current. Opponents say this is an intrusive invasion of privacy and the board has other remedies -- such as filing liens, lawsuits and foreclosures -- so as to resolve and cure any delinquency.

What should a Board of Directors do when faced with a request for the names of delinquent owners? In Maryland – especially Montgomery County -- the law is clear. The Board must release those names.

However, there are some conditions which a Board should impose on itself as well as on the owner receiving the list. First, make absolutely sure that the list is accurate. If, for example, the list says that Mark is delinquent as of the date the owner gets the list, but Mark paid up before the list is printed, it is an error and Mark could sue the association for libel. Accordingly, the list that the condo submits should be dated at least one month before it is provided to anyone. This way, you can correctly state "as of July 1, Mark was delinquent in the amount of $XXX."

Next, the owner who requested the list of delinquent owners should be asked to sign a confidentiality agreement, whereby he/she agrees that the list will not be circulated outside of the condominium association. This is consistent with the law of this case, namely that the delinquency list does not have to be posted for all to see.

Finally, the Board should advise all owners who are delinquent that it is about to provide a list to a requesting owner, and give them a few days to bring themselves current so they can be removed from the list.

Will the same law apply in other states? That depends entirely on the applicable condominium law. The Virginia condo act has similar language regarding books and records as in Maryland. Maryland law allows withholding, among other things, of "an individual's personal financial reports". Virginia law allows associations to withhold "personnel matters relating to specific, identified persons". District of Columbia law is less clear: "The books and the vouchers accrediting the entries shall be made available for examination by a unit owner or the unit owner's attorney, accountant, or authorized agent during reasonable hours on business days". And the courts in the District, when confronted with a case of first impression, will often rely on Maryland law.

Delinquent owners clearly will object to any disclosure. But the Board can resolve all such concerns by doing what it should do in the first place; if an owner is delinquent, once your legal documents permit you to take legal action, file a lien against the unit, file a small claims (district court) case against the owner or in the last resort, file for foreclosure. It is always interesting to see how fast many delinquent owners suddenly pay up when faced with such legal actions.

Boards should not permit any owner to be delinquent. They should adopt what I call " a zero tolerance with a heart" -- we will pursue you if you are delinquent unless you have a real, documented, hardship. A strong case could be made that the directors are breaching their fiduciary duties to all owners by allowing such delinquencies to mount. Of course, there are (and always will be) extenuating circumstances. If a unit owner has a legitimate reason for the delinquency, he/she can meet in private with the board (called "executive session") and explain the problem. The board can work out a reasonable payment plan, but any such agreement must be reduced to writing and signed by the owner and a board member.

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Benny L Kass

Author of the weekly Housing Counsel column with The Washington Post for nearly 30 years, Benny Kass is the senior partner with the Washington, DC law firm of KASS LEGAL GROUP, PLLC and a specialist in such real estate legal areas as commercial and residential financing, closings, foreclosures and workouts.

Mr. Kass is a Charter Member of the College of Community Association Attorneys, and has written extensively about community association issues. In addition, he is a life member of the National Conference of Commissioners on Uniform State Laws. In this capacity, he has been involved in the development of almost all of the Commission’s real estate laws, including the Uniform Common Interest Ownership Act which has been adopted in many states.

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