After working with California condominium and homeowner associations for over 10 years with a prominent community association law firm based in Los Angeles, my wife and I decided to move to the Detroit area to be closer to extended family. I had the fortune to join up with The Meisner Law Group here as a Legal Assistant and Director of Community Relations, and in the course of learning about the many differences between California and Michigan law, I have noted some of the relative advantages and disadvantages to each.
California Law Has Broader Applicability and is Much More Restrictive on Associations
The Davis-Stirling Act is the main body of law in California applicable to “common interest developments” which generally includes any condominium or homeowner association with common elements. California also has nonprofit corporation law that applies to most associations. In contrast, the Michigan Condominium Act only applies to condominiums, so homeowners associations/subdivisions primarily look only to their governing documents and the Michigan Nonprofit Corporation Act in governing their associations.
Would Michigan homeowners associations benefit from becoming subject to some or all of the provisions of the Michigan Condominium Act? According to Robert Meisner of our firm, a co-drafter of the 1978 Michigan Condominium Act as well as later amendments to the Act, the answer is yes, or better yet, a separate new act should be enacted for homeowner and master associations, perhaps similar to the Uniform Common Interest Ownership Act adopted by several other states.
Also, members of Michigan nonprofit community association boards of directors may experience their jaws dropping when they consider some of the following requirements under California law:
- Any association “items of business” must be addressed in a board meeting with prior notice to all association members (4 days prior notice for open meetings, 2 days prior notice for executive session). There are limited exceptions for emergencies.
- Executive session is only allowed for certain specific topics
- Litigation (generally understood to apply to any legal matters)
- Formation of contracts
- Member discipline
- Personnel matters
- To meet with a member, upon the member’s request, regarding the member’s payment of assessments
- Assessment payment plans
- Deciding whether to foreclose on a lien
- An extensive “Annual Budget Report” and “Annual Policy Statement” is required to be distributed to all members prior to the end of each fiscal year.
- Election Rules and Regulations are required to be adopted in accordance with specific secret ballot voting procedures provided by statute and in accordance with the governing documents. Secret ballot voting is required for specific subjects:
- Assessments above certain limits
- Election and removal of directors
- Amendments to the governing documents
- Grant of exclusive use of common elements
- Only members of the association are allowed to attend open board meetings and meetings of members. Members cannot bring attorneys or other third parties, but the association can have management and/or the association attorney or other association service providers attend.
- Reserve studies are required.
- A proxyholder must be a member of the association.
Many of the above requirements were enacted by the California government in reaction to constituents’ complaints that their community association boards of directors were operating in secret and generally not governing their associations in a transparent, fair manner. While there are no doubt some board members in Michigan who decide to engage in this practice from time to time, it likely may not be so widespread that similar statute should be enacted by our state. For example, the Community Associations Institute estimates that over five times as many people live in California community associations compared to Michigan community associations. Also, many of the above restrictions have likely resulted in higher legal costs for community associations, which should be part of the discussion if we were ever to consider similar laws here.
How Michigan Condominium Law is Better Than California’s Law
While reasonable arguments might be made for or against enacting California-style restrictions in our state, there are a few areas where, without question, Michigan condominium associations have advantages over California associations.
- 2/3 member and first mortgagee approval of amendments to the master deed and bylaws. I actually did a little dance when I heard about this provision in the Michigan Condominium Act. In California, it’s common for some association governing documents to contain a provision that requires 75% or greater approval for amendments, and there is no state statute with a lower percentage that controls over such provisions. The only relief available is if you get at least majority approval – then you can petition the court for an order to allow the amendment to be recorded (very expensive). Many associations in California decide not to attempt votes on beneficial amendments just because they know that due to voter apathy, they won’t be able to get the incredibly high percentage approval required.
- Specific limited circumstances under which first mortgagee approval of amendments must be obtained. In California, the governing documents contain provisions with long lists of the kinds of amendments that will trigger a requirement for approval by mortgagees, and they are all different. It’s unfair that some associations are burdened by the extra cost of mortgagee approval for essentially any amendment to their governing documents just because their developer decided to copy and paste an outdated provision. In Michigan, there are only six items that apply.
- Fines can be included in a lien. California law expressly states that “monetary penalties”, i.e., fines for noncompliance with the governing documents, cannot be included in a lien that is recorded against a delinquent owner’s property. The association usually has just one option to pursue unpaid fines – small claims court. Costs are usually not recoverable, and the association can’t be represented by counsel in court. Some associations always pursue unpaid fines as a matter of ensuring all other members pay their fines in the future, but the costs are usually greater than what is recovered. In Michigan, fines can usually be assessed and collected like an assessment.
- Assignment of rents. Michigan law allows all condominium associations to demand rent be paid to the association rather than the delinquent co-owner. In California, the provision has to be in the governing documents in order to apply. This is really a no-brainer – California should follow Michigan’s example and not allow any delinquent owners to profit from leasing property in an association while they do not pay assessments to their association.
California’s Nonjudicial Foreclosure Process Should Be Examined
In addition to the option of judicial foreclosure for delinquent assessments, California also offers associations the option of a less-expensive, nonjudicial process, which is essentially a series of recorded documents after the lien giving public notice of default and eventually notice of the trustee sale. The process is subject to strict notice requirements to ensure the owner’s rights are protected. If no bids are received at the sale, the association owns the property subject to a 90-day redemption period. A mortgagee may still have the right to foreclose, but in the meantime associations will usually try to lease the property or get the mortgagee to agree to a short sale. While foreclosure through advertisement may be an available solution in Michigan, it doesn’t always offer the same benefits.
In conclusion, I look forward to further developments in the law here in Michigan, and I hope our state legislature will consider what is and what is not advantageous to the interests of our community association residents going forward. Please engage your representatives in the legislature whenever new laws affecting your associations are proposed, and here at The Meisner Law Group, we will work with you to advocate for further improvements.
By Mark Petrie, Legal Assistant, The Meisner Law Group