ASSEMBLY, No. 481

STATE OF NEW JERSEY

210th LEGISLATURE

PRE-FILED FOR INTRODUCTION IN THE 2002 SESSION

Sponsored by:

Assemblyman CHRISTOPHER "KIP" BATEMAN

District 16 (Morris and Somerset)

SYNOPSIS

    Provide certain enforcement powers to DCA concerning homeowners' associations; requires registration.

CURRENT VERSION OF TEXT

    Introduced Pending Technical Review by Legislative Counsel.

(Sponsorship Updated As Of: 5/7/2002)

An Act concerning the regulation of homeowners' associations and supplementing Title 46 of the Revised Statutes.

    Be It Enacted by the Senate and General Assembly of the State of New Jersey:

    1. The Legislature finds and declares:

    a. The corporate model that has been applied to homeowners' associations has proven itself inadequate in some respects for the governance of residential communities, a fact recognized by the Assembly Task Force to Study Homeowners' Associations in its 1998 report.

    b. By authorizing homeowners' associations in certain planned real estate developments to exercise the power to levy fines on owners residing in the community and to impose liens in order to collect those fines, the Legislature, in effect, delegated governmental powers to private entities. Governmental powers, however, must be exercised in a way that comports with constitutional standards of fundamental fairness and due process, while promoting democratic participation and safeguarding the investment of owners in their properties.

    c. The need for these standards becomes increasingly significant as residential developments with homeowners' associations continue to proliferate in New Jersey and these associations assume responsibility for providing services that would otherwise be provided by municipalities.

    d. Accordingly, the Legislature finds it in the public interest that:

    (1) homeowners' associations be held to standards of due process, open governance and fundamental fairness, similar to those to which governmental bodies are held;

    (2) a fair and efficient system for resolving disputes between homeowners and associations be implemented; and

    (3) associations should discharge their obligation to protect the health, safety and welfare of homeowners subject to the oversight of the Department of Community Affairs.

    2. All terms used in P.L. , c. (C. ) (now before the Legislature as this bill) not otherwise defined shall have the same definitions as in section 46:8E-102 of P.L. , c. (C. )(now before the Legislature as Assembly Bill No. A3072 of 2000).

    3. The Commissioner of Community Affairs shall have the following powers with regard to homeowners' associations:

    a. To initiate, receive, hear and review complaints, adopt rules and hold hearings with regard to any of the following matters:

    (1) The furnishing of information concerning records required to be maintained by the association and to be made available to homeowners pursuant to P.L. , c. (C. ) (now before the Legislature as Assembly Bill No. 3090 of 2000);

    (2) The conduct of fair elections for association executive board members and officers;

    (3) The establishment and implementation of a fair and efficient procedure for the resolution of disputes between associations and homeowners and among homeowners;

    (4) The holding of meetings that are open to homeowners and the conducting of association business in such open meetings, except as otherwise expressly permitted by statute, pursuant to P.L. , c. (C. ) (now before the Legislature as Assembly Bill No. 3090 of 2000); and

    (5) The determination of conflict of interest on the part of association trustees, officers and employees.

    b. To issue subpoenas for the production of documents and the attendance of witnesses with respect to the investigation of any complaint.

    c. To forward to the appropriate law enforcement officials any information that may indicate violation of any criminal statute.

    d. To render advisory opinions as to whether a given state of facts or circumstances would constitute a violation of any statute or rule applicable to associations.

    e. To enforce all statutes and rules imposing any duty upon associations.

    f. (1) If the department determines, after notice, that an officer, executive board member, or property manager of an association has:

    (a) violated any provision of P.L. , c. (C. )(now before the Legislature as this bill), the "Condominium Act," P.L.1969, c.257 (C.46:8B-1 et seq.), "The Planned Real Estate Development Full Disclosure Act," P.L.1977, c.419 (C.45:22A-21 et seq.), or any other statute regulating homeowners' associations hereinafter enacted;

    (b) directly or through an agent or employee knowingly engaged in any violation of the governing documents of the association; or

    (c) violated any lawful order or rule of the department;

the department may issue an order requiring the person to cease and desist from the unlawful practice or to take such other affirmative action as in the judgment of the department will carry out the purposes of this act.

    If the department makes a finding of fact in writing that the public interest will be irreparably harmed by delay in issuing an order, it may issue a temporary cease and desist order. Every temporary cease and desist order shall include in its terms a provision that upon request a hearing shall be held within 10 days of such request to determine whether or not it becomes permanent. Such temporary cease and desist order shall be forwarded by certified mail.

    (2) The department shall provide an opportunity for a hearing for any association prior to the imposition of any sanction, including monetary fines. Associations shall be subject to fines only after they have failed or refused to comply with an order of the department. The maximum fine that may be levied against an association for failure to comply with an order to cease and desist from continuing to violate an order of the department shall be $1,000.00 per order. The department may impose a monetary fine on an individual board member, if it is determined that the board member is solely responsible for the continued failure of the board to comply with an order or orders issued pursuant to this section, and the assessment of a fine against the association would be unreasonable under the circumstances.

    g. To remove from office, after notice and the opportunity for a hearing, any executive board member or officer who shall fail to comply with any order issued by the commissioner to cease and desist from violating any statute or rule. Following any such removal, the commissioner shall provide such assistance as may be required by an association in scheduling and holding elections or in managing the association until such time as the executive board is able to function properly. Notice of any fine imposed upon the association or a board member, or removal of an executive board member or officer by the commissioner shall be given to all homeowners by the executive board within 30 days of the action and shall be entered upon the minutes of the next meeting of the executive board or of the association.

    h. To set standards and procedures for dispute resolution at the association level in accordance with section 28 of P.L.1994, c.58 (C.52:27E-73) and section 7 of P.L. , c. (C. )(now before the Legislature as Assembly Bill No. 3085 of 2000);

    i. To select, assign and provide trained and impartial volunteer mediators for the purpose of resolving disputes in conjunction with the Office of Dispute Resolution in the Department of State in accordance with section 28 of P.L.1994, c.58 (C.52:27E-73) and section 7 of P.L.     , c.     (C.      )(now before the Legislature as Assembly Bill No. 3085 of 2000).

    j. To employ or contract, in conjunction with the Office of Dispute Resolution, with persons who are professionally trained in dispute resolution, either as mediators or as arbitrators, and to establish ethical and professional standards for such persons in accordance with P.L.   , c.     (C.      )(now before the Legislature as Assembly Bill No. 3085 of 2000).

    4. An association shall conduct elections under the auspices of a committee of homeowners, none of whom shall be current board members or candidates for the board, which shall function independently of the executive board and shall be fairly representative of the membership of the association, or by using the services of a recognized organization that regularly conducts elections for membership organizations. No person shall be disqualified from voting in an election for any reason other than delinquency in the payment of maintenance charges. Homeowners shall be allowed to cast ballots by mail, in person anonymously, and by proxy, but proxies authorizing an agent to vote for persons not specified by the homeowner shall not be recognized as valid, but nonetheless may be counted for the purposes of determining a quorum. Ballots, envelopes, registration records, eligibility lists, proofs of mailing and other voting materials shall be subject to inspection by all homeowners at the time of the election and shall be sealed after the election and kept unopened, in the custody of the chairperson of the election committee or the organization that conducted the election, until the next election. Voting materials and procedures shall at all times be subject to inspection and review by the commissioner.

    Upon the written request of any candidate, the commissioner may appoint one or more persons to monitor an election to ensure fairness and accuracy, if previous documented evidence of election problems within an association exists. A candidate may also request the commissioner to investigate any allegations of fraud or abuse in election proceedings. The commissioner shall have power to invalidate any election in which the commissioner finds there to have been fraud or any other abuse of the electoral process, including, but not limited to, denial of equal access to all eligible voters for all candidates. In the event that any association fails or refuses to conduct a fair and open election at such time as elections are required for such association, the commissioner shall order that the election be conducted at such time and under such supervision as the commissioner shall direct, or the commissioner shall conduct the election directly.

    5. a . Within 90 days of the effective date of P.L. , c. (C.       )(now before the Legislature as this bill), and annually on the same date thereafter, all homeowners associations shall register with the Commissioner of Community Affairs, on such form as the commissioner shall prescribe, and shall pay an annual registration fee, which the commissioner shall establish by rule, but which shall not exceed the sum of four dollars per each unit under the jurisdiction of the association, except as the fee may be adjusted annually in proportion to the percent change in the Consumer Price Index during the previous calendar year. For the purpose of this subsection, "Consumer Price Index" means the Consumer Price Index for All Urban Consumers, New York-Northern New Jersey-Long Island Metropolitan Area, All Items (1982-84=100), as published by the Bureau of Labor Statistics in the United States Department of Labor. An increase to the fee shall be made only if the percent change in the Consumer Price Index for the previous calendar year is greater than zero and if the percent change, when applied to the fees and rounded to the nearest whole cent, provides for an increase of at least one cent. The fee shall be calculated so as to produce sufficient revenue to reasonably cover the cost to the Department of Community Affairs of enforcing P.L. , c. (C. ) (now before the Legislature as this bill) and the cost of providing training and dispute resolution services required under P.L. , c. (C. )(now before the Legislature as Assembly Bill No. 3085 of 2000), and shall be based upon the number of units within the jurisdiction of the association. The department shall reduce the fee to be charged in any succeeding year if the currently available and projected annual revenues will exceed the anticipated annual costs by fifteen percent. The department shall certify annually to the State Treasurer whether or not a fee reduction is required to be made. Associations shall report the fee in their financial documents separate from any other assessment. Associations formed subsequent to the effective date of P.L. , c. (C. ) (now before the Legislature as this bill) shall register within 30 days of the formation of the association; provided, however, that any association formed for a planned real estate development required to be registered with the department shall be registered not later than the date of registration of the planned real estate development. Any fee not paid in full by the date due shall be subject to penalty charges in the amount of one and one-half percent per month or portion thereof on the unpaid balance. An association that has not paid in full all outstanding fees, together with any penalty thereon, shall not have the authority, notwithstanding any other law to the contrary, to impose fines, record liens or restrict privileges until the balance is paid in full.

    b. All registration fees and penalty moneys received by the Department of Community Affairs pursuant to this section shall be deposited in an interest-bearing, non-lapsing revolving fund, entitled the "Homeowners' Association Trust Fund," to be held by the State Treasurer. Moneys held in this non-lapsing revolving fund shall be continuously appropriated to the Department of Community Affairs and to the Department of State, Office of the Public Defender, Office of Dispute Settlement for the purposes expressed in P.L.   , c.   (C.         )(now before the Legislature as this bill) and in P.L. , c. (C. )(now before the Legislature as Assembly Bill No. 3085 of 2000) and shall be dedicated solely for those purposes. In the event funds are appropriated or transferred from this fund for any other purpose in contradiction of this section, then the obligation of associations to pay the annual registration fee pursuant to this section shall be suspended until such time as the full amount of the funds transferred or appropriated is reinstated to the fund, and all costs which cannot be paid from the fund due to insufficiencies thereafter shall be paid from the General Fund of the State. Any claims of transfers made outside of the purposes of this section may be submitted to the Joint Budget Oversight Committee, or its successor committee.

    6. The Department of Community Affairs shall prepare and publish a booklet, which shall be made available at cost to the general public, to associations and to homeowners in common interest communities which shall serve as a general guide to community associations. The booklet shall be distributed by the association to each homeowner free of charge; it shall be the duty of each selling homeowner to provide a copy of the booklet to a purchaser of the unit at or before the time of signing of the sales contract. The booklet shall include at least the following:

    a. An explanation of the nature of home ownership in a planned real estate development and a glossary of relevant terms, including, but not limited to, "master declaration," "bylaws," "master deed," "covenants and restrictions" and "common elements";

    b. A description of the rights and responsibilities of homeowners, including reference to applicable statutes and rules;

    c. A description of the duties and powers of, and restrictions on, executive boards, including reference to applicable statutes and rules. The booklet shall include information concerning conflict of interest requirements applicable to executive board members and officers and to professionals hired by associations and shall also include reference to any other sources of information that may be recommended by the commissioner as being of assistance to executive board members and officers in the discharge of their duties;

    d. A description of the statutory and regulatory requirements for association bylaws or rules and such other material as the commissioner shall deem useful; and

    e. A listing of documents and other information that a potential purchaser of a unit in a planned real estate development should obtain before entering into a contract to purchase a unit, including, but not limited to: copies of the association's governing documents; a copy of the latest capital reserve study, if any, showing the condition, life expectancy and replacement costs of major mechanical systems and other common elements; any litigation pending against the association; any pending notices or orders issued by the Department of Community Affairs or any other governmental entity; the association's procedures for alternate dispute resolution, adopting rules and regulations, providing access to records, approval of budgets, and review of homeowners' applications to do work on their units; delinquency and foreclosure rates; the association's insurance coverages; governmental and non-governmental remedies available in the event of violation of the rights of unit owners. These documents and this information shall be made available to prospective purchasers upon written request and copies shall be provided, for a charge not exceeding the reasonable cost of copying or printing, to any person who has contracted to purchase a unit within the jurisdiction of the association.

    7. The executive board of every association shall discharge its powers in a manner that protects and furthers the health, safety and general welfare of the residents of the planned real estate development and safeguards the value of the residents' investment in their properties.

    8. There is hereby established in the Department of Community Affairs the Office of the Ombudsman for Homeowners and Associations, which, for purposes of separation from activities related to enforcement powers granted to the commissioner, shall be separate and apart from any other unit charged with carrying out such enforcement activities. The office shall be headed by the Ombudsman, who shall be a person qualified by experience in the areas of planned real estate developments and dispute resolution. No person who shall have been a unit owner or an employee of, or provider of professional or business services to, any homeowners' association or organization representing homeowners' associations within the preceding 36 month period shall be eligible for appointment as Ombudsman. The Ombudsman shall have the following duties and functions:

    a. To develop and maintain, in consultation with the Office of Dispute Resolution and section 28 of P.L.1994, c.58 (C.52:27E-73), a pool and list of volunteers throughout the State who have been trained in dispute resolution and to establish procedures and a system of training for such volunteers;

    b. To obtain and compile information concerning alternative dispute resolution proceedings throughout the State that may serve as a resource on the methods used to resolve disputes, for the benefit of associations, homeowners and volunteer dispute resolvers;

    c. To assist homeowners in understanding their rights and responsibilities and the remedies available to them;

    d. To assist executive board members and officers of associations in receiving appropriate training to allow them to properly discharge their functions and duties. This assistance shall include listings of appropriate reference and educational materials and general budgetary and financial guidance;

    e. To conduct dispute resolution workshops for executive board members and homeowners; and

    f. To assist associations in their dealings with municipalities and with other State and local regulatory agencies.

    9. The commissioner shall review any complaints received from homeowners' associations concerning noncompliance with the provisions of P.L.1989, c.299 (C.40:67-23.2 et seq.). Upon a finding that a municipality is not in compliance with that act, the commissioner, through the Director of the Division of Local Government Services, shall provide appropriate direction to the municipality and, in the event of continued noncompliance, shall take such corrective action as may be appropriate, including denial of budget certification or withholding of State aid. A municipality aggrieved by an order of the commissioner or of the director pursuant to this section shall be entitled to a hearing in accordance with the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.).

    10. The commissioner shall have authority to adopt such rules, pursuant to the "Administrative Procedure Act," P.L.1967, c.410 (C.52:14B-1 et seq.), as may be necessary to implement this act.

    11. It is the intent of the Legislature that the provisions of P.L.     , c.     (C.       )(now before the Legislature as this bill) shall complement the provisions of the "Horizontal Property Act," P.L.1963, c.168, (C.46:8A-1 et seq.), the "Condominium Act," P.L.1969, c.257 (C.46:8B-1 et seq.), and all supplements to that act, as well as the provisions of P.L.1993, c.30 (C.45:22A-43 et seq.) concerning homeowners' associations; provided, however, that whenever any conflict or apparent conflict may be read between the provisions of P.L. , c. (C. )(now before the Legislature as this bill) and the provisions of those acts, the provisions of P.L. , c. (C. )(now before the Legislature as this bill) shall supersede those acts and be deemed to be the controlling law.

    12. In addition to furnishing the information to a prospective purchaser required pursuant to section 6 of P.L. , c. (C. )(now before the Legislature as this bill), the seller of a unit within a common interest community shall notify the association of the pending contract for sale, including the names, addresses and telephone numbers of the prospective purchasers, at least 30 days prior to the proposed settlement date for the sale. The association shall, upon notification, alert the seller, in writing, to any violations of record which have not been remedied. If the seller does not remedy the outstanding violations, the association shall notify the prospective purchaser of the outstanding violations, which may become the obligation of the purchaser if settlement occurs.

    13. This act shall be effective immediately, but remain inoperative until the enactment of P.L. , c. (C. )(now before the Legislature as Assembly Bill No. 3072 of 2000).

STATEMENT

    This bill provides, in a new supplementary chapter of law concerning homeowners' associations, enhanced powers of oversight over homeowners' associations to the Commissioner of Community Affairs. The bill is part of a package of bills which are based on recommendations of the Assembly Task Force to Study Homeowners' Associations, which filed its report in January 1998. The task force determined that increased governmental oversight of homeowners' associations, which have been delegated quasi-governmental powers, is necessary to provide due process to the owners living in the communities governed by such associations. The bill requires associations to register with and pay an annual fee to the Department of Community Affairs and empowers the commissioner with oversight in compliance with statutory requirements placed on associations, such as having meetings open to the members, complying with requests for viewing records, and establishing alternative dispute resolution procedures. The bill also supplies enforcement tools to the commissioner, which are lacking under current law, such as the ability to fine an association or a member or to remove a board member for flagrant violations of orders of the department.

    The bill also requires the commissioner to develop a disclosure booklet, which shall be made available at cost to the general public, to associations and to homeowners, to serve as a general guide to community associations. The booklet is to be distributed by the association to each homeowner free of charge; it shall be the duty of each selling homeowner to provide a copy of the booklet to a purchaser of the unit at or before the time of signing of the sales contract.

    The bill also creates an Office of the Ombudsman for Homeowners and Associations. Headed by the Ombudsman, who shall be a person qualified by experience in the areas of planned real estate developments and dispute resolution, the office will develop, in consultation with the Office of Dispute Resolution and in conjunction with companion legislation, a pool and list of volunteers throughout the State who have been in trained in dispute resolution and establish procedures and a system of training for such volunteers.

    The Ombudsman will generally serve as a resource to associations and homeowners for information and assistance, to coordinate dispute resolution, and be a liaison for associations in their dealings with municipalities and with other State and local regulatory agencies.