Improper Amendments Are VERY Expensive

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Summary

Earlier this year, I blogged on the case of Johnson v. Board of Directors of Forest Lakes Master Association, 454 P.3d 623 (2019) unpublished (Kansas) and explained how improperly passing and/or filing amendments can be VERY expensive. This is true in every state, and today we learn of another way that amendment errors can be costly.

The Facts

The developer created the condominium in 2008 that authorized the development of 109 units in a seven-year period.  The initial phase consisted of 33 units and through properly filed amendments the developer authorized another 18 units, for a total of 53 units.  Before the expansion time passed, the developer had sold 48 of the 53 units.  The day before the development period was to expire in 2015, the developer recorded two amendments to the deed to add 56 partially completed units.  In the initial 2018 case, the association argued and won, the court finding that “the final number of the units in the Condominium was fixed at 53 and that no additional units could thereafter be phased into the Condominium without the vote of the then existing 53 unit owners…” The association then argued that the unbuilt and partially completed units were part of the common area owned by the owners of the completed units, thereby significantly affecting the five mortgages that existed on these partially completed units.  The five mortgagees and developer took the opposite position, as otherwise the mortgages would be subordinate to the master deed and declaration of trust of the association.  It is undisputed that at the time of the sale of each of the 48 units, the mortgagees released its interest in all the common area.

Court

The mortgages held by the banks are subordinate to the association declaration.

Lessons Learned
  1. If you intend to amend your association documents, make sure you follow all the proper procedures and file the amendment timely;
  2. Before proceeding with amendments make sure you obtain advice from knowledgeable professionals on what can and can’t be done, and what risks you are subjecting yourself to if you work outside of the lines; and
  3. If you find that you are being dragged into a suit and you are not 100% sure that you are in the right, obtain a second legal opinion on the risks, so that before you spend all of the money defending your position in a lawsuit you are at minimum, confident on the risks and expected results.

Trustees of the Kettle Brook Lofts Condominium Trust v. Kettle Brook Lofts, LLC et. al. 2020 WL 1891255 (April 16, 2020) unpublished (Mass).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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