What a confusing government we have. The First Circuit Court of Appeals which lifted the nationwide stay on the Corporate Transparency Act, just undid what it just did a few days ago, putting the nationwide stay back into effect until the Court hears all the arguments. Oral argument is not scheduled till March 25, 2025. The government, including the Courts, should be better than this. They are causing a ton of confusion for businesses and the professionals who service them.
For now, filing with FinCEN to comply with the CTA is going to voluntary again until the Court changes its mind yet again. Stay tuned for more.
District Judge Amos L. Mazzant of the Eastern District of Texas issued a preliminary injunction ordering that the entire Corporate Transparency Act (CTA) is enjoined nationwide and that the US government in enjoined from enforcing the BOI Reporting Rule (the final rule implementing the CTA and providing definitions and guidance for the statute) and the Jan. 1, 2025, compliance deadline. Judge Mazzant decided yesterday to reject the government’s motion to reverse himself. It’s difficult to cause a Judge to reverse himself, so the government moved the Fifth Circuit Court of Appeals to take emergency action and reverse Judge Mazzant.
The government’s motion to the Fifth Circuit is pending with a briefing schedule that could result in a decision around Christmas. The government asked the Court to render a decision by December 27th, but it’ll be up to the Court. The government asked for a complete reversal on the nationwide injunction by Judge Mazzant, or at least an order limiting the injunction to the parties involved in that case, or just the members of the organization involved in the case.
If the injunction is lifted by the Fifth Circuit, organizations will have to go back to complying with the CTA and its looming January 1, 2025 deadline. FinCEN has not indicated whether it will extend the deadline if the injunction is lifted.
We will keep you posted of developments. For now, although the nationwide preliminary injunction relieves the immediate obligation – i.e., right now – to file beneficial ownership reports with FinCEN, it would be prudent for non-exempt reporting entities that haven’t yet filed to continue to prepare for their report filing by continuing to gather all information and documents that the CTA requires. If it turns out that compliance is not required, then they don’t have to submit their report to FinCEN, but if they do and FinCEN does not give a reasonable time thereafter for compliance, then reporting companies don’t have to scramble at the last minute to comply before the hefty $591 a day fines kick in.
Here Judge Mazzant’s decision refusing to reverse himself and the government’s motion to the Fifth Circuit.
New York City recently passed Local Law 24, also known as the Fair Chance Housing Act, which prohibits housing discrimination based on criminal history. The law will go into effect on January 1, 2025.
The law applies to all housing providers, including co-ops, condos, and HOAs. It significantly impacts how these organizations conduct background checks and approve or deny applications.
Key Provisions of the Law
- Limits on Criminal Background Checks: The law restricts when and how housing providers can conduct criminal background checks.
- Individualized Assessment: Housing providers must conduct an individualized assessment of an applicant’s criminal history. This assessment considers the nature and severity of the offense, the time elapsed since the offense, and the applicant’s rehabilitation efforts.
- Adverse Action: If a housing provider intends to take adverse action based on an applicant’s criminal history, it must provide the applicant with a written explanation of the reasons for the adverse action.
Impact on Co-ops, Condos, HOAs and their Managing Agents
Co-ops, condos, HOAs and their managing agents must comply with the Fair Chance Housing Act when reviewing purchase or rental applications. This includes:
- Modifying application procedures: Co-ops, condos and HOAs must update their application procedures to comply with the law’s restrictions on criminal background checks.
- Conducting individualized assessments: Co-ops, condos and HOAs must conduct individualized assessments of applicants with criminal histories.
- Providing written explanations for adverse actions: If they decide to take adverse action based on an applicant’s criminal history, they must provide the applicant with a written explanation of the reasons for the adverse action.
Right of First Refusal
The law does not specifically address a condo or HOAs right of first refusal. It speaks in terms of refusing to sell, rent or lease and approving such like a coop approves a transfer of shares to a coop apartment. The law, however, includes a paragraph outlawing discrimination against an individual in the terms, conditions or privileges of the sale, rental or lease because of such individual’s criminal history. We expect an argument to be made that a condo board’s decision as to whether to exercise a right of first refusal concerning a sale or lease of a unit based on criminal history covered by the law, would be discrimination. So, coop, condo and HOA boards have to be careful in their application processes and decision making where criminal history is being considered and decided upon.
Recommendations for Boards and their Property Managers
- Consult with an attorney: Boards and their property managers (who are also covered by the law) should consult with their attorney to ensure that their policies and procedures comply with the Fair Chance Housing Act.
- Update application forms: Application forms should be updated to remove any questions about criminal history and criminal background checks should be performed after initial affirmative decisions are made and then a final decision can be made in compliance with the Act. If a denial of a transfer application or exercising of the right of first refusal is made without a criminal background check, then there is no need to even perform one and the decision can be relayed to the appropriate parties so that there is not even a question as to whether there was a violation of the Act.
- Train staff and board members: Property managers and board members should be trained on the requirements of the Fair Chance Housing Act to make sure there is compliance.
The Fair Chance Housing Act is a significant change to New York City’s housing laws. Community association boards and their managers must take steps to comply with the law before it takes effect on January 1, 2025. Failure to comply could result in legal liability.
Here is the law.
Last week, District Judge Amos L. Mazzant of the Eastern District of Texas issued a preliminary injunction ordering that the entire Corporate Transparency Act (CTA) is enjoined nationwide and that the US government in enjoined from enforcing the BOI Reporting Rule (the final rule implementing the CTA and providing definitions and guidance for the statute) and the Jan. 1, 2025, compliance deadline.
The US government filed a notice of appeal and yesterday filed a motion request to Judge Mazzant to stay the preliminary injunction because the government is appealing to the Fifth Circuit Court of Appeals and if Judge Mazzant doesn’t do so, the government provided that it would seek this relief today or tomorrow December 13, 2024, for a lift of the nationwide stay by the Court of Appeals.
We have explained that the trouble with not complying with the CTA is, what happens when the injunction is lifted and compliance is required before January 1, 2025. It does not appear based on the government’s actions that FinCEN will give an extension to comply before penalties kick in on January 1, 2025. It seems reasonable to do so, but not guaranteed based on FinCEN’s message that reporting companies can continue to comply if they want to.
We will keep you posted of developments. For now, although the nationwide preliminary injunction relieves the immediate obligation – i.e., right now – to file beneficial ownership reports with FinCEN, it would be prudent for non-exempt reporting entities that haven’t yet filed to continue to prepare for their report filing by continuing to gather all information and documents that the CTA requires. If it turns out that compliance is not required, then they don’t have to submit their report to FinCEN, but if they do and FinCEN does not give a reasonable time thereafter for compliance, then reporting companies don’t have to scramble at the last minute to comply before the hefty $591 a day fines kick in.
Here is the government’s motion to Judge Mazzant.
What a mess a Texas Federal Court and now FinCEN are making regarding the Corporate Transparency Act (CTA). Days ago, District Judge Amos L. Mazzant of the Eastern District of Texas issued a preliminary injunction ordering that the entire CTA is enjoined nationwide and that the US government in enjoined from enforcing the BOI Reporting Rule (the final rule implementing the CTA and providing definitions and guidance for the statute) and the Jan. 1, 2025, compliance deadline.
The US government filed a notice of appeal today indicating that it is not accepting the District Judge’s injunction. We expect the government to act quickly, but so far, no appeal brief or motion to the circuit court that overseas the Eastern District of Texas has been filed.
FinCEN sat silent since the injunction and just placed information that the injunction is in place and that reporting companies can comply with the CTA if they want to, but are not presently required to do so and will not be penalized as long as the injunction is in place if they don’t comply. See below.
The trouble with not complying is, what happens when the injunction is lifted on appeal and compliance is required. Will FinCEN give an extension to comply before penalties kick in? It seems reasonable, but not guaranteed based on FinCEN’s message that reporting companies can continue to comply if they want to. It would have been more reasonable and manageable for FinCEN to extend the January 1, 2025 reporting requirement to a date that is a set time period from the day that the injunction is lifted or a later date like June 1, 2025, whichever earlier. That’s not what FinCEN has done and by not doing this, it has created a lot of confusion and anxiety for entities that are required to comply.
We will keep you posted of developments. For now, although the nationwide preliminary injunction relieves the immediate obligation – i.e., right now – to file beneficial ownership reports with FinCEN, it would be prudent for non-exempt reporting entities that haven’t yet filed to continue to prepare for their report filing by continuing to gather all information and documents that the CTA requires. If it turns out that compliance is not required, then they don’t have to submit their report to FinCEN, but if they do and FinCEN does not give a reasonable time thereafter for compliance, then reporting companies don’t have to scramble at the last minute to comply before the hefty $591 a day fines kick in.
Here is the FinCEN notification on its website.
Here is the notice of appeal.
District Judge Amos L. Mazzant of the Eastern District of Texas issued a preliminary injunction on December 3rd that media and attorneys are talking about and property managers are puzzled as to what to do. Judge Mazzant ordered that the entire Corporate Transparency Act (CTA) is enjoined nationwide. The court also enjoined the government from enforcing the BOI Reporting Rule (the final rule implementing the CTA and providing definitions and guidance for the statute) and the Jan. 1, 2025, compliance deadline. As of this morning the government has not filed an appeal to the Circuit Appeals Court that overseas the Eastern District of Texas. It is worth noting that other District Courts like the Eastern District of Virginia held that the CTA is constitutional and the government is not enjoined. There hasn’t been a decision in a New York Federal Court which governs most New York condominium, coop and HOA cases involving this topic. It is also noteworthy that the Eastern District of Texas case didn’t involve a community association or its members. That said, the Judge Mazzant felt it appropriate to hold that there is a nationwide injunction causing confusion throughout the country as to what to do.
Some commentators are just reporting that there is an injunction but not preparing their clients for a lifting of the stay by an appeals court or maybe a decision in the state that they sit in saying the opposite of Judge Mazzant and holding that there is no stay before the end of the year when compliance is required by the statute. So what is a property manager and board members supposed to do in the meantime. Some are continuing to comply with the law realizing that the January 1, 2025 deadline is just a few weeks away and if the injunction doesn’t hold, then they will have to scramble right around the holidays to comply. Some are waiting and hoping that the decision is upheld or that the government issues an extension on compliance past the January 1st deadline which hasn’t happened yet, and may not happen.
Although the nationwide preliminary injunction relieves the immediate obligation – i.e., right now – to file beneficial ownership reports with FinCEN, nonetheless it would be prudent for non-exempt reporting entities that haven’t yet filed to continue to prepare for their report filing by continuing to gather all information and documents that the CTA requires. If it turns out that compliance by January 1st is not required, then they don’t have to submit their report to FinCEN, but if they do, they can enjoy their holiday meals with their families rather than scrambling at the last minute to comply before the hefty $591 a day fines kick in as of January 1, 2025.
With Ballot Management (https://ballotmanagement.com/ballot-features/#boi-solutions) you can continue having board members submit their required information without submitting a report to FinCEN if you want to wait, and when there is clarity as to the CTA and injunction, press submit or not and be ready to comply by January 1st if required.
A Guide for Boards of Managers and Property Managers
As a board member or property manager of a newly constructed condominium in New York, you have a responsibility to protect the interests of your unit owners. This includes taking action if there are construction defects in the building.
Understanding Your Rights and Options
Sponsors are legally obligated to deliver a building that is free of material defects and constructed according to the offering plan. When they fail to meet these obligations, you have several legal avenues to pursue:
- Breach of Warranty:
- Buildings with five stories or less have an implied warranty under New York law covering material defects for six years, plumbing and electrical issues for two years, and construction-related defects for one year.
- Larger buildings may have limited warranties provided by the sponsor, often with strict notice requirements.
- Breach of Contract: You can sue the sponsor for breaching the offering plan or purchase agreements, which often detail construction standards and materials.
- Fraud: If the sponsor intentionally misrepresented or concealed material conditions in the offering plan, you may have a fraud claim.
- Breach of Fiduciary Duty: Sponsor-appointed board members owe a fiduciary duty to the condominium, even during the sponsor’s control period.
- Negligence: You can sue the sponsor for negligence if they breached duties beyond their contractual obligations.
- Don’t Forget the Sponsor Members: It’s always better to seek relief from the Sponsor or Sponsor-appointed board members before they sell out of your condo. If they still own unsold assets there, you’re in luck. If not, you can try to claw back distributions by the Sponsor to its members.
Time is of the Essence
It is crucial to act quickly when pursuing these claims, as New York law enforces strict statutes of limitations (even though there are arguments that can be raised to extend the time periods or as to when the time periods begin):
- Breach of Warranty: Six years from substantial completion or occupancy.
- Breach of Contract: Six years from the date of the breach.
- Fraud: Six years from the date of the wrongdoing or two years from its discovery.
- Negligence: Three years from the date of injury.
Taking Action
If you suspect construction defects, take the following steps immediately:
- Document Everything: Engage a licensed engineer or architect to thoroughly inspect the building and document all defects with a detailed report, including photos and videos. Do this through your attorney to preserve the attorney-client work product privilege. This can be a critical step that condo boards overlook sometimes. Experienced counsel know better and can fix the issue in some instances retroactively.
- Consult an Attorney: Seek legal counsel experienced in construction defect litigation to discuss your options and ensure you meet all deadlines and procedural requirements.
- Consider Collective Action: If a non-sponsor board is not yet in place, unit owners may need to pool resources to pursue claims collectively.
- Common Elements vs. Units: The common elements are for the Board to seek legal redress but the units themselves are the individual unit owner’s responsibility to pursue if there are issues. Some issues are so pervasive in the entire community that the Board takes on the fight for its unit owners’ unit issues. Experienced counsel can guide you through this process.
Conclusion
Construction defect cases are complex and time-sensitive. By understanding your rights, acting swiftly, and seeking expert advice, you can protect the interests of your unit owners and hold the Sponsor, Sponsor-appointed board members and Sponsor members accountable. It’s a lot better to fix your problems with their money than with your own. Another consideration that seasoned counsel can walk you through.
A new court decision highlights the critical importance of meticulous record-keeping and proactive due diligence for condominium boards, especially when it comes to insurance coverage.
In the case of Wong v. Board of Managers of One Sunset Park Condominium, a New York court denied the Condominium Board’s motion for summary judgment due to insufficient evidence demonstrating that the Board acted within its authority and in good faith when procuring and renewing its fire insurance policy. This case serves as a stark reminder for property managers and boards about the potential pitfalls of inadequate insurance coverage and the legal ramifications that can ensue.
Key Takeaways for Property Managers and Boards:
- Meticulous Record-Keeping is Paramount: The Board’s failure to provide adequate documentation of their decision-making process regarding insurance coverage was a crucial factor in the court’s decision. Boards must maintain comprehensive records of all discussions, consultations, and decisions related to insurance policies. This includes:
- Meeting minutes detailing insurance discussions and decisions.
- Copies of all insurance policies, renewals, and amendments.
- Documentation of consultations with insurance brokers and legal counsel.
- Records of any appraisals or assessments used to determine replacement cost.
- Regularly Review and Update Insurance Coverage: The case highlights the danger of complacency when it comes to insurance. The Board renewed the same policy for several years without reassessing the coverage amount, potentially leaving the building underinsured. Boards should:
- Conduct periodic reviews of their insurance policies, ideally annually.
- Obtain updated appraisals of the building’s replacement cost regularly.
- Consult with insurance professionals to ensure coverage remains adequate.
- Reassess insurance needs after any significant changes to the building or its surroundings.
- Understand and Adhere to Bylaws: The court emphasized the importance of the Board acting within the scope of its authority as defined in the bylaws. Boards must be intimately familiar with their bylaws, especially those sections pertaining to insurance requirements.
- Prioritize the Interests of the Condominium: The court’s decision to allow the addition of a breach of fiduciary duty claim underscores the importance of board members acting in the best interests of the condominium and its unit owners. Avoid any actions that could be perceived as self-dealing or prioritizing personal interests over those of the condominium.
- Seek Expert Advice: Consult with insurance brokers, legal counsel, and other relevant professionals when making decisions about insurance coverage. Document these consultations and maintain records of the advice received.
Failure to heed these lessons can lead to serious consequences, including:
- Financial Liability: As seen in this case, inadequate insurance coverage can leave the condominium and its unit owners financially vulnerable in the event of a major incident.
- Legal Disputes: Disputes with unit owners over insurance coverage can be costly and time-consuming.
- Damage to Reputation: A failure to adequately protect the condominium’s assets can damage the Board’s reputation and erode trust among unit owners.
By proactively addressing insurance needs, maintaining thorough records, and acting transparently, property managers and boards can minimize risks and ensure the long-term financial health and stability of their condominiums. Here is the Court’s decision.
Community associations, like many other entities, generally have reporting requirements under the Corporate Transparency Act (CTA). Beneficial owners of the community association, like board members, have to be registered, but how about property managers. The CTA defines a beneficial owner as any individual who, directly or indirectly: Owns or controls at least 25% of the ownership interests of the entity or exercises substantial control over the entity.
Property managers for community associations do not typically need to register as a BOI member under the CTA. Here’s why:
- Beneficial Ownership: The CTA focuses on identifying individuals who ultimately own or control a company.Property managers usually don’t have this level of ownership or control over a community association. They act as agents for the association, carrying out the decisions of the board of directors or the association members.
- Significant Control: A property manager would only need to be reported as a beneficial owner if they had control over the association, such as owning a stake in the entity or holding a position with significant decision-making authority. This is rare in a typical property manager role.
However, there are some exceptions:
- Direct Ownership: If the property manager has a substantial ownership stake in the community association, it would likely meet the definition of a beneficial owner and need to be reported.
- Unusual Control: In rare cases, a property manager might have an unusual level of control over the association’s operations, giving them significant influence over decision-making. This could trigger the beneficial ownership reporting requirement.
- Officers: Many property managers serve as Assistant Secretaries of the Community Association. They don’t exercise decision making control over the association, but being an officer of the association calls into question whether they should be included as BOI registrants for the association. Management should review their management contract to see if it answers the questions as to substantial decision making authority. Management may also consider changing its contract moving forward to make sure it doesn’t have substantial decision making authority for the association and thus, not have to report as a BOI member.
For all of your community association CTA compliance and electronic voting needs, visit www.ballotmanagement.com.
The Background
In a recent case, the Community Associations Institute (CAI) and several community associations sought a preliminary injunction against the enforcement of the Corporate Transparency Act (CTA). The CAI argued that requiring their members to disclose “beneficial owners” to the Treasury Department was unlawful, violated the Administrative Procedure Act, exceeded Congress’s authority, and violated the First and Fourth Amendments.
The Decision
The U.S. District Court for the Eastern District of Virginia denied the CAI’s motion for a preliminary injunction, finding that the CAI was unlikely to succeed on the merits of their claims. The court held that the CTA’s definition of “reporting company” clearly included community associations and that the act did not violate the CAI’s First or Fourth Amendment rights.
The Implications
This decision is a significant setback for community associations seeking to avoid compliance with the CTA. Community associations such as condominium associations, cooperative associations, and homeowners associations (HOAs) are required to file reports with the Financial Crimes Enforcement Network (FinCEN) disclosing their “beneficial owners” as defined under the CTA.
What This Means for Property Managers
Property managers must ensure that the communities they manage comply with the CTA by the end of the year. Failure to comply could result in significant financial penalties of up to $591 per day starting January 1, 2025.
How Ballotmanagement.com Can Help
Ballotmanagement.com offers a solution to help property managers comply with the CTA. The application easily allows for the collection of necessary information from board members, generate the required reports, and files them with FinCEN systematically. Ballot Management can set up all of management’s associations on the application quickly and compliance is then very easy for management and its boards. Whenever changes need to be made (for example, a board member changes or the information a board member submits for themselves changes), they can be done right in Ballot Management and an update report send systematically to FinCEN so that the association and it management company are in compliance and no penalties will be assessed.
Don’t Risk Non-Compliance
Visit www.ballotmanagement.com today to learn more about how compliance with the CTA is easy. Read the Court decision here.
