Bill > S2074

Introduced Session

It has been more than 30 years since the Legislature enacted "The Planned Real Estate Development Full Disclosure Act," (PREDFDA), P.L.1977, c.419 (C.45:22A-21 et seq.) to provide State oversight of the marketing of planned developments to prospective purchasers, through a review of documents and advertisements, as well as requiring that certain disclosures be made by a developer to a buyer. Marketing techniques are important because membership in a homeowner association is mandatory for a purchaser of a home in community which has shared property and facilities, such as a condominium, cooperative, or a single family home in a planned development. The shared property of such communities is owned collectively by all of the individual home purchasers. These communities are referred to as "shared ownership communities" in the bill and are often known as common interest communities. It has also been more than 10 years since the Assembly Task Force to Study Homeowners' Associations released its report containing more than 30 recommendations calling for changes in the laws, in order to provide more protections for homeowners. This bill addresses most of those recommendations, as well as updating the laws requiring disclosure by developers and clarifying the powers and obligations of governing boards of associations and the rights of owners living in such communities. The bill revises the manner in which information should be provided prospective purchasers through the Public Offering Statement, (POS) a document required to be provided to prospective purchasers by developers of such communities. Although New Jersey's statutes require certain disclosures by a developer during the sales phase of shared ownership communities, these disclosures have too often been inadequate to properly inform prospective purchasers. Items which are likely to be of extreme importance to a purchaser, such as obligations, governance structures, potential future liabilities, restrictions, or, even in some cases, hidden loans on the part of a developer to the association, may be buried deep within the document, and not disclosed adequately, if at all. The sheer volume of information, which varies widely by developers on matters which could be standardized, also hinders adequate review by the State. The bill requires the POS, and the registration of developments process, to be revised and streamlined. A developer will be required to submit information on standardized forms and in an electronic format. Governance structures will be standardized and developers allowed to highlight variations that they wish to apply. Processing times for registrations of developments will be reduced under the bill from 90 to 45 days for standardized submissions. The information in the Public Offering Statement to be disclosed to a prospective purchaser will be revised to be quickly accessed by the reader, as well as indexed under logical headings, such as pets, parking, restrictions and fees. An executive summary of the offering is required to be made in plain language, explaining the rights, liabilities, obligations and governing form applicable to the association. The bill also addresses the problem that planned communities with fewer than 100 units have been exempted from registration under the act. This has been interpreted by the administering agency as exempting developers from providing a POS, thus providing no protections for purchasers in smaller communities. The exemption has also been extended by regulations to all low and moderate income (Mount Laurel) communities of any size. Exemption from the PREDFDA also clouds many other issues, such as when a developer of a planned community must turn over the assets to the homeowners. The bill removes these exemptions, and requires a Public Offering Statement for every prospective purchaser in a planned community. The regressive flat rate development charge currently charged to developers of planned communities is replaced under the bill with a per unit fee of 3/100 of one percent (.0003) of the sales price. These fees are currently required to be used to defray the costs of the State's review under the statute, and will continue to be used for that purpose, as well as to offset costs for other homeowner protections added by the bill. The change from a flat rate fee to a per unit fee will result in lower fees on lower priced homes, and in most instances will result in decreased fees being paid per development than is the case now. In addition, the bill addresses problems which arise in what may be termed the "governance" stage of a homeowners' association. After the developer has sold at least 75 percent of the homes planned for the community, total control of the management of the commonly-owned property is transferred from the developer to the home owners in the community. Experience shows that owners are not adequately prepared for this event. The bill allows owners to have earlier exposure to operational issues and input into governance matters, as well as requires boards to adopt principles of democratic and transparent governance. The bill requires the creation of an owners' coordinating council in each association, consisting of at least three owners, during the time period that the developer controls the voting interest of the association governing board. The owners' coordinating council will function as a steering committee for owners, and serve as the election monitor when owners other than the developer are entitled by statute to be elected as voting members of the governing board. In addition, the owners' council will be permitted to bring claims to a commission formed under the bill, on matters affecting construction deficiencies in the common elements during the period of developer control. The inability of owners to file warranty claims concerning defects in common elements was found to be a problem by the State Commission of Investigation in its report of abuses in the new home construction industry. The bill addresses the inconsistency in various statutes affecting owners' rights in different types of shared ownership communities, by amending the laws to eliminate these inconsistencies. The bill creates a commission in, but not of, the Department of Law and Public Safety, to serve as a State resource center, liaison and educational resource to owners and their shared ownership community associations, and to coordinate low cost, reliable alternative dispute resolution (ADR) services to these associations. The commission will also serve as a hearing entity concerning violations of statutory law pertaining to associations. The commission is modeled after a very successful program created by Montgomery County, Maryland for homeowner associations under its jurisdiction. The bill addresses a critical need of the many owners whose associations have not provided any ADR or ADR which is not impartial. Many associations have adopted a process too biased or expensive to serve as a viable alternative to litigation. Because associations can charge each owner the cost of the board's attorney as a common expense, many boards are quick to invite litigation, rather than amicably resolve disputes. In some instances, even when a board's actions blatantly violate bylaws, or are flagrantly illegal, State and local officials are often unwilling or unable to get involved, citing the "private" nature of such communities. This places an undue financial burden on individual owners, many of whom are senior citizens on fixed incomes. The bill also addresses the general lack of information about community associations, and a lack of standards for the manner in which they may operate. The commission created by the bill and the State entity responsible for oversight of marketing of new homes is charged with creating a booklet providing detailed information to owners concerning general information, State and federal laws, resources available, and the standards of governance established for association governing boards. The commission will also be responsible for posting the information to a web site. The commission is also required under the bill to promulgate standards for transparent and democratic governance in the operation of shared ownership communities. The standards may be more specific than the provisions of the bill, but must comport with the Legislature's intent to foster open, democratic processes in such communities. The funding for the activities of the commission and the alternative dispute resolution services will come from fees already collected and earmarked for protections of owners under the "The Planned Real Estate Development Full Disclosure Act." The bill requires that all associations provide certain information annually to the Commission on Shared Ownership Communities. There is no fee to file under the bill, but those associations that do not provide the information will not be eligible as qualified private communities to seek reimbursement from their municipality for services provided to them, such as trash, leaf and snow removal, and, in addition, will not be permitted to impose fines upon members, or to receive approval to file liens based on fines imposed. In order to recognize the governmental nature of homeowners associations, and to provide the best enforcement of statutory protections for prospective homebuyers in shared ownership communities, the bill moves the responsibility for the "The Planned Real Estate Development Act" to a new bureau within the Division of Consumer Affairs in the Department of Law and Public Safety, to be known as the "Bureau of Homebuyers Protection." The Division of Consumer Affairs currently has significant experience in administering consumer protection programs; for example it has the responsibility for overseeing the "Home Improvement Contractor's Registration Act" and "the consumer fraud act." In addition, relocating homebuyer protections will help to minimize conflicts of interests concerning builders under other programs in the Department of Community Affairs, such as its role as the enforcer of construction codes, licensing of code inspectors, and overseeing the "New Home Warranty Program."

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Shirley Turner (D)*, 

Introduced in the Senate, Referred to Senate Community and Urban Affairs Committee (on 03/05/2018)