Amanda Brosy is an associate in the Environmental and Land Use Practice Group. Her practice focuses on environmental compliance and litigation as well as land use issues.
Previously, Amanda was an intern at the Meriden, Connecticut Corporate Counsel office where she worked on zoning matters, and the Connecticut Fund for the Environment. She attended Quinnipiac University School of Law where she served on the Executive Board of Law Review as the Publications Editor. She was also a member of the Environmental Law Society.
Who is Paying Condominium Fees and Who is Not?
New England Real Estate Journal, 03/07/2013
For years, condominiums have been part of the suburban and urban landscape. From a land use perspective, concentrated development makes sense. Sharing the costs of common services and maintenance makes sense. Upkeep is a sense of pride and insures the quality and value of the units. However, the very financial industry that supplied the mortgages for these units and who should have a vested interest in maintaining the value of a condominium, are not as interested and have fought the associations when it comes to paying the monthly fee and arguing that the association's priority is a one-time superlien.
In Lake Ridge Condominium Association, Inc. v. Harry Vega, Jr., 55 Conn. L. Rptr. 164, the Connecticut Superior Court recently decided that an association's statutory right to a super lien for six months of unpaid common charges is completely extinguished upon a foreclosing mortgagee's satisfaction of the priority portion of the lien existing at the commencement of a foreclosure action. Although Lake Ridge is not the first case to analyze this issue and come to this conclusion, the state of today's housing market, characterized by high numbers of foreclosures, makes the condominium super lien a very relevant issue, and a pressing one for condominium associations across the state.
The Lake Ridge case is based on Connecticut General Statutes section 47-258(b), which gives the association a lien on a unit for any assessment the association levied against it and associated fines. This lien may be foreclosed as a mortgage is, but it has priority over all other liens except: (a) those recorded prior to the recording of the condominium declaration; (b) liens for real estate taxes and other governmental charges and assessments; (c) first or second mortgages recorded before the assessment became delinquent. Section 47-258(b) establishes a super priority lien as against first or second security interests for those assessments that accrued during the six months immediately preceding the commencement of the mortgage foreclosure action.
In Lake Ridge, the court dealt with a second action for unpaid common charges that had been filed by the association. Prior to that action, the bank instituted an action to foreclose on the condominium unit. Subsequently, the association initiated its first action for unpaid common charges against the unit owner naming the bank as a defendant because of its mortgage. The bank ultimately satisfied the judgment for the owner. About six months later, as the bank's mortgage foreclosure action was still pending, the association instituted a second action to foreclose its common charge lien alleging that the common charges on the property continued to go unpaid. The bank argued that they had paid and discharged the priority portion of the lien in the first action, and therefore no new lien prior in right to its mortgage arose. The court decided in favor of the bank, and concluded that the super priority created by section 47-258(b) does not apply again if a subsequent common charge delinquency occurs during the pendency of a first mortgagee's foreclosure.
Simply put, after the mortgagee satisfies the super priority portion of the association's lien, it has no obligation to pay any further liens for common charges as long as the foreclosure action is pending and those common charges can remain unpaid without recourse by the association. Common charges cover lawn care, snow plowing, insurance, painting, repair and maintenance for all units and are necessary to maintain the property value. In the current economic climate, condominium units have not escaped foreclosure actions; but with Lake Ridge the unit owner and bank can escape paying all but the first six months of common charge delinquencies. Associations can no longer afford to bear the burden of the practical effects of these cases. Putting the burden on the owners within the association to underwrite and maintain the value of the defaulting unit and protecting the bank's collateral, without contribution from the bank or unit owner, is inequitable to the association and renders condominiums an exceptionally risky investment.
This inequitable problem has not gone unnoticed. The Connecticut General Assembly reportedly intends to address this growing problem. Because condominiums are an integral part of the real estate market and provides for higher density development, with a variety of land use efficiencies, these communities should be protected and associations should not be penalized by the risk of a defaulting owner. Without legislative change, the lender's collateral could irretrievably suffer a loss in value to not just the lender but to the association and the entire community. The future of condominiums as a land use alternative in Connecticut could be jeopardized.Corporate Shareholders Shielded in Environmental Law Case
New England Real Estate Journal, 04/20/2012
Last month the Connecticut Supreme Court issued a decision that could allow a corporate entity to avoid paying penalties for environmental noncompliance by sheltering non-culpable shareholders behind a corporate shield. In Commissioner v. State Five Industrial Park, Inc., 304 Conn. 128 (2012), the Connecticut Supreme Court provided a blueprint for corporate entities and attorneys. At the center of this case is Joseph Farricielli, the owner of four parcels of property straddling North Haven and Hamden Connecticut, home of the infamous tire pond and other solid waste disposal operations. The tire pond was once a clay pit that received between 18 and 30 million used tires without proper permits from the State of Connecticut, creating an environmental and human health hazard. Since 1974, the Department of Energy and Environmental Protection (DEEP) has engaged in a variety of legal actions to force Mr. Farricielli to comply with state waste management laws (including administrative orders, stipulated judgments, injunctions, cease and desist orders, and motions for contempt), but Mr. Farricielli remained resolute and the unpermitted disposal operations continued. Finally, in 2001, DEEP scored a seemingly significant victory when they obtained a judgment requiring Mr. Farricielli to post bonds, fund the closure of two unpermitted waste landfills and pay approximately $3.8 million in civil penalties. As of March, progress has been made towards closing the tire pond and landfills, but the civil penalties remain outstanding.
Having been unable to collect the penalties from Mr. Farricielli, DEEP attempted to collect from State Five Industrial Park, Inc., a closely held corporation, and its president, sole officer and director (and Joseph's wife), Jean Farricielli. State Five has owned portions of the tire pond since 2000, when Mr. Farricielli transferred the land to State Five's predecessor corporation, Look Investment, which he was the President of. Other owners of State Five include the Farriciellis' two sons, who had no real involvement in the corporation. DEEP argued that the court should apply the equitable doctrines of piercing the corporate veil to Mrs. Farricelli and reverse veil piercing to State Five in order to hold them liable. The doctrine of piercing the corporate veil allows a creditor to disregard the separate legal identity of a corporation and reach the assets of a corporate insider that would otherwise be shielded by the corporate structure. Conversely, reverse piercing allows a creditor to reach the assets of the corporation to satisfy claims or a judgment obtained against a corporate insider. The goal of both of these doctrines is to prevent corporations from being used as intermediaries to perpetuate fraud or promote injustice.
Based upon the facts in the case, the lower court determined that it was appropriate to hold both Mrs. Farricelli and State Five liable for the 2001 judgment under both piercing theories. The court determined that Mr. Farricelli (as the alter ego of State Five) and Mrs. Farricelli exerted complete control over State Five and they used that control to evade satisfying the 2001 judgment. For example, both continually had the authority to draw on the corporation's line of credit, transact business, and direct personnel, regardless of their statuses as shareholders, directors or officers. Further, both failed to treat State Five as a distinct legal entity, as they co-mingled personal and corporate funds and loaned these funds out to family members.
In a significant ruling the Connecticut Supreme Court reversed the lower court's decision, noting that the lower court had not established the necessary, specific connection between Mr. Farricielli's improper actions vis-a-vis State Five and the plaintiffs' inability to collect the 2001 judgment. The Court went on to review and question the reverse veil piercing doctrine, noting, among other things, that the doctrine allows outside creditors to attach a corporation's assets directly, which prejudices non-culpable shareholders who have an interest in the corporation's assets. In light of this concern the Court found that DEEP had failed to demonstrate that the Farriciellis' sons, part owners of State Five, were complicit in State Five's wrongdoing; therefore, piercing was not appropriate. In overturning the lower court's decision the Court did not discuss the continued legitimacy of reverse veil piercing in Connecticut.
The Supreme Court's failure to proclaim the death of the reverse veil piercing doctrine means that it is still a viable equitable remedy in Connecticut. Yet the Court's critical discussion of the doctrine's flaws suggests its days could be numbered. Until the death knell comes, State Five has potentially created a mechanism to shield innocent corporate owners from environmental liability. In light of the uncertainty that State Five has created, it is crucial to seek legal advice when structuring corporate ownership of contaminated properties.
News & Events
H & S Supports Greater New Haven St. Patrick's Day Parade
Halloran & Sage is again a proud supporter of the Greater New Haven St. Patrick's Day Parade, which will be held on Sunday, March 10, 2013.
Attorneys Brian Enright, James Perito, and Michael Leone from the Firm's New Haven office, along with Amanda Brosy from Hartford attended the parade's annual ball.
Brian has been a member of the Greater New Haven Saint Patrick's Day Parade Committee for over 18 years. He chaired the 2008 Parade and served as Grand Marshal in 2009. As a past Grand Marshal, he currently serves on the Parade's Executive Committee.
As a past Grand Marshal I am very proud to have Halloran & Sage associated with the Greater New Haven Saint Patrick's day parade, Brian said.
Recognized by the United States Congress as a Local Legacy, the New Haven parade is the 6th oldest in the country and the largest between New York and Boston. Each year over 3,200 marchers entertain crowds that have been estimated at 300,000 people in what is the largest single day spectator event in the state of Connecticut.