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SENATE BILL NO. 276
INTRODUCED BY R. WEBB
AN ACT GENERALLY REVISING CONDOMINIUM AND TOWNHOUSE LAWS; PROVIDING REQUIREMENTS FOR AND EFFECTS OF A CONVERSION OF A CONDOMINIUM TO A TOWNHOUSE UNDER THE UNIT OWNERSHIP ACT; REQUIRING THAT NOTICE OF THE CONVERSION AND AN OPPORTUNITY FOR OBJECTION BE GIVEN TO CERTAIN PARTIES; EXEMPTING CERTAIN CONVERSIONS OF A CONDOMINIUM TO A TOWNHOUSE FROM STATE AND LOCAL SUBDIVISION REVIEW; PROVIDING DEFINITIONS; AND AMENDING SECTIONS 70-23-102, 76-3-203, AND 76-4-111, MCA.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:
Section 1. Conversion of condominium to townhouse. (1) A condominium may be converted to a townhome or townhouse only if:
(a) no other structure occupies the vertical air space above or below the unit's converted footprint;
(b) all condominium units subject to the recorded condominium declaration are simultaneously converted to townhome or townhouse units; and
(c) all of the unit owners owning units subject to the recorded condominium declaration consent to the conversion by executing and recording an instrument to that effect and adhering to the requirements of this section.
(2) If a condominium unit is affected by a lien, the unit owner shall obtain the lienholder's written consent to the conversion. If a lienholder does not provide written consent to the conversion, the unit owner may consent on behalf of the lienholder only according to the following provisions:
(a) The unit owner shall deliver by certified mail, return receipt requested, to each affected lienholder or its servicer at the address specified in the recorded trust indenture or mortgage, the address specified in the last recorded assignment of the trust indenture or the mortgage, if any, and the address specified in the last mailed request for loan payment the following documents:
(i) written notification pursuant to [section 2];
(ii) a litigation guarantee, provided that:
(A) the form of the guarantee has been approved by the insurance commissioner and is issued by a licensed title insurance producer;
(B) the guarantee was ordered on the unit by the person required to give notice; and
(C) the guarantee lists the identities and addresses of the parties of record that have an interest in or a possible claim of an interest in the unit designed to disclose all parties of record that would otherwise be necessary to name in a quiet title action;
(iii) the proposed declaration and bylaws for the converted townhomes or townhouses that:
(A) provides that the percentage of the undivided interest of each unit owner in the common area is the same as the percentage of undivided interest owned by the owner in the common elements prior to the conversion; and
(B) provides for the continuation of the prior condominium association of unit owners as a townhouse association of unit owners;
(iv) a surveyed site plan that:
(A) includes the boundaries of the footprint beneath each converted unit and any limited common elements, such as decks, patios, and walkways, that will be included in the conversion; and
(B) depicts the corners and boundaries of the property underlying each converted townhome or townhouse; and
(v) an appraisal of the fair market value of the unit presuming that the unit had been converted to a townhome or townhouse for the purpose of establishing that the fair market value of the unit as a townhome or townhouse is not less than the fair market value of the existing condominium unit.
(b) Within 120 days of the date of the mailing in subsection (2)(a), a lienholder may object only by:
(i) recording its objection with the office of the county clerk and recorder of the county in which the unit is situated; and
(ii) mailing notification of its objection by certified mail, return receipt requested, to the unit owner at the address specified on the notice of intent received pursuant to [section 2].
(c) If a lienholder does not register an objection pursuant to subsection (2)(b), the lienholder is considered to have consented to the conversion after the expiration of the 120-day period.
(3) (a) Except as provided in subsection (3)(b), if the unit subject to conversion is not affected by a lien or if each lienholder has consented or is considered to have consented to the conversion pursuant to this section, the conversion is effective upon the recording of all of the following documents pertaining to each of the condominium units on the property with the office of the county clerk and recorder of the county in which the property is situated:
(i) an affidavit stating that the owner mailed the required notices of intent pursuant to [section 2];
(ii) the declaration and bylaws, which must be substantially the same as the proposed declaration and bylaws specified in subsection (2)(a)(iii);
(iii) the surveyed site plan referenced in subsection (2)(a)(iv); and
(iv) evidence of the written consent of each affected lienholder. Sufficient evidence of written consent may be made through documents including but not limited to deeds, loan modifications, or the instrument reflecting a unit owner's consent on behalf of the lienholder as provided in [section 3].
(b) If a lienholder is considered to have consented pursuant to subsection (2)(c), the unit owner may record the documents within 45 days after the expiration of the 120-day period provided in subsection (2)(b).
Section 2. Notice of intent. (1) In addition to the documents required under [section 1(2)(a)], the notice of intent by a unit owner to a lienholder to convert a condominium to a townhome or townhouse must contain:
(a) the date;
(b) the name and address of the borrower;
(c) the name of the lienholder; and
(d) the name of the loan servicer if loan payments on a trust indenture or mortgage are collected by a loan servicer.
(2) The notice must be in substantially the following form:
"This notice, made the ... day of ......, ...., concerns the trust indenture or mortgage attached and described as follows:
Name of borrower: ..........
Name of lienholder: ..........
Name of loan servicer: ..........
Recording information concerning the trust indenture or mortgage, including the entry number, book number, and page number: ..........
Pursuant to the Unit Ownership Act contained in Title 70, chapter 23, MCA, the undersigned unit owner intends to convert a condominium affected by a mortgage or a trust indenture located at .......... to a townhome or townhouse.
Unless the lienholder within 120 days of the date of this notice records its objection pursuant to [section 1], MCA, with the office of the county clerk and recorder of the county in which the property is situated and mails notification of its objection by certified mail, return receipt requested, to the unit owner at the address specified on this notice, the unit owner will consent to the conversion on behalf of the lienholder for the mortgage or trust indenture described in this notice.
Pursuant to [section 1(2)(a)], MCA, the unit owner has included the following attachments:
(a) a copy of the recorded trust indenture or mortgage;
(b) a litigation guarantee;
(c) the proposed declaration and bylaws for the converted townhome or townhouses;
(d) a surveyed site plan; and
(e) an appraisal of the fair market value of each unit presuming that each unit had been converted to a townhome or townhouse.
& #160; ......... (Signature of unit owner)
& #160; ......... (Address of unit owner)"
Section 3. Consent by unit owner on behalf of lienholder. The instrument reflecting a unit owner's consent on behalf of the lienholder to convert a secured property from a condominium to a townhome or townhouse must be in substantially the following form:
"(Unit owner) hereby consents on behalf of (name of lienholder), whose lien is evidenced by a trust indenture or mortgage recorded in ........ County on ..... day of ...., ...., in book ...... at page ...... as entry number ...... to the following property in ........ County being converted from a condominium described as ........... to a townhome or townhouse described as ...........
The undersigned unit owner certifies as follows:
(1) In accordance with the requirements of [sections 1 and 2], MCA, the unit owner has delivered to the lienholder a notice of intent by a unit owner to a lienholder to convert a condominium to a townhome or townhouse.
(2) The lienholder has not affirmatively consented to the conversion, but the unit owner did not receive a notice of objection to the conversion from the lienholder within 120 days of the date of the notice of intent to convert a condominium to a townhome or townhouse as required to object to the conversion by [section 1], MCA.
& #160; ......... (Signature of unit owner)
& #160; ......... (Notarization)"
Section 4. Effect of conversion. Regarding a conversion pursuant to [section 1], the following provisions apply:
(1) (a) A townhome or townhouse unit, including the structural elements and land beneath the unit as described in the surveyed site plan in [section 1(2)(a)(iv)], must be considered to be owned in fee simple by the unit owner;
(b) a portion of the land depicted as common area on the surveyed site plan described in [section 1(2)(a)(iv)] must be considered to be owned in common by all of the converted townhome or townhouse unit owners. The percentage of the undivided interest of each unit owner in the common area must be considered to be the same as the percentage of undivided interest owned by the owner in the common elements prior to the conversion.
(c) a lien affecting a townhome or townhouse unit is a lien against the fee simple interest of the unit owner in subsection (1)(a) and the undivided interest in the common area described in subsection (1)(b). The conversion, by itself, may not be considered to have an effect on the existing priorities of any liens concerning the converted townhome or townhouse units.
(2) The owners, lienholders, and title insurers may rely on the amended declaration's legal description of the unit provided by the surveyed site plan in [section 1(2)(a)(iv)] with regard to the future conveyance of individual townhome or townhouse units.
(3) Section 71-1-108 applies to the fee simple title to the land beneath a townhome or townhouse unit acquired by the mortgagor pursuant to the conversion.
(4) Because the amended declaration must provide for the continuation of the association of unit owners pursuant to [section 1(2)(a)(iii)(B)], the unit owners may not be required to form a new association of unit owners.
(5) The townhome or townhouse may not be considered removed from the provisions of Title 70, chapter 23, solely by virtue of the conversion.
(6) If the conversion procedures in [section 1] are followed, a unit owner or lienholder may not bring an action concerning the conversion, including a foreclosure based solely on the conversion, against any party associated with the conversion, including but not limited to the association of unit owners, title insurers, escrow providers, or lienholders. A person who brings an action concerning the conversion is liable for damages and attorney fees and costs to defend the action.
(7) If a foreclosure of a unit is conducted using the original condominium legal description in the trust indenture or mortgage, it will result in the foreclosure of the converted townhome or townhouse.
(8) A conversion does not constitute a removal pursuant to this chapter.
Section 5. Nonapplicability -- building codes -- zoning regulations. Nothing in [sections 1 through 5] may be interpreted to modify, expand, or abrogate the applicability of state or local building codes or zoning regulations to a condominium, townhome, townhouse, or conversion.
Section 6. Section 70-23-102, MCA, is amended to read:
"70-23-102. Definitions. In this chapter, unless the context requires otherwise, the following definitions apply:
(1) "Association of unit owners" means all the unit owners acting as a group in accordance with the declaration and bylaws.
(2) "Borrower" means a mortgagor, grantor as defined in 71-1-303, or other debtor.
(2)(3) "Building" means a multiple-unit building or buildings comprising a part of the property.
(3)(4) "Common elements" means the general common elements and the limited common elements.
(4)(5) "Common expenses" means:
(a) expenses of administration, maintenance, repair, or replacement of the common elements;
(b) expenses agreed upon as common by all the unit owners; and
(c) expenses declared common by 70-23-610 and 70-23-612 or by the declaration or the bylaws of the particular condominium.
(5)(6) "Community land trust" means a nonprofit organization exempt from taxation under section 501(c)(3) of the Internal Revenue Code that holds title to land beneath individually owned housing units for the purpose of preserving affordable housing.
(6)(7) "Condominium" means the ownership of single units with common elements located on property submitted to the provisions of this chapter. The term does not include a townhome, a townhouse, a community land trust, or a housing unit located on land belonging to a community land trust.
(8) "Conversion" means a change in the character of residential real property from one or more parcels of land with attached condominium units to one or more parcels of land with attached townhome or townhouse units without a change to the undivided interest of the unit owners.
(7)(9) "Declaration" means the instrument by which the property is submitted to the provisions of this chapter.
(8)(10) "General common elements", unless otherwise provided in a declaration or by consent of all the unit owners, means:
(a) the land on which the building is located, except any portion of the land included in a unit or made a limited common element by the declaration;
(b) the foundations, columns, girders, beams, supports, mainwalls, roofs, halls, corridors, lobbies, stairs, fire escapes, entrances, and exits of the building;
(c) the basements, yards, gardens, parking areas, and outside storage spaces, private pathways, sidewalks, and private roads;
(d) installations of central services such as power, light, gas, hot and cold water, heating, refrigeration, air conditioning, waste disposal, and incinerating;
(e) the elevators, tanks, pumps, motors, fans, compressors, ducts, and in general all apparatus and installations existing for common use;
(f) the premises for the lodging of janitors or caretakers of the property; and
(g) all other elements of the building necessary or convenient to its existence, maintenance, and safety or normally in common use.
(11) "Lienholder" means a person holding a security interest, including a mortgagee, beneficiary of a trust indenture, or other creditor who holds a mortgage, trust indenture, or other instrument that encumbers real property.
(9)(12) "Limited common elements" means those common elements designated in the declaration or by agreement of all the unit owners as reserved for the use of a certain unit or number of units to the exclusion of the other units.
(10)(13) "Majority" or "majority of the unit owners", unless otherwise provided in the declaration, means the owners of more than 50% in the aggregate of the undivided ownership interests in the general common elements as the percentage of interest in the element appertaining to each unit is expressed in the declaration. Whenever a percentage of the unit owners is specified, percentage means the percentage in the aggregate of undivided ownership.
(11)(14) "Manager" means the manager, board of managers, or other person in charge of the administration of or managing the property.
(12)(15) "Project" means a real estate condominium project whereby a condominium of two or more units located on property submitted to the provisions of this chapter are is offered or proposed to be offered for sale.
(13)(16) "Property" means the land, all buildings, improvements, and structures on the land, and all easements, rights, and appurtenances belonging to the land that are submitted to the provisions of this chapter.
(14)(17) "Recording officer" means the county officer charged with the duty of filing and recording deeds and mortgages or other instruments or documents affecting the title to real property.
(15)(18) "Townhome" or "townhouse" means property that is owned subject to an arrangement under which persons own their own units and hold separate title to the land beneath their units, but under which they may jointly own the common areas and facilities.
(16)(19) "Unit" means a part of the property including one or more rooms occupying one or more floors or a part or parts of the property intended for any type of independent use and with a direct exit to a public street or highway or to a common area or area leading to a public street or highway.
(17)(20) "Unit designation" means the number, letter, or combination of numbers and letters designating a unit in the declaration.
(18)(21) "Unit owner" means the person owning a unit in fee simple absolute individually or as co-owner in any real estate tenancy relationship recognized under the laws of this state. However, for all purposes, including the exercise of voting rights, provided by lease filed with the presiding officer of the association of unit owners, a lessee of a unit must be considered a unit owner."
Section 7. Section 76-3-203, MCA, is amended to read:
"76-3-203. Exemption for certain condominiums and townhouses. Condominiums, townhomes, or townhouses, or conversions, as those terms are defined in 70-23-102, constructed on land subdivided in compliance with parts 5 and 6 of this chapter or on lots within incorporated cities and towns are exempt from the provisions of this chapter if:
(1) the approval of the original subdivision of land expressly contemplated the construction of the condominiums, townhomes, or townhouses and any applicable park dedication requirements in 76-3-621 are complied with; or
(2) the condominium, townhome, or townhouse proposal is in conformance with applicable local zoning regulations when local zoning regulations are in effect."
Section 8. Section 76-4-111, MCA, is amended to read:
"76-4-111. Exemption for certain condominiums, townhomes, and townhouses. (1) Condominiums, townhomes, or townhouses, as those terms are defined in 70-23-102, constructed on land divided in compliance with the Montana Subdivision and Platting Act and this part are exempt from the provisions of this part.
(2) Whenever a parcel of land has previously been reviewed under either department requirements or local health requirements and has received approval for a given number of living units, the construction or conversion of the same or a fewer number of condominium units, townhomes, or townhouses on that parcel is not subject to the provisions of this part, provided that no new extension of a public water supply system or extension of a public sewage system is required."
Section 9. Codification instruction. [Sections 1 through 5] are intended to be codified as an integral part of Title 70, chapter 23, and the provisions of Title 70, chapter 23, apply to [sections 1 through 5].
Section 10. Nonapplicability. Nothing in [this act] may be interpreted to modify or expand existing insurance coverage on a condominium unit, townhome, or townhouse.
- END -
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