The declaration may require that all or a specified number or percentage of the mortgagees or beneficiaries of deeds of trust encumbering the units or vendors of units under installment sales contracts approve specified actions of the unit owners or the association as a condition to the effectiveness of those actions, but no requirement for approval may operate to deny or delegate control over the general administrative affairs of the association by the unit owners or the executive board or prevent the association or the executive board from commencing, intervening in or settling any litigation or proceeding or receiving and distributing any insurance proceeds except pursuant to Section 46 [47-7C-13 NMSA 1978] of the Condominium Act.

History: Laws 1982, ch. 27, § 31.

Compiler's notes. — This section is similar to § 2-119 of the Uniform Condominium Act, with the following main exception: the language, "or vendors of units under installment sales contracts," does not appear in § 2-119 of the Uniform Condominium Act.

COMMISSIONERS' COMMENT

1. In a number of instances, particularly sale or encumbrance of common elements, or termination of a condominium, a lender's security may be dramatically affected by acts of the association. For that reason, this section permits ratification of those acts of the association which are specified in that declaration as a condition of their effectiveness.

2. There are three important limitations on the rights of lender consent. They are: (1) a prohibition on control over the general administrative affairs of the association; (2) restrictions on control over the association's powers during litigation or other proceedings; and (3) prohibition of receipt or distribution of insurance proceeds prior to application of those proceeds for rebuilding.

3. It is important that lenders not be able to step in and unilaterally act as receiver or trustee of the association. There may, of course, be occasions when a court of competent jurisdiction would order appointment of a receiver for an association. While this would be possible in a court proceeding, the act prohibits private contractual granting of such a power.

4. Since it may well be that the association might find itself involved in litigation which would be adverse to the interests of the lender or the declarant, it is inappropriate for a secured party to be able to control the course of litigation in the absence of the consent of the other parties. In an appropriate case, of course, where the lenders' interests are affected, a lender might seek to intervene as a party in that proceeding.

5. Section 3-113 [47-7C-13 NMSA 1978] provides for the distribution of insurance proceeds in a particular manner. In particular, it prevents distribution of those proceeds to lenders until the intended purpose of the insurance has been met. For that reason, under this section the declaration may not provide the lender a right to receive insurance proceeds in any manner except the manner provided in 3-113 [47-7C-13 NMSA 1978].

6. In addition to the provision of the declaration, the provisions of individual deeds to units may require that unit owner to secure his lender's consent before taking particular actions.

Am. Jur. 2d, A.L.R. and C.J.S. references. — 15A Am. Jur. 2d Condominiums and Cooperative Apartments §§ 9, 28, 30, 45 to 47, 52, 54.

31 C.J.S. Estates § 153 et seq.