HOA, Condo, Co-op litigation and case law quarterly highlights (March 2018)

By Deborah Goonan, Independent American Communities

 

Carl Thompson v. Lamplight Village Homeowners Association, docket number A-14-697688-C.

Latest update on Lamplight Village HOA liability for $20 million verdict:

Very little information is being released by the HOA to the general public. However, the following letter from attorney Michael W. McKelleb, independent counsel for Lamplight Village HOA, has been released on two public access Facebook pages.

According to McKelleb, Mr. Thompson (the Plaintiff) has agreed not to pursue the association, individual properties, or homeowners by filing liens to collect the $20 million judgment. In return, the HOA has agreed to pursue litigation against its insurer and “other potentially liable parties,” with any proceeds to be assigned (paid to) Thompson.

At this time, it’s unclear whether any Lamplight Village homeowners, or any of the HOA’s insurance providers (there could be more than one), intend to pursue litigation against individual board members or the property management firm in place at the time key decisions were made, or when negligent acts occurred, that resulted in Thompson’s severe injuries.

While Thompson can no longer collect the balance of a $20 million judgment from the HOA or homeowners, other parties to litigation are not prohibited from collecting judgments against the HOA.

As the HOA moves forward with a bad faith lawsuit against their liability insurance provider, a countersuit is likely.

 

Residents of Lamplight Village (March 26, 2018, 10:56 PM Facebook post)

 

Residents of Lamplight Village (March 26, 2018, 10:56 PM Facebook post)
Residents of Lamplight Village (March 26, 2018, 10:56 PM Facebook post)
(California) Former HVL golf pro awarded $2 million in damages

By Lori Armstrong, For the Record-Bee
POSTED: 02/27/18, 12:42 PM PST | UPDATED: 4 WEEKS AGO
SAN FRANCISCO >> Earlier this month, after eight full days of proceedings, a jury unanimously awarded Wayne Clark a total of $2 million in a defamation of character case against the Hidden Valley Lake Association.

The Northern California District Court, located in San Francisco, was the platform for the court proceedings. Clark was the Golf Pro at HVLA, until he was fired by General Manager, Cindy Spears April 15, 2015.

Because Clark was hired under “at-will” employment, he sued the HVLA not for wrongful termination, but for defamation of character.

Read more:

http://www.record-bee.com/article/NQ/20180227/NEWS/180229871

A former golf pro is awarded $2M by a jury, in unanimous agreement that his HOA defamed his character, following termination of his employment. According to testimony in the lawsuit, the Association’s general manager and a board member posted derogatory and untrue statements about Wayne Clark on HVLA’s Facebook page. 

The attorney for the HOA attempted to deflect liability, citing First Amendment (free speech) rights of members. However, the First Amendment does not grant Americans the right to spread malicious or unsubstantiated rumors. 

The jury didn’t buy the HOA’s claims that general manager, Cindy Spears, made statements that were “substantially true.”

$100 bills (pixabay.com free image)

Two different states, two conflicting rulings on HOA Super-Priority Liens

 

Washington D.C. Appellate Court Holds Foreclosure of Condominium Lien Extinguished First Mortgage Despite Condominium Association’s Representations to the Contrary

Blog Banking, Title Insurance, and Real Estate Litigation Blog

Riker Danzig Scherer Hyland & Perretti LLP

Michael R. O’DonnellMichael CrowleyDylan C. Goetsch
USA March 20 2018
The District of Columbia Court of Appeals recently held that a condominium’s foreclosure of a “super-priority” condominium lien extinguished an otherwise first-priority mortgage on the property, despite the fact that the association’s notice of sale and deed to the third-party purchaser stated that the sale was “subject to” the mortgage. See Liu v. U.S. Bank Nat’l Ass’n, 2018 WL 1095503 (D.C. Mar. 1, 2018)

On appeal, the Court reversed the decision. First, it held that the Act contains an express anti-waiver provision that states, “[e]xcept as expressly provided by this chapter, a provision of this chapter may not be varied by agreement and any right conferred by this chapter may not be waived.” Accordingly, the association’s statements that the sale would be subject to the mortgage could not override the plain language of the Act, which called for the mortgage to be extinguished. Second, the Court held that the purchaser was not equitably estopped from extinguishing the mortgage because the lender could not show that it reasonably relied on the association’s statements, as evidenced by the lender’s attempt to pay the condominium lien. Similarly, the Court held that equitable relief cannot contravene express statutory language. Finally, the Court noted that the Act was amended in 2017 to require notices under the Act to specify whether the foreclosure sale is for the six-month super-priority lien and not subject to first mortgage, or for more than the six-month lien and subject to the mortgage.

Read more:

https://www.lexology.com/library/detail.aspx?g=8ae6901b-26d6-4335-86f8-2426b8c2d569

See also:

D.C. ruling offers good news for condo associations, bad news for banks (Washington Post, Benny Kass)

A D.C. Appellate Court ruled that some past HOA/condo foreclosures can wipe out a first mortgage lien, if the lender fails to pay the lien prior to a foreclosure auction.

Prior to 2017, the association was not required to accurately disclose the priority status of a mortgage lien to purchasers of HOA/condo foreclosure properties. However, D.C. law was amended last year to “specify whether the foreclosure sale is for the six-month super-priority lien and not subject to first mortgage, or for more than the six-month lien and subject to the mortgage.”

 

 

HOA Super-Priority Lien Law Preempted by Federal Statute (NV)

Blog Financial Services Perspectives

Bradley Arant Boult Cummings LLP
Bradley Arant Boult Cummings LLP logo
Alex McFall
USA March 23 2018

Excerpt:

On March 21, 2018, the Nevada Supreme Court released a unanimous, en banc opinion in Saticoy Bay LLC Series 9641 Christine View v. Federal National Mortgage Association, siding with the Ninth Circuit on federal preemption.

The Nevada Supreme Court affirmed the trial court’s judgment, holding that because the Nevada HOA super-priority lien statute allowed an HOA to extinguish Fannie Mae’s interest without the consent of FHFA, it directly conflicted with Congress’ clear goal of protecting Fannie Mae’s property while under FHFA’s conservatorship. The court also confirmed that Fannie Mae has standing to assert the Federal Foreclosure Bar. This decision on standing follows the court’s earlier decision in Nationstar Mortgage, LLC v. SFR Investments Pool 1, LLC that the servicer of a loan owned by Fannie Mae or Freddie Mac has standing to raise the Federal Foreclosure Bar in defense of Fannie Mae’s and Freddie Mac’s property interests.

Importantly, the court rejected Saticoy Bay’s argument that FHFA implicitly consented to extinguishment of the deed of trust by failing to act to prevent the HOA foreclosure sale. Citing the Ninth Circuit’s Berezovsky opinion, the court held that FHFA must affirmatively consent to extinguishment and is not required to actively resist foreclosure.

While this decision is unpublished, it seems to provide an indication as to how the Nevada Supreme Court will rule on the Federal Foreclosure Bar in future published opinions.

Read more:

https://www.lexology.com/library/detail.aspx?g=67791ade-11a5-4c08-8229-1f113b8e8cfd

Nevada Supreme Court has unofficially ruled in favor of FHFA, meaning that investors in Nevada HOA/condo foreclosures cannot wipe out mortgage liens held by Fannie Mae and Freddie Mac. 

 

Fair Housing settlement still not finalized

Colorado: Aspen service-dog lawsuit headed toward settlement

Rick Carroll
December 7, 2017

A legal dispute over an Aspen condominium association’s handling of a tenant with a service dog is heading toward a settlement, based on a filing in Denver federal court.

A joint notice of settlement — filed by plaintiff Alvaro Arnal and defendants Aspen View Condominium Association, two of its board members and First Choice Properties & Management Inc. — says they have struck an agreement “for the purpose of resolving all pending claims.”

The settlement will not be made official until Feb. 13 at the latest, the deadline Senior Judge Wiley Y. Daniel has given the parties to issue their settlement document with the court.

Read more:

https://www.aspentimes.com/trending/aspen-service-dog-lawsuit-headed-toward-settlement/

A news release in December 2017 noted that a settlement in this high-profile fair housing case was imminent. But, to date, no official announcement of an agreement between Arnal and Aspen View Condominium Association. 

In December 2016, a Department of Justice statement clarified that the case could move forward in light of the HOA’s retaliation against Arnal for accommodation of his tenant’s service dog. That retaliation took the form of punitive fines imposed against Arnal. 

 

 

Backlash against unfair tactics used by real estate developers to avoid liability for construction defect claims

Massachusetts: SJC REJECTS DEVELOPER “POISON PILLS” THAT LEAVE CONDO OWNERS WITHOUT CONSTRUCTION DEFECT REMEDIES

OR, IF YOU PREFER A SHORTER HEAD:
SJC REJECTS DEVELOPERS’ “POISON PILLS”
BY EDMUND ALLCOCK

The Massachusetts Supreme Judicial Court (SJC) has ruled that condominium developers can’t unreasonably restrict the ability of owners to file suits against them. The court rejected the “poison pill” provisions developers often use to insulate themselves from liability for construction defects, design flaws and other claims condominium owners might pursue against the developers of their communities.

I represented the plaintiffs, the trustees of Cambridge Point Condominium Trust, who challenged a provision in the community’s governing documents that required 80 percent of the owners to approve litigation against the developer. It is hard enough to persuade 80 percent of a community’s owners to agree on anything, but it is, as the SJC noted, “a practical impossibility,” when, as in this case, the developer controls 20 percent of the votes, and, as the court also noted, they “are unlikely to agree to sue themselves.” (Trustees of the Cambridge Point Condominium Trust vs. Cambridge Point, LLC, et als.)

The trustees were trying to file a $2 million construction defect suit against the developer, which the developer sought to block, arguing that 80 percent of the owners had not authorized it.

Read more:

https://meeb.com/legal-alets/sjc-rejects-developer-poison-pills-leave-condo-owners-without-construction-defect-remedies/

See also:

Massachusetts Gets it Right Regarding Anti-Litigation Provisions (written by Meisner Law Group, Michigan)

Massachusetts Condominium Developers Have Increased Exposure
by Saul Ewing Arnstein & Lehr LLP

Massachusetts Supreme Judicial Court (SJC) has ruled that certain provisions in association governing documents violate public policy, because they unreasonably restrict the right of association governed communities and unit owners to pursue construction defect litigation against real estate developers. 

The lawsuit involved Cambridge Point Condominium Trust, whose governing documents require 80% of membership interests in the association to vote in favor of pursuing litigation against the developer.

However, as long as the developer of Cambridge Point continues to retain ownership of 20% of the association, Cambridge Point LLC indefinitely prevents the condo association from moving forward with a legal claim. Governing documents also specify that nonvotes on the issue count as “no” votes with regard to pursuing a construction defect claim. 

MA SJC ruled that such provisions unreasonably shield a developer from liability for otherwise valid construction defect claims. 

The ruling is an important step in the right direction for housing consumers. 

I have been making this argument for years, and documenting examples of developers shielding themselves from all sorts of legal liabilities in association-governed communities here on IAC.

One fundamental flaw of association-governing schemes is the fact that the governing documents are usually written by and for developers, not future homeowners and residents of common interest communities. At the same time, allocating voting interests to property, rather than to people — especially those not affiliated with the developer — almost always ensures that the developer’s interests are protected at the expense of housing consumers. 

Chicago condo board members precluded from unauthorized practice of law

LEGAL REPRESENTATION NOW REQUIRED FOR CONDOMINIUM ASSOCIATIONS AT ADMINISTRATIVE HEARINGS

Written by Alexa Jackson
Created: 01 March 2018

Board members can no longer represent their association in an administrative hearing. Administrative law judges hearing cases in the City of Chicago used to allow non-attorney representation for ordinance violations. However, it has been determined recently that non-attorneys appearing on behalf of such entities at administrative hearings were committing the unauthorized practice of law.

In Illinois, if you attend an administrative hearing on behalf of an entity without an attorney, a default judgment may be entered because you will not be allowed to appear on its behalf. In order to vacate the default judgment, you will need to engage an attorney to file a motion on your behalf, in most cases resulting in an additional hearing and costs.

Read more:

http://chicagocondoresource.com/about/what-we-re-thinking-about-lately/940-legal-representation-now-required-for-condominium-associations-at-administrative-hearings

Board members can no longer try to save money on attorney fees by representing their associations at Administrative Hearings. 

 

 

Court of Appeals reverses previous  $300K trial court ruling in favor of homeowner

WA: Thaddeus C. Pritchett vs. Picnic Point Homeowners’ Association

 

In this case, a homeowner has spent a decade fighting over his right to increase the height of his home by seven feet. The HOA denied his architectural modification request, on the grounds that raising the roof on his property would obstruct scenic views of his uphill neighbors, in violation of restrictive covenants.

A trial court ruled in favor of Pritchett, awarding nearly $300,000 to the homeowner, citing ambiguity of the documents and inconsistent enforcement of the covenants.

The Appellate Court recently reversed the trial court verdict, finding in favor of Picnic Point HOA.

In the Appellate Court’s opinion, HOA documents are very clear about preventing any obstruction of views, no matter how minor.

The Court also dismissed Pritchett’s claim that he has been denied due process by the HOA in the dispute.

Specifically, the court ruled as follows:

The Fourteenth Amendment’s due process clause limits the activities of state actors. Shanks v. Dressel, 540 F.3d 1082,1087(9th Cir.2008). The Association is a private entity that could not have violated Pritchett’s procedural due process rights by denying his proposal. Instead, due process was provided to Pritchett during the judicial proceeding.

As a result of the reversal of the trial court’s ruling, Pritchett is no longer entitled to a $300,000 award.

 

 

 

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