By Deborah Goonan, Independent American Communities
Highlights of court rulings on legal disputes between association-governed communities and their members or third parties.
This South Carolina case should serve as a home buyer beware warning. When you buy into a golf community, or any other amenity-rich community, subject to Covenants, Conditions, & Restrictions that require club membership, you cannot simply ‘resign’ and walk away from your obligation to pay Club dues.
The ruling is likely to be cited as case law in similar legal challenges, and probably will not be limited to golf communities. (For example, lake communities.)
Callawassie club members must pay dues, even after resigning, says SC Supreme Court
BY TERESA MOSS
August 29, 2018 06:26 PM
Updated August 29, 2018 06:52 PM
On Wednesday, the S.C. Supreme Court ruled in favor of the Callawassie Island Club, concluding a case that begun in 2011, according to a news release from Group 46.
The ruling upholds a members agreement which requires members to keep paying dues, even after resigning. The club members must pay or transfer the membership to someone else.
“The wider significance of the ruling stems from its impact on any community development that includes club amenities and privileges, a sector prominent in the economic life of our region,” the release states. “For the Callawassie Island community, the Supreme Court ruling marks the ending of a long-running dispute and helps return attention to the widespread sense of satisfaction enjoyed by residents and club members.”
Now here’s a prime example of why legislative “reform” alone will never transform association-governed communities into organizations that are friendly to housing consumers.
Florida Statute 718 governs condominium associations. The law has been amended numerous times over the past 30+ years. But many amendments are not retroactive. In other words, if your condo association existed before an amendment, that provision of the Statute 718 may not apply to your association, unless your governing documents contain language that amended state laws shall apply.
The same principles apply to other states. In general, unless a state Legislature adds language to make an amendment retroactive, new laws intended to protect consumers may not actually help owners and residents of condo associations with older governing documents.
About those governing documents: sometimes the language of a new statute will allow CC&Rs and Bylaws to override state law, so as not to ‘impair’ the contractual nature of CC&Rs.
(However, state Legislators have been happy to impair those contracts to provide association governing boards the authority to impose monetary fines, to lien and foreclose on homes to collect unpaid assessments, or to grant a priority lien to the association.)
In the following case, a condo owner could not enforce Statute 718 access to records provisions because the Master Association, established in 1982, did not fit the definition of a condominium association as amended by Statute in 1991.
Appeals court upholds ruling favoring Florida master condo association
by Asia Mayfield |
Aug. 21, 2018, 12:52pm
MIAMI — The U.S. Third District Court of Appeal affirmed Aug. 8 that a lower court ruling asserting that a master condo association does not have the same responsibilities as a sub-association.
Appellant Benedetto Dimitri owns six condominium units in a development controlled by the defendant, the Commercial Center of Miami Master Association. Although the master association is in charge of the entire building, each development it owns is under the further management of a sub-association.
On March 30, 2015, Dimitri sent a letter to the master association requesting to view specific documents. The association refused, and Dimitri filed suit, alleging the group had violated Chapter 718, the condominium association statute in the state.
The master association was formed in 1982. The current rules regarding such associations in Florida were updated in 1991.
The appeals court agreed with the defendant, stating: “We conclude that the 1991 amendment to the definition of section 718.103 (2) does not apply retroactively to the master association declaration executed in 1982; the master association is not a condominium “association” under the 1982 version of Section 718.103.”
Dimitri’s suit was unsuccessful because the master association was able to prove that the law regulating condo associations doesn’t apply to it. Under terms of the law that were in place when the group was formed, it does not fit the definition of “association,” the appeals court ruled.
Sometimes the contractual nature of CC&Rs works in favor of the homeowner, especially when supported by state law.
The lesson to be learned from this case in Maryland: if your association board is not specifically granted authority in the governing documents, it cannot enforce restrictions and rules by withholding access to common elements.
But keep in mind that, now that this case is settled, HOA attorneys will probably encourage associations to attempt to amend their governing documents to provide the board with that authority. As an owner or shareholder, be on the lookout for such proposals, and carefully consider whether or not you believe it’s a good idea to give your HOA more power.
Sometimes community association trade groups will also attempt to enact ‘enabling legislation’ at the state level, granting association boards the legal authority to take away rights of its members, justifying it as the only way to enforce rules and restrictions. What’s more, the language in many such bills and amendments often overrides current governing documents.
Delinquent Owners – Withholding Access to Common Elements
By Daniel Miske on August 14, 2018
A Maryland Court recently ruled on the extent of powers a Condominium Board had in dealing with a unit owner who was delinquent in assessments (Elvation Towne Condominium Regime II, Inc. v. Rose, 162 A.3d 1027). The Association at issue adopted a policy by which delinquent unit owners would be deprived of their right to enjoy certain common elements – namely the pool and parking of the Association. When they suspended those rights for the delinquent unit owner, the unit owner filed suit alleging the policy was unlawful, since the Association’s declaration did not provide for the Board to withhold common element use rights.
The trial court and court of appeals both agreed that the Association went beyond its authority in adopting the policy. The Court noted that Maryland state law stated that common elements were subject to use and enjoyment by all owners unless the declaration said otherwise. Because the Association’s declaration did not specifically grant the Association the power to withhold common element use rights, it could not adopt and enforce a policy doing so.
Arizona courts conclude that a homeowner is not entitled to excess proceeds from an HOA foreclosure via Sheriff’s sale, unless and until all lienholders are paid in full. In this case, “Everyone Wins” was a junior lienholder, second in line after the HOA. By the time the HOA and the holder of the Deed of Trust (and LLC named “Everyone Wins”) were paid following the Sheriff’s sale, the homeowner/borrower ended up with no home and no cash proceeds.
Everyone Wins When a Foreclosure Sale Generates Excess Proceeds
July 16, 2018
Snell & Wilmer
When a foreclosure sale generates more money than needed to pay off the lien, the excess proceeds usually go first to creditors in the order of their priority, and second to the owner after creditors are paid in full. So, in truth, not everyone wins when a foreclosure sale brings in too much money. Amusingly, in Steinmetz v. Everyone Wins, the court awarded excess sale proceeds to….you guessed it…Everyone Wins, despite the owner’s argument that Arizona’s anti-deficiency statutes barred it from recovering anything.g
In addition to supplying a clever title for this post, Steinmetz v. Everyone Wins provides an important analysis of how Arizona’s anti-deficiency statutes, homeowner’s assessment lien statutes, and foreclosure statutes apply when determining who “wins” when it comes to excess sale proceeds.
In Arizona, a federal court recently ruled in favor of a homeowner in a Fair Debt Collection Practices Act (FDCPA) claim against a homeowners’ association collections attorney. In short, a defendant is only obligated to pay attorney fees that are officially approved and awarded by a judge in a court of law.
The HOA cannot hold a property owner hostage by charging thousands of dollars in legal fees that have not yet been awarded by the courts.
Post-Judgment Collection of Unawarded Attorneys’ Fees Violates the Fair Debt Collection Practices Act
July 17, 2018 jonathan dessaules
The United States District Court for the District of Arizona has ruled in a case brought under the Fair Debt Collection Practices Act (“FDCPA”) that a law firm that submits a demand for payment of unawarded post-judgment attorneys’ fees in a judgment-debtor’s refinance violates the FDCPA.
The debtor filed an FDCPA action, claiming that the law firm violated the FDCPA because its representations in collecting the judgment were “false, deceptive, or misleading” and the firm had used “unfair and unconscionable means to collect or attempt to collect [a] debt.” The District Court ruled that the law firm violated the FDCPA by demanding and collecting almost $2,000.00 of post-judgment attorneys’ fees without ever submitting those fees to the court for approval.” The Court explained:
Essentially, [the law firm] saw an opportunity to recover all the fees they wanted without the trouble of justifying the amounts to a court, and they took it. This is precisely the type of exploitative behavior the FDCPA was enacted to prohibit. Therefore, the Court concludes that Defendants violated [the FDCPA] by misrepresenting to Quicken Loans that these feeds were legally due and owing… The Court also concludes that Defendants violated [the FDCPA] by collecting an amount that was not expressly authorized by law because the Judgment specifically required approval by the justice court of additional attorneys’ fees.
The case is Jason v. Maxwell & Morgan PC. DLG represented the Plaintiff.
In a ground-breaking case in Arizona, a jury decided that a governing document amendment creating a short-term rental ban is a ‘substantial and unforeseeable change’ to the CC&Rs, requiring unanimous consent of all HOA members.
The HOA had enacted a short-term rental ban based on a vote of 75% off all owners.
DLG Prevails in Jury Trial in Challenge to Short-Term Rental Ban
August 15, 2018 jonathan dessaules
Dessaules Law Group attorneys recently prevailed in a jury trial in a lawsuit brought against an HOA challenging the validity of a short-term rental ban. The HOA’s Board of Directors obtained the approval of more than 75% of the owners to adopt the ban on rentals of less than six (6) months and recorded the proposed amendment. Five property owners voted against the ban.
The original CC&Rs did not contain any rental restrictions and allowed for amendment if 75% of the owners voted in support of its amendment. DLG argued that, notwithstanding the 75% amendment provision, unanimous consent of all owners (that is, 100%) was necessary because the rental ban was a new and material restriction that was substantial and unforeseeable in the original CC&Rs. The case went to the jury to decide whether rental restrictions prohibiting rentals of less than six (6) months was a substantial and foreseeable change.
The jury, after deliberating just over one hour following a two-day trial, returned a verdict finding that the proposed amendment was invalid because it was new prohibition that was not contemplated in the original CC&Rs.
We believe this was the first case of this nature to be tried to a jury in Arizona.
Are Short-Term Rental Restrictions Valid?
August 31, 2018 jonathan dessaules
Short-term rental restrictions are currently a hot topic. Notwithstanding changes in tax laws providing significant benefits of short-term rentals of second homes, more and more HOAs and condominium associations are attempting to amend their CC&Rs to add short-term rental restrictions. We believe most of these amendments are invalid under Arizona law.
Notwithstanding such a generic amendment provision, the Dreamland Villa case states that a Majority of the Members generally does not have the right to amend CC&Rs to add new restrictions that “unreasonably alter the nature of the covenants.” Dreamland Villa Cmty. Club, Inc. v. Raimey, 224 Ariz. 42, 51, 226 P.3d 411, 420 (App. 2010). In order to determine whether the new proposed restrictions “unreasonably alter the nature of the covenants,” courts look at whether the proposed amendment is foreseeable based on the language of the existing CC&Rs. If the existing CC&Rs do not place a purchaser on notice that they might be subject to new restrictions of the nature of the one being proposed, then a majority vote of members is insufficient to pass the amendment and unanimous approval of all members is required.
We recognize that the requirement of unanimous consent might seem unfair to some. There are some who argue that the mere fact that CC&Rs can be amended should be sufficient to put an owner on notice that she or he might be subject to new restrictions. But this superficial analysis ignores that real estate is often the single biggest asset most people will buy and they are entitled to buy in reliance on the existing CC&Rs. An owner who buys property specifically to use as short-term rentals and relies on the absence of such a prohibition in the existing CC&Rs does not reasonably anticipate that the singular purpose for their purchase might be outlawed by 51% of their neighbors.
Accordingly, substantial and unforeseeable limitations on an owners’ rights generally require unanimity (100%). Amendments to recorded declarations cannot create new obligations or restrictions where the recorded declaration’s provisions did not alert the homeowners to the possibility that they would be subject to the new restrictions. If a recorded declaration does not contain or at least provide for later adoption of a specific restriction or requirement, it is invalid.
The Arizona Legislature has made this unanimity requirement part of the Condominium Act. A.R.S. § 33-1227 states that “an amendment shall not create or increase special declarant rights, increase the number of units or change the boundaries of any unit, the allocated interests of a unit or the uses to which any unit is restricted, in the absence of unanimous consent of the unit owners.”