Gavel HOA lawsuit

SC DCA collects HOA Complaints, but cannot prevent lawsuits

By Deborah Goonan, Independent American Communities

 

As of last year, South Carolina became one of a few states that collects housing consumer complaints involving homeowners’ associations (HOAs).

The state’s Department of Consumer Affairs recently issued its 2019 report, summarizing 92 HOA complaints filed between June 1, 2018 and December 31, 2018.

By contrast, the DCA received 167 HOA complaints between January 1, 2014 – May 31, 2018. The sharp increase in complaints coincides with new HOA statutes enacted last year, as described in a February IAC post .

As of May 2018, all common interest communities must comply with the South Carolina Homeowners Association Act.

Prior statutes in South Carolina governed condominiums and nonprofit corporations. But the new HOA Act regulates planned communities of both single family homes and condominiums, where payment of assessments is a mandatory obligation.

That explains why the DCA received more complaints in the second half of 2018 — before June 1, the DCA was not authorized to take complaints from owners of single family homes in HOA-governed planned communities.

 

S.C. D.C.A. 2019 HOA report

As of June 1, 2018, SC Department of Consumer Affairs (DCA) serves as an Ombudsman, authorized to take HOA complaints.

DCA can accept complaints from either homeowners against their HOA, or HOA complaints against a resident or homeowner. Although the DCA isn’t authorized to enforce complaints, it is required to publish a list of them annually, and submit it to the Governor, the General Assembly.

The report then becomes public record, available to all housing consumers.

According to state law, a homeowner’s name and identifying information is redacted from (not included in) the public record. But the HOA or its management company’s information is always included in the public record of a complaint.

The DCA does not investigate or arbitrate complaints, nor does it issue any public policy statements related to the HOA Act.

According to the most recent 2019 DCA report, homeowners complained mostly about three things: the HOA’s failure to maintain the common areas and make repairs; inconsistent enforcement of Covenants, Restrictions and rules; and the HOA placing liens on properties.

 

5 lawsuits in Woodington HOA

On the heels of the DCA report, The Greenville News published its story on litigation problems affecting the Woodington subdivision HOA.

The gist of the story, linked below for reference, is that one particular homeowner, Raymond Wedlake, has sued the members of Woodinton’s HOA board five times since 2016.

The President of the HOA, Chris Edwards, says that high legal fees put the association on the verge of bankruptcy.

Of note in The Greenville News report: Wedlake’s lawsuits are filed against individual board members, not the HOA corporation.

Edwards says that according to South Carolina’s non-profit laws, board members are indemnified by the Association, and claims that the HOA’s insurance policy might not cover the cost of legal defense of board members.

However, the Insurance Information Institute (III) says that a Directors & Officers (D&O) policy would cover legal defense of board members as individuals, as well as the Association that indemnified the board.

According to III, standard D&O exclusions normally include “fraud, personal profiting, accounting of profits and other illegal compensation exclusions, pending and prior litigation, prior (late) claim notice, bodily injury/property damage, insured versus insured claims, and ERISA.”

So, if Edwards is concerned that insurance won’t cover the HOA’s legal costs, there must be much more to the story. Or maybe the HOA has a property and casualty policy for its small common area, and no D&O coverage.

 

Cost of litigation

The HOA’s cost of litigation has reportedly topped $53,000. For a small community with 66 homes, $200 per lot yearly HOA assessments, and a $13,000 annual budget, that’s certainly a lot of money.

As usual, the HOA board casts the homeowner as a troublemaker. And because homeowners are paying hundreds of dollars out-of-pocket to cover the cost of legal fees, some also blame Wedlake for ruining their peaceful neighborhood.

Wedlake’s legal complaints include defamation (libel and slander), failure of the board to follow HOA bylaws, and refusal to provide access to records. The homeowner has lived in Woodington since 1999, and served two terms on the HOA board in the past.

The crazy thing about HOA disputes is that, no matter how personal they get, the cost of fighting these battles is always socialized. It doesn’t really matter who’s to blame, or who’s side you’re on. Every homeowner pays the price for long-running lawsuits.

The only way for bystanders to opt out of endless litigation is to dissolve the HOA. That’s not easy to do, but for the small community with almost no common property, a two-thirds vote of Woodington homeowners might actually be possible.

 

About Woodington HOA

I was curious, so I set out to find a copy of the HOA’s Covenants, Conditions, & Restrictions. I was able to find a link to the CC&Rs originally filed in 1989 by the developer, Tanner Road Properties.

Woodington HOA was apparently formed as an owners’ association, sometime after 75% of lots were sold in the subdivision. The developer did not create or control an HOA governing board during construction of homes.

Upon the sale of 75% of the lots which are subject to these restrictions, all owners including Declarant, shall organize Woodington Homeowners Association, to be chartered as a non-profit corporation, in accordance with the laws of the State of South Carolina.

 

A quick read of the document reveals that the HOA owns very little common property and has no duties to maintain infrastructure such as roads or storm water facilities.

 

So what are homeowners paying for in Greenville’s Woodington HOA?

The CC&Rs mention the HOA’s duty to maintain vacant lots and the common property (at the entrance to the subdivision). The HOA can spend money to clean up any untidy properties, and then bill the owner for its costs. The HOA can sue any member for nonpayment of fees and assessments.

That’s it.

The CC&Rs also state that anyone in Woodington can sue one of their neighbors for violating the covenants — whether the HOA board chooses to pursue a lawsuit or now. In other words, the HOA is not absolutely necessary for enforcement of the restrictive covenants.

 

The Homeowners Association shall be entitled to collect dues, on an annual basis, assessed against each lot in an amount to be determined by the Board of Directors. These dues shall be administered by the officers of the Association and used for the payment of necessary expenses for the operation of the Homeowners Association and for the maintenance of any vacant and untended lot or unkept improved lot and for the payment of any common utility expenses and for the maintenance of any property deeded to the Homeowners Association.
(4) In the event the Homeowners Association’s Board of Directors and Officers shall deem it necessary to expend any sum of money for the maintenance and upkeep of any improved or unimproved lot, the Board shall be empowered to levy a special assessment applicable to that lot, but only in an amount equal to any sum or sums which had to be expended for that purpose. If any such special assessment, or annual dues payment, is not paid within thirty (30) days of its due date, the amount due shall bear interest from the date of delinquency at the rate of fourteen (14%) percent interest.

Source: Covenants, Conditions, & Restrictions for Woodington subdivision, Greenville, S.C. (Filed APRIL 4, 1989 Articles 1 thru 5, BOOK 1373 PAGE 912)

 

With only a small entryway common area to maintain, why does Woodington HOA need to collect $13,000 per year? That’s a mystery to me.

So I wonder. Did Wedlake have the same question, which then led to his request to view and copy HOA records?

Obviously, without all the pertinent facts and details, it’s not possible to draw any conclusions about the merits of Wedlake’s lawsuits or the HOA complaints he filed with the DCA.

But the CC&Rs alone don’t seem to justify $200 per lot annual assessments, in the absence of ongoing litigation.

And the nature of Wedlake’s complaints confirm the need for the DCA to take a more active role in enforcing state law, as well as mediating and settling HOA disputes.

Collecting complaints and submitting an annual report, without any active investigation, simply isn’t enough to help housing consumers. ♦

 

 

Source article and references:

Greenville HOA says lawsuits could bankrupt community
Angelia Davis, The Greenville News Published 7:30 a.m. ET April 2, 2019 | Updated 9:59 a.m. ET April 2, 2019

Start here to file an HOA complaint with S.C. D.C.A.

Read the 2019 HOA Report by the Department of Consumer Affairs

Directors and Officers insurance, Insurance Information Institute