Indiana: HOA mandatory mediation bill tacked onto solar energy bill

On April 5th, I posted an article about Indiana HB 1138, which proposes that, if either an HOA or a homeowner requests mediation, the other party is mandated to submit to mediation before either party can file a lawsuit in civil court.

Meanwhile, later that day, the Senate Judiciary Committee posted an amended version of HB 1331, a bill drafted to address HOA restrictions on solar energy systems. Dubbed the solar energy bill, HB 1331 now incorporates the language of HB 1138.

The reason for this political move is unclear. Some Indiana homeowner advocates presume that since progress on HB 1138 has stalled, its contents were added to HB 1331, which has a better chance of getting votes in the Senate.

That makes HB 1331 a two-subject bill.

Let’s first take a look at the original purpose of HB 1331.

 

HOA solar energy bill — not much help for homeowners

HB 1331 is a so-called homeowner rights bill written with weak language, similar solar energy HOA legislation in other states. The bill states that HOAs cannot “prohibit” installation of solar energy equipment on the homeowner’s private property.

However, the language of bill allows the HOA to hold onto significant power to decide which solar energy materials are acceptable, as well as how and where solar equipment may be installed. The only meaningful limitation on the HOA’s decision: HOA rules and standards cannot increase the homeowner’s costs of a installing a solar energy system by more than 10%.

In essence HB 1331 creates default solar energy covenants and restrictions for all Indiana homeowners’ associations. As such, this intrusive bill offers minimal support to homeowners who want to save serious money on their energy costs through the installation of solar equipment.

In practice, if HB 1331 becomes law, an Indiana homeowner must still to go through a tedious HOA approval process. An HOA can still deny the homeowner’s plans by one of many statutory exceptions or subjective HOA rules.

Although the HOA would be obligated to offer suggested design modifications, those suggestions won’t necessarily work for the homeowner.

If the HOA and the homeowner cannot agree on a plan, the solar energy system probably won’t be installed. Yet the HOA can say that it does not “prohibit” installation.

It merely makes the process so much of a pain in the rear that most homeowners will give up, or not even bother to consider a solar energy project.

 

Will mandatory mediation help homeowners or HOAs?

As I opined in a previous article on HB 1138, it’s probably not a good idea to force people into mediation.

First, depending on the nature of the dispute, mediation might not be the best method of resolution. For example, if the homeowner requested copies of financial records or disputed election ballots, but the HOA did not provide them, what is there to mediate? Only an impartial court can examine the facts and evidence, and determine if the HOA violated state law, its governing documents, or both.

Second, when one party is mandated to speak to the other against his or her will, it almost guarantees strained and unproductive discussions of the issues. Under those conditions, in my opinion, it’s unlikely the parties can negotiate a settlement in good faith.

I might add that mediation works best when both parties are of equal status and power — as in one neighbor vs. another neighbor; or a couple going through a divorce. But HOAs are not on equal par with an individual homeowner. HOAs hold more legal authority and power than a homeowner, as well as access to collective HOA funds to pay for both mediation and litigation.

Under these conditions, I am skeptical that forced mediation will help resolve HOA disputes. It’s more likely to be a waste of time and money for both homeowners and HOAs.

 

Limited choice of mediators

Second, both HB 1138 and HB 1331 specify that the American Mediation Association (AMA) , a private organization based in Texas, would select the HOA mediator in each HOA dispute.

All of the mediators are members of the National Academy of Distinguished Neutrals (ADN). Currently, 40 qualified mediators are listed for the Hoosier State.

Six ADN mediators have experience in community association dispute resolution: Sam Ardery of Bunger & Robertson; Tim Born of Terrell, Baugh, Salmon & Born LLP; Kevin Fitzharris of Barrett McNagny LLP; Daniel Sigler of Sigler Law, LLC; Irvin Sonne of Sonne & Sonne Law Offices, PC; Scott Krouac of Wilkinson, Goeller, Modesitt, Wilkinson et.al.

Preliminary research on these Mediators shows no apparent ties to trade group (Community Associations Institute) attorney firms. In fact, ADN mediators seem to diversify their practice to include many other types of civil disputes.

ADN mediators do not solely rely on HOA disputes for their income — unlike many of the “community association” specialty law firms that heavily influence CAI policies and legislative action.

In short, it does not appear to me that Indiana’s CAI-member attorneys and lobbyists would be mediators of Indiana HOA disputes. That’s potentially positive for housing consumers. However, it doesn’t entirely outweigh the fundamental disadvantages of “mandatory mediation.”

 

Why not encourage small claims court instead?

Several Indiana homeowners have contacted me about these bills. They think small claims court would be simpler and more cost effective than being forced into mediation with their HOA.

And that’s a fair point.

If a homeowner (or HOA) can nip a dispute in the bud, before the costs skyrocket, then, I agree, small claims court is a good option.

But…HOA disputes often result in costly damages to a homeowner.

In the case of a dispute over past due assessments or fines, the homeowner must act quickly, before the HOA sends the account to collections. When HOAs and their attorney tack on fees and interest, the dollar amount can quickly escalate beyond the threshold for small claims court. And sometimes the HOA doesn’t even notify the homeowner about the alleged debt, until it’s already in the hands of a collection agent.

Another common type of dispute arises when the homeowners or condominium association doesn’t maintain or repair the common elements as required by the governing documents. Sometimes the HOA’s negligence leads to extensive property damage, and the dollar-value threshold exceeds the small claims court limit.

 

What’s better: pre-suit mediation or going straight to court?

There’s no simple answer to this question. It really depends on the complexity of the case, and how long it drags on.

There are obvious cost considerations. Among those with the money to protect their rights by fighting their HOA in court, I know of homeowners in litigation whose legal bills exceed $100,000.

I’ve followed the issue of HOA lawsuits throughout the country for years. Most homeowners I have talked to easily spend $10-$30K on a what seems to be a simple case.

Many more homeowners don’t have enough money for an attorney’s retainer fee. Their legal options are limited.

Some homeowners don’t like the fact that mediation is confidential. They think they would prefer that the dispute play out in public. They want their neighbors and the whole world to see how poorly they’ve (allegedly) been treated by their HOA.

The truth is, most HOA lawsuits, although public record, are settled out of court — with confidentiality clauses. So, in the end, the public still doesn’t know the outcome.

Very few HOA cases go to trial, and even fewer go to a jury trial. And even when a lawsuit plays out in public, it’s just as likely to backfire on the homeowner, sometimes in spite of the facts against the HOA in court, and even if the court rules in favor of the homeowner.

In fact, a court victory for a homeowner may prompt the HOA board to dig in its heels and seek revenge on appeal or a separate lawsuit.

 

Mediation and HOA fines, liens, and foreclosure

Under the terms of HB 1138 or HB 1331, if threatened with HOA foreclosure, a homeowner could request mandatory mediation.

An HOA could also request mediation, but I doubt that an HOA would bother to do so, because it’s easier and cheaper for the Association to proceed without delay.

However, it’s possible that mandatory mediation could at least delay an aggressive HOA foreclosure.

But I’m not convinced that mediation will lead to a favorable resolution for the homeowner. In mediation, a homeowner will be without exclusive legal representation, and could feel pressured to agree to a settlement on the HOA’s terms. Remember, there’s a distinct power and knowledge imbalance between an HOA and a homeowner.

As for the cost of resolving the HOA dispute, mediation might be cheaper than litigating a full-blow civil case. But only IF the parties can agree on a solution and only IF they stick to their agreement.

Those are two big “ifs” in HOA-ville.

Overall, neither HB 1138 nor HB 1331 offers much value to Indiana’s housing consumers in HOA governed communities. ♦