By Deborah Goonan, Independent American Communities
On October 7, the Superior Court of New Jersey, Morris County, ruled that the Lake Parsippany tract of homes forms a common interest community, as defined by NJ statute.
Furthermore, as Justice Stuart A. Minkowicz wrote in the court’s opinion, homeowners enjoy the benefits of living near the lake, as granted by easements in their property deeds.
Attorneys for LPPOA conducted a search of 25 titles of homes within the Lake Parsippany tract. They discovered that all deeds contained an Easement granting “the right to use, in common with others, the waters of Lake Parsippany for bathing, boating and fishing.”
Courts in New Jersey and across the U.S. have long held that a properly recorded chain of title creates official “notice” to a property owner of any current or future obligations to pay assessments or fees to maintain the commons.
Put simply, Minkowicz explained that, because homeowners have a property easement for lake access rights, they must also share in the cost of maintaining the infrastructure in and around Lake Parsippany.
Residents benefit from living near a lake
Specifically, the Superior Court ruled that:
Since residents benefit from living in the Tract, and residents had notice in the form of the Easement language in their deeds, LPPOA can burden property owners with the Easement assessment in order to maintain the benefits that residents derive from living on or near the Lake.
Not only does LPPOA have the authority to impose an Easement assessment, but the LPPOA also administered the Easement assessment fairly. LPPOA equally distributed the same annual $115.00 burden to each property owner in the Tract.
Current “basic” annual lake maintenance assessments for Lake Parsippany are $115, although homeowners have the option to pay an additional fee for full recreational use of the lake. POA members in good standing will have voting rights in the Association.
The court also ruled that both parties will pay their own legal fees. At this time, there’s no word as to whether the homeowners will appeal.
History of Lake Parsippany POA legal dispute
In 2015, a group of fifteen homeowners in the proximity of Lake Parsippany, New Jersey, filed suit to stop Lake Parsippany Property Owners Association (LPPOA) from making the transition from a Voluntary lake membership organization to a mandatory homeowners association.
According to the facts presented in the formal complaint filed by the Plaintiffs, LPPOA was originally formed in 1933 as a planned, private lake community.
In its early years, in addition to managing the lake and related activities, the private community of 2,200 lot owners provided all of its own maintenance and utility services. Historically, LPPOA has always been a voluntary membership association.
By 1948, utilities, road maintenance, and trash pickup had been delegated to the Township. By 1985, maintenance of drainage basins and the lake’s dams were also delegated to the Township.
Exhibits to the complaint include nearly $100,000 in maintenance related to the lake and its dam, including the use of heavy equipment, approved by the Township of Parsippany-Troy Hill.
Dwindling lake membership
But over the past several decades, membership in LPPOA began to dwindle. Due to the size of the subdivision, many homes are quite a distance from the lake, and relatively few nearby residents engage in recreational pursuits at Lake Parsippany. So in 1990, the board of LPPOA decided to open up membership to non-residents of the 2,200 lots originally bound by Covenants, Conditions, & Restrictions creating the voluntary association.
For more than 25 years, an open membership policy barely kept the lake association afloat. Then in 2015, the board of LPPOA realized its voluntary membership revenue would be insufficient to continue to maintain the lake and its recreational facilities. So they hired an HOA industry law firm, Dolan & Dolan, to provide a written opinion on the matter. The attorney concluded that, since each lot owner has an easement to use the lake, all parcel owners are theoretically obligated to help pay for its ongoing maintenance.
In Janary 2017, knowing it would prove difficult to obtain unanimous voluntary participation in lake maintenance, the Association decided to bill each and every lot owner an annual fee of $115 – even if they chose not to purchase a full lake membership.
That’s when owners objected, and fifteen of them filed their lawsuit. Their attorney, Brian M. Rader, argued (unsuccessfully) that no common interest community exists, because the terms of the CC&Rs have been broken since 1990, when LPPOA chose to open membership to the general public.
Court opinions based on HOA-industry sponsored amendments to state law
A 2017 amendment to the New Jersey Planned Real Estate Development Full Disclosure Act (PREDFDA) broadly redefined a common interest community as one that includes common or shared elements. New Jersey statute also “provides that all members of a planned real estate development are members of the [homeowners or property owners] association” (see NJSA 45:22A-21).
The 2017 PREDFDA amendments were written and supported by Community Associations Institute, New Jersey Legislative Action Committee. Coincidentally, an attorney representing several NJ lake associations, Eileen McCarthy Born of Dolan and Dolan, is a member of CAI.
Homeowner lawsuit against Ramapo Mountain Lakes
In December 2018, State Superior Court Judge Christine A. Farrington issued a similar opinion on legal dispute over Ramapo Mountain Lake (RML) Association’s legal rights to demand dues and place liens on more than 800 of its nearby homes.
Like the Minkowicz opinion pertaining to LPPOA, Farrington based the court’s opinion on the definition of a common interest community in the Restatement (Third) of Property: Servitudes 6 (2000) and Condominium and Homeowner Association Practice: Community Association Law, 2nd Ed., Wayne S. Hyatt.
In short, Farrington ruled that RML is a common interest community (planned real estate development). As such, each property owner is legally obligated to pay annual assessments to maintain its two lakes and dams, and adjacent common property.
Farrington wrote that RML’s 67-year-old deeds in the chain of title “gave notice” of the existence of a planned real estate development (common interest community), even though RML covenants and restrictions expired in 1960.
Renewable priority liens
Furthermore, mandatory HOA and POA assessments in New Jersey are enforceable as property liens, which can be collected by court-ordered money judgments or foreclosure. New Jersey’s 2018 PREDFDA amendments create a renewable HOA priority lien, conveying even greater power to association-governed communities to compel homeowners to pay mandatory maintenance assessments. (See AB 5002 for details.)
Thus, the combination of PREDFDA amendments and Servitudes Law led the HOA-industry’s desired outcome: It created a mandatory-membership homeowners association in order to spread out the cost of maintaining recreational lakes to thousands of homeowners instead of a few hundred voluntary lake association members.
2019 PREDFDA amendments conditionally-vetoed by NJ Governor
As noted recently here on IAC, in response to homeowner complaints about “surprise” HOA assessments, this year the New Jersey Legislature considered yet another amendment to PREDFDA.
The bill clarifies that it is not the intent of PREDFDA to magically transform voluntary HOAs into mandatory associations with the right to collect fees.
A 2nd reprint of S3661 passed both the House and Senate in late August. That version of the bill acknowledged that many older planned communities did not require payment of fees or mandatory membership in an owners’ association.
The bill simply stated as follows:
The association shall not compel an owner with non-payer status to pay a compulsory charge or be a member of the association.
Even though the Legislature voted overwhelmingly in favor of S3661, NJ Governor Phil Murphy disrupted the process with a “conditional veto” of the bill.
New Jersey law allows its Governor to strike parts of a bill and suggest changes, then send a revised version back to the Legislature for their consideration.
Read the details of the “conditional veto.”
In this case, the Senate has already accepted the Governor’s conditional veto, without changes. Now the House must reconsider S3661.
Governor’s version rewrites the bill
The Governor made important changes, as noted in the Third Reprint of S3661, as approved by the Senate.
The current revision of the bill states that communities established before 1977 (including Ramapo Mountain Lakes and Lake Parsippany) “shall not be permitted to require property owners to pay assessments and other charges where the property owner’s title record does not impose such an obligation, unless otherwise provided by law.” (Emphasis added)
That final clause, unless otherwise provided by law, leaves the door open for common interest communities to rely on Common Law, Property Servitudes Law, and possible future establishment of special tax districts to compel property owners to pay for lake maintenance.
The final outcome for homeowners challenging POA assessments to pay for lake maintenance remains uncertain.
In large part, it hinges on the NJ Legislature’s response to the Governor’s conditional veto of S3661. If the Governor’s version of the bill is approved in the NJ Assembly, Superior Court opinions involving Ramapo Mountain Lakes and Lake Parsippany may be hard to challenge.
Readers can track the progress S3661 here. ♦
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