Case law books court legal appeal

HOA, condo & co-op case law and litigation highlights (Fall 2019)

By Deborah Goonan, Independent American Communities

 

The courts weigh in on excess HOA foreclosure sale proceeds, HOA assessments as consumer debts, disclosure document fees, HOA election bylaws, and CC&R amendments.


Arizona

Court rejects investor’s claim for excess sale proceeds following HOA foreclosure

An investor, Patterson Commercial Land Acquisition & Development, LLC, purchased a home for $42,000 at an HOA foreclosure sale, paying off a $14,000 HOA lien.

Incredibly, Patterson then filed a claim to $28,000 in excess sale proceeds from his own purchase. However, Maricopa Superior Court ruled that the Patterson had no financial interest in the property, that the mortgage holder was next in line, and therefore the lender was entitled to the remaining $28,000.

No excess proceeds for Patterson.

Arizona Supreme Court agreed and affirmed the lower court’s decision on appeal.

Source:

If You Purchase a House at an HOA Lien Foreclosure, Are You Entitled to Excess Sale Proceeds?
Benjamin Reeves
Snell & Wilmer

Vista Santa Fe Homeowners Association v. Millan, No. 1 CA-CV 18-0609 (Ct. App. Oct. 15, 2019)


Florida

Condo, HOA assessments are indeed consumer debts, subject to fair debt collection acts

In an effort to collect past due condominium fees from Edward Michael Kelly, Julie Duggan, President of the Chez Sois Condominium Association, allegedly took inappropriate actions against the homeowner.

According to a ruling of the First District Court of Appeal, Kelly accuses Duggan of “locking him out of a storage unit, making public derogatory statements about him, and disclosing information about his reputation to a vendor. He further claims he did not receive notice of a board meeting during which his common area privileges were considered and eventually suspended.

Kelly asserts that all of these actions violate the terms of the Florida Consumer Collection Practices Act (“FCCPA”).

A lower court dismissed Kelly’s claim on behalf of Duggan, citing federal case law in Bryan v. Clayton.

That case held that maintenance assessments owed to a homeowner’s association did not fit the definition of “debt” under the Fair Debt Collection Practices Act (“FDCPA”) and the FCCPA.

However, several subsequent federal cases have effectively reversed Bryan v. Clayton.  As noted by the First District Court of Appeal, State of Florida,

The FCCPA defines “debt” or “consumer debt” as:
any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.

The Appeals court confirmed that this definition of consumer debt clearly includes maintenance assessments owed to a condominium HOA, and ordered the case back to the lower court to decide whether Duggan’s actions constitute violations of FCCPA.

Source:

FIRST DISTRICT COURT OF APPEAL
STATE OF FLORIDA No. 1D17-3618
EDWARD MICHAEL KELLY, Appellant, v. JULIE DUGGAN, Appellee.
On appeal from the Circuit Court for Leon County. John C. Cooper, Judge.
October 23, 2019


U.S. Court of Appeal, Pertaining to Illinois

Federal court affirms dismissal of unit owners’ class action lawsuit, claiming excessive disclosure document fees

Sometimes, court decisions seem to defy common sense. The recent dismissal of a proposed class action lawsuit against a Chicago management company is one of those cases.

Keith Horist, a former condominium owner at 400 East Ohio Street, and Joshua and Lori Eyman, former owners of a condominium at 1515 South Prairie Avenue, both in downtown Chicago, objected to high fees they had to pay for seller’s disclosure documents.

Both condo associations were managed by Sudler and Company, d/b/a Sudler Property Management. Sudler contracted with HomeWiseDocs.com, a third-party online document service, to provide unit owners access to PDF files of state-required seller’s disclosure documents.

When selling their units, Sudler and HomeWise charged Horist $240, and charged the Eymans $365.

The homeowners sued Sudler and HomeWise, claiming the document fees were not “reasonable,” as required by Illinois statute.

Sudler and HomeWise argued that the homeowners had no legal standing to bring a claim of excessive fees under Illinois law. The district court dismissed the homeowners’ lawsuit, and the U.S. Court of Appeals upheld that dismissal.

The Federal court points out that Illinois statute requires disclosure documents for the benefits of condo buyers, not sellers.

Therefore, a buyer can file a legal claim against a seller for not providing the required seller’s disclosures. But that has nothing to do with a seller’s claim of being overcharged for providing the required disclosure documents.

Furthermore, the Court opined that unit owners don’t have the right to sue one of the condo association’s agents. In this case, Horist and others had no standing to sue HomeWise or Sudler, who are agents of the condo association.

Owners can file complaints against their condo association. And the condo association can sue its management agent or other third party vendors. But owners cannot go around their association and buck the chain of command.

Therefore, unit owners who sell their property appear to have no legal recourse to excessive fees charged for disclosure documents they are compelled to purchase by state law.

Source:

United States Court of Appeals For the Seventh Circuit No. 18-2150
KEITH HORIST, JOSHUA EYMAN, and LORI EYMAN, Plaintiffs-Appellants,
v. SUDLER AND COMPANY D/B/A SUDLER PROPERTY MANAGEMENT and NEXTLEVEL ASSOCIATION SOLUTIONS, INC., D/B/A HOMEWISEDOCS.COM, Defendants-Appellees. ____________________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division. No. 17 C 8113 — Robert W. Gettleman, Judge. ARGUED APRIL 11, 2019 — DECIDED OCTOBER 21, 2019


Michigan

Bylaws may allow HOA board to serve perpetually, even when the HOA doesn’t hold annual elections

According a recent Opinion written by the Michigan Court of Appeals, a condominium association’s board can remain in power until “such time as the Board members are replaced,” as provided in its Bylaws.

Therefore, if a board member doesn’t officially resign, he or she is a legal board member until the next valid election takes place.

Put another way, if the HOA is unable or unwilling to hold an election, the current board can remain in place indefinitely.

However, if the association’s bylaws do not explicitly extend a board member’s term “until such time as the Board members are replaced,” the HOA must conduct a new election, or else it can find itself with no valid board of directors.

Source:

If Your Association Fails To Hold Board Elections At An Annual Meeting, Do You Still Have A Board? The Answer May Surprise You…
Lydia Chartre | October 30, 2019
Husch Blackwell LLP

Channel View East Condominium Assn Inc v. Gregory v. Ferguson, 344149 (Mich. Ct. App. 2019) Michigan Court of Appeals
Filed: July 2nd, 2019 Precedential Status: Non-Precedential Citations: None known Docket Number: 344149


Missouri

Legal experts say Supreme Court opens the door for amendment of Covenants and Restrictions by a bare majority of property owners

For nearly eighty years, Missouri courts have held that restrictive covenants of an HOA-governed community could only be amended by unanimous consent of all property owners.

But a recent Supreme Court ruling now provides that property owners only need to meet the voting requirement as specified by a Declarant developer’s indentures. Most indenture documents protect a developer’s rights by allowing CC&Rs amendments with a majority vote. (Most helpful when a developer still owns a majority of unsold lots.)

But extending “majority rules” contractual terms to homeowners, beyond the developer-control period, is almost certain to wreak havoc in HOA-governed communities.

Now, according to legal experts, a simple majority of your neighbors can vote to allow short-term Airbnb rentals, or to disallow pets.

I suspect various HOA trade groups will work on a legislative fix for this unusual Supreme Court ruling in the near future. ♦♦

Source:

NEW MISSOURI OPINION ON AMENDING SUBDIVISION INDENTURES
Hein, Schneider, & Bond, P.C.

Trustees of Clayton Terrace Subdivision v. 6 Clayton Terrace, LLC, et al.