June 2023 HOA news brief
This month highlights the recent SCOTUS rule on unconstitutional takings, other homeowner legal victories in HOA lawsuits, one state regulator’s recommendations for reserve studies, affordable housing initiatives, and news reports of the usual HOA risks.
By Deborah Goonan, Independent American Communities deborahgoonan@gmail.com
National News
Unanimous U.S. Supreme Court rules against ‘unconstitutional takings’ AKA home equity theft following tax sale foreclosure
This important SCOTUS ruling could prove to be a game changer for owners of condos and homes facing foreclosure of HOA liens.
In May 2023, the U.S. Supreme Court unanimously ruled that a Minnesota county’s actions were unconstitutional, when it retained $25,000 in excess proceeds from a tax sale of a 94-year-old woman’s condo.
According to the SCOTUS blog:
In 2016, a Minnesota county sold 94-year-old Geraldine Tyler’s condo at auction after she failed to pay her property taxes for several years. The sale yielded $40,000; Hennepin County kept not only the $15,000 in taxes, penalties, and costs that Tyler owed it, but also the $25,000 that was left over. The Supreme Court on Thursday ruled that the county’s actions violated the Fifth Amendment’s takings clause, which bars the government from taking private property for public use without adequately compensating the property owner.
Justices rule Minnesota county violated takings clause – SCOTUSblog (May 25, 2023)
In other words, in the court’s opinion, the government was not entitled to take more money than it was owed in unpaid taxes and fees related to its collection.
An article posted by RedState.com notes that, in a dozen U.S. States, city and county governments are permitted to keep any money that exceeds the amount of their tax liens.
Those states include: Arizona, Alabama, Colorado, Illinois, Maine, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, and South Dakota.
In a victory for property rights of homeowners, the Tyler case has ruled those state laws are unconstitutional.
How will the SCOTUS ruling in Tyler vs Hennepin County apply to HOAs?
The interesting question now is, will this ruling apply to foreclosure of HOA and condo liens? The Fifth Amendment clearly applies to government, but does it also apply to private owners’ associations, which serve as quasi-governmental entities for housing communities of all sizes?
Can an owner successfully challenge their HOA if it retains the full cash proceeds from the sale of their property, which may well exceed the HOA’s lien?
Suppose the HOA forecloses on a home with no other liens, and a buyer (perhaps the HOA itself) purchases the property for just a few dollars over the amount of the HOA’s lien? Does this not also amount to equity theft?
It’s safe to assume that some HOA attorneys will attempt to argue that Tyler v. Hennepin County does not apply to private entities such as HOAs.
Regardless of the HOA legal industry’s stance, I think the Tyler case opens the door for successful legal challenges of HOA foreclosure sales that rob owners of any equity remaining after payment of all liens. (My colleague from AZ, George Staropoli, agrees. See his article in the source list below.)
FACT: A nongovernmental lienholder is not entitled to collect more than it is owed.
For example, as this nolo.com article explains, a lender (a private company) is not entitled to keep excess proceeds from a foreclosure sale. If there is money left over after government and lender liens are paid, and other liens, if they exist, the property owner is entitled to that money.
Unfortunately, the SCOTUS did not address the secondary issue in Tyler. The court did not consider Hennepin county’s violation of the Eighth Amendment, which bars excessive fines. (Of the $15,000 lien, only $2,300 was for taxes owed. The rest of the lien was for fees and collection costs!) However, the court’s ruling did hint that it would also consider fines that are out of proportion with actual debt to be unconstitutional.
I wonder if or when a future SCOTUS challenge will resolve either or both of these issues with regard to HOA property liens?
Sources:
Justices rule Minnesota county violated takings clause – SCOTUSblog
Supreme Court Rules ‘Home Equity Theft’ Is Theft Even When Your County Government Does It – RedState
Mainstream personal finance guru acknowledges risky condo investment
For more than a decade, dozens of subject matter experts have been sounding the alarm of out-of-control HOA fee increases. Now Dave Ramsey is finally chiming in.
Dave Ramsey: HOA waves a lot of red flags with monthly fee increase (knoxnews.com)
California
CA condo associations face insurance crisis
According to mortgage broker Jeff Lazerson, California’s last resort insurer, FAIR, is planning to hike premiums by nearly 50%. And that’s for coverage with a high deductible and limited benefits. Condo associations will have to purchase gap plans to cover losses.
If a condo association chooses not to purchase the insurance required by Fannie Mae, buyers will have to incur much higher borrowing costs for condos in need of significant renovation.
It’s a lose-lose situation for many owners of “affordable” condos. Although the price tag to purchase may appear low, buyer beware of expensive, uninsurable condos.
Source:
Colorado
Vacation resort community votes to incorporate as CO’s newest town
A recent new release in the Denver Post has announced that Keystone will soon become a town with its own local government. The tourist destination is currently governed by Summit County and a Master HOA (Keystone Neighbourhood Company).
According to the Denver Post, “Approximately 68% of voters cast ballots in favor of incorporation, with 291 votes of approval and 140 votes of disapproval.”
Therefore, it appears that a sizeable minority of voters are disappointed with the outcome. It’s doubtful that incorporation will result in dissolution of the umbrella Master Owners’ Association or any of the existing HOAs for any of the resort areas.
Source:
Keystone will become Colorado’s newest town following incorporation approval (denverpost.com)
Florida
Couple waits more than 20 months for condo repairs after 2021 storm damage
Most condo owners don’t think about how long it might take for their HOA to make repairs to their units following a natural disaster. Mike and Marlene Breitenstein are learning that repairs can take nearly two years. They have been waiting at least 20 months for contractors to repair their two condo units. Both were heavily damaged by a tropical storm that tore off the roof of their primary unit.
Unfortunately, the wheels of condominium association bureaucracy move very, very slowly. One problem is identifying willing and competent contractors to do the work. A second challenge is obtaining a reasonable bid that will be covered by insurance. Another problem is coordinating repair and rebuild work on common property vs. privately owned condo units.
Source:
Pinellas County condo owners still waiting for repairs 20 months after storm | WFLA
Disney World, Universal Studios pledge to build thousands of units of affordable housing
The Disney Company plan to build 1400 homes on 80 acres in Orange County is in its early stages. However, development plans could be hampered by legal disputes. Disney has sued Governor DeSantis’ attempted takeover of Disney’s special district board of directors.
Universal Studios says it also plans to build 1,000 units for a mixed-use community on 20 acres.
Both resort corporations seek to house workers and their families. So they will undoubtedly build company towns, probably also governed by HOA regimes.
The history of America’s company towns has shown mixed results — some successful and others complete failures. Will housing truly be affordable? Or will the companies that own these towns exploit their employees, the town’s homeowners and residents?
Sources:
Pinellas County condo owners still waiting for repairs 20 months after storm | WFLA
Disney and Universal plan to build affordable housing in Florida : NPR
America’s Company Towns, Then and Now | Travel| Smithsonian Magazine
Investigators of Surfside building collapse continue to gather data
The National Institute of Standards and Technology is now taking a closer look at concrete and rebar debris stored in a second warehouse.
Investigators are evaluating 20 different theories for the collapse of the Champlain Towers South building in June 2021. One leading theory is that the pool deck was improperly designed and built, putting the building at risk from the start. Other factors, such as years of saltwater exposure, inadequate maintenance and the failure to correct defects may have doomed the building.
NIST hopes to complete its investigation by 2024 and issue its final report of recommendations to prevent a similar tragedy by 2025.
Sources:
Faulty design may have doomed Surfside tower long before collapse, investigators say (msn.com)
Related posts on IAC:
Parking conflict between a widow and the HOA board President
A prime example of mean-spirited behavior and uncaring enforcement of HOA rules.
Illinois
Limited equity housing cooperatives are not a new idea, but one that has never really caught on. The reason is that, historically, many limited equity co-ops have failed. The primary cause is constrained financial resources of apartment building co-owners.
Another problem is that real estate developers tend to scoop up well-located properties as rental-income investments. That makes it hard for potential entry level co-op buyers to compete on purchase price.
Despite these challenges, Chicago is making a renewed push to help preserve its existing limited equity co-ops, a rare source of affordable housing in the city.
Advocates for co-ops tout the benefits of collective ownership of apartment buildings. They say co-ops can provide stable, affordable homes for resident owners. The tricky part is keeping co-ops affordable to own over the long term.
The future of any co-op depends entirely on the ability and willingness of co-owners to work harmoniously to maintain their building for future generations.
The city’s South Shore Condo/Co-op Preservation Fund Pilot is a $15 million program slated to support existing condos and co-ops in South Shore with needed maintenance repairs. The Community Wealth Ecosystem Building (Community WEB) Program is another $15 million pilot that intends to help limited-equity housing co-ops on the South and West sides by providing outreach, education, legal and governance support to securing assets and property.
Source:
Affordable Housing Advocates Push for Housing Co-Ops — City Bureau
Maryland
Success story: Homeowners settle 3-year HOA lawsuit over native plant landscape
Sometimes homeowners win in a legal battle with their HOA. In this case, Jeff and Janet Crouch had the financial means to stand up to their Columbia, MD HOA. The Crouches legal costs topped $60,000. Their attorney, Jeffrey A. Kahntroff, Skipper Law LLC, estimates that the HOA spent $100,000 trying to force the homeowners to remove their garden (cultivated over 15 years) and replace it with turf grass.
The Crouches also worked with a Legislator to pass a law in 2021 (HB 322). MD state law now prohibits HOAs from requiring homeowners to have turf grass lawns, excluding native plants.
While this is a great success story, it’s not so encouraging for millions of homeowners who do not have a huge bankroll for a legal battle, nor do they have enough political clout to effect real change.
Source:
Maryland couple changes landscape law after HOA fight | wusa9.com
Minnesota
HOA management employee pleads guilty, admits embezzling more than $1M
California resident Mai Houa Xiong, 47, entered a guilty plea after charges were filed following Minnesota criminal and tax fraud investigations.
Between 2015 and 2022, Xiong was a bookkeeper and financial manager employed by a Minneapolis-based property management company. According to reports, she had full ‘unfettered’ access to bank accounts of many HOA clients in the Twin Cities.
Investigators discovered that Xiong made numerous electronic transfers from HOA accounts to her personal bank account, then covered up the transfers by falsifying records. The embezzled income was not reported to the IRS when Xiong filed her taxes.
Source:
North Carolina
After 4-year legal battle, NC Supreme Court rules in favor of owners’ right to keep solar panels
When the Farwigs installed rooftop solar panels on their home, their HOA (Belmont Association) sued to force the owners to remove them or move them to the rear roof on the shady side of their house.
When the homeowners refused to move their solar panels (installed at a cost of $32,000), their HOA began to impose daily fines. Belmont then filed a lien on the home and threatened to foreclose on the Farwigs.
The owners had no choice — they had to fight back. Their attorney pointed to a 2007 state law that says no HOA can enforce restrictions on solar panels that effectively make installation impractical or useless.
The case wound its way through the court system, and eventually wound up in front of the NC Supreme Court.
Citing NC statute 22B-20, the Supreme Court sided with the homeowners, overturning the Court of Appeals, on the grounds that it ‘misinterpreted’ state law.
This important legal decision was published in June 2022, and sets precedent for future homeowners who wish to stand up for their rights to install solar panels on their properties. See the link to the legal opinion below.
Sources:
Virginia
In 2022, SB 740 was enacted to create a Department of Professional and Occupational Regulation (DPOR) study group that would evaluate the “Adequacy of Current Laws Addressing Standards for Structural Integrity and for Maintaining Reserves to Repair, Replace, or Restore Capital Components in Common Interest Communities” (HOA-governed communities).
The DPOR committee recommends that all common interest communities hire independent, appropriately qualified professionals to conduct an initial reserve study within 2 years of the date of the occupancy certificate. Follow up reserve studies are recommended every 5 years thereafter.
Additionally, the report states that all reserve studies must include all capital components, clearly defined in statute, so as to avoid confusion.
The committee also recommends that Virginia law be amended to require that all CICs fund their Capital Reserve Accounts as recommended by each reserve study and adjusted annually. In order to generate funds for maintenance and repairs, the report advises that the Legislature consider granting HOA boards the right to take out loans to finance necessary work.
DPOR’s panel also states that professional visual structural inspections should occur when the community reaches the age of 30 (25 in coastal areas), and every 10 years thereafter. If structural defects are found, invasive testing must be required to determine the safety of infrastructure and recommend necessary repairs.
For details, refer to the complete report linked below.
Source:
CANADA – British Columbia
Condo (Strata) Association inappropriately disposed of bicycle, must reimburse owner per tribunal
A British Columbia condo association needed to declutter its bike storage room, so it asked all residents and owners to mark their belongings by May 2021. The HOA provided three written notices but did not dispose of unmarked bikes and parts until much later — August 2021.
By that time, one owner had already untagged his bike, and it was disposed of without his knowledge.
BC’s Civil Resolution Tribunal (CRT) reviewed the owner’s complaint, and concluded that the condo (strata) association acted unreasonably, so it must reimburse the owner $1,181 for removing his bike from storage.
Source:
BC housing: Strata must reimburse owner for removed bikes – Vancouver Is Awesome