Devil in Suit

Courts across the country have been hearing cases about short-term rentals of homes and condominium units, and there is not much consistency in the decisions made. Sometimes, it is the homeowners’ association that is trying to enforce its covenants in a manner that prohibits short-term rentals, and sometimes it is a municipality trying to enforce its zoning ordinances.  In the two cases discussed below, we have one of each—and in both cases, the language of the covenant and the ordinance made all the difference. Continue Reading Short-Term Rentals—A Tale of Two Cases

Facts: The facts in the case of Forrest v. The Ville St. John Owners’ Association, Inc., No. 2018-CA-0175 (La. Ct. App. Nov. 7, 2018) are straightforward.  In March of 2016 there was a fire.  It damaged common element and the Forrest unit.  The Association had two insurance policies: one for Property and one for Community Association Management Liability Coverage.  The Property policy was issued by Lloyd’s of London. Lloyd’s paid on its policy, for both the common element and unit damages, but the funds were insufficient to repair the common elements and the unit.  So the Association repaired the common elements.

Trial Court: The unit owner, Forrest, filed suit against the Association alleging breach of fiduciary duty and various other claims under state law.  The Association brought a third party complaint against Travelers when it refused to defend the Association on Forrest’s claims.  Traveler’s claimed that the policy included an “unambiguous exclusion precluding coverage for any claim … arising out of … or in any way involving property damage.”  The Trial Court agreed and granted Traveler’s motion for summary judgment.

Appeal: Despite a number of arguments by the Association that the policy did not exclude coverage, including that the quoted language only applied to “construction defects,” that coverage was illusory if Traveler’s position was believed, and that the exclusion was ambiguous, the Appellate Court affirmed the Trial Court’s Decision.

Lesson:  Despite the Association having both property coverage and management liability coverage, they ended up in two lawsuits and insufficient funds to repair the unit.  What was needed was an insurance committee that understood what it was actually buying and what would and would not be covered.  Because they either didn’t understand what they bought or thought that they had enough insurance, they not only had less insurance than needed, they got to spend lots of money defending both the lawsuit by the unit owner and being involved in the suit and appeal against its insurer.  Unfortunately, the phrase penny wise and pound foolish comes to mind.

Castilian Hills Homeowners Association v. Chaffins, (Wash. Ct. App. Oct. 22, 2018)

The Facts

Homeowner bought home in 2004. In 2016, the homeowner failed to pay his $147 assessment.  The homeowners association (“HOA”) assessed a $20 late fee. The homeowner still did not pay, despite the normal language in the HOA governing documents about interest, the right to lien and reasonable attorney fees. After more notices, the HOA filed a lien for $525.52 and then a complaint against the homeowner seeking the $525, plus interest and attorney fees.   The homeowner argued to the court that the HOA was “required by statute to provide notice and an opportunity to be heard” prior to filing a foreclosable lien. Continue Reading How to Turn $147 into $10,000 – the WRONG Way

Smoking

Davis v. Echo Valley Condominium Association, No. 17-12475 (E.D. Mich. Nov. 7, 2018)

Summary

The Eastern District of Michigan court held that a smoking ban demanded by a disabled owner was an unreasonable accommodation for purposes of the Fair Housing Act since the measure was not approved by the owners, and the Association was powerless to impose a ban without an owner vote.

The Facts

Plaintiff owned a Unit in the Echo Valley Condominium Association (the “Association”). Plaintiff complained to the Association that her neighbors smoked tobacco. She alleged that she could regularly smell it and that it exacerbated her existing respiratory health conditions.

Plaintiff informed the Association about her medical issues and asked the Association to address the smoking by creating a rule that all smokers in the Association should be required to seal gaps around doors and windows to prevent smoke from escaping. The Association declined to enforce a rule because neither the Association documents nor state law prohibited people from smoking in their homes. Continue Reading Smoking Ban Was An Unreasonable Request

Some states have statutes that require that Associations provide a notice and opportunity to be heard to a resident before the Association can fine them for a violation of the governing documents. Even though Wisconsin does not have such a statute, providing residents a notice of the alleged violation and opportunity to give their side of the story is an important component of providing due process—which will help make your fines ultimately enforceable. Continue Reading The Importance of Due Process—What is a “Notice and Opportunity to be Heard?”

The Fair Debt Collection Practice Act (FDCPA) was enacted to protect consumers from unscrupulous debt collectors; as a shield against prohibited acts. However, it is now often used as a sword, by attorneys who are part of a “cottage industry” that simply look for even the smallest of violations and then claim thousands of dollars of attorney fees and damages in their first letter to the alleged violator. Continue Reading Foreclosing on a Unit When Owner Discharged in Bankruptcy

The answer to the question of when are fees unreasonable is simple: when a court says they are.  Fairfield Ridge Homeowners Association (association) is an HOA in Ohio.  The association entered into a management agreement with Elite Management Services, Inc. (EMS) to manage the association, including providing closing certification letters to sellers just before the closing on a sale.  EMS charged a unit owner $395 for these letters along with a $100 fee if they needed expedited service.  The association declaration provided that a “reasonable charge” could be assessed to a unit owner for these letters.  Ms. Barger viewed the $495 in charges as unreasonable and filed a class action suit against EMS. Continue Reading When Are Fees Unreasonable?

IMPRESSION: The ruling in Great Am. Ins. Co. v. State Parkway Condo. Ass’n, No. 17-cv-3083 (N.D. Ill. Sept. 11, 2018), should serve as a cautionary tale to Condo and HOA boards.

DETAILS: In Chicago, a unit owner of a condominium located at 1445 North State Street filed an Illinois state discrimination claim in 2007 against the State Parkway Condominium Association (“SPCA”) for failure to accommodate his hearing disability during SPCA Board meetings.  The SPCA defended the claim under its 2006-2007 Non-Profit Management and Organization Liability Insurance Policy (“policy) issued by Travelers Casualty and Surety Company of America (“Travelers”).

A settlement between parties was reached in September 2007; but six months later, the SPCA sued the same unit owner in an entirely unrelated matter. Continue Reading “Related Wrongful Acts” Can Exhaust an Association’s Liability Insurance Policy Limit

Holding:  The Supreme Court of Vermont held that a homeowners association, as assignee from the developer, could charge lot owners for its reasonable costs to maintain the subdivision private roads and water system, including litigation and other overhead costs.

The Facts:  A 92 lot subdivision in Vermont was developed in the 1960s. The subdivision contained private roads and a private water system that was to be maintained by the developer. Owners/Purchasers of the lots were granted the right to use the private roads and water system, and a service fee for said use was imposed.

In 1998, maintenance of the private roads, streetlights, water system, and recreational facilities was turned over from the developer to a homeowners association (the “Association”). The Association continued to charge the homeowners a service fee to maintain these parts of the subdivision per the relevant subdivision deed, which included litigation and overhead costs.

In 2009, a Homeowner Plaintiff alleged that the service fee was unreasonable and refused to continue paying. Continue Reading Owner Responsible for Share of Costs to Maintain Subdivision Facilities

Issue:  If your association was destroyed by fire or some other hazard, and it did not make sense to rebuild, how would the funds be divided?

Problem.  Odds are that you don’t know the answer.  The fact that you don’t know should scare you.  Is every unit in your association worth the same amount?   I doubt it.  Do you each pay the same amount in assessments?  Does that control?  What does your declaration say about the distribution of insurance proceeds if the unit owners elect not to rebuild?  Do you understand what it says? Does it even make sense? Continue Reading Why You NEED to Amend Your Association Declaration Insurance Provision Before You Have a Loss