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)
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
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 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?
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
IMPRESSION: A recent Minnesota Court of Appeals ruling served as a stiff reminder to investor-purchasers of condominium units: request of association resale disclosure certificates should be undertaken as a matter of course (in Wisconsin this is essentially the Section 703.165(4) Wis. Stat. statement of the amount of unpaid assessments).
DETAILS: In Bridge Investments, LLC v. Lowry Ridge Townhomes Assoc., LLP, A17-1221 (Minn. Ct. App. 2018) the owner of a condo unit in the Lowry Ridge Townhomes community defaulted on association payments owing over $3,500.00 in assessments. After foreclosure proceedings, the condo was purchased by the owner’s bank at a sheriff’s sale. Later, the defaulting owner reacquired the condo via redemption and on the same day sold the unit to Bridge Investments (“Bridge”)—a venture capital and private equity firm. Bridge recorded its purchase with no knowledge of Lowry Ridge’s assessment lien; which was junior to the bank’s mortgage, but not eliminated by the redemption, and remained attached to the condo when sold. By this time, the outstanding balance reached over $9,000.00 prompting Lowry Ridge to record a lien for the unpaid balance, late fees, attorney’s fees, and costs. Lowry Ridge attempted to amicably collect its debt rather than foreclose on the unit; however, Bridge felt it was not responsible for payment since it had no notice of the preexisting lien prior to purchasing the condo. Continue Reading Request Resale Certificates Rather than Roll the Dice
Harrison v. Casa de Emdeko, Incorporated, No. SCWC-15-0000744 (Haw. Apr. 26, 2018)
The Supreme Court of Hawaii held that, under the Hawaii Condominium Property Act, expenses for building components that served only particular units (residential units in this case) in a mixed-use project had to be allocated as limited common expenses to the units served, even though the declaration of the association did not assign the components as limited common elements.
Harrison purchased two commercial condominium units out of a mixed use condominium project consisting of both residential and commercial units. The residential units were completely separate from the commercial units. Even though she only owned commercial units, Harrison was assessed expenses for elevators, lanai railings, and drains for the residential buildings. After Harrison brought suit for being improperly charged, alleging that the items were limited common elements, the association responded that Harrison never objected to the costs during her 30 years of ownership or her tenure on the association’s board of directors. Continue Reading Commercial Units in Mixed-Use Condominium Not Responsible for Residential Unit Costs
The Condominium Statutes are written such that associations can collect their actual attorneys’ fees if they proceed in a lien enforcement action for unpaid assessments. But, as in many things law-related, there are traps for the unwary, and if your attorney is not savvy, you may miss out on collecting everything you are owed…
Facts. In a 2017 case, a unit owner was delinquent in paying assessments and the Association hired an attorney to file a lawsuit against the owner seeking collection of the assessments. The attorney filed suit, seeking a “breach of contract” cause of action against the owner, since he violated the portion of the condominium documents that says owners must timely pay assessments. The attorney was successful in getting a judgment in favor of the association for the unpaid assessments, but when he asked the court for an award of his attorneys’ fees, the Court’s answer was no. Continue Reading Think You Will Get Your Attorneys’ Fees Paid in a Successful Collection Action? That May Depend on Your Attorney…