COLLECTING ………… FINES VERSUS ASSESSMENTS

I believe the following topic is one of the most important entries that I have made to date.

(By the way – my next entry will be “Defining Board Members’ Fiduciary Duties” – another extremely important topic.  If a Board is sued, a claim of Breach of Fiduciary Duty is almost always made.  STAY TUNED)

If we receive a new collections account from an association which, on the delinquent owner’s ledger, it contains fines mixed in with unpaid assessments, I become extremely concerned.

My concern, and the issue our Collections Team is prepared to review, is whether or not the association followed the statutory requirements for properly levying and collecting fines.   See Utah Code Ann. 57-8-37 (condominium fines); and 57-8a-208 (non-condominium fines).

Rest assured that our office contacts the association promptly and runs through the following checklist BEFORE we take legal action regarding a fine.  Here is our preferred order for determining whether a fine was properly levied:

  1. Determine that a legitimate ALLEGATION regarding a CCR, Bylaw or rule has been made based on receiving (1) a written complaint from an owner/member; (2) information from your management company; or (3) from personal observation of any interested party.
  2. Require that the complaining party, even if it is a Board/Committee member to certify in writing that they were a witness to the violation or have reliable information of a violation.  This has 2 practical effects:  (a)  it will keep those neighbors who just want to complain from filing a compliant unless they are serious about backing it up in writing; and (b) you now have a witness in case the matter proceeds further.
  3. Make sure that in advance of threatening an actual dollar amount for a fine, that you have both (a) fining authority in your CCRs, Bylaws or rules; and (2) that you have previously adopted a SCHEDULE OF FINES that articulates which type of behavior is subject to what fine.  Remember that a schedule of fines is required before you can levy a fine in the first place.  Contact our office promptly if you have questions about your schedule of fines – if the violation is not listed, then it not one that can be the subject of a fine.  There are ways to create a “catch all” violation and fining structure, however, so it is critical that you get this document drafted properly.
  4. Send notice to the alleged offender of the nature of the violation, the time and date it took place, evidence you have in your possession (compliant, pictures, etc.).  In this FIRST notice, you must state that the owner/tenant has 48 hours to cure the violation or fines will be levied.  You must also state that fines may be levied for continuing or repeat violations continue without any further notice.  NOTE – if the violation is a repeat violation of the same or substantially similar type, you do not need to send another notice and opportunity to cure for the next 12 months from the first notice, you simply levy a fine the next occurrence.  If the behavior is repeated again, you fine again, without the need for notice and opportunity to cure.  If the violation is a continuing violation (for example, someone covers their window in tinfoil and does not remove it after notice and a chance to cure (48 hours), then a fine may be levied every 10 days that the violation continues.  These are very new Utah laws regarding fines and notice requirements.   Feel free to contact us if you have any questions.  The procedure of noticing and levying fines, must be done strictly according to statute.
  5. In the “notice and opportunity to cure letter” you are not required to invite the owner/tenant to a hearing on the matter but you would be wise to do so.  The owner/tenant, however, may request a hearing within 30 days of receiving notice of a violation.  I suggest that you remind them of this right from the outset because, the more due process you offer someone, the greater the chance of your fine being proper.
  6. The hearing is to be conducted in accordance with the standards provided in the CCRS, Bylaws or HOA rules.  If you have no current rules for a hearing procedure, please contact us as soon as you can.  If certain procedures are not followed, you give the violator a basis to challenge the fine.  The following is a sample of what should be adopted:    (a) as mentioned above, I advise that when you send the letter informing the owner/tenant of the fine, you also invite them to a Board meeting for the hearing we’ve discussed.  That way, you can feel comfortable moving forward with the collection or enforcement of the fine knowing you offered due process.  If the violator does not show up; they have waived their hearing; (b) with respect to the meeting itself, you should welcome those who have attended, especially the offending owner (please note that this hearing can be held in executive session – with no other members present if the situation warrants it).  The minutes should reflect all those present and you must have at least a quorum of your Board in attendance (remember there are various ways to be “in attendance”).
  7. If the meeting is only to conduct a hearing (that is, it is not part of a scheduled Board meeting), simply explain that the purpose of the meeting is to determine whether or not there has been a violation of the CCRs, Bylaws or rules.
  8. The Board should have the following present at the outset of the hearing:  (a)  any witnesses or witness statements of the violation; (b) a copy of any letters of complaint or any formal complaints filed (at this juncture, you may want to redact the names of those who have filed the complaint but you may not be able to shelter names forever);’ (c) a copy of the relevant section of the governing documents that were violated.   You should point to “chapter and verse” of the provision that was violated.
  9. Once the above is met, the following question should be asked of the offending owner:  “As you know, we are conducting this hearing in order to determine whether or not there has been a violation and whether the fines should stand.  You have been notified of the allegation(s) and you now have an opportunity to explain why the association’s policies and requirements do not apply to you.”  (that is the way I ask the question – but you can obviously state it your own way – but I do encourage the idea of requiring the offending owner to explain why the fine is improper.)
  10. You then hear his or her version of the facts.   If any witnesses are present, you should ask them what they experienced.  Show pictures, letters, recordings, etc., if you have them. BOTTOM LINE:  your decision needs to be made on EVIDENCE presented not just on feelings or allegations or assumptions.
  11. I advise that you DO NOT make a decision regarding the fine at this meeting unless it is plainly obvious.  Avoid confrontation if you can; hear everyone out; and render a written decision later.  But you should commit to provide a decision by a date certain.
  12. Do not be afraid to admit that there may be mitigating circumstances or other reasons that may justify NO ENFORCEMENT of a particular violation – but be careful as you do not want to waive your ability to enforce the same type of violation in the future.
  13. Excuse the offending owner and thank him or her for their attendance.  Reiterate that you are fiduciaries for the community and you are simply trying to keep your community a desirable place to live and to help solve community problems.
  14. The Board can then deliberate then and there or set up a future meeting to discuss the issue (I advise that this be in executive session).  If the behavior is deemed, in fact, to be a violation then follow your procedures and the statue to implement the fine.
  15. You should also be prepared to discuss what to do if the fine is not paid – at some point will you file a lawsuit?  Will you just let the fine sit?  Will you record a lien?  These are all issues to be discussed with your attorney.  BE VERY CAREFUL – AND THIS IS WHERE WE SEE PROBLEMS – A FINE DOES NOT BECOME A LIEN UNTIL 180 DAYS HAVE PASSED FROM A FINAL DECISON BEING MADE THAT THE FINE WAS PROPER.
  16. AS YOU CAN SEE, THE PROBLEM WE FACE WHEN A COLLECTIONS ACCOUNT IS TURNED OVER TO OUR OFFICE AND THE LEDGER CONTAINS BOTH FINES AND UNPAID ASSESSMENTS, WE HAVE TO BE VERY CAREFUL TO ONLY LIEN FOR THE AMOUNT OF THE ASSESSMENT (WHICH CAN BE FILED IMMEDIATELY FOR AN UNPAID ASSESSMNET) UNLESS 180 DAYS HAVE PASSED SINCE THE HEARING/DECISION HAVE PASSED REGARDING THE FINE.
  17. In short, remember that fines can become liens but not as easily as unpaid assessments.  Fines are only proper after due process is given to the offending owner.  Certain procedures must be followed in the hearing and we strongly advise that you have a “Hearing Procedures Resolution” in place.  Also, do not forget the absolutely critical schedule of fines.
  18. Simply understand that when we lien the property it may not contain the amount of the fine because the above-described 180 days has not expired.  But, do not worry, you are in good hands with a firm that knows how to properly discern the amount that can be part of the lien and how to prepare the proper demand letter when a ledger contains both unpaid fines and assessments.
  19. (This is a side issue – but you need express authority to charge late fees or interest.  If you do not have that in your governing documents (for either assessments or fines) such penalties may be adopted by rule.

I know this was lengthy but we want your ledgers to be accurate and your fines to be upheld because you followed the correct procedures as required by law.

We are here to help.

Best regards, John Richards

 

Board Action Without a Meeting? Is it Legal?

Most of you will know, that those of us in the “HOA” industry have recently included open Board meeting requirements into both the Utah Condominium Ownership Act and Utah’s Community Association Act.  The main point of ‘open meetings’ is to help avoid Board actions being done without any owner participation, knowledge or involvement.  This helps avoid suspicion and sometimes abuse of authority.

As such, all HOA’s in Utah are now subject to ‘open’ Board meetings, with certain topics still allowed to be discussed in private (“executive session”).

For a closer look at the open meeting laws, see Utah Code Ann. 57-8-57 for condominium communities and Utah Code Ann. 57-8a-226.

The purpose of this entry is to discuss whether or not Boards can lawfully take action without holding a meeting at all – such as by phone call or by email?

I trust you can see both sides of this issue:  1) members may want all meetings to be open to any member that wants to attend; and 2) Board members often times need to make prompt decisions and do not have time to call a formal meetings.  How is this dilemma resolved?

Utah Code Ann. 16-6a-813 provides the answer and DOES allow Boards to take action without a meeting.  And, you guessed it, if there is no meeting, there is no owner participation.  Section 813 does not even place limitations on the type of issues that can be discussed in this type of forum or how frequently such meetings can be held.

I want to be as concise as possible, so I will refer you to Utah Code Ann. 16-6a-813 for the full text of the statute.

Here is the bottom line:

  1.  Unless your bylaws state otherwise, the Board may take action without a meeting if all of the Board members consent to the action in writing.  This means that no Board member has revoked their consent to the action; OR
  2. Unless your bylaws state otherwise, action without a meeting may be taken if notice is given in writing to each member of the Board and the notice contains a reply deadline.  Further, by the deadline stated in the notice, each member of the Board has either (a) signed a writing approving the proposed action or signed a writing against the action;  or (b) abstained in writing from voting; or (c) fails to respond or vote.
  3. After step 2 above, you now know your vote count of the Board on a given issue.  Now, we need to see if any Board member has demanded in writing that the action NOT be taken without a meeting.  If this type of demand is made, you may not continue with the action without a meeting.  You must hold a regular “live” meeting.
  4. Assuming no Board member has demanded that action NOT be taken without a meeting, then we have to look at the participation and vote.
    1. If a Board member votes in favor, obviously you count that as a YES vote for the matter;
    2. A NO vote is simply a no vote;
    3. If a Board member dose not respond by the deadline, then the effect is that of abstaining.
    4. So, you then look to your voting approval threshold for a Board vote in your Bylaws.  Let’s assume you have 5 Board members.  Notice of action without a meeting is sent around via email and a vote is requested on a topic by a certain deadline.  Also assume that your quorum for a Board is a majority of Board members, which in this case would be 3 Board members.
    5. Now assume that 2 Board members vote in favor, 1 votes against and 2 do not respond.  Do we have a binding decision?  YES.  A quorum was present (3) and a majority of a quorum (2) can take action.  2 simply abstained and are not counted.  They key is you had a quorum and a majority voted in favor.
    6. The Board is not penalized for an abstention but the entire concept of Board action without a meeting is defeated if by the deadline for a response, a Board member demands that the action be taken in a “live” meeting and not via “action without a meeting.”

In sum, even with the adoption of the open meeting laws cited above, there was never an intent to NOT allow Boards to take action without a meeting.  However, the more you use this “tool,” the more your Board may be scrutinized.  At Richards HOA Law, we advise that you use Board action without a meeting sparingly; primarily for emergencies or other urgent types of situations.  This will help avoid scrutiny from your members while allowing this important statutory provision to stay in place without someone attempting to modify it.

As always, there are details that are not addressed herein.  Each case may be different.  This blog entry is for general education purposes only and must not be relied upon as legal advice for any specific association or situation.  Please contact our offices at 801-274-6800, or email us at: john@richardshoalaw.com or simply check out our website:  http://www.richardshoalaw.com

We look forward to seeing you at our next HOA University to be noticed and held in late July, 2017.

Thanks everyone – John Richards, Esq.

NEW HOA LAW – SOLAR PANELS!!! WHAT DOES IT MEAN? 57-8a-701

I am grateful for all of my “blog” followers. Please give this website to your fellow Board/Committee members for information that we trust you will find valuable.

I have a few things to discuss for this entry:

  1.  Utah’s legislative session recently ended.  There are several bills that passed which affect all forms of HOAs in Utah.  Though not signed into law yet, all appear to become law in May 2017.
  2. If you are not on our mailing list for our firm’s education arm: “HOA UNIVERSITY” please leave a comment here and we will make sure you are on the notification list or contact our office and ask to be placed on the e-mail list for our free 1 hour educational events. (801-274-6800)
  3. Our next regular HOA University is 4/22/17.  However, with the changes in the law, we may hold a course even earlier.  Stay tuned!
  4. Despite what follows, I fully support exploring alternate energy sources.  What a fascinating state of technology awaits all of us.  I am concerned, however, that EXISTING HOAs don’t get much of a say at all regarding regulating solar panels on a go forward basis, irrespective of when your HOA was created (in other words, your Architectural Control Committee will be essentially powerless on this issue as explained below).  This bill may extremely impact the visual makeup of your community!

THIS ENTRY IS ALL ABOUT SENATE BILL 154 WHICH PASSED AND AFFECTS ALL DETACHED HOUSING COMMUNITIES (NOT CONDOMINIUMS OR ATTACHED HOMES WITH SHARED ROOFS).  TECHINICALLY, THE BILL GETS SIGNED INTO LAW ON OR ABOUT  5/9/17 AND THERE IS ALWAYS A SLIM CHANCE OF A VETO – BUT I AM VERY CONCERNED THAT THE BILL WILL BE SIGNED AND, THERFORE, I WANTED TO GIVE MY READERS A “HEADS UP” YOU CAN BE PREPARED.  (you should know however, that we have many concerns about this bill and if you are interested, there is still a chance to express your concerns to the Governor in hopes of a VETO. Please contact my office for more information)

WHAT DO I NEED TO KNOW ABOUT “SB 154 SOLAR ACCESS AMENDMENTS?”

If this bills gets signed into law (which is most likely will), you need to know (it will become Utah Code 57-8a-701):

a.  The law applies to “detached dwellings” which means a detached dwelling for which the association DOES NOT have an ownership interest in the detached dwelling roof.

b.  Except for a limited circumstance described below, and only if expressly prohibited in your CC&Rs, a governing document (bylaws, rules, etc.) MAY NOT prohibit or restrict an owner of lot with a detached roof.

c.  If the bill is signed into law AND if language is contained in your CC&Rs here is the only  “go forward” regulatory authority your HOA has with respect to solar panels or “solar energy systems:”

1.  Your CC&Rs cannot impose a restriction that (based on location for example) decreases the solar energy system’s production of solar energy by 5% or less.  (As you can see, this really means you can’t impose any meaningful restriction)

2.  Your CC&Rs cannot impose a restriction that would increase the solar energy system’s cost of installation by 5% or less.

3.  However, you can by CC&R or a rule require that the solar energy system comply with applicable health, safety and building requirements, and if it is a solar energy system that is used to heat water, you can require that the system is certified by the Solar Rating and Certification Corporation; or a nationally recognized solar certification entity.

4.  Finally, if the solar energy system is used to produce electricity, you can require that it complies with safety and performance standards established by (a) the National Electric Code; (b) the Institute of Electrical and Electronics Engineers; (c) Underwriters Laboratories; (d)  an accredited electrical testing laboratory; or (e) the state or a political subdivision of the state.

5.  Here are some aesthetic protections for the HOA:  A CC&R or rule may be created for a solar energy system that is mounted on a roof as follows:  (a) so it does not extend beyond the roof line; or (b) it can require that it has panel frame, support bracket, or visible piping or wiring that has a color or texture similar to the roof materials; or (c) if the solar energy system is mounted on the ground, you can make it so it is not visible from the street that front other lots.  (there are few more “things” an HOA can do such as review the application to install; and some unique rules applicable to indemnifying the HOA if such installation somehow causes a loss to the HOA but that is about it).

d.  This new section 57-8a-701 will apply to an Association regardless of when the Declaration was recorded (this is what our legislative group fought hard to change and my hat is off to those that tired hard to make this part of the bill).

e.  Strangely, the statute states that “this part does NOT apply to an express prohibition or an express restriction or solar energy installations if it was already in your CC&Rs and recorded before January 1, 2017; or created by official association action taken before January 1, 2017.”  You’ll note that this date has already passed.  I wonder how many CC&Rs already have a prohibition or restriction in the CC&Rs already – not many I would guess.

f.  SO WHAT CAN YOU DO – the statute does allow you to prohibit solar (that is, prohibit it in entirety – this is either an all or nothing proposition – you ban solar outright or you must allow it with very limited controls) but ony if you vote to expressly prohibited solar energy installations by a 67% of your members – so you can amend to prohibit BUT THE CONCERN IS THAT BETWEEN THE TIME WHEN THIS LAW PASSES UNTIL YOU GET A VOTE, YOU WILL HAVE INSTALLATIONS THAT YOU ESSENTIALLY CANNOT STOP.

g.  Like any amendment, an amendment to prohibit solar can be “undone” by an amendment to repeal the prohibition.

TIP:  Depending on when the Governor signs this bill into law (anticipated 5/9/17) your community may want to act NOW by voting on and recording an amendment to your CC&Rs before 5/9/17 if you want to prohibit solar panels at the present time for aesthetic or other community concerns.  You will need to examine your community aesthetics, consistent look, inform appeal, etc., to see how you might want to proceed.  You may welcome solar, or you may want to control it – but to control you are going to have to act immediately.  Contact us ASAP if you are concerned.

FINALLY – as mentioned above, a rally or other events may be organized to get the Governor’s attention.  If we cannot stop the bill, our hope would have been to make it applicable only to communities built AFTER the bill becomes law, but that is not the version that the powerful lobbyists got through.

REMEMBER – there are other bills that passed as well.  Please make sure your are on our HOA University List for all of our education events – the next one in April will be addressing all the legislation that passed.

As always, all of us at The Richards Law Office enjoy working with you, look forward to future assistance we can provide your HOAs, and appreciate our professional relationship.  Contact us at any time.

Best  Regards, John Richards

john@richardshoalaw.com

http://www.richardshoalaw.com

 

 

 

 

 

 

 

HOA Contractors & Proof of a License

I often get asked what should the minimum qualifications be when selecting a contractor.  Of course, the answer depends on the project.  In addition to being competent, and if the project is set out to be a long-term one, a personality “match” is sometimes just as important (landscapers, property managers, etc.).

However, that is not the precise issue I want to address here.

What if you hire a contractor and they are not licensed (under their applicable trade)?

First, the Board has probably breached its fiduciary duty of care in hiring someone without the proper credentials.

Still, that is not what I want to touch on.

Second, let’s assume that “you did not know” they were not licensed due to an oversight (this still does not diminish my concern about breaching your duty as a Board member) but let’s say that is the reason why…

NOW – the contractor comes to your for payment.  The problem is, however, that they have done a poor job, so poor in fact you feel that they have breached their contract with you and you (obviously) do not want to pay until it is done right.

I have heard many attorneys tell their clients “…go ahead and pay the balance of the invoice, and then sue for damages because then you have a tangible number for which you can claim as damages….”

Simply stated, be careful when this happens. If you ask them to cure the defect, they are still working without the proper license and you may get in trouble for continuing to work with them.  This is the point in time to contact both our office and Utah’s Department of Professional Licensing (DOPL).

HERE IS THE POINT:  Utah Code 58-55-604 states that a contractor may not commence or maintain any action in any court of the state for collection of compensation for performing any act for which is a license is required…

IN OTHER WORDS, IF THEY ARE NOT LICENSED WHEN THE CONTRACT WAS ENTERED INTO AND THE WORK WAS DONE – THEY CANNOT LAWFULLY SUE YOUR HOA.

Do not fall victim to their threats of court action to collect on the contract.

Contact us immediately if you find yourself in this situation for a full analysis and review of your rights.

This entry was brief but I hope if brings you some comfort if your Association faces this issue so you don’t end up paying just to avoid a suit by an unlicensed contractor.  You have significant rights and the backing of the Sate of Utah if you find yourself in this position.

Hope these entries are informative.

John Richards

http://www.richardshoalaw.com

 

 

 

 

 

Sex Offenders – Not in my HOA – Not so fast

 

I will not sugar-coat it – owners are not comfortable with a sex-offender in their community.  As you can imagine, this causes the question to be asked:  can we ban sex offenders from our community?  This topic is important comes up more than I can believe.  Please review my comments carefully as I take this situation very serious just like you.

 

AMENDING THE CCRS:  There are several factors that should be considered and it is important to note, certain risks that the Association would have to assume before amending governing documents to ban sex offenders.   Every Association that I have studied that have banned sex offenders in the CCRs have ended up in court.  I do not advise a CCR ban.

First of all, if the Association gets involved and notifies its members of the identity and residence of a registered sex offender, then this “lifelong scrutiny” amounts to something close to “double jeopardy” because the offender is being punished, once again, for a sentence already served.  This is not necessarily unlawful, but could lead to unlawful harassment as explained below.

Second, and very importantly, if the Association places a ban on registered sex offenders, it is up to the Association/Board to monitor all those residing (and visiting) within the community.  The Association assumes extreme liability if a sex crime then occurs within community and people assumed that the Association was monitoring/tracking those who moved in.   I do not advise that your Board assume this duty and liability.  Every Association that has tried this approach (no reported cases in Utah) have ended up in court as well.  It just does not appear that a ban will be enforceable as one judge said, “people have to live somewhere….”  I am mostly concerned about the safety of members but also I am concerned about Board liability.  I do not advise that you ban sex offenders as further described in this letter.

Another question you may have is “does the Association have a duty to warn of sex offenders living in the Association.

Utah law states that “members of the public are not allowed to publicize the information [contained in the sex offender registry list] or use it to harass or threaten sex offenders or members of their families; and harassment, stalking, or threats against sex offenders or their families is prohibited and doing so may violate Utah criminal laws.” (Utah Code Ann. §77-27-21.5 (21)(b), (c).

As a Board you may choose to inform your members of the Sex Offender and Kidnap Offender and Registration website.  But to avoid complications, the Board should not single out or identify any individual and should definitely not restrict the individual as a member of the Association in any way.  Our recommendation and advice is to inform members to check the Sex Offender Registration website and advise owners to be cautiously aware of their community.

We always advise the Association not to publish a list of registered sex offenders in their newsletter or post the list in the clubhouse. 

Simply let it be known where the members can get the source of information regarding sex offenders.  Be very careful, because not only can you not publicize the information contained in the registry, you cannot “use it to harass” sex offenders or their family.  The term “harass” is often interpreted broadly by courts.  Merriam-Webster says that to “harass” is “to create an unpleasant or hostile situation.”  We do not believe it will take much to constitute harassment, so the Board must be careful.

 

 The term “cautious awareness” sums up the balance a board must strike between privacy rights and community safety.  Please be cautious of creating hysteria in your community. 

I advise all readers to feel free to contact me any time to discuss this further.  If you would like further clarification or have other questions I have not addressed here I would be happy to talk more with you.

 

John Richards

http://www.richardshoalaw.com 

 

When is a CCR Provision ABANDONED and no longer enforceable?

First, all of us a The Richards Law Office (Richards Law) wish you the very best for 2017.  We look forward to assisting your communities this coming year.

Second, as I was thinking of the topics that were frequently dealt with by us last year, several came to mind:  (1)  the proper timing of turning a matter over to the attorney for collections; (2) Association records, the requirement to keep certain records (having a document retention policy) and the right of owners to inspect records; and (3) strict compliance with your CCRs and Bylaws (though I work with some of the most organized Boards in the state, I’ve also seen a few Boards that “make the rules up as they go.”  This last category got me thinking about what I wanted to start this year off addressing:  WHEN IS A CCR OR BYLAW PROVISION DEEMED ABANDONED AND NO LONGER ENFORCEABLE?

Let’s analyze this question under the law in Utah (we have some case law guidance on this topic).

I see the following scenario all the time: several new Board members come into office and they want to do things differently than the prior Board.  By this, I am specifically referring to enforcement – they want to be more aggressive in following the CCRs and/or Bylaws.

Time and time again, the question that come up is:  if the prior Board did not enforce XYZ, can the new Board enforce XYZ?

Please note that the answer to this question is not black and white.  It will take an analysis by our office to give you the proper guidance.  Nevertheless, the following information will be very useful to your Board.

For this discussion today (which is based on a Utah case Fink v. Miller) assume the following:  (A)  the CCRs state “wood shingles…shall be required on the exterior roofs of all structures.”  (B)  the CCRs also required all owners intending to build, improve or alter their homes to “submit all plans and specifications, including exterior colors and materials, to the Design Review Committee.” (C) over time, for various reasons, 23 of 81 homes were allowed to have roof shingles NOT in compliance with the “wood shingle” requirement (note, there are tile shingles, asphalt singles, fiberglass shingles, etc., that an owner might have installed).

(HOWEVER, WHEN THINKING ABOUT THIS ARCHITECTURAL MATERIALS REQUEST, THINK OF HOME BUISNESSES, CONSIDER PETS OR RQEUIREMNTS TO KEEP PATIOS FREE FROM CLUTTER, ETC.)

In Fink v. Miller, the Millers submitted plans showed a proposed “wood shingle” for their roof.  However, later, the Miller’s amended their plans requesting approval for a “fiberglass shingle.”

The Design Review Committee rejected the request for a “fiberglass shingle” simply because it wanted to keep to the CCRs’ requirement of “wood shingles.”  HOWEVER, AT THAT TIME 23 OUT OF 81 HOMES HAD NON-WOOD SHINGLES.

A lawsuit was filed to stop the use of fiberglass shingles.

KEY POINTS:

  1.  As a general rule, property owners who have purchased land in a subdivision, subject to a recorded set of restrictive covenants, have the right to enforce such restrictions against property owners who do not comply with the stated restrictions.”
  2. However, as I will explain below, property owners may lose this right if the specific covenant  they seek to enforce has been ABANDONED – thereby rendering the covenant unenforceable.

QUESTION AND POINT FOR THIS BLOG ENTRY – what are the factors considered to determine whether or not the covenant (whatever it may be) has been abandoned?

The court talked about two different types of scenarios and articulated two different standards for each situation.

  1.  Covenants that are related to the use of the property (such as using your home for a home business, etc.).  In this instance,  a restrictive covenant may be deemed unenforceable  if the (repeat) violation has caused a change in the neighborhood so great  that this change neutralizes the benefits of the restriction to the point of defeating its purpose….  So if a violation does not change the nature or character of the community (because it is not readily apparent, etc.), then it is harder to render the covenant useless.
  2. Covenants that are related to aesthetic purposes.  This is a different analysis.  The test that this court imposed was stated as follows:  “the violations are so great (numerous) as to lead the mind of the average person to reasonably conclude that the restriction in question has been abandoned.”  This test is met when “…the average person, upon inspection of a subdivision and knowing of a certain restriction, will readily observe sufficient violations so the he or she will logically infer that the property owners neither adhere to or enforce the restriction.”

This latter test considers the number, nature and severity of the then existing violations, any prior acts of enforcement of the restriction (or the lack thereof), and whether it is still possible to realize to a substantial degree the benefits intended through the covenants if was still enforced despite violations existing.

As stated above this court found that 23 of 81 homes had non-confirming shingles.  And the court found that the violation was sufficiently widespread.  That fact, coupled with lack of enforcement efforts over the years, was enough to find the wood shingle covenant abandoned.

As you can see, this is a serious issue.  It is fact intensive so no one should panic if they have unenforced covenants in their community because that is precisely what Richards Law is here to help you do – evaluate any such issues and advise the Board accordingly.

We do suggest that Boards conduct and internal “enforcement review” to see if there are provisions of the CCRs and Bylaws that have been unenforced – for whatever reason.  Then we can walk through the above analysis with you if a concern arises.

Again, we look forward working with you in 2017 and wish you and your communities the very best.

Sincerely, John Richards       PLEASE VISIT:  http://www.richardshoalaw.com

Best Collection Practices

BEST COLLECTION PRACTICES:

HOAs need funds to operate and maintain the property.  We all know that.  Timely collections is a vital part of a successful and healthy Association.

The following may seem basic to you but far too often Boards overlook steps they need to be taking to properly discharge their duties..  Here are some tips.

1.  Adopt a Collection Resolution.   A resolution will set forth how many letters are sent out?  When will you file a lien; when will he account be turned over to Richards Law?        

              Key – uniform procedures against all delinquent owners – no favoritism.

 2.  Be careful about charging PRE-ATTORNEY legal fees.  Often times, the debtor’s account gets too high from fees and charges that get added by the HOA making a realistic payment scenario very difficult.  Further, it may not be authorized to charge such fees.  Review:  case-by-case with your manager and Richards Law. 

3.  Once turned over to attorney, ALL communication should be through attorney.  We will instruct the manager and Board to NOT speak with the debtor.  Often, the debtor does not like this but let us take the heat.  REASON:  when more than one party is speaking to the debtor, often time separate ‘deals’ are struck (or allegedly struck) and then statements, etc., get used against the attorney and the HOA. 

4.  If you’ve turned a file over to your attorney, don’t refuse money that comes in, but SEND TO YOUR ATTORNEY promptly so they can account for it as well.  Please please please do not apply the money to the debt as this is how attorneys get paid on a “deferred payment system.”  Our program is called COMMON SENSE COLLECTIONS and we hope you are all using it. 

5.  Accept the fact that if you turn over a file to the attorney that you should not have (they made a payment and you forgot to log it, or they made arrangements and your forgot about it, etc.), the attorney will open the file, do a property search, a bankruptcy search, and start the process of collecting. If you call to “STOP” the collections, there may be a small charge for that work that was done.

 6.  Decide your preferred course of action (1) lien and sit on it; (2) sue for debt after period of time; (3) foreclose your lien.  You can pick and choose your remedies.

7.  If you want to foreclose, be aware of 2 issues:  (1) the debtor can opt for JUDICIAL foreclosure; and (2) you should be asked of the Attorney to have you expressly appoint you as the Trustee for purposes of the sale.

8.  Decide in advance how long you will accept a payment plan – such as no more than 6 months as long as they keep their assessment current.  Consider them in good standing if in a payment plan.

9.  Please put up with the attorney as we call for updated ledgers frequently.  It is simply necessary to know how YOU are accounting for the delinquency 

10.  As a Board, really think through the concept of:  “A bird in the hand is worth two in the bush.”  My point is made by an example: 

Assume there is $6,000 debt to the HOA.  The HOA wants 50% down and payments of $500/month plus ongoing monthly fees.  Debtor just does not have the money – or so they say…  Believe them or not – it does not matter, you have to make some decisions. 

Further assume that the have offered $2,500 now, $250 a month until current and to keep on top of their monthly assessment.  THE BOARD HAS SAID “NO.”  Here is an interesting question – did the Board breach its fiduciary duty by being too strict?  Then, this owner who could have handled a payment plan but now cannot because the HOA won’t accept what they could afford, files for bankruptcy?  Does the Board share in some blame here?

These are tough issues.  You need Richards Law to help you out and be your go to firm for all HOA issues; especially collections. 

This is a real life scenario and I wanted to share it.  I look forward to talking to each of you.  Best regards, John Richards