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

 

 

INTRODUCING: RICHARDS LAW

For those of you who do not know, I have returned to “my roots” by re-forming The Richards Law Office, aka “Richards Law.”

Me and eight professionals remain your advocates on all HOA issues.  I look forward to our ongoing professional relationships with your communities.  I cannot believe I am now in my 17th year as an HOA Attorney.  Our office address and phone number remain the same.  Please visit:  http://www.richardshoalaw.com  for more details.

This blog entry will be short but I wanted to emphasize one issue of association governance that often gets overlooked.

COMMENT:  Boards (also called Management Committees or Directors) and Officers are 2 different positions with differing obligations and duties.

Often times people believe that Board members and Officers are the same thing – they are not – although the same people may be BOTH a Board member and Officer.

This is a critical distinction.  Board members are elected; Officers are appointed by the Board.  Officers can be removed and shuffled around in title and responsibilities; Board members can typically only be removed by member vote (unless there are specific removal terms in the CCRs or Bylaws).

Board members adopt overall community policy and the Officers execute those policies.

Liability can also be found based on which “hat” you are wearing.  We will discuss Directors and Officers Insurance in a separate blog entry.

Duties of Officers are usually specifically listed in the Bylaws.

My point of this entry is simple:  Make sure that you understand the differences between Board members and Officers.  Make sure that you understand the qualifications to serve in each capacity (sometimes Officers don’t even have to be members; sometimes they do).  Finally, make sure that your officers are following the duties outlined in the Bylaws and that you are following corporate formalities with respect to the duties of each position.

By doing so, your community is on the path for proper governance because your “legal infrastructure” is properly formed.

Again, please take a moment and check out http://www.richardshoalaw.com.  We look forward to continuing assisting the HOAs in Utah and I appreciate everyone’s support over the years.

Best regards –  John Richards

 

 

 

SUPREME COURT OF UTAH CLARIFIES BOARD AUTHORITY!!! Extremely helpful for HOAs

HOA Living - What I Need to Know

First, there are a few very exciting things happening in the next few months in the HOA world for me and you.  Stay tuned.

Second, we will be sending out notice of our next HOA University shortly and look forward to your attendance.  Topics are always welcomed.

Third, I’ll try to make these comments concise and to the point – but please contact me if any follow up is needed.  I believe this decision is one of the most significant HOA decisions in Utah in the last decade.

On June 22, 2016, the Utah Supreme Court “got rid of” the old mindset that historically has been applied by Utah Court’s when determining a Board’s authority to interpret and enforce the CCRs.

Utah Courts, it seems forever, applied the following standard when interpreting CCRs.  That is, CCRs are NOT FAVORED in the law.  Therefore, you must construe CCRs in favor of…

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SUPREME COURT OF UTAH CLARIFIES BOARD AUTHORITY!!! Extremely helpful for HOAs

First, there are a few very exciting things happening in the next few months in the HOA world for me and you.  Stay tuned.

Second, we will be sending out notice of our next HOA University shortly and look forward to your attendance.  Topics are always welcomed.

Third, I’ll try to make these comments concise and to the point – but please contact me if any follow up is needed.  I believe this decision is one of the most significant HOA decisions in Utah in the last decade.

On June 22, 2016, the Utah Supreme Court “got rid of” the old mindset that historically has been applied by Utah Court’s when determining a Board’s authority to interpret and enforce the CCRs.

Utah Courts, it seems forever, applied the following standard when interpreting CCRs.  That is, CCRs are NOT FAVORED in the law.  Therefore, you must construe CCRs in favor of the owner’s free use and unrestricted use of their property.  If your CCRs had any ambiguity at all; the land owner would like win the enforcement dispute.

Bottom line:  This meant that the CCRs had to be right on point, without ambiguity, and only then the could the Board feel somewhat comfortable enforcing the CCRs as drafted.

In the Case of Fort Pierce v. Shakespeare, the Shakespeare’s applied to put a cell tower on their commercial lot.  The Board denied their application pursuant to their ARC/ACC review ‘powers.’  Nevertheless, the Shakespeare’s continued to build the cell tower even after a timely denial by the Board.

The HOA sued and this went so far as a bench trial.

The district court held that the Shakespeares did indeed breach the CCRs by constructing the cell tower without Board permission.  HOWEVER, the district court applied the OLD STANDARD that “restrictive covenants are not favored in the law and are strictly construed in favor of the free and unrestricted use of property.”

This is a highly fact intensive case but, even though the court agreed that the CCRs were breached, essentially the court ruled that the Board went too far with its disapproval powers stating that the Board did not have the right to limit the number of cell phone towers in this particular commercial / industrial park.

I realize I’m starting to bore you now, so let me get to the “meat” of what happened next.

The court further ruled that the Board’s denial was “unreasonable and arbitrary” and that THE TOWER IS APPROVED AND COULD REMAIN (the court overturned the Board).

The HOA appealed to the Utah Supreme Court.

The Utah Supreme Court, which has now created IMPORTANT PRECEDENT FOR ALL OF US, held that:  “Restrictive Covenants are a method of effectuating private residential development schemes” and “give property owners in such developments the right to enforce those covenants against other in the development.”  Citing other Utah Supreme Court cases, the court noted and clarified that we now interpret CCRs by a different standard  – not the “strict construction in favor of the free use of land” standard but clarified the new standards as:  WE INTERPRET BOARD ENFORCEMENT DECISIONS UNDER THE SAME PRINCIPLES USED TO INTERPRET CONTRACTS.  THIS IS A NEUTRAL STANDARD – LOOKING AT THE TERMS OF THE CCRS (as a contract) AND WHAT THE PARTIES BARGAINED FOR WHEN THEY PURCHASED THEIR PROPERTY.

To be concise, Boards now have a stronger enforcement position than then did under the “old standard.”

It is going to be more difficult for an owner against whom you are enforcing the CCRS to now argue that the Board is acting arbitrary and in a random manner.  This is extremely significant to Boards; Board decision making authority; and enforcement authority in general; all of which are now, by this ruling, help protect the integrity of a Board decision.

The Supreme Court found that the Board had sufficient authority under a contract interpretation of CCRs (rather than strict interpretation for the free use of land), which also takes into consideration INTENT of the parties, to deny the application and REVERSED the district court’s ruling.

This is significant because it clarifies the standard under which CCRs and Board decisions are made; this decision significantly gives more deference to a Board’s decision than in the past (which still must be consistent with the CCRs) but causes the enforcement analysis to be done on a neutral playing field rather than the deck being stacked in the owners’ favor from the outset.

I look forward to speaking with you as your community needs arise and discussing the implications of this case generally if questions exist.

Best to all – John Richards  (jrichards@balljanik.com).  801-274-6800.

 

6 Must Have HOA Resolutions (Board Rules)

First and foremost, thank you for attending our recent HOA Law Seminar. It was great to see so many familiar faces and meet new Board members.

PLEASE LOOK FORWARD TO OUR UPCOMING HOA UNIVERSITY IN FEBRUARY – TO BE ANNOUNCED

Many Board members do not know the extent of the authority they have for “rule making.”  There are a few rules that govern drafting rules, but for our purposes, I want you to be aware that a Board adopted rule cannot conflict with your Bylaws, CCRs, or State Statutes.  Surprisingly, every Board still enjoys broad rule making authority.  (Recent statutory additions even further strengthen what you can do by Rule.)

A RESOLUTION is merely the formal name of the legal document that contains the RULE.

I wanted to list a few of the “must have” Resolutions and briefly explain the purpose of each.

It is key to remember that whatever rules or policies your HOA adopts, they must be evenly and uniformly implemented against ALL members; precisely as adopted.  No favoritism.

  1.  Collection Resolution – Bottom line:  You must have a policy that explains what the Board does when someone is delinquent, what the manager does and at what point in time a file is turned over to your attorney for collections.  We recommend that an account be turned over between 60 and 90 days delinquency.  A lien should be filed ASAP.  We collect our fees from the debtor with the goal being the HOA collections 100% of what it is owed and the attorney is paid as well.  You should never pay a percentage of the outstanding balance for HOA collections.
  2. Document Retention Resolution -Did you know that some HOA records must be kept forever others can be discarded when you choose?  Why pass box after box from Board to Board when you don’t have to?  Here is the problem, many Boards keep far too many records.  Therefore, if an owner requests to review records, which is their right (and they will if they are unhappy about something) and you’ve kept them, you have to provide them.  Why keep more documents than necessary?  A document retention policy is based on statute and common sense.  For example, you must keep minutes indefinitely per state law.  However, you can keep enforcement letters for as long as you like.  You want to keep enforcement/demand letters, however, for a time so you can prove that you are enforcing generally in the community – but why keep them beyond 1 or 2 years?  This policy gives you a chart, which you largely can control the outcome of, to guide your document retention policy.
  3. Electronic Notice and Voting Resolution – You can now send out notices of meeting via your website, email and even text messages.  Wouldn’t it be great to conduct voting on amendments and other matters electronically (email) as well?  An electronic Notice and Voting Resolution solves this problem and provides a step-by-step process to implement electronic communication into your community.
  4. Enforcement Resolution Believe it or not, the Board does not have to get involved in every single dispute (warning:  this is a general statement and each situation should be evaluated by counsel).  What if an upstairs neighbor in a condominium is making noise that only 1 other member can hear?  How do you, as a Board, know whether this is a serious issue or whether it is just a personality dispute?  Each HOA should have a policy that requires owners to take certain steps amongst themselves before the Board gets involved.  That way, a significant number of issues may get resolved without having to involve the Board.  Exceptions would be life, health and safety complaints but there is a way to “push back the point in time” the Board must get involved.  This can be a welcomed relief for many Boards.
  5. Absentee Owner Resolution – Are you concerned about owners who are away from their home for periods of time?  Are you concerned that, because no one is home, that the furnace may not be set at the right temperature leading to possible pipes breaking in the winter?  An absentee owner resolution implements certain base-line controls to protect the home (usual a condominium or townhome unit connected to another unit) from issues that arise when no one is home to take care of areas (pipes, namely) that could have an impact on others without oversight.
  6. Fining Procedure Resolution – Utah’s laws regarding fines have changed.  There are different rules for REPEAT violations and CONTINUING violations.  The point to know for now is that is in either scenario you are now allowed to give notice just once and thereafter go directly to fines (some details and rules apply) should the behavior continue.  Because these new rules won’t be in your CCRs, you need a resolution that allows you to send notice just once and then get right to fining should the situation come to it.

As mentioned, rule making is broad and quite “powerful.”  Use this authority carefully.  When exercised properly, however, your Association will function more smoothly, your burdens as a Board will be lightened and you will better discharge your duties to your membership.

I look forwarding to speaking with you all soon.  Again, be looking forward to HOA University (“HOA UNI”) shortly.

Best, John Richards

jrichards@balljanik.com

http://www.balljanik.com/utah

 

A Healthy HOA in 2016

FOR STARTERS:  SAVE THE DATE 1/16/16.  Join us for a free educational seminar and Meet and Greet Saturday morning the 16th.  Contact me for more details!  I’d love to see you there.

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Now that a new year is upon us, it is appropriate for every board to take a few minutes at their next board meeting to make sure the following issues are in order. If not, please contact us and we would be happy to take the opportunity to help your association be adequately prepared for any issues that arise in 2016.

The following is a checklist as you review your Association’s “health” for 2016:

  1. Are there defects in any of the areas over which the Association is required to maintain?   If it has been within 6 years of the completion of your community, you may have remedies for any construction defects.
  2. Evaluate your governing documents (CCRs, Bylaws, Rules, etc.). We advise that governing documents be reviewed and/or updated every six years as state laws change almost every year.  Many changes to your “governing documents” can be done by Board resolution rather than an amendment (which requires a vote).  Make sure your governing documents are up-to-date.
  3. Make sure you have a copy of applicable statutes for your association in a binder for each board member. Our office can provide you courtesy copies of these statutes as needed, so that they can be reviewed to the extent that they take priority over your CCRs or Bylaws. You should be familiar with the governing Act and the non-profit corporations Act.  (You need to know whether you are a condominium community or planned unit development.  A townhome is an architectural style.)
  4. Be sure to keep a book of resolutions (Rules and Resolutions) that show when a rule was adopted, the text of the rule, and indicate if a rule has been repealed or not. That book should be passed down from board to board so the association knows which rules have been adopted by the Association.
  5. If your CCRs have architectural standards, make sure your architectural guidelines and design standards are clear, unambiguous, and make sure that the process for submitting plan approval is clearly set forth and not inconsistent with law or other provisions of your governing documents.
  6. The Association should have a collection resolution in place which specifices what the association will do internally (it’s Manager or Board), which also states after how many days delinquent an account must be in order to be turned over to your attorney for collections. NOTE:  Our office was the pioneer for deferred attorney fee collections, known as our “Common Sense Collections Program,” whereby we collect our fees from the homeowner and we do not take a percentage of recovery from the Association.
  7. Make sure your association has an enforcement policy in place. This is a unique type of policy that indicates the point in time the association gets involved with an enforcement matter, especially when only one homeowner is complaining and no one else seems to be bothered by a specific behavior. This type of policy puts burdens on the aggrieved owner to help the Board feel comfortable that the owners are not furthering a personal agenda, but truly addressing a community concern.
  8. The Association’s insurance policies should be reviewed for adequate coverage for those areas over which the association is required to insure including adequate Director and Officer Liability Insurance, in case of a claim made against the Board.
  9. The Association should be trained regarding the respective roles of the Officers of the Association. Remember the Board or the Management Committee is a distinct entity from its officers. Usually the Board and Officers are the same people, but the jobs of the Officers need to be understood by those serving in those capacities and a policy statement (what each Offices does) may be needed if not adequately contained in your Bylaws.
  10. The Association should adopt a document retention policy. Some documents are required to be kept indefinitely. Others may be disposed of at your earliest convenience. There is no reason for documents that do not need to be kept be kept for years and years in a box or file cabinet.  A document retention policy will help you determine how long you keep certain types of documents.
  11. The Board should, through its attorney, undertake brief Fair Housing training to understand how discrimination complaints arise and how reasonable accommodations are to be dealt with regarding such issues as service and companion animals.
  12. Ask yourself if you are aware of recent statutory changes that address electronic means of communications and other issues such as open meeting,  rental restrictions, rule making and reserves.
  13. The Board should fund its reserve fund and speak with their attorney about the adequacy of that fund and how it should be used in comparison to operating expenses.
  14. Does your Board having a Schedule of Fines that differentiates between a continuing violation and a repeat violation? Do you understand what type of notice and how frequent such notice must be given when there is a repeat violation and what due process must follow if an Owner is alleged to have violated a rule before an actual fine can be levied?

THESE ARE JUST A FEW QUESTIONS/ISSUES YOU SHOULD REVIEW FOR 2016 AND BEYOND.  WE WOULD LOVE TO ASSIST WITH ALL YOUR ASSOCIATION’S NEEDS.

BEST WISHES THIS NEW YEAR – JOHN RICHARDS

jrichards@balljanik.com