October 2005
In This Issue:
Restriction Bars Lot Subdivision
Revised Assessment Covenant and Sign Restrictions Are Valid and Enforceable
Amendment Provisions Must Be Strictly Followed
Jury Must Decide Whether Covenant Enforcement Was Reasonable
Foreclosure Is Proper if Lien Runs With the Land and Is Attached Prior to Homestead Right
Homeowner Association Cannot Recoup Legal Fees if Controversy Becomes Moot
Association Cannot File Paper Lien if Statute Provides for Automatic Lien
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Restriction Bars Lot Subdivision
McIntyre v. Lionsridge #4 Homeowner's Association, No. 03CA2382 (Colo. App. May 5, 2005)

Covenants Enforcement:  A Colorado appeals court upheld a judgment restricting subdivision of residential lots even though one amended version of the declaration did not contain an express restriction against subdividing lots.

The estate of W. Scott McIntyre owned Lot 11 in Lion's Ridge, a residential housing development subject to protective covenants in Eagle County, Colorado. The original declaration of protective covenants recorded in 1980 was amended twice -- once in 1985 and again in 1999. The original version contained an express restriction against subdividing lots. The 1985 version did not contain the same restriction, but the restriction was again expressly stated in the 1999 version.  
  
McIntyre's estate sued Lionsridge #4 Homeowner's Association ("association"), seeking a declaration that the 1985 version did not prohibit subdivision of the lot and that the 1999 version was invalid. The court concluded that the 1985 version did restrict subdivision of Lot 11, even though it was not expressly stated, and that the 1999 version of the declaration was valid because it did not take away any preexisting right to subdivide. The court ruled in favor of the association, and the estate appealed.
       
On appeal, the estate contended that the trial court erred in determining that the 1985 declaration clearly and unambiguously prohibited subdivision of the lot, and in determining that the 1999 amendment to the declaration was valid. The appeals court reviewed the decision de novo. The 1980 declaration defined "lot" as a "Lot within Lion's Ridge Subdivision Filing No. 4, including appurtenant interest thereto...." It defined "single owner duplex unit residential lot" as "A Lot which can be used solely for residential purposes and upon which not more than one building containing not more than two dwelling units, and not more than one garage for each dwelling unit, may be constructed...."  Lot 11 was originally a single-owner duplex unit residential lot. The 1985 declaration failed to distinguish between single-owner duplex residential lots and single-unit residential lots. It designated all lots as "residential lots." The estate argued that elimination of the explicit restriction in the 1985 declaration meant that the restriction on subdividing was removed altogether, and that the "one building per lot" clause restricted only the number of buildings on a lot, not the number of lots in the development.
       
The court found that the word "lot," as used in the 1985 declaration, refers to units of property originally conveyed by the subdivision developer. The plat of Lion's Ridge Subdivision Filing No. 4 contained 17 lots. The court determined that it was clear that the provision prohibiting construction of more than one building containing not more than one dwelling unit upon a residential lot referred to a lot as any of the original units of land in the subdivision as originally platted by the developer. The court relied on several cases considering similar language that supported the view that the references to lots meant each lot as conveyed by the developer, and not each lot that thereafter might be created by any subdivision.
       
The court also considered that when McIntyre purchased Lot 11, the purchase contract contained an agreement that the purchaser would support the seller's efforts to subdivide Lot 8. The fact that the contract contained this language led the court to conclude that McIntyre understood that the declaration precluded further subdivision of existing lots. The court concluded that the 1985 amended declaration prohibited further subdivision of Lot 11, and affirmed the trial court's judgment in favor of the association.

©2005 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

Revised Assessment Covenant and Sign Restrictions Are Valid and Enforceable
Page v. Bald Head Association, 611 S.E.2d 463 (N.C. App., 2005)

Covenants Enforcement/Architectural Control: An appeals court affirmed a trial court's dismissal of an action to invalidate new assessment provisions in restrictive covenants, and upheld summary judgment in favor of the association for enforcing new sign guidelines.

Bald Head Island is a community located off the coast of southeastern North Carolina in Brunswick County. Development in the community is regulated by a municipal government and by the Bald Head Association ("association"), a nonprofit property owners association. Properties on Bald Head Island are subject to covenants that are enforced by the association. The covenants impose restrictions on the development and use of property on the island and contain guidelines for computing and levying assessments. 
       
Reid and Mary Ann Page operated a real-estate business on Bald Head Island for approximately 30 years. During that time, they had approval from the Village of Bald Head Island and the association to post signs that measured 12 by 12 inches to identify properties that were for sale. In 1998, the association adopted new sign guidelines limiting the size of "for sale" signs to 7.5 by 3.75 inches and requiring all signs to conform to a standard design constructed of gray-stained weathered wood. The new guidelines, with an addendum providing that no 12-by-12-inch signs would be approved by the architectural review board, became effective on July 23, 1998.
       
In February 2000, the association recorded an amended declaration of covenants. The revised declaration provided for a general assessment to be levied against all units at a level expected to produce total income for the association equal to its total budgeted common expenses.
       
After the effective date of the new sign regulations, the association informed the Pages that their existing signs violated the new guidelines. The Pages refused to remove their signs, leading the association to assess and levy fines against them. In 2000, the Pages ceased to pay annual assessments on several lots. The association placed liens on those lots, and in 2002, the Pages sued the association, asking the court to declare the new assessment provisions null and void and to grant an injunction preventing the association from removing their signs. The Pages also sought damages from the association for unfair and deceptive business practices and tortious interference with their business relationships. The association denied the allegations and moved for dismissal on the grounds that the Pages failed to join all parties to the action. It also filed a counterclaim for unpaid annual dues and assessments, special assessments for violation of the sign ordinance, and an award of attorney's fees and expenses.
       
In February 2003, the trial court dismissed the Pages' attempt to invalidate the new assessment provisions, and in January 2004, granted summary judgment to the association on its counterclaims.  The Pages appealed. The appeals court disagreed with the Pages' argument that the trial court erred in dismissing the action to have the new assessment provisions declared null and void. Citing North Carolina case law, the court found that all property owners affected by a residential use restriction are necessary parties to an action to invalidate that restriction. 
       
The Pages next argued that the trial court's summary judgment was improper because there were material issues of fact as to whether the association's actions were valid and within the scope of its authority to act. In its review, the court found that the association had established unambiguous standards as to the size and style of signs to be approved for use by all residents of the island, and enforcement of the sign restriction as to the Pages required no exercise of discretionary authority.  Therefore, the court did not find the trial court's decision improper.
       
The association argued that since the Pages owned several properties on Bald Head Island, all the properties were subject to the restrictive covenants imposed by the developer. By acquiring the property, the Pages became members of the association and were obligated to abide by the covenants' rules and regulations, including the guidelines for the use of real-estate signs, and were further obligated to pay annual and special assessments.
       
The court concluded that the trial court properly dismissed the Pages' action to invalidate the assessment covenants, and found that the Pages failed to present any issues of material fact concerning the validity or enforcement of the sign restrictions. The court affirmed the trial court's decision.

©2005 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Amendment Provisions Must Be Strictly Followed
VICC Homeowners' Association Inc. v. Los Campeones Inc., 143 S.W.3d 382 (Tx. App., 2004)

Documents: An association must follow amendment procedure set forth in its governing documents in order to properly amend or void existing covenants.

Covenants and restrictions ("original covenants") for Country Club Estates were originally created in 1969. The original covenants required that any amendment to terminate, modify, or revise them must be filed with the Cameron County Clerk's Office. The VICC Homeowners Association Inc. ("association") tried to terminate the original covenants by amendment by circulating a petition among lot owners. Owners in favor of terminating the original covenants signed the petition that referenced an attached amendment, but no amendment was actually attached.
 
In 2001, the association filed Amended Covenants and Restrictions ("amended covenants") in the clerk's office, and the amendment was verified by the association's secretary, stating that a majority of lot owners executed the agreement approving the attached amendments. Los Campeones Inc., owner of residential lots in the subdivision, sued the association, seeking to have the amended covenants declared void. Los Campeones asserted that 1) the amended covenants were not passed in compliance with the amendment provisions of the original covenants, and 2) the association failed to obtain a majority vote to approve amending the original covenants.
 
The trial court granted both of the plaintiff's motions for summary judgment, and the association appealed. Since the trial court did not specify the grounds for its ruling, the appeals court agreed to affirm whether any theories advanced in the ruling were meritorious. The appeals court stated that three conditions must be met for amendment of the original covenants: 1) the right to amend must be expressly provided for; 2) the right to amend implies a change to correct, improve, or reform, but not destroy; and 3) amendments may not be illegal or against public policy.
       
Applying this assertion to the facts, the appeals court determined that the original covenants provided a right and method to amend the document. An amendment must be agreed to by a majority of the owners, and any modification was required to be "as prescribed in such agreement." The appeals court noted, "No subsequent agreement amending or revising the [original covenants] was agreed to or signed by the lots owners" because no such agreement or amendment was attached to the petition such owners signed. Therefore, there was no evidence that lot owners ever saw what was recorded. 
       
Since the association attempted to modify or revise the original covenants without the consent of a majority of the landowners, the court concluded that the association failed to comply with the method of amendment. The appeals court also noted that such action was contrary to the intention of the amending provision of the original covenants. The appeals court affirmed the decision of the trial court voiding the amended covenants.

©2005 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Jury Must Decide Whether Covenant Enforcement Was Reasonable
Travers v. Bear Brand Ranch Community Association, No. G0340562005 (Cal. App., May 3, 2005)

Covenants Enforcement: In an unpublished opinion, a California appeals court ruled that an association must act in good faith and in a non-arbitrary manner when enforcing covenants, and that whether or not the association acted reasonably in its enforcement is a matter for a jury to decide.

Shortly after James and Joan Travers bought their home in Bear Branch, California, palm trees on their neighbor's property began to block their panoramic view of the ocean. James Travers discussed the problem with his neighbor, Glenn Cramer, who trimmed the trees at the Travers' expense in 1995 and 1996. However, the trees continued to grow back, and Cramer refused to remove them from his property.
 
In 1997, James Travers sought relief from the architectural design committee of the Bear Brand Ranch Community Association ("association"). However, the committee refused to get involved in the dispute because such issues "should be settled between owners." Consequently, Travers brought the matter to the association's board of directors, of which he was a member. Some of the board members visited Travers' home, and the board thereafter unanimously concluded that the trees materially obstructed his view, in violation of the association's covenants, conditions, and restrictions.
 
On Sept. 16, 1997, the board wrote to Cramer, asking him to trim or remove the trees to eliminate the blockage of the Traverses' view. Travers also wrote to Cramer, offering to replace the palm trees with lower trees, but Cramer did not respond to Travers' offer or the association's request. The board did not follow up on its letter.
 
In 1998, Travers sued Cramer to enforce the covenants. The matter eventually settled, with Travers paying Cramer $12,500 to remove half of his trees and incurring legal fees of $20,000. Following the settlement, Travers sued the association to recoup the legal fees, alleging that he was compelled to sue Cramer because the association refused to enforce the covenants. There were two significant issues for the appeals court: whether the association had a fiduciary duty to enforce the covenants, and whether the association breached its fiduciary duty for failing to do so. 
       
The trial court determined that the association did have a fiduciary duty to enforce the covenants because its board determined that Cramer violated the covenants and went so far as to demand compliance from him. According to the court, the standard for determining whether the association breached its fiduciary duty to Travers is whether it carried out its enforcement decisions in good faith and in a non-arbitrary manner. The court concluded that a jury should decide whether the association reasonably fulfilled its obligations by sending Cramer a demand letter and then failing to take further action. Subsequently, a jury reversed the trial court's decision in favor of the association.

©2005 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Foreclosure Is Proper if Lien Runs With the Land and Is Attached Prior to Homestead Right
Sloan v. Owners Association of Westfield, No. 04-04-00812-CV (Tex. App., May 2, 2005)

Powers of the Association/Attorney's Fees: A homestead is protected against foreclosure for the debts of those who live in the homestead unless the lien is attached prior to the claimed homestead right and is an obligation that runs with the land. 

Kevin and Linnell Sloan owned property in the Westfield subdivision in San Antonio, Texas. The property was subject to a declaration of protective covenants, which was initially executed in 1998. The covenants provided for an annual maintenance charge on all lots, and also created a lien to secure payment of the maintenance assessment and all potential interest, reasonable expenses, costs, and attorney's fees incurred in connection with assessment collection. The covenants gave the Owners Association of Westfield ("association") the right to sue owners to compel compliance with the provisions of the covenants, and also allowed the association to foreclose on liens in the case of default.
 
The association assessed maintenance charges against the Sloans' property beginning in 2001. The assessments were not paid, and after providing the Sloans with a written demand for the unpaid amounts, the association sued them in 2003 to recover the unpaid assessments plus costs, interest, and reasonable attorney's fees. The trial court granted summary judgment to the association because 1) the Sloans owed unpaid assessments, late fees, and attorney's fees to the association pursuant to the covenants; 2) the association had a lien on the Sloans' property to secure the Sloans' obligations; 3) the association met all conditions precedent to the granting of the relief requested; 4) the association's lien was created and imposed on the property before the property was acquired; and 5) the association was entitled to foreclosure on its lien.
 
The issue the Sloans raised on appeal was whether a homeowner association can include contingent attorney's fees in a lien against a homeowner's property for past-due assessments. The Sloans argued that foreclosure of the lien was improper because 1) the association had not actually "incurred" any legal fees due to the contingent nature of its fee agreement with its attorney, and 2) the homestead protection provided to property owners in the Texas Constitution prohibits foreclosure for this type of debt. The association contended that it was entitled to recover reasonable and necessary attorney's fees for legal services, regardless of the terms of the fee agreement between the association and its counsel.
 
In addressing the Sloans' first argument, the appeals court explained that, in Texas, an attorney who provides legal services to a client under a contingent-fee agreement has a claim against the client in the event of a breach for the reasonable value of the services. Because the association was liable to its counsel for the services provided -- even if they were provided on a contingent-fee basis -- and because the association would be required to pay its counsel out of any proceeds received as a result of litigation, the court concluded that the association had incurred the legal fees that were secured by the lien in this case. The court also affirmed the trial court's award of attorney's fees.
 
In addressing the Sloans' second argument, the court applied Inwood North Homeowners' Association Inc. v. Harris, 736 S.W.2d 632 (Tex. 1987) (CALR October 1987). In Harris, the court acknowledged the general rule that a homestead is protected against the debts of those who live in the homestead, but also acknowledged an exception to the rule if "the lien [is] attached prior to the claimed homestead right, and the lien is an obligation that runs with the land." If the lien meets both requirements, there is a right to foreclose.
 
In the Sloans' case, the lien against the property was established years before they took possession of the property and established their homestead rights. The declaration contained a valid contractual lien that ran with the land, and the Sloans had notice of this when they purchased the property. Therefore, the court ruled that the Sloans were subject to the lien, and the foreclosure ordered by the trial court was proper.

©2005 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Homeowner Association Cannot Recoup Legal Fees if Controversy Becomes Moot
Rose Hall Homeowners Association Inc. v. Jelinek, 66 (Va. Cir. 172, 2004)

Attorney Fees: If a homeowner association seeks to enforce an agreement against a resident, it cannot recoup legal fees if the resident being enjoined abandons his position and the controversy becomes moot.

Charles Jelinek, a resident of the Rose Hall residential subdivision, erected a black metal ornamental fence in his yard despite the fact that the Rose Hall Homeowners Association ("association") previously denied his request to build the fence on his property. The fence allegedly breached an agreement requiring all property owners in the subdivision to get permission from the association before erecting such structures.
       
On May 3, 2004, the association sued Jelinek, seeking removal of the fence. Pursuant to a Virginia statute that allows the prevailing party in a suit to recover legal expenses, the association also sought to recoup its fees and costs as a result of the lawsuit. Shortly after suing Jelinek, the association gave him discovery documents to complete. On July 4, 2004, Jelinek voluntarily removed his fence, and on July 23, he curtly answered the discovery document questions, objecting to most of them on grounds of relevance, since the fence no longer existed.
       
The issue for the trial court was whether it should dismiss the suit at Jelinek's request, since the fence was removed, or whether it should compel Jelinek to answer the discovery document questions, on the association's theory that answers were required to determine whether the association was the "prevailing party," which would entitle it to recover costs. The Virginia Supreme Court previously defined prevailing party as one "in whose favor a judgment is rendered, regardless of the amount of damages awarded." In utilizing the Supreme Court's definition, the trial court focused on the inclusion of the word "damages," and noted that there is a difference between the injunctive relief the association sought and legal, monetary relief, also known as damages.
       
In this case, the association sought to enforce the agreement against Jelinek to get him to remove his fence. Since this was the only relief the association sought, and it did not seek legal relief, no monetary damages could be awarded by the trial court. Therefore, the trial court stated that the association could not be a "prevailing party," as defined by the Supreme Court. It noted, however, that if the association's governing documents provided for the collection of fees in an enforcement action, such provision would have allowed the association to recoup its costs. Since Jelinek removed his fence, there was no actual controversy, thus rendering the legal action moot. Accordingly, the trial court dismissed the case.

©2005 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Association Cannot File Paper Lien if Statute Provides for Automatic Lien
London Towne Homeowners Association v. Karr, 866 A.2d 447 (Pa., 2004)

Assessments: A state's planned-community act provided that recording a community's declaration constituted record notice and perfection of the association's lien for assessments and other charges; therefore, filing a paper lien in the county's records was viewed as an impermissible attempt by the association for double liens.

London Towne is a planned community in Pittsburgh organized pursuant to the Pennsylvania Uniform Planned Community Act ("act"). William Karr owned a home in London Towne. On Oct. 4, 1999, the judicial committee of the London Towne Homeowners Association ("association") convened a hearing to address a complaint by the association's architectural control committee that Karr made changes to the pediment and front door of his home without the prior approval of either the association's board of directors or the architectural control committee. Since Karr did not appear at the hearing, the judicial committee deemed the allegations uncontested and assessed Karr a fine of $25 for each day the violation continued.  
       
On July 24, 2003, the judicial committee convened another hearing to consider a new complaint against Karr for erecting two impermissible fences on his property. In advance of the hearing, the association sent Karr a letter warning him that it would interpret his failure to attend the hearing as an admission of guilt. Karr did not appear, and the committee found him guilty and assessed a fine for each day the violation continued. Karr did not arbitrate either decision of the judicial committee as was his right under the community's documents.
       
On Oct. 10, 2003, Karr sued the association, asking the court to determine the validity of the assessments and fines imposed by the association. The complaint challenged the basis for the fines and averred that the association's harassment of him on matters of de minimis importance had left him wanting to leave London Towne; however, he could not sell his home without resolving the association's claim for fines. On Oct. 22, 2003, the association filed a lien on Karr's property with the Allegheny County prothonotary in the amount of $34,900 for unpaid fines as of July 30, 2003, plus attorney's fees. Karr responded by asking the court to strike the lien and stay the proceedings. The trial court granted a stay of the proceedings but denied Karr's request to strike the lien, and Karr appealed.
       
On appeal, Karr argued that the act did not authorize the lien the association filed. The act provides that associations have "a lien on a unit for any assessment levied against that unit or fines imposed against its unit-owner from the time the assessment or fine becomes due." Thus, the act created a lien in favor of the association on Karr's unit as of the first day the first fine became due. It was not necessary for the association to file a paper lien in order to perfect its lien because the act provides that recording of the declaration with the recorder of deeds perfects the lien. According to the court, in order to enforce its lien against Karr in accordance with the act, the association should have filed a complaint, not a "second" lien. As a result, the association perfected two liens against Karr in two different filings made with two different offices -- one with the recorder of deeds, the other with the prothonotary.
       
The court ruled that the association's second lien could not be justified based on the association's argument that it was necessary to establish in the public record the amount Karr owed. Pursuant to the act, the amount of the lien is determined by requesting a statement from the association. The court also rejected the association's argument that the filing of a second lien is the custom in Allegheny County. The act requires that the association issue a statement in recordable form upon the request of any owner. The court found that, while not specifically authorized in the act, the filing of such a statement with the county would be permissible. However, such a statement would not function as a lien.
       
The court viewed the filing of the paper lien as an attempt at double liens, which is impermissible. The court noted, "The association's putative second lien only clutters the public record and places in doubt the efficacy of the liens perfected by the recording of the declaration." The appeals court held that it was an error for the trial court not to strike the second lien.

©2005 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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