March 2008
In This Issue:
Unit Bought at Tax Sale Subject to Assessments
Association Not Entitled to Attorney's Fees Incurred for Monitoring Bankruptcy Plan
Air Space Above Condominium Unit Defined as Common Area
Mold Damage in Condominium Unit Not Properly Dismissed on Summary Judgment
Fees for Maintenance Services Cannot Be Collected by Mechanic's Lien
Snowplowing Service May Be Liable for Injuries
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Unit Bought at Tax Sale Subject to Assessments

Buchholz v. Waterville Estates Association, 156 N.H. 172, 934 A.2d 511 (2007)


Assessments:
A condominium association's lien for assessments against property purchased at tax sale is not a violation of the Consumer Protection Act.

 

In January 2002, the Town of Campton, N.H. acquired a large number of properties located in a condominium development called Waterville Estates by tax deed. Bruce Buchholz purchased an unimproved lot within the development at auction. He received title to the lot by deed entitled "Quitclaim Deed with No Covenants," which described the lot as being recorded in the town's official records as "Homesite F-14" with a corresponding map and lot number.

 

After Buchholz acquired the property, Waterville Estates Association ("association") sought to collect association dues and assessments that were levied after the town acquired the property. Buchholz denied any obligation to pay the fees and filed a petition to clear the title. He also filed a claim under the Consumer Protection Act, alleging that the association's efforts to collect the fees and placement of a lien on the property were unfair or deceptive acts. 

 

The association filed a motion for summary judgment, asserting that Buchholz was bound by the restrictions, easements, and covenants contained in the condominium's governing documents, as well as New Hampshire's Condominium Act ("Act"). The association also filed a counterclaim to collect the fees, asserting a lien on the lot. The trial court granted the association's motion for summary judgment and denied Buchholz' motion for reconsideration. Buchholz appealed the ruling.

 

On appeal, Buchholz argued that pursuant to First N.H. Bank v. Town of Windham, 138 N.H. 319, 639 A.2d 1089 (1994) when he took title to the lot, he took a 100 percent undivided interest in the property, thereby stripping away all encumbrances upon it, including condominium assessments and fees. The appeals court disagreed, stating that the New Hampshire Condominium Act, upon which First N.H. Bank relied, pertained to the superiority of tax liens over mortgage liens, not condominium covenants. The court stated, "The condominium declaration covenants and the estate in land upon which they are imposed are literally inseparable." Each condominium unit owner's title is burdened and benefited by assessments that function to preserve and maintain the common areas of the condominium in which each owner has an undivided interest inseparable from the interest in the unit itself.

 

The court found that the question of whether condominium covenants survive a tax sale was novel in the sense that, generally, a covenant is an interest in land separate from an estate. In the majority of jurisdictions, covenants survive a tax sale. Although New Hampshire courts have not ruled on the survival of covenants, they have determined that easements survive tax sales. The court deemed that it was consistent with established authority that Buchholz took title to his lot subject to the condominium covenants that run with the land. 

 

Buchholz then argued that the trial court erred by relying upon a faulty affidavit in granting the association's motion for summary judgment, asserting that the affidavit was, "an expression of purely personal opinion." The court pointed out that New Hampshire law provides that motions for summary judgment must be accompanied by "an affidavit based on personal knowledge of admissible facts…." The association's affidavit was sworn to by its accounts manager. The court deemed that in her capacity the accounts manager had personal knowledge of the admissible facts of the case. Buchholz challenged the association's affidavit as lacking a definitive statement that the property was, in fact, part of the condominium, but his argument failed because it was not raised at trial. Likewise, the court did not address whether a factual dispute existed as to the perfection of the lien and the amount of the lien because the lien was filed in the office of the Grafton County Register of Deeds, and Buchholz did not dispute the amount of the lien at trial.

 

In reviewing the trial court's grant of summary judgment on Buchholz' allegation that the association's efforts to collect association fees constituted unfair and/or deceptive acts within the scope of the Consumer Protection Act, the appeals court found that the association's procedures were lawful under the Consumer Protection Act and were explicitly allowed by the Act. When Buchholz argued that he was denied participation in the association, the appeals court found that nothing in the record showed that Buchholz was prevented from exercising the statutory rights set forth in the Act.

 

Finally, Buchholz argued that his due process rights were violated by the assessment of a one-time capital improvement fund fee. The court concluded that Buchholz' cursory reference in his pleadings to due process rights, without valid constitutional argument, was insufficient for the appeals review.

 

The court affirmed the trial court's order for summary judgment in the association's favor.

 

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited. 

 

Association Not Entitled to Attorney's Fees Incurred for Monitoring Bankruptcy Plan

In re: Reese, No. 07-14734, U.S. Dist. Ct., E. Dist. Mich., February 22, 2008


Federal Law and Legislation:
A U.S. District Court upheld a bankruptcy court's decision that a condominium association is not entitled to recover attorney's fees incurred in monitoring the Chapter 13 bankruptcy plan of unit owners.

 

Michael and Susan Reese filed Chapter 13 bankruptcy in November 2005. At the time, Wethersfield Condominium Association ("association") had a secured claim for past due condominium association fees in the amount of $1,045.50 and a continuing monthly obligation of $165. The bankruptcy trustee paid the arrearage and made the monthly payments. The Reese's Chapter 13 plan was confirmed by the bankruptcy court in January 2006.

 

In October 2006, the association filed a supplemental proof of claim, seeking attorney's fees incurred in monitoring the bankruptcy plan. In May 2007, the trustee filed an objection to the association's claim. By order entered in July 2007, the bankruptcy court granted the trustee's objection and disallowed the association's claim. The association filed a motion for reconsideration that was denied in October 2007 because the bankruptcy court found that the type of fees the association sought to recover were not provided for in the Michigan statutes the association relied upon in its pleadings. The association appealed the ruling.

 

Relying upon Michigan case law in considering the case, the appeals court found that in litigation, each side must bear its own expenses unless the law or court rules specify an exception. Thus, it was incumbent upon the association to identify what law allowed it to collect attorney's fees.

 

The association asserted two statutory bases for its claim: Two sections of the Michigan Condominium Act ("Act") and the condominium's master deed. Section 559.206 of the Act provides:

 

(b) In a proceeding arising because of an alleged default by a co-owner, the association of co-owners or the co-owner, if successful, shall recover the costs of the proceeding and reasonable attorney fees, as determined by the court, to the extent the condominium documents expressly so provide.

 

The trustee argued that the statute did not apply because the association did not demonstrate that the "condominium documents so provide." Section 7(d) of the master deed states, "[t]he expenses incurred in collecting unpaid assessments, including interests, costs, actual attorneys' fees (not limited to statutory fees) and advances for taxes or other liens paid by the association to protect its lien, shall be chargeable to the Co-owner in default and shall be secured by the lien on his or her Unit." 

 

The court found, however, that the master deed does not expressly provide for attorney's fees incurred in the course of monitoring a bankruptcy plan and that such fees are not expenses of collection. The court determined that the association had not incurred the fees through its normal collection process but that the fees were expenses incurred because of a separate bankruptcy proceeding initiated by the debtor. The court stated that even if the attorney's fees were incurred "in collecting unpaid assessments," the association still would not be entitled to those fees because the master deed provides that the expenses are chargeable to the co-owner in default. The Reeses were not in default because the plan was paid according to its terms; thus the court determined that the provision did not apply.

 

The court further stated that even if the master deed were broad enough expressly to provide for attorney's fees incurred in monitoring the bankruptcy plan, the association still could not collect the fees under the Act, because the Act requires that the proceeding arise "because of an alleged default," and the proceeding referred to in the statute does not encompass bankruptcy proceedings. Accordingly, the appeals court affirmed the bankruptcy court's ruling that the association's claim for attorney's fees was not allowable under the Act.

 

The association also argued that the Act provides that attorney's fees accrued in enforcement also become a lien on the real estate." Section 559.208 provides:

 

(1) Sums assessed to a co-owner by the association of co-owners that are unpaid together with interest on such sums, collection and late charges, advances made by the association of co-owners for taxes or other liens to protect its lien, attorney fees, and fines in accordance with the condominium documents, constitute a lien upon the unit or units….The lien may be foreclosed by an action or by advertisement by the association of co-owners in the name of the condominium project on behalf of the other co-owners.

 

(2) A foreclosure shall be in the same manner as a foreclosure under the laws relating to foreclosure of real estate mortgages by advertisement or judicial action except that to the extent the condominium documents provide, the association of co-owners is entitled to reasonable interest, expenses, costs, and attorney fees for the foreclosure by advertisement or judicial action.

 

It was unclear to the court how either provision could support a claim in a bankruptcy proceeding for attorney's fees incurred in the course of monitoring the plan. The court found that paragraph (1) of section 559.208 did not apply and paragraph (2) addressed foreclosure proceedings, which were not at issue.

 

For the reasons set forth above, the court affirmed the bankruptcy court's order.

 

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited. 

 

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Air Space Above Condominium Unit Defined as Common Area

Lake v. Woodcreek Homeowners Association, No. 59211-4, Wash. App. Ct., December 31, 2007


Documents:
The air space above a condominium unit met the definition of common area in the declaration. As required in the declaration, altering this air space reallocated the total undivided interests of all property owners in the common area and required consent of all owners.

 

When the Woodcreek development was constructed in 1972, the developer offered unit purchasers of certain types of units the option to have a bonus room over the garage. Some purchasers of those units opted for the bonus room; others did not. At the end of the construction period, the developer, as required by Washington's Horizontal Property Regimes Act ("Act"), declared the value of each unit and the overall value of the development. The ratio of each unit's value as compared to the total vale determined each owner's undivided interest in the common areas.

 

Glen Clausing owned a unit in Woodcreek and was initially offered the optional bonus room. In May 2004, Clausing sought and obtained authorization from Woodcreek Homeowner's Association's ("association") board of directors to build a bonus room. After construction of the bonus room began, Sandra Lake objected to the construction to the board, but the board refused to rescind the approval. Lake sued the board in December 2005, asking the court to grant summary judgment on the grounds that the board's approval and subsequent construction violated the Act and the Woodcreek declarations. The board and Clausing also asked the court for summary judgment, arguing that the board's decision was proper. The trial court ruled in favor of the board and Clausing.

 

Lake appealed the trial court's decision. The appeals court looked to the declaration, which provided that amendments that alter the property value of each unit and the percentage of undivided interest in the common areas and facilities require the unanimous written consent of all unit owners. The question for the court was whether Clausing's construction of the bonus room converted common area into private unit area or created new common area. Citing Shorewood West Condominium Association v. Sadri, 140 Wn. 2d 47, 992 P.2d 1008 (2000) (CALR, May 2000), the court noted that all condominiums are statutorily created and that condominium unit owners do not have the same rights and duties as those of real property owners at common law. Instead, a unit owner's rights are determined by the governing statutes, the condominium declaration and the association's bylaws. 

 

The declaration defined units as the area "bounded by the interior surface of the walls." The declaration defined "common areas" as "all areas [within the development] not expressly described as part of the individual residence apartment, or a limited common area assigned to each unit." Based on the declaration's definition of common areas, the area (air space) above Clausing's garage was common area.

 

The declaration further provided, "[A]n amendment altering the value of the property and of each apartment and the percentage of undivided interest in the common areas and facilities shall require the unanimous written consent of all apartment owners." Using the definitions found in the declarations the court stated, "Air space above an apartment unit is not part of the apartment and is not limited common area. It is a part of the property necessary to its existence and is not otherwise classified. Air space is therefore common area."

 

By constructing an addition above his garage, Clausing converted common area to his sole benefit, changed the character of the property, and altered all of the owners' undivided interest in the common area. Under the declaration, such a change required unanimous consent of all owners. The appeals court reversed the trial court's decision.

 

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited. 

 

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Mold Damage in Condominium Unit Not Properly Dismissed on Summary Judgment

Sosa v. Rockpointe Homeowners Association, Inc., No. B192055, Cal. App. Ct., January 29, 2008

Risks and Liabilities: In an unpublished opinion, a California appeals court ruled against a homeowners association and a mold remediation company in their request for summary judgment related issues arising from a leak in a unit owner's condominium that resulted in mold damage.

 

This case arose after Dalia Sosa was exposed to toxic mold in her condominium unit and then sued Rockpointe Homeowners Association Inc., ("association") and a mold remediation company, Sky Blue Environmental Inc. ("Sky Blue"), for damages. Sosa first noticed a wet spot of carpet next to a first-floor wall in her unit in August 2002. She reported the condition to the association, which determined that there was a leaking drainage pipe in the upstairs master bathroom and undertook repairs. During the repair, it was discovered that toxic mold was present in the walls. The association required Sosa to move out of her unit until repairs could be completed.

 

The association hired Sierra Crest Construction, an unlicensed contractor, to repair the pipes and walls. The association also hired Sky Blue to remediate the mold in Sosa's unit, Clark Seif Clark Inc. to perform environmental testing, and HDP Inc. to "pack out" Sosa's personal property. The association determined through testing done by their subcontractors that the mold in the unit was remediated and told Sosa that it was safe to return.

 

After returning to her unit in December 2002, Sosa immediately noticed the recurrence of the severe allergies and respiratory symptoms she had experienced beginning in August 2002. At her own expense, Sosa hired another company to test for mold, and toxic levels of mold were found in several rooms of her unit. The association tried additional remediation but maintained that Sosa had replaced plumbing pipes when the association requested that all unit owners replace galvanized plumbing with copper plumbing and that the replacement had caused the existing mold damage.

 

By the spring of 2003, the remediation process was not complete, and Sosa was relegated to living in the one bedroom of her unit not touched by the mold. Sosa then decided to hire her own remediation company to have her unit properly remediated. The association responded by threatening an injunction against Sosa to cease and desist from any additional remediation work because the association had exclusive authority over the common area. Sosa then sued the association and Sky Blue.

 

Regarding the association, Sosa first alleged that the association breached its contractual and statutory duties. Second, she claimed that the association was negligent in maintaining the plumbing in the common areas, which caused a water leak. Third, Sosa said that the association had committed negligence per se by violating its statutory duties of maintenance and repair of the common areas under California's Davis-Sterling Common Interest Development Act. Fourth, Sosa asked the court for an injunction that would require the association to remediate the mold in her unit in a "workmanlike, reasonable and quality manner." Fifth, Sosa wanted the court to declare that the association breached its duties to Sosa under the community's covenants, conditions, and restrictions and applicable statutes. Finally, Sosa claimed that the association had breached a warranty because the covenants gave rise to express and implied warranties with respect to the remediation and repair work and that the association failed to conduct its repairs and services in a skillful, workmanlike manner.

 

Regarding Sky Blue, Sosa alleged two counts in her complaint. First, she claimed that Sky Blue was negligent in maintaining the plumbing in the common areas that caused the mold and second that the covenants gave rise to express and implied warranties with respect to the remediation and repair work. Both Sky Blue and the association filed motions for summary adjudication to dismiss the claims.

 

The association argued that the exculpatory clause of the covenants barred them from liability. Specifically, the covenants provided, "Neither [the association] nor its Board of Directors, officers, manager or its employees or agents shall be liable to any Owner, or any other person, for injury, damage or loss to persons or property in the Properties resulting from water, rain, dust, sand, or any other element which may leak or flow from outside of any Unit or from any part of the building, or from any pipes, drains, conduits, appliances or equipment or from any other place of cause, provided neither [the association], such Board Member or other person has, upon the basis of such information as may be possessed by him/it acted in good faith, and without willful or intentional misconduct." The court disagreed.

 

Regarding the defenses raised by the association, the appeals court stated that even liberally construed the exculpatory clause did not bar Sosa's complaint because that provision cannot reasonably be interpreted to release the association from liability for injury resulting from negligent conduct in remediating and repairing Sosa's unit. Under the covenants, the association was responsible for repairing the water leak as well as maintaining the common facilities and common areas of Sosa's unit.

 

The court's opinion included a limited discussion on the covenant provision and determined that no language in the provision addressed the issue of remediation or repair to the extent of relieving any liability. The court stated that interpretation of the covenants must be fair and reasonable and not lead to an absurd conclusion. In addition, an owner such as Sosa reasonably reading the language of the provision would not expect her neighbors, through the medium of the homeowners association, to pay for the injuries or property damage caused by water leaks. If, however, as in this case, the owner was negligent to remediate or repair the damage caused by the water, the owner would not reasonably expect the association to be free of responsibility.

 

Regarding the defenses raised by Sky Blue, the court disagreed with the trial court in granting summary adjudication on the negligence issue. The appeals court stated that a triable issue of fact existed on causation and that Sosa's expert witness did not contain "unfounded speculations." At trial, an expert witness testified for Sosa that the dampness and mold in Sosa's unit resulted in swelling of her upper airways. The appeals court dismissed the breach of warranty claims against Sky Blue and the association, citing that the claims of breach of express or implied warranty against the association were not based on the furnishing of goods and did not entitle Sosa to any breach of warranty remedies.

 

For these reasons, the appeals court reversed and remanded the summary adjudication ruling by the trial court of Sosa's claims, with the exception of the breach of warranty claim, and the parties were asked to bear their own costs on appeal.

 

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Fees for Maintenance Services Cannot Be Collected by Mechanic's Lien

Steeplechase Subdivision Homeowners Association, Inc. v. Thomas, No. 2006-CA-002146-MR, Ky. App. Ct., February 8, 2008


Mechanic's Lien:
A Kentucky appeals court reversed a judgment against an association for a mechanic's lien for maintenance of the subdivision common areas because the services were of a temporary nature and did not permanently enhance the property.

 

In 1999, Darren Thomas, doing business as Thomas & Lawson Contracting ("Thomas") orally contracted with the Erpenbeck Company to perform mowing, street cleaning, and snow removal at Steeplechase subdivision, which was being developed by Steeplechase Builders LLC, an affiliate of Erpenbeck. A portion of the subdivision was dedicated to Steeplechase Subdivision Homeowners Association Inc. ("association").

 

Thomas was instructed to send the invoices for his services to Erpenbeck. As part of his contractual duties, Thomas maintained the common areas of the subdivision, including the pool and clubhouse areas, volleyball and tennis courts, walking trail and main entrance. When Erpenbeck failed to pay Thomas for the work, Thomas ceased the work and filed a mechanic's lien for $5,917.50 on the real property of the subdivision, including the pool and clubhouse areas.

 

The case was heard by a deputy master commissioner who recommended that a judgment be entered against the association for the amount of the lien plus pre-judgment interest. The commissioner rejected the association's contention that the maintenance services were not services for which a mechanic's lien was permitted because they did not permanently improve the value of the property. After the association's exceptions to the judgment were denied, the circuit court adopted the commissioner's recommendation and report. The association appealed.

 

The appeals court's review was predicated on the premise that statutory interpretation is a matter of law for the court to decide and should be interpreted to effectuate legislative intent. The association asserted that the lien was not enforceable under a Kentucky statute because the lien was for maintenance, street cleaning services and mowing services. The appeals court concluded from its review that the circuit court erroneously construed the statute and reversed the trial court's ruling. The statute provides that:

 

Any person who performs labor or furnishes materials for the erection, altering, or repairing of a house or other structure or for any fixture or machinery therein, for the excavation of cellars, cisterns, vaults, wells, or for the improvement in any manner of real property including the furnishing of agricultural lime, fertilizer, concrete pipe or drainage tile, crushed rock, gravel for roads or driveways, and materials used in the construction or maintenance of fences, by contract with, or by the written consent of, the owner, contractor, subcontractor, architect, or authorized agent, shall have a lien thereon, and upon the land upon which the improvements were made or on any interest the owner has therein, to secure the amount thereof with interest as provided in KRS 360.040 and costs.

 

The appeals court interpreted the statute to provide that a lien is permissible under the statute only for labor or material furnished for the "erection, altering or repairing of a house or other structure…." The court acknowledged that, although the term "improvement" is not defined by statute, Kentucky case law and legislative intent require that the improvement confer a permanent benefit upon the property.

 

Because Thomas' maintenance services were temporary in nature and did not permanently enhance the value of the common areas, they did not fall within the meaning of the statute. 

 

The appeals court reversed the trial court's decision and remanded the case for entry of a judgment consistent with its opinion.

 

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited. 

 

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Snowplowing Service May Be Liable for Injuries

Torosian v. Bigsbee Village Homeowners Association, 848 N.Y.S.2d 452 (2007)


Association Operations:
In a slip-and-fall case involving black ice, a court did not grant summary judgment to the snow-removal company where there were questions of fact as to whether the dangerous condition existed for a sufficient period of time to have been reasonably discovered and remedied and as to whether a contracting party negligently created or exacerbated the dangerous condition.

 

Brenda Torosian sought to recover for injuries she sustained when she slipped and fell on black ice on an evening in February 2004 in a parking area of a condominium complex maintained by Bigsbee Village Homeowners Association ("association") and managed by Diamond Realty Enterprises Corporation ("Diamond Realty"). Torosian claimed that the association and Diamond Realty, along with Suburban Turf, a grounds maintenance company performing snowplowing services for the complex, were negligent in maintaining the property and/or creating an unsafe condition.

 

The association and Diamond Realty answered jointly and asserted a cross-claim against Suburban Turf, which itself asserted a cross-claim against the association and Diamond Realty. All defendants moved for summary judgment dismissing the complaint, and the trial court denied the defendants' motion. The case was appealed.

 

The appeals court affirmed the order denying the motions for summary judgment because questions of fact existed regarding the allegedly dangerous conditions giving rise to Torosian's accident. The court noted that for liability to be imposed in a slip-and-fall accident, the defendant must have created a dangerous condition or had actual or constructive knowledge thereof. According to the court, the association and Diamond Realty contended that: (1) Torosian's pretrial testimony stated that she had not noticed any slippery or icy conditions upon arriving at the complex but that she slipped and fell four hours later upon returning to her car and that, therefore, any purported icy conditions had only developed during that four-hour period; (2) a meteorological report established that the day had been clear and sunny with no precipitation, and temperatures were above freezing for most of the day; and (3) pretrial testimony established that a Diamond Realty representative routinely examined the complex, and there were no complaints of ice or slippery conditions.

 

The court acceded that the association and Diamond Realty were entitled to summary judgment, thus shifting the burden to Torosian to demonstrate triable issues of fact. However, based on Torosian's submission of a meteorologist's affidavit asserting that the ice upon which she slipped and fell was present for 24 hours prior to her accident, the court determined that triable issues of fact existed as to whether the icy condition had existed for a sufficient period of time prior to her accident for the association and Diamond Realty to have discovered the condition.

 

The court also acknowledged that a question of fact was raised as to whether the snowplowing and removal methods employed by the association and Diamond Realty created the alleged hazardous condition of runoff from snow banks into the parking area. Finally, the court affirmed the denial of Suburban Turf's motion for summary judgment, noting that, while generally a contractual obligation would not give rise to tort liability in favor of a third party, here (where photographs demonstrated a question of fact as to whether Suburban Turf created or exacerbated a dangerous condition by piling snow in the parking spaces that melted and refroze into black ice) the contracting party may be liable for any injury resulting from such dangerous conditions.

 

©2008 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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