January 2009
In This Issue:
Association Can Receive Excess Proceeds after Satisfaction of Tax Liens
Owner Can be Assessed City Property Tax on Limited Common Element
All Provisions of a Declaration Must be Considered
Financial Records Must Be Available for Units Owners to Review
Association Member Has Right to Enforce Restrictive Covenants
Attempts to Collect Delinquent Assessments Do Not Violate Racketeering Act
Decision to Use Garage as a Den Does Not Violate Use Restriction
Transfer of Home not Subject to Association Approval
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Association Can Receive Excess Proceeds after Satisfaction of Tax Liens

Belt v. Point Venture Property Owners' Association, Inc. No. 03-07-00701-CV, Tex. App. Ct., July 30, 2008

Assessments: A Texas appeals court determined that a homeowners association lien for past due assessments and fees was superior to claims by a former owner of the property and that the association had a right to excess proceeds from a tax foreclosure sale.

Gary and Michelle Moore owned a lot at 208 Venture Boulevard in the Point Venture subdivision which was encumbered with a declaration enforced by Point Venture Property Owners Association ("association"). The association placed a lien against the Moores' property for association fees past due from 2002-2007. Various local taxing authorities also recorded liens for nonpayment of taxes. Pursuant to the tax liens, the Moores' lot was foreclosed and sold in May 2007. The excess proceeds from the sale amounted to $5,871.02.

In June 2007, the association filed a petition asserting a claim to the excess proceeds. Robert Belt, who purchased a 50 percent interest in the lot from Gary Moore prior to the foreclosure sale, also claimed the excess proceeds. After two hearings, the trial court ordered the excess proceeds be disbursed to the association. Belt appealed that ruling on several issues.

Belt asserted that the association's lien claim to the excess proceeds was not allowed because the applicable limitation period had passed. The court noted that the foreclosure sale took place in May 2007, and the association filed a petition asserting its claim on the excess proceeds one month later. The association's claim was well within the required time period and, as such, was not barred.

Belt also claimed that the association's sole remedy was to bring suit to collect the past-due association fees. The court agreed that it was one remedy for the association to recover the past-due fees. However, Texas law allows a lien holder to file a petition for excess proceeds for the amount it is due under a lien. As such, the association was entitled to petition the court for excess proceeds from the foreclosure sale.

In addition, Belt contended that Texas property and tax codes extinguished or voided the association's lien claims, but the court found Belt's reliance on that law was misplaced according to  Sections 32.05(d) and (e) of the state's tax law. In this case, the association never contended that its past-due fees were enforceable against the purchaser of the property after the foreclosure sale. Nothing in the tax laws precluded the association from asserting a claim for excess proceeds.

Belt also asserted that the association's claim was void because the association did not record its claim in a liquidated amount. The appeals court found that Texas law does not require a lien to be recorded in a liquidated amount. By recording the deed restrictions in the real property records, the association provided notice to all persons of the existence of its lien. Citing Inwood North Homeowners' Association v. Harris, 736 S.W.2d 632 (Tex. 1987) (CALR October 1987), the court found that Belt, as purchaser of the lot, had constructive notice of the restrictions and covenants to pay assessments. The court concluded that the association's claim for the excess proceeds was not void.

Belt also contended that, if the association's claim for past due association fees was valid, the purchaser of the lot was liable to the association for the past-due amounts under Texas tax law. Specifically, Belt claimed that the tax code provides the procedure to be followed for tax sales of property and provides that the purchaser is vested with good title. It also requires a purchaser to take the property subject to the obligation to pay assessments secured by a lien or restrictive covenant from the date of purchase. However, this section does not preclude the association from recovering past-due fees in an excess proceeds preceding.

Belt claimed that the trial court made numerous errors "to create an environment in which a correct opinion was unobtainable." The court overruled Belt's issue because Belt cited no authority and provided no evidence.

Finally, Belt argued that because the association's claim as a lien holder was barred or was extinguished; he had priority to the excess proceeds as a former owner of the lot. As the court previously stated, the association had a valid claim to the excess proceeds.

The court affirmed the trial court's decision.

©2009 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

Owner Can be Assessed City Property Tax on Limited Common Element

Black v. Municipality of Anchorage, Board of Equalization, 187 P.3d 109 (Alaska 2008)

Taxes and Tax Regulation: After determining that the land surrounding a condominium unit was a limited common element, the Alaska Supreme Court ruled that the unit owner could be assessed property tax on that land.

In 2001, Craig Black purchased a condominium unit in White Stone Estates, a planned community in Eagle River, Alaska. He paid $435,000 for a self-contained four-bedroom single-family residence unconnected to any other structures in the community. The residence was built on almost an acre of land (the property was listed at 39,865 square feet). White Stone Estates had 14 potential condominium unit sites, each with its own self-contained residence and large parcel of land specifically associated with the residence.

The Municipality of Anchorage initially assessed Black's property taxes based upon the value of his condominium unit but did not assess additional taxes on the land. In 2004, Anchorage assessed Black's condominium at $355,000 and the land around it at $58,200 for a total value of $413,000. Black appealed to the board of equalization, which ruled two to one to assign no value to the land but to increase the value of the condominium unit to $435,000. The next year, Anchorage sought again to assess the value of the land along with Black's condominium in his property assessment.

On his second appeal to the board of equalization, Black maintained that the land should not be assessed to his property value and his condominium unit had been overvalued. Under the Whitestone Estates' declaration, his condominium unit is defined narrowly as his self-contained residence, and not the 39,865 square foot parcel on which the condominium unit was located. Black maintained that this land was part of the "Whitestone remainder," was already taxed by the city. Anchorage contended that the most typical and realistically comparable sales to Whitestone would be free-standing, single-family homes. The city did not allege that Black owned the land but that there was an interest that needed to be allocated. The board voted unanimously in support of Anchorage's position that because of the size of the land associated with Black's condominium unit, somebody has to pay taxes on it, and Black clearly had exclusive use of the land.

Appealing to the Alaska Supreme Court, Black's primary argument was that nothing within Whitestone Estate's condominium declaration or other recorded plans describes the land associated with Black's condominium as a limited common element. The court rejected Black's argument.

An unrecorded plan stated that the land around each unit was a limited common element, which the court accepted as persuasive evidence. In addition, the declaration indicated that areas around the units were limited common elements. It expressly reserved an exclusive easement for the owner's use of the areas around the unit, and required owners to landscape the "limited common elements" following construction of the unit to which they are attached. The two statements together support the inference that the land surrounding each condominium unit is a limited common element. In Black's own testimony, he stated that he would be required to obtain permission from the association to build on the land. However, when asked if other owners could build structures near his condominium, he stated it was possible in theory, but in reality it would never happen. Such a statement reflected that each condominium owner also possessed ownership over the land rather than the land being a common shared area.

Black claimed unequal treatment because his condominium unit was assessed differently from other condominium units in Anchorage. The court found that the tax assessment was reasonable because Black’s land exceeded 39,000 square feet while the average Anchorage condominium unit had only 2,000-3,000 square feet, making Black’s land at least 13 times greater than an average condominium unit in Anchorage.

Black contended that his condominium should be assessed  only $294,000 based on comparable single family homes with the same property size. However, the base cost of the condominium unit within Black's community was $338,600. Furthermore, he purchased the unit for $435,000, and the current tax assessment placed the value at $458,600, only a 5.4 percent rise in a four-year period.

The court found that the assessment was both reasonable and fair. Overwhelming evidence showed that the land around the condominium units  was designated limited common elements, not common elements. In addition, the treatment of the land by the unit owners supported the point that the land was personal property rather than community property. Therefore, the court affirmed the trial court's decision regarding the tax assessment and award of attorney's fees to Anchorage.

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All Provisions of a Declaration Must be Considered

Cordova the Town Homeowners Association, Inc. v. Gill Development Company, Inc., No. W207-01692-COA-R3-CV, Tenn. App. Ct., Sept. 12, 2008

Covenants Enforcement: A Tennessee appeals court would not enforce a section of a declaration without weighing that section against other portions of a declaration that addressed the same issue, determining that all provisions must be read together.

Gill Development Company, Inc. ("Gill") developed Cordova the Town, a planned community in Cordova, Tenn. Cordova the Town Homeowners Association ("association") governs the community.

On April 11, 1995, after forming and incorporating the association, Gill executed the community’s CC&Rs, giving the association authority to enforce the community's declaration and to collect and disburse regular assessments. The declaration provided that Gill was a member of the association if it owned lots in the community. As such, Gill was required to pay regular assessments to the association under the terms of the declaration.

Gill's obligation to pay assessments to the association is set forth in Article IX, Section 1 of the declaration, which defines Gill as "declarant":

The Declarant, for each Lot owned within the Property, hereby covenants and agrees to pay to the Association… (1) regular Assessments or charges, to be collected either monthly, quarterly, or annually as the Association shall determine in its reasonable discretion, (2) special Assessments for capital Improvements or other purposes…and (3) emergency Assessments as may be declared by the Board of Directors.

The association levied assessments on a quarterly basis. 

The declaration provides that regular assessments begin for each lot on the first day of the month following the date on which the lot is conveyed from Gill or upon completion of improvements on the lot, whichever occurs first.

The community has 107 lots. As of July 1, 2004, Gill owned 54 lots. On that date, the association sued Gill, seeking damages for unpaid assessments. The complaint alleged that, between 2001 and 2004, Gill had failed to pay assessments on the 54 lots that it owned, as well as on four other lots it sold before the association sued Gill. Gill admitted that it did not pay the assessments in question but asserted that it was under no obligation to do so. In support of its response to the association's summary judgment motion, Gill filed the affidavit of its president, Raymond Gill III. In his affidavit, Raymond Gill admitted that Gill once owned or still owned the lots on which the association sought assessments but stated that the improvements on those lots had not been completed; therefore, Gill maintained that it was under no obligation to pay any assessments.

The trial court ruled in favor of the association. Gill subsequently appealed, raising one issue: whether the trial court correctly interpreted the declaration in holding Gill liable for regular assessments on lots where improvements had not been completed.

On appeal, Gill argued that the language of the declaration was unambiguous. Specifically, Gill asserted that it was not required to pay assessments on its lots until the improvements on such lots are completed. Conversely, the association maintained that Gill should be required to pay regular assessments in the same way as the other members of the association: on the basis of lot ownership regardless of whether the improvements had been completed.

The court first noted that the declaration binds lot owners to the obligations created by the terms of the declaration. Therefore, all members of the association, including Gill, are required to pay regular assessments for each lot owned within the community. While the association wanted the court to enforce this provision without reference to the rest of the declaration, the court would not do so.

The court further stated that the declaration acknowledged the existence of the members' obligation to pay regular assessments and unambiguously stated the time at which that obligation began. Since assessments were not due until the "first day of the month following transfer from [Gill], or completion of improvements thereon, whichever shall first occur," the court determined that Gill did not owe assessments on the lots. Assessments on properties transferred from Gill to another party were owed by that party. Therefore, Gill did not owe assessments at all. The appeals court then concluded that the association's motion for partial summary judgment should have been denied by the trial court, and it reversed the trial court's decision and remanded the case.

©2009 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Financial Records Must Be Available for Units Owners to Review

Glenwright v. St. James Place Condominium Association, 197 P.3d 264 (Colo. App. 2008)

Association Operations/State and Local Legislation and Regulations: Whether statutes require associations to produce association records to unit owners is a question that must be decided by review of the evidence.

Earl Glenwright owns a residential unit in St. James Place Condominium located in Eagle County, Colo. All unit owners are members of St. James Place Condominium Association, ("association"). The association contracted with Vail/Beaver Creek Resort Properties, Inc. ("manager") to fulfill its management responsibilities; and, under the management agreement, the manager has all the powers and duties of the association except those specifically reserved to the association's board of directors.

Before the end of each fiscal year, the manager is required to submit a proposed budget for the next fiscal year to the association. To facilitate budget preparation, the association is supposed to provide the manager with written guidelines indicating, among other things, the frequency at which housekeeping services should be provided to unit owners. When the budget is approved, it becomes the basis for the manager's annual expenditures.

The management agreement requires the manager to maintain all association records, which are the property of the association, and make them available for inspection by any representative designated by the association.

Glenwright questioned whether the amount assessed for housekeeping services was reasonable in relation to the actual of cost providing the services. He alleged that as early as 1998, the assessments for the services exceeded the cost by an appalling amount. In 2003, he asked to inspect certain housekeeping records. The association claimed that it provided Glenwright with the records for 2001 and 2002, pursuant to an agreement with him that he would dismiss his 2003 complaint with prejudice.

In 2005, Glenwright asked to review the housekeeping records for the years 2003-2005. The association refused his request, and he sued alleging the association stored and maintained the records in order to track housekeeping services and the billings provided to its unit owners.

The association provided affidavits to the trial court asserting that the housekeeping records reflected the cleaning activities in each unit, but the records were not used to prepare the association budget or for other financial purposes. The association said it did not have access to the records.

Glenwright asserted that all the association's records were maintained by the manager. He also argued that some owners prepaid the association for standard housekeeping services, and the association's budget for those services included those amounts and an estimate for additional services requested. The manager billed the owners for the services at rates based on the size of the unit and types of services provided. Glenwright contended that all housekeeping charges were billed and calculated by the manager on behalf of the association.

The trial court credited information provided by the association and dismissed the case with an award of attorney's fees to the association. Glenwright appealed.

The appeals court reviewed the trial court’s grant of summary judgment, considering that such a judgment is only appropriate if the pleadings and evidence demonstrate there is no issue of material fact. Glenwright argued that the trial court erred in concluding that because the association did not create or keep the records he wanted. The appeals court agreed.

A section of the Colorado Common Interest Ownership Act states:

The association shall keep financial records sufficiently detailed to enable the association to comply with section 38-33.3-316(8) concerning statements of unpaid assessments. All financial and other records shall be made reasonably available for examination by any unit owners...

Glenwright relied upon the broad phrase, "all financial and other records" in the second sentence. He argued that the provision included records owned by the association but maintained by the manager. The court found that, if the housekeeping records were created, used, received or maintained by the manager in performing association duties, the Act would require that they be produced to Glenwright. Further, the appeals court found that the trial court’s record was clear, and there was a substantial dispute as to the nature of the records at issue. The court noted that, while the trial court gave more weight to the association's affidavit than to Glenwright's, such weighing of the evidence is improper when deciding on a motion for summary judgment.

The association argued that the housekeeping records showed only the identity of the employees performing the services and the time spent performing the services. However, the court determined that the association has a right to disapprove of use of an employee, a requirement to reimburse the manager for compensation paid to employees and a requirement to provide guidelines to the manager for the level of housekeeping services. In addition, the manager is required to submit an annual budget to the association based on that service. Therefore, the court could not conclude that the records were maintained by the manager in the performance of the association's privileges and responsibilities. The court determined that the records were among those owned by the association.

The appeals court reversed the trial court's ruling and the award of attorney's fees based on the judgment and remanded the case for further proceedings.

©2009 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Association Member Has Right to Enforce Restrictive Covenants

Kirschner v. Baldwin, 988 So. 2d 1138 (Fla. Dist. Ct. App. 2008)

Covenants Enforcement:  A lot owner may litigate to enforce the covenants if they state that they "inure to the benefit of each lot owner."

Eleanor Kirschner and John and Gina Baldwin owned adjacent lots in Coquina Point Subdivision in Malabar, Fla. The lot line at the rear of the Baldwin's lot is immediately adjacent to Kirschner's side lot line. All lots in the subdivision are subject to CC&Rs. The declaration provides that covenants and restrictions run with the land and inure to the benefit of each lot owner. The declaration also provides various restrictions, including setbacks for rear and side lot lines.

In October 2003, pursuant to the declaration, the Baldwins submitted plans to the homeowners association to build a large garage in the rear of their lot. The association did not respond to the Baldwins' within the 30-day period required by the declaration.

As the Baldwins' lot was also within the jurisdiction of the Town of Malabar, they were required to obtain a building permit. Malabar's ordinance required that any structure placed on the Baldwins' lot be at least 20 feet from the nearest road. As the garage plans placed the structure only 15 feet from the nearest road, a variance was required. The town mailed notices to Kirschner and others informing them of the Baldwins' request. Kirschner did not file any objections with the town, which subsequently approved the Baldwins' zoning variance.

In January 2003, the Baldwins began constructing the garage. Approximately two weeks later, John Stillings, the association's president, confronted John Baldwin about the garage appearing to be in violation of the declaration. Baldwin said he would proceed with his plans unless he received an injunction. The association board decided not to pursue legal action against the Baldwins. When Gina Kirschner learned of the association's decision, she consulted an attorney. Kirschner's attorney delivered a letter to the Baldwins informing them that Kirschner intended to enforce the declaration.

The trial court ruled that Kirschner was not entitled to injunctive relief because: (1) she lacked standing to bring her action; (2) her claim was barred by the administrative res judicata doctrine; (3) she had waived any right to bring her claim by not objecting to the construction of the garage at an earlier date; (4) she was estopped from enforcing her claim because of her inaction; and (5) it would be inequitable to require the Baldwins to remove the garage. Kirschner also brought a claim for damages, but as she did not offer evidence of any proof of her damages that claim was dismissed.

The appeals court upheld the trial court's determination that Kirschner's claim of damages should be dismissed. As to the claim of injunctive relief, the court examined the five arguments offered by the trial court.

Regarding the trial court's assertion that Kirschner lacked standing, the appeals court cited Florida case law in determining that the restrictions set forth in the declaration inured to the benefit of all lot owners. Kirschner, as a "clearly intended beneficiary of the declaration," had the right to enforce the association's restrictions and therefore had standing to sue the Baldwins.

Again citing case law, the appeals court found that the doctrine of administrative res judicata is applicable to rulings or decisions made by administrative bodies. Because the association was not an administrative body and, as the claim was not adjudicated, the administrative res judicata doctrine did not apply in this case.

While the trial court found that Kirschner waived her right to enforce the restriction because of her failure to object in a timely manner, the appeals court defined "waiver" as the voluntary and intentional relinquishment of a known right or conduct that infers the relinquishment of a known right. When a waiver is implied, the acts, conduct, or circumstances relied upon to show waiver must be clearly shown. The appeals court further stated that in the context of restrictive covenants there must be a "long-continued waiver or acquiescence in the violation of a restrictive covenant" for waiver to be found. In this case, John Stillings, the association's president, objected to the garage construction within two weeks of its commencement. Because the town's hearing pursuant to the Baldwins' request for a variance addressed the side lot line, not the rear lot line adjacent to Kirschner's lot, and because the time table for construction of the garage was so short, Kirschner did not waive her right to object to the construction of the Baldwins' garage.

The appeals court ruled that the trial court erred in finding that Kirschner was estopped from objecting to the Baldwins' garage based on her letter after the structure was completed. The appeals court found estoppel to be based on silence, and noted that estoppel cannot exist where the parties in question have equal knowledge of the facts or have the same means of ascertaining such knowledge.

Finally, the appeals court reviewed the trial court's finding that it would be inequitable to require the Baldwins to remove that portion of the garage that encroached on the 35-foot setback. The trial court based this finding on two premises: (1) the significant cost of removing the garage, and (2) the lack of evidence that the value of Kirschner's property was diminished by constructing a garage. The primary factor the appeals court considered—in determining whether a mandatory injunction should be entered—was whether the Baldwins' violation of the set-back restriction was willful and intentional. While the trial court looked to the town's variance process as an opportunity for Kirschner to object, the appeals court noted that the variance issue only concerned the side lot line, which was not the lot line in question in this case. Secondly, the trial court understood the association had 30 days to decide whether to act on Baldwin's application. However, the appeals court construed the declaration regarding the 30-day review period as dealing specifically with the association's right to reject any submission on any ground, including the purely aesthetic, but it did not allow for approving a building or other structure in violation of the declaration's covenants or restrictions.

The appeals court remanded the case and instructed the trial court to reconsider whether the equity supports granting a mandatory injunction.

©2009 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Attempts to Collect Delinquent Assessments Do Not Violate Racketeering Act

Miller v. Dogwood Valley Citizens Association, Inc., C.A. No. 3:06cv00020, U.S. Dist. Ct., Western Dist. Va., Aug. 28, 2008

Assessments/Association Operations/Federal Law and Legislation: Homeowners fail to prove that an association's attempts to collect delinquent special assessments for road maintenance establish a pattern of racketeering.

Dogwood Valley Subdivision is located in Greene County, Va. The subdivision was created by the original owners, Bradley and Betty Haynes and Kermit and Barbara Gallihugh in October 1968. The deed stated that the roads in the development were dedicated to public use, and title to the roads would be transferred to Greene County with the stipulation that the roads would not be part of the public highway system unless lot owners brought the roads into compliance with specifications of the Virginia Department of Highways. The deed of dedication also provided that an annual assessment of $15 per lot would fund maintenance costs  for the subdivision roads and common areas.

Dogwood Valley Citizens Association, Inc. ("association") was formed in November 1978 to maintain the roads and common facilities and to exercise architectural control over the subdivision. In December 1978, B.K. Haynes Corporation transferred title to the roads and common areas to the association.

In 1979, the association filed warrants-in-debt against Douglas Dye to collect delinquent assessments. Dye ceased to pay assessments in 1974 because he did not believe the roads and common areas were being maintained.

In 1984, the trial court for Greene County tried the warrants-in-debt and found that the association failed to establish title to levy the general assessments because Haynes and Gallihugh had not conveyed their individual interests when the deed of dedication was filed. The decision was appealed, but the case was dismissed in July 1985.

At a regular meeting of the board of directors in November 1989, legal counsel for the association advised board members that the Virginia Property Owners Association Act ("Act") established legal authority for the association to levy special assessments for road maintenance and gave property owners associations more options to collect assessments from those members who failed to pay their assessments. The Act did not apply retroactively, but it applied to all property owners associations in existence on July 1, 1989.

At a regular board meeting in September 1994, the board agreed to prepare a list of delinquent assessments, place liens on the delinquent properties, and pursue foreclosure if the liens were not successful.

In October 1995, the board tried to obtain emergency money from the Federal Emergency Management Agency ("FEMA") to repair roads damaged by floods earlier that year. FEMA notified the board that a special assessment would have to be levied on lot owners before relief funds could be disbursed. A special association meeting was held in November to vote on levying a special assessment to pay for the road damage. The members voted for a special assessment to repair the roads in addition to the annual road assessments for 1996. In February 1996, they decided that delinquencies would be forwarded to an attorney for collection and those delinquent for more than three years would be foreclosed.

When the association sold certain delinquent lots, including two lots owned by William Winkelman, at auction in 1998, Winkelman challenged the sale of his lots. The trial court ruled that sale of the lots was void because the Act did not authorize associations to sell lots at public auction because the statute provided for the sale of "units" and did not refer to lots of real property. (The state’s general assembly modified this provision of the code in 2004 to remedy this error in drafting.)

The ruling was appealed, and the Virginia Supreme Court agreed that the sale of Winkelman's lots was void, not because the Act was ambiguous, but because the association was not a property owners association within the meaning of the Act; no document was recorded that expressly stated the association was required to maintain the subdivision's roads and common areas. The court explained that an association's duty to maintain roads and common area must be expressly stated in recorded documents and may not be inferred or implied. To correct the deficiency, the association filed a declaration from its bylaws in the official records of Greene County that required the association to, "cause the roads and common facilities to be maintained...." After the corrective declaration was filed, the board levied a special assessment for 2005.

In 2005, the association filed warrants-in-debt against Miller and Colby and recorded memoranda of lien on their lots. Miller and Colby challenged the warrants, and the trial court ruled that the association was not a property owners association under the Act and lacked authority to levy special assessments. The board ceased levying special assessments after the court's decision, and the case was appealed.

The Greene County Supreme Court rejected the association's argument that the definition of "declaration" within the Act included articles of incorporation or bylaws. The court iterated that the responsibility for maintaining the common areas and roads must be imposed on an association and not voluntarily assumed.

Miller, Colby and Dye sued the association and its directors claiming that they engaged in a pattern of racketeering activity that violated the Racketeer Influenced and Corrupt Organizations Act ("RICO"). They claimed that the association injured their property by reason of violation of RICO, and they should receive threefold the damages they sustained plus costs of suit and reasonable attorney's fees.

In a memorandum opinion, the court considered that the remedy for RICO violations is severe; thus, RICO liability extends only to, "unlawful activities that pose a special threat to social wellbeing." RICO provides that it is unlawful for any person employed or associated with an enterprise engaged in interstate commerce to conduct or participate in the conduct of the affairs of the enterprise using a pattern of racketeering activity or collection of unlawful debt.

Racketeering activity is defined as "any act or threat" involving specified state law crimes, such as murder, robbery, extortion, or any act indictable under federal statutes, such as mail fraud, wire fraud or extortion. Because Miller claimed a violation of the Hobbs Act as predicate for his civil RICO claim, it was necessary that he establish that the association obstructed, delayed, or affected commerce by robbery or extortion. The Hobbs Act defines "extortion" as "the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right." Further, the use of fear must be "wrongful" in that the extortionist must know that he or she is not legally entitled to the property received.

The court found that the 1984 opinion of the Greene County trial court had no substantive effect on the case because the nonsuit on appeal nullified the entire suit as if it had never existed in either court. Because the decision had no legal effect, the association continued to possess the legal authority to collect road fees according to the deed of dedication. The court found that prior to the Winkelman decision in 2004, the association rightfully believed that it had authority to levy special assessments pursuant to the Act. The court stressed that the ability to levy special assessments is independent and unrelated to the ability to levy regular assessments. After the Winkelman decision, the association filed declarations from its bylaws in a good faith effort to remedy the deficiency identified by the court and appealed the Colby decision. The association did not learn until the trial court issued its opinion in October 2006 that that remedy failed. Since that time, the association did not levy any special assessments.

The court found that the association legitimately believed it had a claim to the special assessments levied in the years 1995-96 and 1998-2005. Its use of warrants-in-debt and liens to collect delinquent special assessments was not wrong under the Hobbs Act.

Miller failed to offer any evidence of wrongful use, fear of economic harm, or other predicate acts to establish a pattern of racketeering. The court ruled in favor of the association.

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Decision to Use Garage as a Den Does Not Violate Use Restriction

Sherwood Lake Association, Inc. v. DeAngelo, No. 2008 CA 0695, La. App. Ct., 1st Circuit, Sept. 12, 2008

Covenants Enforcement/Architectural Control: In an unpublished opinion, a Louisiana appeals court determined that a homeowner's decision to place items in his garage behind a functioning garage door was beyond the reach of the subdivision restrictions.

Robert and Cindy DeAngelo owned a home in Lake Sherwood Acres subdivision. Lots in the subdivision are subject to the CC&Rs of Lake Sherwood Estates. Sherwood Lake Association, Inc. d/b/a Lake Sherwood Council ("association") sued the DeAngelos in November 2005, seeking a permanent injunction to enforce the declaration's building restrictions. The DeAngelos argued that the restrictions were vague and unenforceable. They asked the court to declare that the restrictions pertaining to use of their garage be terminated by abandonment.

Section 2.1 of the declaration provides that all lots in the subdivision be used for single-family residential purposes, "with usual and appropriate outbuildings and a private garage and/or carport designed to house no fewer than two nor more than five automobiles." Section 2.9 provides:

No garage apartment shall be erected or permitted on any lot [and] no garage may be used as living quarters. However, a garage may be erected for occupancy by servants domestic to the family residence on that lot.

At trial, Robert DeAngelo testified that before he started converting the garage into a recreation room, his wife, Cindy, showed the chair of the architectural control committee the plans and asked her to submit them to the association for approval. The chair told Cindy the conversion violated the subdivision's restrictions. The association's president then sent a letter to the DeAngelos confirming that the plans violated the restrictions, and they were formally rejected based on the restriction prohibiting using garages as living quarters.

In November 2005, the DeAngelos' attorney informed the association that the DeAngelos felt that they were within their rights to continue with their plans. In the spirit of compromise, DeAngelo reinstalled the original garage door to restore the appearance of a garage in harmony with the rest of the neighborhood. He testified at trial that the conversion cost approximately $26,000.

The association presented photographs as evidence that it was rare to see cars parked in the front driveway of homes in the subdivision and testimony that all 313 homes in the subdivision had either a garage or carport.

The trial court ruled in favor of the association and directed DeAngelo to restore, within 60 days, the garage to a condition where it could be used as a garage. The court awarded attorney's fees, court costs and judicial interest to the association. The DeAngelos appealed.

On appeal, the DeAngelos argued that the trial court erred in ordering them to restore their garage to a condition where it could be used for parking cars because the restrictions do not require homes to have garages or carports or that homeowners park their vehicles in garages or carports. They contended that the judgment was incorrect because it limited what items they could put in their garage. Alternatively, they argued that the restrictions were unenforceable because, pursuant to Louisiana law, they had been abandoned. They argued that building restrictions are to be construed to allow property owners freedom to use their property, but cannot govern how owners use their property behind closed doors. In support of their argument they cited Louisiana Civil Code, Article 783, which provides:

Doubt as to the existence, validity, or extent of building restrictions is resolved in favor of the unrestricted use of the immovable. The Provisions of the Louisiana Condominium Act, the Louisiana Timesharing Act, and the Louisiana Homeowners Association Act, shall supersede any and all provisions of this Title in the event of a conflict.

The appeals court noted that Article 783 expressly acknowledges the Louisiana Homeowners Association Act which provides that the existence, validity or extent of a building restriction affecting association property shall be liberally construed to give effect to its purpose and intent. Furthermore, the court found that the restrictions pertaining to garages in Lake Sherwood Acres were not ambiguous and, therefore, did not require interpretation.

The DeAngelos argued that the restrictions pertaining to their garage were vague and outdated; and, therefore, unenforceable, pointing out that garages can be used as living quarters for domestic servants. The association countered that one antiquated exception did not invalidate the general prohibition against using a garage as living space. The association interpreted the restriction to allow a domestic servant to live in "a garage with living quarters," rather than a garage that is converted into a room of the house. The DeAngelos argued that they satisfied the association's interest by keeping the appearance of the garage in harmony with the neighborhood. An architect licensed in Louisiana and who was a member of the board testified that, with the exception of homeowners' dues, all subdivision restrictions allow for flexibility in enforcement. He stated that he believed the changes to the DeAngelos' garage did not detract from the attractiveness of the neighborhood and added value to their home.

However, the DeAngelos did not tender the architect as an expert witness, and they did not present credentials to the court that would qualify him to give an expert opinion regarding application of the building restrictions. There was no evidence that the board called on the architect for his expertise in the matter.

The DeAngelos argued that their suit was the first and only lawsuit filed by the association to enforce the building restrictions, and the association was attempting to selectively enforce the restriction solely against them. The court noted that at least one other lawsuit had been filed by the association to enforce a building restriction. Furthermore, the court found that most of the violations alleged by the DeAngelos could be explained. The court found that abandonment of a particular restriction is predicated upon a sufficient number of violations of that restriction in relation to the number of lots affected by it. Once a violation of a building restriction is established, the burden shifts to the violator to prove abandonment of a particular restriction. The DeAngelos failed to present evidence of any instance in which the association approved a plan to convert a garage into living area.

They argued that even if there had been no abandonment in the subdivision of the garage restriction, there was selective enforcement of the restriction. They claimed that numerous homeowners used their garages for storage rather than parking, and the board had not attempted to stop the activities. The association's representative testified that he drove around the neighborhood weekly to check on compliance. He stated that the board acted on known violations but made every effort to avoid legal disputes and was usually able to resolve concerns by contacting homeowners.

The appeals court determined that the trial court did not err in concluding that the DeAngelos' conversion violated the building restrictions, but found that the trial court's judgment imposed an inappropriate remedy. It concluded that the restriction required that each home have a private garage or carport, but the restriction does not require the homeowner to park his vehicle in the garage or carport.  Further, it found that although the restrictions did not define "living quarters," the phrase clearly referred to using the garage as an apartment, either in its totality or with an attached apartment. The court concluded that a homeowner's decision to place items in his garage behind a functioning garage door was beyond the reach of the subdivision restrictions. The court ruled that the DeAngelos need only restore their garage door to an operable condition to comply with the restrictions.

Accordingly, the appeals court amended the trial court's judgment and declined to award attorney's fees to the association for the appeal. The judgment, as amended, was confirmed.

©2009 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Transfer of Home not Subject to Association Approval

Webster v. Ocean Reef Community Association, Inc., 994 So. 2d 367 (Fla. Dist. Ct. App. 2008)

Covenants Enforcement: If an association's governing documents only regulate the sale of property, such provisions may not be used to regulate gifts of property within the community that are donated transfers.

Anita Sculthorpe and her late husband bought a home in the Ocean Reef community in Key Largo, Fla. in 1967. When her husband died in 1989, she became the sole titleholder of the property. In early 2000, Sculthorpe created an irrevocable trust and quitclaimed the property to the trust. Sculthorpe was the sole beneficiary of the trust and was thus entitled to use the home until either her death or the fifth anniversary of the commencement of the trust at which time her son, Daniel Webster would become the sole beneficiary of the trust. If Webster died before those events occurred, his heirs or estate would become sole beneficiary of the property.

At the time the trust documents were executed, Sculthorpe was 84. The quitclaim deed showed that the home was conveyed to the trust for nominal consideration. Sculthorpe filed a gift tax return and paid the tax.

In May 2005, following the expiration of Sculthorpe's five-year term as beneficiary, the trust quitclaimed the property to Webster. By then, Sculthorpe was 90 years old, and Webster and his wife were residing in the home with her.

The Ocean Reef Community Association, Inc. ("association") asserted that the association's governing documents required Sculthorpe in 2000 and Webster in 2005 to submit the transfers for review and approval or rejection. When Webster and his wife submitted an application to transfer the property without explanation, the association's membership committee rejected the application. The trial record did not explain how or why the matter reached an impasse, but Webster and his wife subsequently sued the association. The trial court ruled in favor of the association, stating that the two transfers violated the association's governing documents. Webster and his wife appealed.

According to the appeals court, governing documents are considered a contract between an association and the homeowners. In addition, the association, as a homeowner's association and corporation, could not act in any way not authorized in its articles of incorporation or bylaws.

The parties relied on the association's governing documents in the 1997 member handbook with regard to the 2000 transfer from Sculthorpe to the trust, and they relied on a 2002 version of those documents for analysis of the 2005 transfer from the trust to Webster. However, according to the court, the changes between the 2000 and 2002 versions of the governing documents made no difference in its analysis.

The relevant sections of the association's governing documents state:

Approval of a Lot purchaser as a member of the Association is a condition to the conveyance of a Lot to such purchaser, and any attempted conveyance made without Association approval shall be a violation of these Articles, the By-laws of the Association, the Rules and Regulations of the Association, and any and all other documents governing the Ocean Reef Complex.

The documents allow an exception if a lot is sold to a spouse, adult child, parent, a trustee corporation or any entity where the owner or a related person is the sole beneficiary or equity owner.

According to the appeals court, the two transfers involved in this case were gifts—not sales, purchases or leases. Therefore, the transfers were not covered by the restrictions, which pertained only to sales. Since Sculthorpe arranged her affairs while alive, she did not sell her property. According to the court, the ordinary meanings of "sale" and "purchase" signify transfers of ownership for a price paid in money or other valuable consideration. On the other hand, a gift involves a transfer based on a donor's disinterested generosity and not on an exchange for value. The court found that the association's governing documents clearly imposed a membership application process for the sale, purchase and lease of lots within Ocean Reef, and the documents clearly did not impose such requirements for the gift of a lot.

The court stated, "were we to construe 'sale' or 'purchase' to include Sculthorpe's transfer and her residential trust's transfer, the Association would have a first right of refusal to acquire the residence for nothing…since that is what Webster paid for the property." The court refused to construe the documents to produce what the court called an absurd result.

Because the governing documents did not include any provision that expressly required a recipient of a donation—as opposed to a purchaser or specified category of lessee—to apply for and obtain approval as a member of the association before taking title, the donations transferred by Sculthorpe to the trust and by the trust to Webster were valid despite the contrary views of the association's membership committee. Therefore, the court reversed the decision of the trial court.

©2009 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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