August 2009
In This Issue:
Declaration Provisions Donít Override Legislative Intent, Statutory Law
Georgia Condominium Act Not Applicable to Associations Established Before Law Enacted
Interpretation, Enforcement of Declaration Reserved Solely for Courts
Enforcement of Covenants Doesnít Unlawfully Discriminate Against African American Owners
A Third Party Must Demonstrate Proximate Cause to Establish Developer Negligence
Receiver Terminated, Common Area Conveyed to Association without Developer Liens
Retroactive Owner Approval Can Be Sufficient to Declaration Requirements
Lawsuit to Enforce Covenants Does Not Entitle Association to File Lis Pendens
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Declaration Provisions Donít Override Legislative Intent, Statutory Law

Berkos v. Shipwreck Bay Condominium Association, 758 N.W.2d 215 (Wisc. App. 2008)

Covenants Enforcement: An easement in a declaration of condominium is void because it is contrary to Wisconsin statutes that prohibit the reservation of riparian rights by easement or similar conveyance.

Daniel Berkos, doing business as C&B Investments, purchased property on Castle Rock Lake in Germantown, Wisc., in August 1995. C&B executed a declaration of condominium, creating the Shipwreck Bay Condominium Association, and built condominiums on the lakefront edge of the property. C&B completed the project, selling the final unit in 2000, at which point C&B relinquished ownership of all common areas to the association. The common area included the lake's shoreline as defined by the plat.

The declaration provides that the association's design committee and board have the authority to recommend the location and configuration of piers. The declaration also provides that C&B had the right to approve pier placement, that piers had to be placed in accordance with the provisions of an easement agreement and the placement must not interfere with C&B's ability to develop or operate facilities within or outside of the area shown on the condominium plat. Additionally, C&B had the right to regulate the placement and use of piers, docks, watercraft and parking along the shoreline to preserve the shoreline for future development.

In December 2004, C&B applied to Wisconsin's Department of Natural Resources ("DNR") for a marina permit to place piers in front of a bar and restaurant owned by C&B and located adjacent to the condominium property. The proposed piers were to extend in front of the condominium property. In a written decision, the DNR rejected the application because C&B was not a riparian owner of the land in front of the condominium property. Despite language in the declaration permitting C&B to regulate pier placement in front of the condominiums, the DNR concluded that C&B was not the riparian owner of the condominium property and therefore did not have the right to place the piers in that location under Wisconsin law, which requires the permit applicant to be a riparian owner.

However, the DNR explained that it would accept C&B's application at a later date if C&B obtained either: (1) the signatures of an authorized representative of the association and the condominium owners on the application; or (2) a court judgment declaring C&B the riparian owner of the shoreline and land that it had deeded to the condominium owners. After failing to secure the signature of an authorized representative of the association, C&B sued the association and the condominium owners, asking the court to declare that it was owner of riparian rights of the waters located in front of the condominium property. Based on the declaration provisions regarding C&B's rights to control pier placement, C&B also asked the court to enjoin the association from refusing to permit it to place piers in the water in front of the condominium.

The trial court explained that an individual who holds title to land abutting a body of water is known as a riparian owner. According to the trial court and Wisconsin law, riparian owners have certain rights, based on their ownership of shorefront property. One is the right to install a pier or similar structure. According to the trial court, the rights of riparian owners are subject to the public's right to use navigable waters provided under the public trust doctrine, which has its roots in Wisconsin's constitution, under which the state holds the beds of navigable waters in trust for public use. The trial court explained that the regulation and enforcement of this public trust rests with the legislature and the DNR.

The court also explained that Wisconsin law prohibits the alienation of riparian rights apart from riparian land. The statute provides that no riparian owner may grant, by easement or by a similar conveyance, any riparian right in the land to another person except for the right to cross the land in order to have access to the navigable water. The right to cross the land may not include the right to place any structure or material in the navigable water.

The trial court ruled in favor of the association and concluded that the declaration's provisions relating to pier placement were invalid since Wisconsin law prohibits a riparian owner from conveying any riparian right in the land to another person.

C&B appealed, contending that provisions in the declaration constituted an easement that reserved its right to control pier placement in waters abutting the condominium property. C&B also contended that the easement was not contrary to Wisconsin law because statutory language prohibiting a riparian owner from conveying any riparian right in the land of another person proscribed only the conveyance of riparian rights by a riparian owner, not C&B's attempt to reserve such rights upon the transfer of title to the condominium owners. The appeals court concluded that such an easement would be void because the statute plainly prohibits the reservation of riparian rights by an easement or similar instrument upon the transfer of title to riparian land.

C&B also argued that, even if the provisions reserving the right to control pier placement were void, it should prevail under a theory of promissory estoppel. According to the court, C&B claimed that, by purchasing units and agreeing to the terms of the declaration, unit owners made a promise that they would permit C&B to retain riparian rights upon transfer of title; that promise induced C&B to sell to those owners; and enforcement of the declaration was the only way to avoid the purported injustice. According to the court, that argument lacked merit because unit purchasers did not "induce" C&B to sell the property to them under the terms of the declaration, and C&B, not the unit purchasers, drafted the declaration.

According to the court, C&B's interpretation of Wisconsin law was unreasonable because it failed to account for ABKA Ltd. Partnership v. DNR, 255. Wis. 2d 486, 648 N.W.2d 854 (2002), which addressed the genesis and meaning of that law. In ABKA, the Wisconsin Supreme Court explained that Wis. Stat. section 30.133 (“statute”) was adopted in response to Stoesser v. Shore Drive Partnership, 172 Wis. 2d 660, 494 N.W.2d 204 (1993). In Stoesser, the non-riparian owners of a subdivision sought to exercise riparian rights reserved to them by an easement in a warranty deed by erecting a pier abutting the lakeshore property of the riparian owners. The riparian owners contended that the easement was invalid because riparian rights are not severable from riparian lands under Wisconsin common law.

The Stoesser court rejected the riparian owner's argument stating, "The rule of law in Wisconsin is that a riparian owner may grant or reserve an easement for access to a lake.... Riparian rights can be conveyed by easement to non-riparian owners." Nine years later, the Wisconsin Supreme Court recognized in ABKA that "the legislature did not agree with the court's conclusion" in Stoesser. The ABKA court explained that, within one year of Stoesser's publication, the legislature acted to overturn the Stoesser decision by adopting the statute.

Adherence to legislative intent and to the precedential effect of ABKA required that it interpret the statute in a manner that abrogated Stoesser. The court noted that the facts of this case mirror those of Stoesser. Like the non-riparian owners in Stoesser, the court stated that C&B sought to reserve riparian rights by easement. Thus, according to the court, to interpret the statute in a manner that would allow C&B to reserve riparian rights by easement would preserve Stoesser, but such an interpretation would be contrary to ABKA 's understanding of the legislature's intent of the statute. To permit the reservation by easement of riparian rights upon transfer of title to riparian lands would be contrary to the legislature's policy choice.

The court acknowledged that the statute does not explicitly refer to reservation of riparian rights by easement. Regardless, ABKA and Stoesser make it clear that the legislature enacted the statute to prohibit the reservation of riparian rights by easement upon the transfer of title of riparian land. Therefore, the court construed the language prohibiting a riparian owner from conveying any riparian right in his or her land to another person as precluding the reservation of riparian rights apart from riparian land by an easement as well as granting riparian rights to a non-riparian owner.

The appeals court concluded that the statute prohibits severing riparian rights from riparian lands to which they are appurtenant by an easement or similar conveyance. Additionally, the court concluded that the easement in the declaration was void because it was contrary to the statute. Accordingly, the court affirmed the trial court's order decision.

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

Georgia Condominium Act Not Applicable to Associations Established Before Law Enacted

Denhardt v. 7 Bay Traders LLC, 673 S.E.2d 621 (2009)

State and Local Legislation and Regulation: Lien for unpaid assessments is not enforceable under the Georgia Condominium Act enacted on Oct. 1, 1975, because the declaration recorded in 1972 was not amended to submit the condominium to provisions of the Act.

The Campbellton Court Association ("association") recorded its declaration in January 1972. Subsequently, Edward Brown bought a unit in Campbellton Court Condominiums ("Campbellton Court") and granted a deed to secure debt to Advanced Mortgage Corporation. In 1989, Brown granted a deed to secure debt to Parkway Mortgage. The Parkway Mortgage deed to secure debt was transferred to 7 Bay Traders LLC ("Traders") in June 2005. In December 2006, the original purchase money deed to secure debt in favor of Advanced Mortgage Corporation was satisfied and cancelled. In December 2006, the association assigned its interest in unpaid condominium assessments and liens on Brown's unit to Eddie Denhardt. In January 2007, Traders foreclosed on Brown's unit. Denhardt sent a notice of judicial foreclosure pursuant to the Georgia Condominium Act ("Act") and filed a petition to enforce his lien.

Traders filed a motion for summary judgment, arguing that Campbellton Court was created in 1972, prior to adoption of the Act on Oct. 1, 1975. The Act superseded the Apartment Ownership Act, Ga. L. 1963, p. 561 ("Apartment Act"), which was never repealed and continues to control those communities. The trial court granted summary judgment to Traders, finding that Denhardt failed to show that the declaration had been amended to submit Campbellton Court to the Act, and noted he had not sought to enforce his lien under the Apartment Act.

On appeal, Denhardt argued that the trial court erred, (1) in failing to apply provisions of the Act; (2) in concluding that Section 11 of the declaration allowed Trader's foreclosure of its deed to secure debt to extinguish his lien; and (3) by not acknowledging that public policy supports enforcing condominium liens over non-purchase money second mortgages.

The appeals court upheld the trial court's finding that Denhardt failed to show that the Act applied to his case. The court considered that—even though the Act establishes a lien in favor of a condominium association for assessments and provides for the priority of the lien—it nevertheless states, "Nothing contained in this article shall be construed to affect the validity of any provision of any instrument recorded prior to Oct. l, 1975." Because Denhardt failed to show any evidence that the declaration was amended to submit the condominium to the Act, he failed to show that any lien had been created.

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Interpretation, Enforcement of Declaration Reserved Solely for Courts

Eden Isles Condominium Association, Inc. v. Department of Business and Professional Regulations, Division of Florida Land Sales, No. 3D07-2022, Jan. 14, 2009

Covenants Enforcement: A Florida appeals court reversed a final order of the Department of Business and Professional Regulation ("DBPR") that penalized an association for violating the state land sales statute by changing the assessment structure in a condominium declaration, because it determined that jurisdiction to interpret and enforce the declaration is vested solely in the judiciary.

Eden Isles condominium comprises Buildings A through G, seven identical, four-story buildings, containing 52 units each with three different floor plans. Building G was the last to be built. For years, the management staff and board of directors of Eden Isles Condominium Association, Inc. received complaints from owners regarding the inequity of the assessment structure; specifically, that units of equal size were assessed different amounts. In 2004, the board met to address these inequities. It attempted to establish greater fairness in apportioning the assessments by using the percentages assigned to Building G, which more accurately correlated to the size of each unit. This resulted in approximately half of the unit owners paying more and half paying less. Thus, the board felt unit owners would be assessed more equally in 2005.

The record is unclear of the timing, but, at some point, the board became aware of an amendment to the condominium declaration that prescribed each unit's share of the common expenses that resulted in similarly situated owners paying a disproportionate share.

One of the unit owners filed a complaint against the association with the Department of Business and Professional Regulations, Division of Florida Land Sales, Condominiums, and Mobile Homes ("division") for failing to assess owners for common expenses according to the amended condominium declaration. In response, in 2006 the board reverted to the original assessment percentages and offered owners a refund if they had overpaid. No one requested a refund. However, the division proceeded with its investigation and issued a notice to the association to refute the charge that, in 2005, it assessed owners amounts that differed from the declaration in violation of Florida's land sales statute.

An administrative law judge conducted a two-day hearing at which not a single complainant appeared. The judge found that the division had a burden to prove the violation by clear and convincing evidence because imposition of a fine was punitive in nature. The judge found that the amendment language was ambiguous and recommended that the division rescind its notice and forgive the association’s fine. Citing Peck Plaza Condominium v. Division of Florida Land Sales & Condominiums, Department of Business and Professional Regulation, 381 So. 2d 152 (Fla. D.C.A. 1979), the judge determined that Florida's condominium law did not grant the division authority to interpret and enforce the provisions of a condominium contract that were ambiguous, and  under the Florida legal system, jurisdiction to interpret such contracts is vested solely in the judiciary.

The division appealed the ruling. On appeal, the division did not dispute the fact that its interpretation of the amendment created an inequitable scheme for the assessment of dues, nor did it dispute the board's conclusion that using the percentages assigned to Building G more equitably corresponded to the size of the units. It did not attempt to explain the meaning of the methodology outlined in the amendment, and it did not dispute the fact that the board's interpretation of the amendment was a more equitable system on which to base the assessments. The appeals court noted that the board’s vote to change its billing system was undisputed and took place at an open meeting with input from the owners. Nevertheless, the division imposed a $5,000 penalty for, what the court considered to be, a minor violation of Florida's land sales statute.

The division failed to cite any authority for penalizing the association for disagreeing with its interpretation of the condominium declaration, and the court failed to see that the board's attempt to promote equality in its dues assessment constituted a "major violation" of any statute or rule that warranted the division's protection from potential consumer harm. The court concluded that the division was enforcing a statute that was penal in nature, and, therefore, must be strictly construed. It reversed the division's order and remanded the case with a recommendation that the order of the administrative law judge be adopted.

In a dissenting opinion, a senior judge disagreed with the majority's opinion that the amendment was ambiguous and thought that the division "got it exactly right." He found that the amendment specifically and intentionally removed any provision for assessing common expenses equally on a per-unit basis and, instead, required that assessments be paid according to the percentages identified in the percentage of interest table found in the amendment. He agreed with the division that, "it would be difficult to find a document that more clearly identifies each unit's percentage share of the common expenses."

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

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Enforcement of Covenants Doesnít Unlawfully Discriminate Against African American Owners

Farrell v. Ashcombe Dover Homeowners Association, No. 1:07-CV-2324, U.S. Dist. Ct., Middle Dist. Pa., March 26, 2009

Covenants Enforcement/Federal Law and Legislation: An association's actions to enforce covenants against African American townhome owners did not violate the Fair Housing Act.

Chere Farrell and Keith Rivens owned a townhome in Ashcombe Dover, a residential community in Dover, Pa., and were members of the Ashcombe Dover Homeowners Association. They sued the association alleging that they were subjected to unlawful discrimination because of their race.

They argued that the association unlawfully discriminated against them under the Fair Housing Act when it fined them for posting "no trespassing" signs on their property. They testified they were treated differently from white residents when the association threatened to fine them for having a flower border around their residence. They further alleged that the association retaliated against them by attempting to force them to pay unwarranted fines and to sell their home, inflicting intentional emotional distress.

The association moved for summary judgment, and Farrell and Rivens filed a brief in opposition to the motion.

The Fair Housing Act provides that it is unlawful, because of race, color, religion, sex, familial status or national origin, (1) to refuse to sell or rent to any person; (2) to discriminate against any person in terms, conditions; or privileges of sales or rentals; (3) to make, print or publish advertisements that indicate a limitation or preference with respect to sales or rentals; (4) to represent to any person that a dwelling is not available when in fact it is; or (5) to induce any person to sell or rent by representation regarding entry or prospective entry of a person or persons of a particular race, color, religion, sex, handicap, familial status or national origin.

Farrell and Rivens claimed they posted "no trespassing" signs on their property on the advice of the association when their property was damaged by a contractor of the association, and subsequently, the association fined them for posting the signs. They alleged that the association treated them differently than white residents by threatening them with a fine for "outside storage issues" and "for having a flower border."

The association asserted that its declaration, bylaws and regulations prohibited "no trespassing" signs, outdoor storage or property dividers, and it denied prohibiting Farrell and Rivens’ flower border. The court found no evidence to indicate that white residents were treated differently by the association than Farrell and Rivens as to outdoor storage issues or fines for flower borders. Further the court determined that three letters from the association to Farrell and Rivens providing notice of violations were mischaracterized in the plaintiffs brief as harassing.

Farrell and Rivens argued that their retaliation claim under the Fair Housing Act was based on the association's interference with the sale of their home. However, the court determined that they owed the association $9,000 in unpaid assessments, and the association attempted to settle its claim for a lesser amount with the understanding that they would not bring future litigation. The court found that the theory of retaliation stated in the complaint was at odds with both Farrell's testimony at trial and in the plaintiffs' brief.

Farrell and Rivens claimed that they suffered severe emotional distress because of racial slurs by neighbors, some of whom were members of the association's board of directors; but the court determined that the claims did not rise to a cause of action under Pennsylvania law. 

The court granted summary judgment in favor of the association.

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A Third Party Must Demonstrate Proximate Cause to Establish Developer Negligence

Gibson v. Ussery, No. COA08-1002, N.C. App. Ct., April 7, 2009

Developer Liability: A North Carolina appeals court found that the owners of a condominium project were not negligent in allowing visitors access to the stairway leading from unfinished units because the plaintiff failed to show that the stairway was the proximate cause for the visitor's fall and the injuries that may have resulted.

This case is an appeal by the executor of plaintiff Cynthia Gibson's estate ("Gibson"). Gibson died of unrelated causes after she filed the suit. Gibson and her friends attended an open house at Carolyn's Mill, a historic mill in North Carolina owned by William B. Ussery, Carolyn B. Ussery, Carolyn's Mill, Inc. and Carolyn's Mill Condominium Association ("Ussery") that was being renovated into a condominium development. Several of the units were finished and others were still under construction. Gibson fell down an unfinished stairway and was injured.

The unfinished stairway was different from the one through which she entered the building. Gibson alleged Ussery posted no warning signs or blockade, and was therefore negligent in allowing visitors access to the unfinished stairway. Ussery argued that Gibson failed to present sufficient evidence that the stairway was the proximate cause of the accident, and, further, that she contributed to the negligence.

At trial, Gibson's friends testified that they did not remember encountering any locked or closed doors, warning signs, barricades or other barriers that prevented entry into the unfinished areas. After they viewed the unfinished unit, they descended the unfinished staircase, rather than use the stairs through which they had entered. Gibson was the second-to-last person to descend the stairs, followed by her friend, Mrs. Dickinson, who testified at trial. All members of the group testified that they observed the stairs in an unfinished condition, but believed them to be safe. They said they had no trouble descending the staircase and did not notice any wobbles, defects or obstructions.

Mrs. Dickinson testified that while Gibson was descending the stairs, she fell forward and landed on the floor. None of the group was able to determine the cause of the fall or the exact place on the stairs where Gibson lost her footing. One witness, Ms. Waters, testified that she inspected the staircase after the fall and discovered that one of the boards wobbled slightly; however, neither she nor any of the other witnesses knew whether Gibson fell on that step.

The trial court found that Gibson failed to present sufficient evidence of the element of proximate cause to support a negligence claim and granted Ussery's motion for a directed verdict, dismissing Gibson's claims with prejudice. Gibson appealed.

The appeals court affirmed the decision of the trial court, finding that Gibson was required to present evidence to show that Ussery's negligence was the "cause that produced the result in continuous sequence and without which it would not have occurred, and one from which any man of ordinary prudence could have foreseen that such result was probable under all the facts as they existed." Despite all other testimony presented at trial, the appeals court noted that there was no testimony indicating which stair Gibson fell on, and no one observed what caused her fall.

The appeals court considered several analogous cases where courts upheld directed verdicts when evidence presented was insufficient to support a negligence claim, and it concluded that, in this case, there was "no evidence beyond mere conjecture and speculation that Ussery's alleged negligence was the proximate cause of Gibson's fall and her injuries." The court affirmed the trial court's decision.

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Receiver Terminated, Common Area Conveyed to Association without Developer Liens

The Hamlet Property Owners Assoc. v. Keuler, 924 A.2d 701 (Pa. Super. Ct. 2007)

Developer Liability: A Pennsylvania appeals court affirmed a lower court order that discharged a receiver and transferred the common areas of a planned unit development to the homeowners association free and clear of all liens and encumbrances.

The Hamlet is a planned unit development located in Monroe County, Pa. The initial complaint in this action was filed when The Hamlet Property Owners Association, Inc. sued the developer for failing to construct and maintain promised amenities.

In 1990, the equity court appointed a receiver, Jeffrey Evans, to collect assessments and construct and maintain common areas in the subdivision. In 2005, Evans petitioned the court to be relieved of his duties because the association was willing and able to assume responsibility for upkeep of the common areas. By judicial orders dated May 16, 2008, his receivership was terminated and the common areas were transferred to the association free and clear of all liens and encumbrances. The court could find no reason to allow the developer or his heirs and assigns to retain ownership of the common areas in light of his co-mingling homeowners’ assessments with his personal funds and his failure to maintain the common area.

The court considered that the association, through its individual members, had contributed approximately $3 million for repairs and improvements for the benefit of the subdivision's homeowners, including the Keulers, who, although they were homeowners in The Hamlet, had paid nothing toward the improvements since the receiver's appointment in 1990.

The Keulers and Hamlet Funding, LLC appealed from the equity court's order and, in its memorandum filed June 3, 2009, the appeals court affirmed the trial court's decision.

Keuler raised five objections to the order: (1) the ruling was contrary to the contract provisions of the Constitutions of Pennsylvania and the United States; (2) there was no factual basis to divest the mortgage from the common area; (3) the court erred when it denied discovery, struck preliminary objections and granted protective order without notice; (4) the court lacked jurisdiction to terminate the contract rights of the recreation club; and (5) the court erred in relying upon the Uniform Planned Community Act.

The appeals court found: (1) it was the Keulers who violated their contract to convey the common area to the association, not the reverse; (2) the mortgage divestiture arose because the land was subject to a general plan of development, and it was the owner's obligation to improve the common area in furtherance of that plan and convey it to the association. The common area, in and of itself, has no independent value; the money spent by association members doing what the developer did not do increased the value of the property still owned by the developer; (3) to the defendant's complaint that the trial court denied discovery, the court noted that they had 18 years to conduct discovery and did not; (4) Hamlet Recreation Club, Inc. was properly joined as a necessary party to the litigation and thus the equity court had jurisdiction; and (5) the court determined that the trial court specifically did not rely on the Uniform Planned Community Act, but instead relied on Pennsylvania common law and the Restatement of Servitudes, but had it relied upon the Act, the conclusions drawn would have been the same.

Hamlet Funding, LLC raised two issues on appeal. (1) The court erred in condoning the actions of the receiver and granting motions seeking joinder, divestment of liens and conveyances of property free and clear of liens, all of which were beyond the scope of its authority and the authority of the receiver. The record before the court showed that the receiver did an outstanding job fulfilling the obligations that the developer failed to perform. The court relied upon Miners Bank of Wilkes-Barre v. Acker, 66 F.2d 850, (3rd Cir. 1933) in finding that "a court of equity under proper conditions has the power to order a receiver to sell property free and clear of all encumbrances, and to deny the mortgagee the right to foreclose his mortgage." It determined that this case was one in which circumstances merited that treatment. (2) The court denied Hamlet Funding's procedural and substantive due process in the manner in which it asserted jurisdiction over it and divested protected property interests. The court found that Hamlet Funding was brought into the case as a necessary party and was given a full opportunity to be heard. Further, as noted above, the common area had little or no independent value and Hamlet Funding, in fact, now had a greater security interest in the remaining property of the developer because of the work done by the receiver funded by the individual homeowners (except the mortgagor).

The equity court's order was affirmed.

Editor’s Note: Thanks to Alan Young, an attorney at Young & Haros, LLC, based in Stroudsburg, Pa., for submitting this case.

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

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Retroactive Owner Approval Can Be Sufficient to Declaration Requirements

Levy et al. v. Foxwood H. Condominium Association, Inc., 2009 Conn. Super. LEXIS 115, Jan. 15, 2009

Covenants Enforcement: Approval by a majority of unit owners of a loan for reconstruction of a condominium common area is sufficient to meet project approval requirements contained in the declaration. Retroactive approval of the work itself is also sufficient.

Robert Levy and Robert Soule are the owners of separate units in Foxwood H. Condominium Association, Inc. The condominium was established in 1978 and consists of nine buildings with 41 units. A seven-member board of directors manages the community.

In the summer of 2003, the condominium hired a contractor to power wash each deck on all the condominium units, and he told the board that many decks were in poor condition. The board discussed the condition of the decks with various professionals who advised them that about 25 decks needed immediate attention because of hidden wood rot and termite infestation. The consultants recommended that the decks and privacy walls be rebuilt and opened up by using open-slotted railings to allow the wood to breathe and prevent future problems. The board approved the plan.

Because the condominium had insufficient capital to fund the project, it obtained a $100,000 loan from Guilford Savings Bank. The decision to obtain the loan to fund the project was approved by the board, the architectural control committee and by the owners at a special meeting. In July 2004, seven decks had been rebuilt. The board's president and the architectural control committee reported the project's progress to the owners at the annual meetings in 2004 and 2005.

At a board meeting in September 2004, Levy pointed out that the condominium declaration provided that a majority of the unit owners must approve any material changes to the common elements. He stated that the plan would not be approved by a majority of the owners. The board believed that since a majority of unit owners had approved funding for the plan, the approval requirement had been satisfied. Eventually, the board called a special meeting of the owners to ratify and approve the work that had already been completed and to approve the additional work needed. The proposal was approved overwhelmingly. The plan was also discussed and approved at a board meeting held in 2006 that was attended by many unit owners.

Levy and Soule sued the association seeking an injunction, damages and attorney's fees. The case was heard at a bench trial in August 2008, and the parties filed post-trial briefs.

Levy and Soule claimed that the board failed to comply with a requirement in the declaration (“article”) that no building, fence, wall or other structure be commenced, erected or maintained upon the condominium property, nor shall any exterior addition to, or change or alteration be made, other than the original construction undertaken by the declarant, unless the plans and specifications of the project are approved in writing by the architectural control committee.

The association argued that the article only applied to work done by the declarant during initial construction of the condominium; after construction was completed, it had no further application. Alternatively, it argued that if the article did apply, the architectural control committee had met its requirements.

Levy and Soule claimed that the article applied to reconstruction of the decks and privacy walls, and that detailed plans and specifications should have been prepared and approved by the architectural control committee before construction began.

The court failed to agree with either side's interpretation of the article. It found that the article did not apply to the declarant's original construction. It interpreted the article to mean that owners are required to provide plans and specifications of any proposed alteration or construction on their units to the architectural control committee for approval. The court found it unreasonable to conclude that, on the one hand, the declaration would provide that a majority of unit owners must consent to any material alteration or substantial addition to the common elements and, on the other hand, provide that a three-person architectural control committee has the power to veto any proposed structure. The court noted that the architectural control committee, who were not required to be on the board, would be able to veto construction that had been approved by all owners and the board. It further found its conclusions were supported by the bylaws, which set out the procedure for making additions, alterations or improvements that cost more than $3,000, but did not mention the architectural review committee.

Levy and Soule also claimed that the association didn’t comply with an article of the condominium declaration that stated, "[T]here shall be no material alteration of or substantial addition to the common elements, except upon the consent of a majority of unit owners…"

The court found that the association had ultimately obtained the unit owners' overwhelming approval of the project; and, while it would have been preferable to obtain approval before the reconstruction, the argument that owners had no choice except to approve the project after the fact was not supported by the record. The court found the evidence clearly indicated that the project would have been approved if it had been proposed at a meeting of owners before reconstruction commenced. In addition, professionals had advised the board of the serious nature of the problem, and the project was recommended to them by those professionals. Also, the unit owners had approved a loan in October 2003 to finance the project. The court found it reasonable for the board to assume the owners were in favor of the project because they had approved the loan, and the vote of the owners in April 2007 was sufficient to comply with the declaration. The court ruled in favor of the association.

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Lawsuit to Enforce Covenants Does Not Entitle Association to File Lis Pendens

Santa Fe Ridge Homeowners' Association v. Bartschi, 199 P.3d 646 (Ariz. App. 2008)

Covenants Enforcement: An association was not entitled to record a lis pendens against a homeowner's property to compel compliance with restrictive covenants because violating restrictive covenants does not affect title to real property.

Carla Bartschi bought a home in Santa Fe Ridge, a planned community in Glendale, Ariz., that is subject to CC&Rs. On Nov. 9, 2006, Santa Fe Ridge Homeowners' Association sued Bartschi for breach of contract for covenants violations. The association claimed Bartschi refused to remove trash and debris from her lot. The association sought an injunction requiring that she remedy the violations by a specific date and requested a grant of authority to enter her property to remedy the violations if she did not comply with the injunction.

On Nov. 13, the association recorded a notice of lis pendens against Bartschi's lot. A lis pendens notifies prospective purchasers and lenders of a pending lawsuit that may affect the title to the property. Bartschi denied that the association was entitled to relief; filed a counterclaim for wrongfully recording the lis pendens and asked the court for statutory damages, attorney's fees and costs.

In March 2007, Bartschi asked the court for partial summary judgment on her counterclaim, arguing that the lis pendens was invalid because the association's lawsuit was not an action that affected title to real property as required under Arizona law. The court suggested a settlement conference, realizing that the parties would likely incur significant legal fees if the lawsuit proceeded. Because Bartschi professed a willingness to correct the maintenance issues, the court found that the lis pendens was appropriate, but it could be removed when Bartschi complied with the settlement agreement.

A status conference was held, and the court reconsidered its previous ruling and granted summary judgment to Bartschi with respect to the lis pendens, finding it did not affect title to property. The court ordered that it be removed no later than 10 a.m. on July 16, and scheduled another status conference.

On July 23, Bartschi filed a motion for statutory damages, attorney's fees and costs for groundless recording of lis pendens. The association argued that the lis pendens did affect title to Bartshci's lot because prospective purchasers must be made aware when issues concerning the property's compliance with the covenants exist. The court disagreed, stating that because the association failed to obtain a judgment or a lien against the property, the lis pendens was improper. The court dismissed the association's complaint in September. At that time, Bartschi was not in violation of the declaration, so the association was not entitled to relief. The court granted Bartschi's motion for partial summary judgment, awarding her $5,000 in damages, $11,110 in attorney's fees and $422.20 in costs. The association appealed.

In its appeal, the association argued that the trial court erred by entering partial summary judgment in Bartschi's favor and finding that entry of judgment was required before a lis pendens could be properly recorded. The association contended that its lawsuit "affected title to real property," and the lis pendens was, therefore, properly recorded under Arizona law.

Section 12-1191(a) of the Arizona Revised Statutes provides that, in an action affecting title to real property, a person may, at the time of filing the complaint or thereafter, record a notice of the pendency of the action or defense in the county where the property is located. The association argued that the law plainly authorizes recording of a lis pendens at the time a complaint is filed. The appeals court agreed that a lis pendens may be recorded when a lawsuit is filed; however, it did not view the trial court's comments as suggesting the lis pendens was improperly recorded because the association had not yet obtained a judgment for injunctive relief. The appeals court interpreted that the trial court was making the point that the relief sought in the complaint would not affect title to real property unless a monetary judgment or lien was later obtained based on future events. The trial court had noted that the association was required to perform self-help remedies before it could acquire a lien. Regardless, the appeals court found the trial court's propriety ruling rested on whether the lawsuit was one that affected title to real property, thereby triggering the ability to record a lis pendens.

To determine whether a lis pendens is improperly recorded, the court may only consider whether the action affects title to the property. The court need find only "some basis" that the action affects title to conclude the lis pendens was properly recorded. If there is no arguable basis for the lis pendens or it is not supported by credible evidence, it is groundless. The court's decision should not take into account which party might prevail on the merits of the underlying claim.

In this case, the association sought a mandatory injunction requiring Bartschi to remedy all violations of the declaration by a certain date. It contended that the lawsuit affected title to real property because (1) an action to enforce a restrictive covenant necessarily affects title; and (2) the suit may result in a lien against the property. The association argued that any action to enforce a restrictive covenant is one affecting a right incident to ownership of real property because any judgment would adjudicate the scope of the owner's fee rights. Thus, any action filed by a homeowners association to enforce violations of the covenants would entitle the association to record a lis pendens. Under the doctrine of lis pendens, whoever purchases property that is involved in pending litigation stands in the same position as his vendor, is charged with notice of the rights of his vendor and takes the property subject to whatever valid judgment is rendered in the litigation. The appeals court determined that a lawsuit affects a right incident to title if any judgment would expand, restrict or burden a property owner's rights as bestowed by virtue of that title. The court rejected the association's contention that its action affected rights incident to title to real property. The court found that any injunction entered against Bartschi would have been personal to her and would not have expanded, restricted or burdened the rights incident to her property title, which was already burdened by the recorded declaration.

The court also rejected the association's assertion that recording the lis pendens fulfilled the purposes underlying Section 12-1191. Use of the property by future owners would not have been affected by any judgment requiring Bartschi to comply with the declaration. Additionally, future purchasers could not have prevented the association from acquiring relief from the court. Had Bartschi transferred her interest in the property either before entry of judgment or after the association incurred self-help expenses, the association still could have obtained relief from the court. The court concluded that the declaration was recorded; and, therefore, all future interest-holders were placed on notice of the restrictions on title. If a new owner refused to comply with the declaration, the association could file a new lawsuit or amend the existing suit to compel compliance. Moreover, the association would retain the ability to amend its complaint or bring a new action against Bartschi to seek reimbursement for any self-help expenses and fees incurred in the initial action. Consequently, the court found that the purposes of the law on which the association relied were not served by its recording the lis pendens.

The association next argued that an action that may result in a lien affects title for purposes of the statute. Because the association sought a lien on Bartschi's property, if she failed to obey any eventual injunction and the association had to incur self-help expenses that Bartschi refused to reimburse, the association argued that the lawsuit was affecting title to real property.

The court decided that, at the time the association recorded the lis pendens, no basis existed to conclude that a lien would be imposed on real property. The appeals court agreed that the lis pendens was simply premature. In essence, by asking for a lien, should Bartschi in the future fail to comply with an injunction order and then refuse to pay self-help expenses, the association sought anticipatory relief that was not ripe for adjudication. The court explained that "ripeness" is similar to "standing" because the "doctrine prevents a court from rendering a premature judgment or opinion on a situation that may never occur." Courts have no jurisdiction to render anticipatory opinions. Thus, the appeals court found that the trial court was correct when it ruled that the lis pendens was premature and groundless. 

Section 33-42(A) of the Arizona Revised Statutes provides that one:

…purporting to claim an interest in, or a lien or encumbrance against, real property, who causes a document asserting such claim to be recorded . . . knowing or having reason to know that the document is . . . groundless . . . or is otherwise invalid is liable to the owner . . . of the real property for the sum of not less than five thousand dollars . . . and reasonable attorney fees and costs of the action. 

The association argued that the trial court erred in finding liability under this provision because Bartschi failed to show that the association knew or had any reason to know the lis pendens was groundless. It emphasized that even the trial court initially found that the lis pendens was valid. Bartschi responded that the association's knowledge was evidenced by its contrast in this case and others that involved title to property and the fact that it was represented by experienced counsel throughout the proceedings. Because the association failed to raise this argument at trial, the court did not address it on appeal. Lastly, the association argued that the trial court erred by awarding Bartschi attorney's fees attributable to her defense.

The court found that the propriety of the lis pendens did not depend on the merits of the association's complaint for injunctive relief. Although the trial court ultimately dismissed the complaint, it did so only after Bartschi performed the maintenance on her property that formed the basis of the suit, supporting the conclusion that the association's claim had merit. The appeals court found it would be unfair to award Bartshci attorney's fees incurred in defending a meritorious complaint under the guise of a request for fees pursuant to Section 33-420(A). Therefore, the appeals court vacated that portion of the trial court's judgment and remanded the case to award only those fees attributable to Bartschi's counterclaim.

The court denied the association's request for attorney's fees because, on balance, it failed to prevail as the successful party on appeal.

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

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