September 2011
In This Issue:
Owner Must Remove Gazebo that Violates Zoning Regulation
Total Approval Needed to Change Interest Percentage
Court Won't Address Repair Issues Previously Ruled Upon
Bank Needs Direct Interest in Unit to Stop Foreclosure
Unpaid Property Maintenance Fees Not a Lienable Offence
Association Has Right to Treat Lake with Algaecides
Zoning Ordinance Requires Formation of Master HOA
City Tries to Foreclose on Affordable Housing Units
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Owner Must Remove Gazebo that Violates Zoning Regulation

Ariyan v. Pine Orchard Association, Inc., No. CV084034207S, Conn. Super. Ct., Dec. 3, 2010

Architectural Control: Owner must remove partially constructed gazebo because it violates the zoning regulations’ rear setback requirement.

Pine Orchard Association, Inc. (association) is located in Branford, Conn. It has certain areas of jurisdiction separate from the Town of Branford, including planning, zoning and zoning enforcement within the association’s boundaries.

Sandra Ariyan owns a lot in a zone that requires a 20-foot rear yard setback (the horizontal distance between the rear of the property and the nearest structure). Her lot contained a single-family residence with attached garage, swimming pool and small gazebo. The property line at her back yard bordered a private, unimproved right-of-way section that she had access to. In late 2007, she began constructing a larger gazebo next to her pool without obtaining a building permit. She subsequently applied to the zoning board for a certificate of conformity, but her application was denied. In April 2008, she submitted a second application that was also denied because the gazebo violated the rear yard setback zoning regulation. In June, she applied for a variance of the setback requirement, stating that because there was no barrier between the back of her property and the private right-of-way, the gazebo would not be noticeable even if it didn’t adhere to the 20-foot rear yard setback requirement. However, the zoning board disagreed, and her application for a variance was denied. In August, the Zoning Enforcement Officer issued a cease and desist order stating the partially constructed gazebo was a non-conforming structure that was erected without zoning and building permits. Ariyan was ordered to remove the gazebo. When the Zoning Board of Appeals upheld the order, she pursued her appeal in the Connecticut Superior Court.

Ariyan claimed that the zoning boards’ decision was illegal, arbitrary and an abuse of discretion. She asserted that the zoning regulations’ actual language did not contain a definition of “structure,” and provided no guidance for the boards’ interpretation. She further argued that the gazebo did not disrupt the neighbors’ views or interfere with the adjacent landowners’ rights. She alleged that the appeals board’s decision was not supported by the evidence and had no basis in fact or law.

The court held that the zoning authority and the appeals court interpreted the term “structure” in accord with its natural and usual meaning. The court further determined that Ariyan’s claim that any setback from the real line of her property wasn’t necessary because of the private right-of-way bordering her yard was without merit. Lastly, the court found that Ariyan’s claims that the proposed gazebo would not obstruct the neighbors’ views were also without merit.

The court concluded that zoning regulations provide for appropriate construction setbacks and that zoning regulators are required to apply the regulations when appropriate. Boards of appeal are entrusted with deciding, within prescribed limits consistent with the exercise of legal discretion, whether the ordinance applies to a given situation and the manner in which it applies.

The court held that the zoning regulation was clear and that both the zoning authority and the appeals board interpreted and applied it correctly. Ariyan’s appeal was dismissed.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

Total Approval Needed to Change Interest Percentage

Cusimano v. Port Esplanade Condominium Association, Inc., No. 2010-CA-0477, La. App. Ct., Jan. 12, 2011

Covenants Enforcement/Contracts: A Louisiana appeals court affirmed a ruling that an amendment to a condominium declaration that gave a select group of owners exclusive use of the swimming pool and certain passageways was valid and enforceable because even though the prior owner who wouldn’t have access to these amenities didn’t vote on the amendment, they did confirm the amendment was publicly recorded.

Port Esplanade Condominium consists of two residential buildings located on the corner of Dauphine Street and Esplanade Avenue in the French Quarter of New Orleans, La. The condominium is governed by Port Esplanade Condominium Association, Inc. (association).

In 2002, unit owners in the building facing Esplanade Avenue (Esplanade owners) adopted an amendment to the condominium declaration transferring use of the swimming pool and certain passageways that were condominium common elements for both buildings to the exclusive use of the Esplanade owners, making the pool and passageways limited common elements. The Meaghan Frances Hardcastle Trust, owner of the units facing Dauphine Street, did not join in the amendment adoption but later sold its units in a transaction that was expressly “made, executed and accepted subject to” the publicly recorded amendment.

The subsequent unit owners in the building facing Dauphine Street (Dauphine owners) sued the association, alleging that the amendment was invalid because a change in common element ownership required the consent of all unit owners, and the Trust hadn’t voted on the amendment. The association contended that (1) only a two-thirds majority vote was required; (2) if a unanimous vote was required, the amendment was merely a relative nullity (a legally invalid contract that can be validated by confirmation) when it was first adopted; and (3) the Trust, as sole owner of the Dauphine Street units, affirmed the amendment by the transfer terms it provided to the subsequent owners, making the amendment valid.

The trial court ruled in the association’s favor, and the Dauphine owners appealed.

The Louisiana condominium statute provides that condominium unit owners’ percentage interest that’s set forth in the declaration may not be altered without the consent of all unit owners. Their unanimous consent must be recorded in an amendment to the declaration. The appeals court, therefore, concluded that the less-than-unanimous consent of all unit owners was insufficient to adopt the amendment.

However, Louisiana law provides that a contract is “relatively null” when it violates a rule that’s intended to protect private parties; however, a relatively null contract may be confirmed so that it is binding and enforceable. In this case, the amendment was relatively null because it violated a rule intended to protect unit owners whose consent was required to legalize the forfeiture of their ownership interest in the common elements of the condominium. There was no doubt that the Trust could have told the Esplanade owners that the amendment was null and force it to be deleted from the public records. However, when the Trust sold its undivided interest in the Dauphine Street units, expressly subject to the terms of the amendment, that assent constituted the requisite unanimous owner consent needed to adopt the amendment.

The appeals court affirmed the trial court’s ruling that the amendment to the declaration—having been duly recorded in the public records and accurately confirmed by the Trust—was binding and enforceable.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Court Won't Address Repair Issues Previously Ruled Upon

Eden Harbour Condominium Association v. Eden Harbour, LLC, No. MMXCV094010447S, Conn. Super. Ct., Dec. 7, 2010

Architectural Control/Developer Liability: A Connecticut court denied a motion for summary judgment filed by a developer because the issues raised in the motion had been previously addressed at court and ruled upon.

Eden Harbour Condominium Association (association) sued Eden Harbour, LLC, alleging that the LLC promised to remedy various workmanship and design defects that caused water leaks in several condominium units. The LLC determined that cantilevered decks—which were limited common elements owned by the association—caused the leaks. The LLC hired a contractor to tear down the cantilevered decks and replace them with posted decks. The association did not consent to the repairs and sued the LLC to prevent it from demolishing, repairing or reconstructing the decks.

In November 2009, a hearing was conducted to determine which of the parties was authorized to repair the decks. The judge ruled that the LLC had the right to repair the water intrusion problem relating to the decks, but the exact nature and extent of the repair work would be determined separately after a hearing on the issue.

In June 2010, the LLC filed a motion for summary judgment, arguing that the judge had ruled that the LLC had the right to repair the decks and there was no dispute as to the nature of the repairs. The LLC contended that all the experts agreed that the cantilevered decks must be removed, the posted deck design was the only permanent repair option and the association had failed to offer an alternative to the posted deck design.

In response, the association argued that a genuine issue of material fact existed. Specifically, while the experts agreed that the existing cantilevered beams must be removed, they did not agree that installing posted decks was the only viable repair option. The association pointed out that the judge’s ruling was limited to which party had the authority to make the repairs. The judge expressly ruled that the nature and extent of repairs was to be determined at a separate hearing. The association asserted that it had not had an opportunity to present an alternate building plan but intended to do so at the hearing.  

Since the LLC did not raise any new or overriding circumstances that would cause the court to reconsider the judge’s ruling, it denied the LLC’s motion for summary judgment, holding that the judge’s ruling constituted the law of the case and providing that the issues raised in the LLC’s motion for summary judgment would be addressed in the separate hearing.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Bank Needs Direct Interest in Unit to Stop Foreclosure

Grove Court Condominium Unit Owners’ Association v. Hartman, No. 94910, Ohio App. Ct., Jan. 20, 2011

Documents: A decision denying a lien holder to intervene in a foreclosure action was upheld on the grounds that there was no pleading attached to the lien holder’s motion to intervene and the motion was untimely.

Dorothy and Richard Hartman purchased two units, 307 and 405, in the Grove Court condominium located in Cleveland, Ohio. They acquired ownership through two separate and distinct deeds. After they purchased the units, they added an internal stairway to connect them. They did not combine the units for legal or tax purposes and retained separate addresses and parcel numbers. In 2005, the Hartmans obtained refinancing from Wells Fargo. The legal description on the mortgage and title commitment included only unit 307; there was no recorded interest on (rights to) unit 405.

In 2006, Grove Court Condominium Unit Owners’ Association (association) sued the Hartmans, seeking to foreclose a lien against unit 405 for unpaid maintenance fees and assessments. The preliminary judicial report did not show any mortgages on unit 405. In an unopposed action filed by the association, the trial court granted summary judgment in favor of the association and issued a decree to allow foreclosure.

In the meantime, Wells Fargo began foreclosure proceedings on unit 307. After discovering the association’s foreclosure action on unit 405, Wells Fargo filed an emergency motion to intervene, asserting that it had issued a refinance loan to the Hartmans, and both parties had intended that the loan be secured by both units 307 and 405. As a result of a clerical error, only unit 307 was identified in the legal description on the mortgage. Wells Fargo sought an order recognizing it had a superior lien interest in unit 405. Before its motion could be ruled on, unit 405 was sold at auction, and a court magistrate issued an order denying Wells Fargo’s motion to intervene.

Various distributions were made from unit 405’s sale, including the amount owed to the association to satisfy its judgment. Wells Fargo objected to the magistrate’s decision that the association had the right to foreclose on and sell the unit, but the trial court overruled its objections, finding that Wells Fargo’s motion to intervene failed to properly plead a claim under Ohio’s rules of civil procedure because it did not attach the required pleading to the motion. The court also found that a number of new liability issues that would operate to severely prejudice the association’s ability to satisfy its judgment had been raised during the trial. The court further determined that Wells Fargo did not hold the rights to unit 405 and that the motion was untimely. Wells Fargo appealed.

Documentation provided by Wells Fargo at appeals trial demonstrated that its mortgage encumbered only unit 307. However, Wells Fargo claimed in its appeal that it held an equitable lien to the Hartsmans’ property that was superior to other parties’ interests to unit 405, resting on the exercise of the court’s equitable power of reformation (the leeway for judges to interpret laws and regulations in a party's favor that might otherwise be interpreted harshly).

The appeals court recognized that absent the court exercising its equitable power, Wells Fargo had no rights to unit 405. The court further determined that even if Wells Fargo’s claimed interest was a direct, substantial and legally protectable one, the trial court properly denied the motion to intervene on grounds that a required pleading was not attached to the motion and that the motion was untimely.

Ohio’s civil rules of procedure mandate that a motion to intervene “shall be accompanied by a pleading . . . setting forth the claim or defense for which intervention is sought.” No such pleading accompanied the motion to intervene filed by Wells Fargo.

The court further noted that the motion’s timeliness to intervene is decided within the sound discretion of the trial court. Intervention after final judgment has been entered is unusual and ordinarily not granted. In this case, Wells Fargo did not observe the alleged clerical errors that twice omitted unit 405 from the legal descriptions: first when it received the title commitment and second when the mortgage was recorded. It did not intervene in the foreclosure until nearly a year after the association’s case was filed, two months after final judgment was granted to the association and four days before the sheriff’s property sale. Also, the motion was filed six months after Wells Fargo had filed its own foreclosure action against unit 307.

The court concluded that since a judgment had already been imposed establishing priority interests, allowing Wells Fargo to intervene in the foreclosure of unit 405 would be harmful to the association; further, the unit had already been sold.

Considering all the facts and circumstances of the case, the appeals court overruled Wells Fargo’s sole assignment of error and affirmed the trial court’s decision.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Unpaid Property Maintenance Fees Not a Lienable Offence

Parc Central Aventura East Condominium v. Victoria Group Services, LLC, No. 3D10-254, Fla. App. Ct., Jan. 19, 2011

State and Local Legislation and Regulations/Contracts: A Florida appeals court ruled that a company that provided cleaning and maintenance services to a condominium association could not seek to recover unpaid fees by filing a lien against individual condominium units.

Victoria Group Services, LLC sued Parc Central Aventura East Condominium, Inc. (association) to collect unpaid fees the association owed Victoria Group for cleaning, maintenance, concierge and security services arising from three separate contracts. The trial court ordered the association to pay Victoria Group $290,737.27, the total due under the three agreements, followed by a final judgment of foreclosure on the individual condominium units. The association appealed.

In the appeals court, Victoria Group argued that since the association authorized the services, they were provided with each unit owner’s expressed consent.

The association argued that the trial court erred in allowing Victoria Group to foreclose on the units based on regulations found in the Construction Lien Law, commonly known as the mechanic’s lien statute. The court agreed, holding that the statute’s fundamental purpose “is to protect those who have provided labor and materials for the improvement of real property.” The statute defines “improvement” as any improvement made on land for its permanent benefit. The court concluded that cleaning and maintenance services were not permanent improvements and, thus, not lienable under the statute.

The court further found that Victoria Group had no lien rights under the Florida Condominium Act, holding that, if a valid lien encumbers multiple condominium units, unit owners may exercise his or her rights under the act’s lien statute.

The appeals court reversed the trial court’s foreclosure order and sent the case back with instructions to enter a monetary judgment in Victoria Group’s favor consistent with the trial court’s order granting summary judgment.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Association Has Right to Treat Lake with Algaecides

Spangenberg Area Property Owner’s Association v. Spangenberg, No. 2008 CV 5002, Pa. Ct. Com. Pl., June 24, 2010

Miscellaneous Association Operations: A Pennsylvania court ruled that a homeowners association had the right to treat a man-made lake with algaecides and herbicides to control the overgrowth of algae, lily pads and weeds.

Lake Spangenberg is in Jefferson Township, Pa. It was created in the 1950s by building an earthenware dam on a large parcel of property owned by George Spangenberg. Over the years, Spangenberg subdivided, marketed and sold lots surrounding Lake Spangenberg, conveying with the lots the right to “swim, boat, bathe and fish . . .” in the lake. Spangenberg Area Property Owner’s Association (association) represents the lot owners’ interests.

In 2004, the association was inundated with complaints that owners could not use the lake because it was overgrown with weeds, lily pads and algae. The association obtained a permit from the Commonwealth of Pennsylvania to treat the lake with algaecides and herbicides.

Spangenberg opposed the association’s water treatment of the lake, in spite of the fact that it was sanctioned by the Department of Environmental Resources and the Fish and Boat Commission. He made public and private attacks on the association and its members, threatened to suspend their lake rights and attempted to interfere with the water treatment.

The association sued Spangenberg to protect its property rights, seeking to prohibit his conduct, and Spangenberg counterclaimed for $2,425 and unspecified punitive damages for costs incurred by his water company.

The deeds by which Spangenberg conveyed the lots contained the following clause:

And for the further consideration of an annual rental of Ten ($10.00) Dollars the said Grantors herein grant and convey unto the said Grantees, their heirs and assigns, the right of access to said lake, including the margin of land between said lake and the hereinabove described premises, the same always to remain unobstructed and the right in the said Grantees, their heirs and assigns and guests to swim, boat, bathe and fish therein.

The clear and unambiguous language in the deeds and the fact that valuable consideration was collected annually by Spangenberg from the owners indisputably established the owners’ lake rights. Logically, those rights could not be exercised if the lake became overgrown with algae and vegetation. Since the association clearly established its rights for use and enjoyment of the lake, any interference or attempt by Spangenberg to revoke lake rights was unlawful.

The court ruled in the association’s favor, holding that Spangenberg’s conduct constituted a nuisance because it significantly invaded residents’ use and enjoyment of the property. Spangenberg was prohibited from interfering with the legal water treatment of the lake and from attempting to improperly suspend or interfere with the owners’ lake rights. The court dismissed his counterclaim.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Zoning Ordinance Requires Formation of Master HOA

The Village Pines at the Pines of Greenwood Homeowners’ Association, Inc. v. The Pines of Greenwood Homeowners’ Association, Inc., No. 41A01-0912-CV-568, Ind. App. Ct., Nov. 17, 2010

Developmental Rights/State and Local Legislation and Regulations: An Indiana appeals court ruled that a planned unit development must establish a master homeowners association to manage and maintain amenities and park space for all owners and occupants.

The Pines of Greenwood is a planned unit development (PUD) in Greenwood, Ind. The City of Greenwood has a PUD zoning ordinance that provides a number of general design requirements. The Pines consists of five communities with two types of homes and densities. Three communities contain traditional single-family homes and two communities contain clustered, low-maintenance, single-family detached units.

The developer’s master plan featured “a coordinated landscaping theme (and) amenities, including open space/landscape areas, access to a pedestrian path and an open space network available to all residents of the Pines.” The plan was recorded and approved in March 1999 in an ordinance that amended the city’s existing zoning ordinance (master plan ordinance). Subsequently, two sets of covenants were recorded for the subdivision: one for Village Pines, governed by the Village Pines at the Pines of Greenwood Homeowners’ Association, Inc. (Village Pines association), and one for the Pines of Greenwood, governed by the Pines of Greenwood Homeowners Association, Inc. (Pines association).

During development, a swimming pool was constructed in the Pines. Despite the reference in the master plan ordinance to a master homeowners association, no master association was formed.

In July 2008, the Village Pines association sued the Pines association, seeking reformation of the subdivision covenants and a declaration that the Village Pines’ residents would be permitted to use the swimming pool.

At a bench trial in June 2009, the Village Pines association argued that to comply with the master plan ordinance, the court should order the creation of a master homeowners association to maintain and operate the common areas, including the swimming pool. In November, the trial court ruled that the documents reflecting the development of the Pines did not expressly require the creation of a master association to control the common areas. The association appealed.

The PUD zoning ordinance provides “There shall be established a Home Owners Association [with governing directives] which provide for the control and maintenance of all common areas, recreation facilities or open spaces . . .” Moreover, the master plan ordinance states that “[t]he rest area parks, landscape features and the hiking-jogging-biking path shall be maintained by a master homeowners association.” Therefore, the appeals court determined that, by law, a master homeowners association was required for the Pines.

The court noted that the PUD zoning ordinance required that the PUD have land for park and/or recreational purposes for the “shared use or enjoyment” of its “owners and occupants.” Further, the master plan ordinance states the Pines “shall feature . . . amenities, including open space/landscape areas, access to a pedestrian path and an open space network available to all residents of the Pines. . .”  Accordingly, the court concluded that the swimming pool was such an amenity available as a recreation facility for all residents of the Pines and it would be within the scope of the master homeowners association’s responsibilities to control, maintain and operate the pool by levying assessments against all property within the Pines.

The court reversed the trial court’s order and remanded the case, instructing that the parties engage in mediation to create governing documents for the master homeowners association, with covenants governing its management and maintenance of the common areas and amenities and to reform the existing covenants consistent with its order.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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City Tries to Foreclose on Affordable Housing Units

Twin Pines Cooperative Foundation v. Davis Area Cooperative Housing Association—Case to be tried in October 2011.

Municipal Relations/Sale and Lease Restrictions: An affordable housing cooperative in Davis, Calif., is at risk of having all units foreclosed on because cooperative members defaulted on repayment of a $4.5 million interest-only refinance loan from the City of Davis.

The Twin Pines Cooperative Foundation is a nonprofit tax exempt entity that is based in Davis, Calif. Twin Pines and Neighborhood Partners are limited equity developers of the Davis Area Cooperative Housing Association (DACHA), a multi-site, limited-equity housing cooperative composed of 20 single-family homes in clusters throughout the community. When they were constructed, the homes were appraised at approximately $400,000 each; however, the developer sold them for an average price of $200,000 each to meet California’s affordable housing requirements.

When the cooperative was established, each member was required to pay $22,000 to enter the organization. Many members could not afford the share payment and, therefore, borrowed the money. The city became aware of problems with DACHA as early as 2005. Residents complained that their monthly payments were too high, and some complained they had been misled into purchasing into the cooperative, believing it was a path to private ownership.

In January 2008, the city decided to refinance DACHA to help the cooperative members deal with cash flow and affordability problems and to keep them in the affordable housing program. In August, the city’s Redevelopment Agency refinanced DACHA’s secured debt, which reduced the initial share investment and lowered the monthly carrying charges.

In September 2009, Twin Pines, along with Neighborhood Partners, sued DACHA for breach of contract and other issues, alleging that the DACHA board took various actions that breached agreements between Twin Pines and DACHA as well as the Davis-Stirling Act and California nonprofit corporation law.

Twin Pines alleged that DACHA misused public funds by illegally redistributing cooperative funds to its members, thus violating the California Health and Safety Code, which was enacted to protect corporate assets. In binding arbitration, Twin Pines was awarded a judgment of $331,000, allowing Neighborhood Partners to levy DACHA’s assets. In October, DACHA’s bank accounts were seized for a total of $57,000 to pay the arbitration award, causing the organization to fall behind in its loan payments to the city.

The record showed that DACHA used funds from the refinance to refund its members the difference between their initial payment of $22,000 and the reduced share investment of $6,250, and had reduced their monthly carrying charge. More than $200,000 was transferred from DACHA to its members. Had that money stayed with DACHA, the cooperative might have been able to pay off a majority of the judgment against it.

In October 2009, DACHA was no longer able to make payments on the loan and subsequently went into default. In November 2009, in accordance with the loan terms, the city began collecting and releasing funds on DACHA’s behalf for the purpose of protecting the city’s security assets against deterioration and liens.

In December, the city brought foreclosure proceedings against DACHA, seeking to foreclose the 20 homes and dissolve the cooperative’s assets to repay the $4.5 million loan. The foreclosure notice was published in April 2010. The city planned to purchase the property and sell the 20 homes as appreciation-capped, affordable-ownership housing units, using a standard lottery process. Twin Pines and Neighborhood Partners publicly opposed the city’s plan and urged the city council to rescind the foreclosure action.

In an effort to stop or delay the city’s foreclosure action, Twin Pines and Neighborhood Partners instigated involuntary bankruptcy proceedings against DACHA. USC Section 303(a) exempts any “corporation that is not a moneyed, business or commercial corporation” from involuntary bankruptcy. Twin Pines argued that DACHA was, in fact, a moneyed, business or commercial corporation within the statute’s interpretation of the term, but the court found overwhelming evidence to the contrary and was “satisfied that it was nonprofit in nature and character.” The court, therefore, ruled in summary judgment to dismiss the proceedings.

Perhaps as important as the finding that DACHA was a nonprofit corporation was the court’s ruling that DACHA’s partial refunding of the initial member contributions was not a dividend, distribution or return on investments, but rather a one-time refund of contributions. The ruling was of particular interest since the petitioners claimed from the start that the refunds represented a violation of corporation law, which provides that assets cannot be transferred from a nonprofit to its members. The court, however, observed that Twin Pines failed to explain how member deductions for mortgage interest and property taxes, as well as failure to enforce delinquencies on carrying charges, transformed DACHA from a nonprofit entity into a for-profit entity.

At a hearing in April 2010 before the California Superior Court, Twin Pines sought a temporary restraining order and requested that the city be named in its lawsuit against DACHA. The court named the city as a party to the suit but declined to rule on the temporary restraining order, citing it had not had sufficient time to review the case documents.

In its argument before the court, Twin Pines asserted that to complete DACHA’s refinancing, the city designated itself the charitable beneficiary of DACHA’s assets upon dissolution of the developers’ ownership. Twin Pines further argued that DACHA’s board of directors returned more than half of the transfer value to the existing members of the cooperative, which was a breach of California’s Limited Equity Housing Cooperative Law. According to Twin Pines, DACHA provided each member with approximately $10,000, all of which was illegally gained by an improperly seated board of directors. Twin Pines also alleged that in November 2009, the city recorded a foreclosure notice in spite of the fact that DACHA had loan proceeds of more than $200,000 available to cure the default that the city prohibited it from using.

Twin Pines asserted that strict procedures exist for dissolving a limited-equity housing cooperatives if a foreclosure sale proceeds. Among other things, the law required that DACHA provide notice of dissolution, that the city hold a public hearing on the dissolution and—most pertinent to Twin Pines—that the city provide notice of the dissolution to all other limited-equity housing cooperatives and cooperative development organizations in the state in an effort to create a merger with an existing housing cooperative.

Finally, Twin Pines stated that if the foreclosure proceeded and DACHA dissolved, Twin Pines would lose the $1,000,000 to which it was entitled as the charitable beneficiary, based on the previous unit values of $5 million and the current city loan at approximately $4 million.

In May 2011, the Yolo County Grand Jury issued a scathing report on the city’s handling of the DACHA issue, but found that no inappropriate gift or use of public money was made by the city in connection with DACHA.

The court dismissed the developers’ claim for monetary damages against the city; however, it allowed that, if DACHA is dissolved, the case to determine the proper beneficiary of the 20 units—the original consultant or the city—could proceed to trial. The matter is set for October 2011.

Editors Note: The Editor thanks Douglas M. Kleine, President of Professional Association Services of Alexandria, Virginia for contributing this case.

©2011 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited. 

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