December 2012
In This Issue:
The 2012 CAI Law Reporter Index Now Available
Developer Didnít Dedicate Storage Area to HOA
Condoís Claim to Parking Barred by Prior Settlement
Lender Not Responsible for Unpaid Assessments
Whether HOA Waived Covenant To Be Determined by Trial
Unpaid Assessment Collection Regulated by Fair Debt Collection Practices Act
Parking Spaces Must Be Assigned Equally to All Owners
Owner Must Pay Assessments Levied by Association
Unpaid Assessments Create a Statutory Lien Under the Bankruptcy Code
Quick Links:
E-mail Our Editor
Visit Our Home Page
View Archives
View Credits
printer friendly
 

The 2012 CAI Law Reporter Index Now Available

Looking for an easy way to find your favorite Law Reporter articles of 2012? Then be sure to check out the 2012 CAI Law Reporter Index. This handy tool provides you with a listing of all the cases featured in the last year, with case citations listed alphabetically by case subject and also by the state the cases were tried in. To make your search even simpler, you can also click on the case citation to take you to the full case summary. Be sure to check out the 2012 Index—we hope you enjoy it!

Developer Didnít Dedicate Storage Area to HOA

Asbury Park, LLC v. Greenbriar Estates Homeowner’s Association, Inc., No. 37556, 2012 Opinion No. 14, Idaho Supr. Ct., Jan. 11, 2012

Developmental Rights: An Idaho trial court properly ruled that inconsistencies in a subdivision’s governing documents precluded the developer from dedicating a storage area to the homeowners association.

Asbury Park, LLC (Asbury) developed Greenbriar Estates Subdivision in Nampa, Idaho, in 2004. The City of Nampa rezoned the property and approved the subdivision plan in 2005. Several months later, Asbury recorded a declaration of covenants, conditions and restrictions for the subdivision and created Greenbriar Estates Homeowners Association, Inc. (association). Thereafter, Asbury conveyed lots to builders who, in turn, sold them to individual homeowners.

Both the subdivision plan and the declaration provided that a storage facility for the  individual homeowners would be located on Lot 39. Asbury began to construct the storage facility in June 2006. Believing that Asbury owned Lot 39, the association paid Asbury rent for the storage units.

In July 2007, Asbury conveyed the subdivision common areas to the association but reserved its ownership of Lot 39. Lot 39 was mistakenly depicted on the recorded subdivision plan as a common area; the surveyor recorded an affidavit confirming the error in an effort to correct the mistake.

In October 2007, the association discovered that Asbury lacked a certificate of occupancy (legal document certifying that a building is suitable for occupancy and in compliance with building codes) for the storage units and ceased paying rent for the unoccupied units. The association then discovered the subdivision plan, the declaration and the deeds contained conflicting language regarding the ownership of Lot 39. The association maintained that it was not liable to pay Asbury rent for the unoccupied units because the space was designated on the recorded plan as common area that was owned and maintained by the association. The association continued to assess homeowners for storage fees, but ceased to make rent payments to Asbury.

Asbury sued the association, seeking unpaid rents and damages. The court ruled in Asbury’s favor, rejecting the association’s common law dedication claim (when intent to dedicate property is explicitly indicated in a plat or deed but that the property has not been properly dedicated). The trial court concluded that the association failed to show there was a clear and unequivocal intent on Asbury’s part to dedicate Lot 39 to the association as common area. In its analysis, the court considered the subdivision plan, the declaration and the deeds, concluding that, “where the recorded instruments are inconsistent, there can be no clear and unequivocal intent to make an offer of dedication.” The association appealed.

The common law doctrine of dedication (donation of land for public use) requires that the dedication of real property consist of: (1) an offer by the owner that clearly and unequivocally indicates intent to dedicate the land; and (2) an acceptance of the offer. The association argued that the trial court should have looked solely at the recorded subdivision plan, which describes Lot 39 as common area. However, the Idaho Supreme Court has expressly held that analysis of a dedication offer requires a court to evaluate all documents and circumstances surrounding the alleged dedication.

The association challenged the trial court’s finding on three grounds: (1) the dedication was complete before the declaration was recorded and, therefore, the declaration was irrelevant; (2) the declaration is ambiguous; and (3) public policy precluded the courts from considering the declaration. The appeals court rejected each of these contentions and held that the substance of Asbury’s offer was not limited to the recorded subdivision plan.

The court noted that the substance of a dedication offer is not measured until the time of acceptance, and an accepted offer of dedication is irrevocable. Dedication is complete when a land owner surveys the land, records the survey and sells lots that are referenced in the recorded survey. Thus, once a survey is recorded, acceptance occurs when the property is purchased. The doctrine of dedication protects purchasers who rely on clear, unequivocal offers of dedication when they purchase real property.

In this case, Asbury recorded the subdivision plan and declaration before the lots were conveyed. Since an offer of dedication is determined at the time of acceptance, the trial court properly considered the declaration when it evaluated whether there was a genuine issue of fact (a factual issue not resolvable by other undisputed facts) as to whether Asbury clearly and unequivocally offered to dedicate Lot 39.

Even if all unresolved issues were construed in favor of the association, the inconsistent language in the subdivision plan and declaration precluded a finding of a clear and unequivocal offer of dedication. Therefore, the appeals court affirmed the trial court’s judgment, on the basis that one cannot show a clear and unequivocal intent to dedicate property if the alleged offeror’s demonstrated intent is inconsistent with a dedication.

©2012 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Condoís Claim to Parking Barred by Prior Settlement

Bellevue Pacific Center Limited Partnership v. Bellevue Pacific Tower Condominium Owners Association, No. 67267-3-I, Wash. App. Ct., Oct. 29, 2012

Covenants Enforcement/Developmental Rights/Contracts: A Washington appeals court upheld a finding that a condominium association was barred from suing the developer for control of parking spaces because the association executed a release of future claims in a prior settlement agreement.

Bellevue Pacific Center Limited Partnership (Bellevue) developed Bellevue Pacific Tower Condominium (Tower Condominium), a residential condominium that is part of a mixed-use (both residential and commercial) condominium known as Bellevue Pacific Center Condominium (Center Condominium). Bellevue is the declarant (developer) for the two declarations that establish the condominium. The declaration for Bellevue Pacific Center (Center declaration) and the declaration for Bellevue Pacific Tower (Tower declaration) both contain terms and conditions for parking. There are 492 parking spaces within the Center Condominium—of which 483 are enclosed in the parking garage and nine are in the exposed courtyard at the main entrance of Tower Condominium.

Bellevue Pacific Tower Condominium Owners Association (association) executed a lease with the developer, Bellevue, to rent four of the nine courtyard parking spaces to be used by Tower Condominium residents. The lease was for a one-year term and afterwards automatically renewable on a month-to-month basis. The association paid rent on the four spaces from April 2000 through November 2007 and then stopped making payments.

In 2001, the association had sued Bellevue over disputes that arose from conflicting interpretations of the two declarations. The parties settled the litigation in September 2003 and executed a Memorandum of Understanding (a document outlining an agreement between parties), wherein each side agreed to release the other “from any and all claims which have been or could have been asserted in the litigation.” In 2008, however, the association sent a letter to Bellevue claiming it had the right to control all nine of the courtyard parking spaces. In 2009, Bellevue sued the association, seeking to bar the association from the parking spaces and to obtain a declaration stating its right to control them. Bellevue also sought damages and attorney’s fees under the terms of the month-to-month lease.

The court awarded Bellevue damages for unpaid rent. It relied on the release clause signed by the association in the 2003 settlement agreement that effectively barred all of the association’s claims. The association appealed.

The appeals court observed that the Washington Condominium Act specifically states that an association may institute and defend litigation, as well as make contracts. It was clear that the association had the power to execute the 2003 release; and, therefore, it could not attack, on its own behalf, the settlement or the release. While the association didn’t dispute this fact, the association did argue that the release could not be enforced against the individual unit owners that comprised the association.

Generally, a settlement is a compromise voluntarily agreed to by the parties, and enforceable as a contract in its own right. It cuts off all defenses and arguments based on the underlying contract. The appeals court found that, here, the underlying finality of the original settlements outweighed any contrary arguments. Both Bellevue and the association, who each were represented by counsel in the prior litigation, had signed the release. The right to control the nine courtyard parking spaces was not among the items listed as exceptions in the settlement or in the release. Thus, by its plain terms, the release applied to the association’s claim of right (the right to claim the property as one’s own).

The association argued that neither party had contemplated how the release would cover a future dispute about parking spaces. However, the record indicated that the association was aware of the parking space situation at the time of settlement, and, thus, could have asserted this claim in the previous litigation. Also, both the Tower declaration and the Center declaration could not reasonably be interpreted in any way that grants parking space rights to anyone other than Bellevue. Therefore, the underlying premise of the association’s argument—that individual unit owners had a right that was infringed on by the settlement and release—was without merit.

Finally, the association argued that the right to control the parking spaces was not contemplated by the association at the time of the settlement. However, the trial record indicated that in February 2000, the association wrote to all unit owners concerning “the drive court parking situation.” There was no dispute that the reference was to the nine courtyard parking spaces at issue in this appeal. Moreover, the court found that the association acknowledged and agreed that Bellevue had the exclusive right to control the spaces when it rented them over a period of time that began well before the 2003 settlement agreement and release.

The judgment of the trial court was affirmed.

©2012 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Lender Not Responsible for Unpaid Assessments

Coventry Parkhomes Condominium Association v. Federal National Mortgage Association, No. 304188, Mich. App. Ct., Oct. 25, 2012

Assessments/State and Local Legislation and Regulation: A Michigan appeals court overturned a trial court’s ruling that a condominium association’s lien for unpaid assessments had priority over a first mortgage of record that was assigned to a subsequent lender.

In 2005, Denise Walsh entered into a mortgage agreement with JP Morgan Chase Bank, N.A. (Chase) to purchase a unit in Coventry Condominium, located in Oakland County, Mich. In June 2009, Coventry Parkhomes Condominium Association (association) filed a lien against Walsh’s unit for unpaid assessments. Chase assigned its interest in Walsh’s unit to the Federal National Mortgage Association (Fannie Mae) and recorded the mortgage assignment on September 9, 2010.

In November 2010, the association sued Fannie Mae to foreclose its assessment lien and recover unpaid condominium assessments and fees totaling $5,673.10, plus late charges and fines. The association argued that, under Michigan’s Condominium Act, its lien had priority over the mortgage assigned to Fannie Mae, and that Fannie Mae was liable for all unpaid assessments, fees, late charges, interest and attorney fees levied against Walsh’s unit.

Fannie Mae argued that its mortgage had priority over the association’s lien. Also, as a lender simply holding security interest in the unit and not a co-owner, Fannie Mae was not liable for unpaid assessments.

The court ruled in the association’s favor, concluding that the association’s lien had priority over Fannie Mae’s mortgage; it awarded the association $16,980.98. Fannie Mae appealed.

The appeals court noted that Michigan is a “race-notice” state (meaning priority is given to the party that records the lien or other instrument first), and owners can protect their property interests by properly recording notice of those interests. The first party to record his or her interest in a property generally has priority over subsequent purchasers. However, it is well established that when a mortgage is assigned, an assignee (successor lender) stands in the place of the assignor (original lender), acquiring the same rights and subject to the same defenses as the assignor. Moreover, Michigan case law illustrates that a mortgage assignee has the same priority rights as the original mortgage assignor.

Both parties agreed that the Condominium Act (act) governed the priority dispute in this case. The act provides that “past due assessments that are evidenced by a notice of lien recorded as set forth in subsection (3) have priority over a first mortgage recorded subsequent to the recording of the notice of lien.” Thus, a “first mortgage of record” has priority over an association lien if it was recorded before the association’s lien. The plain meaning of “first mortgage of record,” as used in the act, is the mortgage that is recorded before all others.

In the present case, Walsh’s mortgage to Chase was the first mortgage of record. It was recorded before the association’s lien. Even though Chase assigned its interest in the mortgage to Fannie Mae, the mortgage was still the “first mortgage of record” because it was recorded before any other mortgage, and before the association’s lien. The assignment to Fannie Mae did not change this. Thus, notwithstanding the assignment to Fannie Mae, the mortgage had priority over the association’s lien because it was the first mortgage of record. Nothing in the act supports the conclusion that the mortgage, once assigned to Fannie Mae, was no longer considered the first mortgage of record. Therefore, under the plain meaning of the act, the mortgage assigned to Fannie Mae had priority over the association’s lien.

The association further argued that, under the act, Fannie Mae was liable for all unpaid assessments, late charges, fines, costs and attorney fees because it was a “purchaser.” The court disagreed, finding that while the association was correct that the act defines “purchaser” to include mortgage assignees, it did not apply here because it was limited to transactions for the “sale of conveyance” of a condominium unit. Since the case did not involve the sale or conveyance of Walsh’s unit, but rather Fannie Mae’s obtaining a security interest in the unit through mortgage assignment, the definition of “purchaser” did not apply.

Accordingly, the court concluded that the trial court erroneously ruled in the association’s favor, and its judgment was reversed.

©2012 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Whether HOA Waived Covenant To Be Determined by Trial

Farmington Woods Homeowners Association, Inc. v. Wolf, No. S-11-970, Neb. Supr. Ct., Aug. 3, 2012

Covenants Enforcement: A Nebraska appeals court reversed an order originally in favor of a homeowners association after homeowners presented viable evidence that the association had waived its right to enforce a “no business activities” restriction.

Glen Wolf purchased a lot in Farmington Woods Subdivision in Douglas County, Neb., in 1998. Included in the Farmington Woods’ declaration is a restrictive covenant that provides “no business activities of any kind whatsoever shall be conducted on any Lot.” Wolf was unaware of the “no business activities” restriction and began operating a daycare from his new home.

Farmington Woods Homeowners Association, Inc. (association) was formed in 2000, and became the enforcer of the covenants. At the time, Wolf continued to operate a daycare center from his home.

In 2010, Wolf had a dispute with a neighbor regarding a drainage issue. The neighbor filed a complaint with the association, accusing Wolf of violating the “no business activities” covenant by operating his daycare center. The association notified Wolf in writing that his daycare business violated the covenants and then sued him, seeking to prevent the business from operating.

The court ruled in the association’s favor, finding that Wolf had at least constructive knowledge (understanding of a circumstance or fact which, in the eyes of the law, a party would have been expected to know due to reasonable care or diligence) of the “no business activities” restriction. The court also found his argument that the association had waived its right to enforce the restriction failed as a matter of law (the part of a judicial inquiry concerned with the interpretation of the law). Wolf appealed.

Wolf presented evidence that the association’s unwritten policy was to act on alleged covenant violations only after a complaint was filed. No complaint had been filed against Wolf or any other homeowner’s business activities prior to the 2010 complaint against Wolf. The association was aware as early as 1998 that Wolf operated a daycare business in his home. Wolf also presented evidence that at least one other association member knew of another daycare center operating within the subdivision between 2000 and 2010. He presented evidence that a number of home-based businesses had operated “openly and notoriously” in the subdivision with no action by the association. He also presented evidence that the association’s president had been operating a home business since 2000, and no action was taken to enforce the “no business activities” restriction against him.

The right to enforce restrictive covenants may be lost by waiver or by passively consenting to the violation. Whether a waiver exists depends on the circumstances of each case. Generally, mere passive consent of a covenant’s restriction does not constitute abandonment of the covenant so long as the restriction has some value. A waiver does not result unless there have been general and multiple violations without protest. The enforcement of valid restrictive covenants may be denied only when noncompliance is so general that it indicates an intention to abandon the condition.

The criteria for determining whether a restrictive covenant has been waived includes discovering: (1) whether those seeking to enforce the covenant had notice of the violation and the period of time in which no action was taken; (2) the extent and kind of violation; (3) the violation’s proximity to those who complained; (4) any affirmative approval of the violation; (5) whether the violation is temporary or permanent; and (6) the amount of investment.

Viewed in the light most favorable to Wolf, the appeals court concluded that the association was aware of Wolf’s daycare operation at least by 2000 and took no action to enforce the “no business activities” restriction until 2010. It also knew sometime after 2000, but prior to 2010, of another daycare in the subdivision, yet took no action to enforce the covenant; it knew as early as 2000 that its president was operating a home business, but took no action to enforce the covenant; and it should have known of the other “openly and notoriously” operated businesses in Farmington Woods, yet took no action to enforce the covenant.

The evidence also showed that from its inception, the association’s unwritten policy was to take action against alleged covenant violations only if a complaint was received, and no complaint was made to the association about Wolf’s daycare business prior to the current one.

Based on the facts, though, the appeals court could not conclude as a matter of law that a waiver of the restrictive covenant did not occur; thus, it affirmed the trial court’s order to the extent that it found Wolf’s daycare business had violated the “no business activities” restriction. However, as to the defense of waiver, judgment in favor of the association was reversed and the case was remanded for further proceedings to determine whether a waiver of the restrictive covenant had occurred.

©2012 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Unpaid Assessment Collection Regulated by Fair Debt Collection Practices Act

Haddad v. Alexander, Zelmanski, Danner & Fioritto, PLLC, No. 11-1954, U.S. App. Ct., 6th Cir., Oct. 22, 2012

Assessments/Federal Laws and Legislation: A Michigan court ruled that a condominium owner’s debt for unpaid assessments was regulated by the Fair Debt Collection Practices Act because property purchases are a primarily personal transaction.

In 1992, Camille Haddad bought a condominium unit in Plymouth, Mich., as his primary residence. He lived in the home and paid his mandatory assessments to the condominium association until 2005, when he relocated. Beginning in 2006, he listed the condominium as rental property on his tax returns.

In October 2008, Haddad received a collection letter from the condominium association’s attorney. The letter stated Haddad had defaulted on his condominium assessments, and the amount due included past-due assessments, late fees, interest and attorney’s fees. The letter stated the association would commence proceedings to file a lien against the condominium if the amount was not paid within 30 days. In December 2008, the attorney sent Haddad a second notice indicating that full payment of his outstanding debt should be sent within 10 days or the association would file a lien against the property.

Haddad timely responded to both letters and requested verification of the debts he allegedly owed. The attorney, however, did not verify the debts and recorded a lien against the property in May 2009.

Haddad sued the attorney under the Fair Debt Collection Practices Act (act), alleging the attorney violated sections of the act that prohibit “us[ing] any false, deceptive, or misleading representation or means in the collection of any debt” and continuing “collection of [a disputed] debt ... until the debt collector obtains verification of the debt.”

The attorney maintained that because Haddad was renting his property when the collection efforts began, the underlying debt could not be considered “primarily for personal, family, or household purposes,” as defined by the act.

Haddad argued that condominium assessments qualify as consumer debt as defined by the act, such that the statutory violations he alleged were valid. He asserted that the attorney failed to verify the debt and misrepresented that debt, a violation of the act.

Each of act’s provisions requires an underlying “debt” incurred for personal rather than business purposes. The court dismissed Haddad’s suit, ruling that the condominium assessments were not encompassed by the act’s definition of “debt.” Because Haddad rented the condominium rather than resided there, the court found the unpaid debt arose “from a primarily business use.” Haddad appealed.

Pursuant to the act, the term “debt” means “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.”

The issue for the appeals court was whether the relevant time for determining if a debt is for “personal, family, or household purposes” is when collection activities begin or when the debt is incurred. The attorney urged the court to uphold the trial court’s ruling, arguing that Haddad’s debt could not be considered primarily personal debt because he currently rented out the property. Moreover, his actions over the past several years showed that he did not purchase the condominium “primarily for personal, family, or household purposes.”

Haddad asserted that his obligation to pay assessments qualified as “debt” under the act because the obligation arose from purchasing the underlying property. By paying the purchase price and accepting title to his condominium, he became obligated to pay assessments; therefore, the obligation to pay the debt arose in connection with the condominium’s purchase, even if the timing and amount of the particular assessments were yet to be determined.

The appeals court concluded that Haddad’s assessments qualified as “obligations of a consumer to pay money arising out of a transaction.” It relied on court opinions that previously confirmed that, under the act, the relevant time for determining the debt’s character was when the loan was made, not when collection efforts began. It noted that while a debt collector’s conduct is relevant when determining whether a violation of the act has occurred, it is not relevant when determining whether the debt in question is regulated by the act.

Even though Haddad no longer resided in the condominium, the record was clear that he purchased the property for his personal use and lived there for 15 years. Therefore, the court held that the trial court erred in finding the debt was not regulated under the act. It reversed the trial court’s judgment and remanded the case for further proceedings.

©2012 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Parking Spaces Must Be Assigned Equally to All Owners

Manchester Oaks Homeowners Association, Inc. v. Batt, 732 S.E.2d 690 (Sept. 2012)

Covenants Enforcement: A Virginia appeals court affirmed a ruling that a homeowners association was required under its declaration to assign its parking spaces equally to all lot owners.

Manchester Oaks subdivision in Fairfax County, Va., contains 57 townhouses—30 of which were constructed with a garage and driveway (garaged lots) and 27 of which were constructed with an additional bedroom and bathroom in lieu of a garage (ungaraged lots). The subdivision includes a common area with 72 parking spaces.

The subdivision is subject to a declaration, administered by Manchester Oaks Homeowners Association, Inc. (association), that gives the association the right to designate a maximum of two parking spaces for the exclusive use of each lot owner; however, the association is not required to ensure that parking spaces are available to any particular owner or to oversee use of the parking spaces.

Patrick Batt purchased a garaged lot in 1990, before the subdivision was complete. At that time, residents parked wherever they chose. In 1993 or 1994, the developer began assigning two parking spaces to each ungaraged lot. The remaining 18 parking spaces were designated as “visitor” parking, available to all lot owners on a first-come, first-served basis.

In 2009, the association issued one visitor parking permit to each lot owner and posted a parking policy on its website. Any vehicle not displaying a permit while parked in the visitor parking spaces would be towed. In December 2009, the association amended the declaration to provide that the association had the right to designate two parking spaces exclusively to each of the ungaraged lot owners on a non-uniform and preferential basis.

In June 2010, Batt sued the association, claiming that the unequal treatment of owners over parking space assignments violated the declaration. The association argued that Batt’s suit was barred by the December 2009 amendment to the declaration.

The court ruled in Batt’s favor, finding that the amendment was invalid for six reasons: (1) it partitioned the common area without the required written approval of two-thirds of the lot owners and their mortgagees; (2) the use of proxies (written authorization for a person to act on behalf of another, especially in voting) in its adoption was not authorized by the declaration; (3) notice of the meeting at which the amendment was considered was not sent at least 15 days prior to the meeting, as required by the declaration; (4) the association’s president sent false information to members prior to the amendment’s adoption; (5) the amendment’s terms were inconsistent; and (6) the amendment effectively forfeited the rights of garage lot owners in the subdivision common area.

Since there were only 72 parking spaces and 57 units, the association could assign, at most, one space per lot. Because it chose to assign two spaces to each ungaraged lot instead of one space to all lots equally, it improperly deprived each garaged lot owner of one space, and violated the declaration. The association appealed.

The association argued that nothing in the declaration required the association to assign parking spaces equally. Rather, the declaration allowed the association to designate a maximum of two parking spaces exclusively to each lot owner, but it lacked any requirement to “ensure that the parking spaces are available for the use of any particular Owner of a Lot.” Therefore, the association could assign any lot owner one, two, or no parking spaces, while at the same time assigning a different number of spaces to another lot owner.

The court pointed out that equality is inherent in the definition of “common area.” A “common area” is defined as, “[a]n area owned and used in common by residents of a condominium, subdivision, or planned-unit development.” Black’s Law Dictionary defines “in common” to mean “[s]hared equally with others, undivided into separately owned parts.” Accordingly, the court held that the association must assign common area parking spaces to all lot owners equally, if at all, unless the declaration expressly provided otherwise.

The association argued that the court’s interpretation of “a maximum of two” parking spaces to ungaraged lot owners had rendered the association’s power to designate parking meaningless because the common area contained only 72 spaces and there were 57 lots—not enough spots for all lot owners to have two parking spaces equally. The court responded that the phrase “a maximum of two” also includes one or no exclusive parking spaces, and that both are permissibly equal parking assignments under the declaration Also, the declaration expressly gave the association the power to add additional property as common area, from which more parking spaces could be assigned. Therefore, the court’s finding that all lot owners must be treated equally in regards to parking space assignments would have no effect on the meaning of the phrase “minimum of two.”

The association likewise argued that the court’s interpretation of the declaration nullified the language that absolved the association of the obligation to “ensure that the parking spaces are available for the use of any particular Owner of a Lot.” However, the court disagreed, holding that the language merely freed the association from a duty to enforce parking assignments. In short, it meant that if a vehicle was parked improperly in an assigned space, the association was not responsible for towing the vehicle.

Accordingly, the appeals court concluded that the trial court did not err in ruling that the declaration required that common area parking spaces be assigned equally among all lot owners. The court affirmed the trial court’s judgment.

©2012 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Owner Must Pay Assessments Levied by Association

Twin Lake Estates Property Owners Association v. Chilcote, No. 964 C.D. 2012, Pa. Cmmw. Ct., Nov. 7, 2012

Assessments: A Pennsylvania appeals court affirmed a judgment against a lot owner for unpaid assessments, finding that regardless of whether the homeowners association was mentioned in the chain of title, it had the right to regulate owners’ use of the common areas and assess them for the costs.

Robert Chilcote owns Lot 1009 in Twin Lake Estates, a residential community in Smithfield Township, Pa., that consists of 140 lots. In 1973, the initial developer, Twin Lake Estates, Inc., conveyed (the transfer of a property title from one party to another) a portion of the lots in the subdivision, including Lot 1009, to N.B.J. Corporation. Both Twin Lake Estates and N.B.J. entered into an agreement whereby all lot purchasers would have equal rights to use the roads, lakes and other common facilities. The agreement further provided that if restrictive covenants were recorded, they would be applicable to all lots in the subdivision; also, if an owners association were formed, all lot owners would be required to become members and pay dues imposed by the association. Shortly after the agreement was executed, a Schedule of Covenants, Easements, Reservations, Charges and Conditions (covenants) was recorded by Twin Lake Estates, Inc., N.B.J. Corporation, N.J.A. Corporation and N.J.B. Corporation (collectively, N.B.J.) as part of a general development scheme against all of the land.

In 1980, N.B.J. conveyed Lot 1009 to Paragon Equipment Company of Pennsylvania, Inc., subject to the covenants. Lot 1009 was subsequently owned by three other parties and finally conveyed to Chilcote. Although the covenants are part of the chain of title (the sequence of historical transfers of a property title) to the lot, the covenants were not referenced in Chilcote’s deed. However, Chilcote had use of the roads, lakes and common areas of Twin Lake Estates.

On Sept. 13, 2001, N.B.J. deeded a number of lots to Twin Lake Estates Development, L.L.C. On the same day, N.B.J. conveyed the roads, lakes and common areas within the subdivision to Twin Lake Estates Property Owners Association (association). Both deeds expressly exclude 25 lots which, like Lot 1009, were sold in the 1980s. Also on Sept. 13, 2001, N.B.J. filed an assignment (the act of transferring an interest in property to another party) of its interest in the covenants to the association. Schedule A of the assignment listed all of the lots affected by the assignment. Lot 1009 was not on the list.

The association later sued Chilcote to collect unpaid assessments. Chilcote maintained that the assignment did not give the association standing to collect assessments for Lot 1009 because his lot was not included on the list included in Schedule A.

The court concluded that both common law and the Pennsylvania Uniform Planned Community Act (act) gave the association authority to collect assessments from Chilcote. Accordingly, the court awarded the association a judgment of $26,872.79. Chilcote appealed.

On appeal, Chilcote argued that the trial court erred by ruling in the association’s favor because, as he argued previously, Lot 1009 was specifically excluded from the assignment.

The appeals court concluded that regardless of the wording in the assignment, the act’s plain language authorized the association to enforce the covenants against Lot 1009 and issue assessments for common expenses. Moreover, the court agreed with the trial court that even if the act did not give the association power to collect assessments from Chilcote, the association would, nonetheless, have authority to do so under common law.

The act provides that a community association has the power to “[a]dopt and amend budgets for revenues, expenditures and reserves and collect assessments for common expenses from unit owners.” The appeals court held that, absent an express agreement prohibiting assessments, when a property owners association is referenced in a property’s chain of title, and when it has the authority to regulate the owners’ use of common facilities, that property owners association has the authority to impose reasonable assessments to fund the maintenance of those facilities. When property owners in a planned community are permitted to use the common areas, there is an implied agreement to accept a portion of the maintenance cost. The court noted that this would be true even if there were no reference to the association in the chain of title.

The court noted that Pennsylvania courts clearly recognize that a homeowners association’s right to assess property owners for use or maintenance of common areas exists irrespective of the language in the chain of title. Chilcote had the right to use the roads, lakes and common areas of Twin Lake Estates; therefore, he was obligated to pay his proportionate share of capital improvement and common maintenance facility costs, regardless of the chain of title and the wording of his deed.

Accordingly, the court found no error in the trial court’s decision and affirmed its judgment.

©2012 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Unpaid Assessments Create a Statutory Lien Under the Bankruptcy Code

Young v. 1200 Buena Vista Condominiums, No. 12cv0786, U.S. Dist. Ct., W. Dist. Pa., Aug. 27, 2012

Assessments/Federal Laws and Legislation: A Pennsylvania court ruled that unpaid condominium assessments constituted a statutory lien in the bankruptcy proceeding of a condominium unit owner.

Bradley Young purchased a condominium unit in 1200 Buena Vista Condominium in Allegheny County, Pa. In 2011, Young filed a Chapter 13 bankruptcy petition and an adversarial proceeding (any legal action, hearing or inquiry brought by one party against another party) that attempted to partially annul the lien for unpaid condominium assessments, which was held by 1200 Buena Vista Condominium Unit Owners Association (association). The Bankruptcy Court dismissed the adversarial proceeding, and Young appealed the ruling. He argued that the Bankruptcy Court erred in characterizing the lien as a security interest (the right of a lender to collect a debt secured by property) rather than a statutory lien (an involuntary lien created by statute rather than by contract).

Young’s deed made his unit subject to the association’s declaration and bylaws. The declaration provides that all sums assessed by the association shall create a lien against the affected unit according to the Pennsylvania Uniform Condominium Act. The bylaws provide that the association “shall have a lien on a Unit for any Assessment levied against that Unit from the time the Assessment becomes due together with any interest payable pursuant hereto.”

Young stopped paying his condominium assessments in 2000. In 2009, the association obtained a judgment against him in the amount of $14,900, which remained unpaid. During his bankruptcy proceeding, Young filed an objection to the lien, which was denied by the Bankruptcy Court. He admitted to the court that the feasibility of his Chapter 13 bankruptcy plan was contingent in large part on the association’s lien being avoidable.

The issue on appeal was whether the assessment lien was considered a statutory lien or a security interest under the Bankruptcy Code. While Young argued that the Bankruptcy Court erred in concluding that the assessment lien was a security interest, the association contended that the Bankruptcy Court was correct in finding that it was also a statutory lien.

The Bankruptcy Code identifies three types of liens: judicial liens, security interests, and statutory liens. A “security lien” is defined a “lien created by an agreement.” A judicial lien is a lien obtained by judgment or other judicial proceeding. A “statutory lien” is defined as a lien that arises “solely by force of a statute on specified circumstances or conditions . . . .” The Code’s legislative history explicitly states that the three categories are “mutually exclusive and are exhaustive except for certain common law liens.” Because condominium liens are a creation of statute, the court determined they could not be common law liens (a lien arising under the common law rather than by statute or agreement between the parties).

Under the Pennsylvania Condominium Act (act), an association has a lien on a unit for any assessment levied against that unit or for any fines imposed against its owner from the time the assessment or fine becomes due. The act automatically grants the association a lien from the time the assessment becomes due, but it allows for the lien to be foreclosed on in the same manner as a mortgage. Courts are split on whether condominium liens are statutory liens or security interests that depend on a written rule or law.

The appeals court relied on the first phrase of the statutory definition, which provides that a statutory lien arises “solely by force of the statute.” The court concluded that both the act’s plain language and the entire statutory scheme revealed that a lien’s classification depends on how it first arose. Thus, if a lien first arose by statute and later there is an action that could potentially create a security interest or judicial lien, the lien still remains a statutory lien.

Here, the lien was a statutory lien because it originally arose solely by the force of the statute. While subsequent events may have given the lien the appearance of a security interest or a judicial lien, the lien’s nature did not change from a statutory lien.

The court, therefore, found that the Bankruptcy Court erred in ruling that the condominium lien was a security interest. It reversed the Bankruptcy Court’s decision and remanded the case for further proceedings.

©2012 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

 

6402 Arlington Blvd. | Suite 500 | Falls Church, VA† 22042 | (888) 224-4321
This e-mail was sent to inform you of CAI products, services or events.
For more information, please visit www.caionline.org.
Change your e-mail address