January 2015
In This Issue:
Recent Cases in Community Association Law
Vacant Property Not Subject to Assessment
Owner Not Responsible for Associationís Legal Fees
Owner Not Entitled to the Benefit of Typographical Error in Declaration
Association May Not Assess to Fund Infrastructure Costs
Insurance Covers Equipment Posing a Fire Risk
Failure to Disclose Adverse Facts May Constitute Misrepresentation
Constitution Protects Disseminating Campaign Materials
County Not Responsible for Assessments on Foreclosed Units
Quick Links:
Contact Law Reporter
Visit Our Home Page
View Archives
View Credits
CAI College of Community Association Lawyers
printer friendly

Recent Cases in Community Association Law

Law Reporter provides a brief review of key court decisions throughout the U.S. each month. These reviews give the reader an idea of the types of legal issues community associations face and how the courts rule on them. Case reviews are for information only and should not be applied to other situations. For further information, full court rulings can usually be found online by copying the case citation into your web browser.

Vacant Property Not Subject to Assessment

Southbury Master Homeowners’ Association v. Southbury Land Venture, LLLP, No. 2-14-0308 (Ill. App. Ct. Dec. 23, 2014)

Assessments; Documents: An Illinois appeals court held that a builder who owned developable subdivision property was not liable for assessments to the association since lots were not yet created.

The Southbury subdivision in Oswego, Ill., is managed by Southbury Master Homeowners’ Association (association). The Southbury declaration of covenants, conditions and restrictions (declaration) indicated that development would occur in phases for the subdivision’s nine “pods.”

Southbury Land Venture, LLLP (builder) owns the property planned for pods 3 and 8. A declaration exhibit contained a proposed build-out schedule indicating pods 3 and 8 would contain 106 lots and 189 lots, respectively.

Under Article 5, Section 4 of the declaration, a lot became subject to assessment upon the earlier of (i) conveyance of the lot with a completed dwelling to the first purchaser, or (ii) initial occupancy of a completed dwelling on the lot. The declaration also provided that, if a pod does not have at least the number of assessable lots indicated in the exhibit by the proposed build-out date, then the pod’s owner shall be responsible for assessments for the “number of Lots equal to the Closing Shortfall.”

In 2011, the association levied annual assessments of $560 per lot against the builder for the 295 lots planned for pods 3 and 8. The builder refused to pay. The association filed suit in January 2012, alleging the builder owed $339,250 in unpaid assessments, late fees, attorneys’ fees and costs.

The trial court found there were no assessable lots in pods 3 and 8 because neither of the two events required to create an assessable lot had occurred. The trial court rejected the association’s argument that the closing shortfall language created 295 assessable lots in the pods, even though no dwellings had been constructed. No final plat had been recorded for pod 3 or 8. As such, the trial court held that the property had not been subdivided into individual lots. The trial court concluded that, to be an assessable lot, the lot must first be legally established.

The trial court further determined the closing shortfall provision did not apply because the declaration clearly defined a “pod” as a parcel of land shown on the preliminary plat and definitively located on a final plat. As such, while the parties referred to the property at issue as a pod, the builder did not own property that met the declaration’s definition of a pod. Instead, it owned property that might become a pod in the future. The association appealed.

The association maintained that an undeveloped parcel’s owner must pay assessments based on the number of dwellings that it should have constructed by the build-out date and it is irrelevant whether property qualifies as a lot or whether a final plat has been recorded. To find otherwise, the association argued, would render the build-out schedule meaningless. The appeals court was not persuaded.

With respect to the declaration’s definition of pod, the appeals court found that the word “and” is ordinarily conjunctive, meaning that it serves to join or connect two or more words or clauses. As such, for property to be a pod subject to the shortfall provision, the property must be designated as a pod on both the preliminary plat and a recorded final plat.

The association argued that the builder’s failure to pay assessments would result in other homeowners having to cover the assessments allocated for the lots in pods 3 and 8. The appeals court found this argument to be a request for damages based on a quasi-contract, which may allow relief when one party has provided services to another under circumstances in which the recipient should not, in good conscience and fairness, be allowed to retain the benefit for free.

However, a quasi-contractual remedy is not available when an express contract exists for the same matter. A declaration is an express contract concerning a property’s liability for assessments, and the declaration detailed when property first became subject to assessment. The appeals court further found that any incidental benefit realized by the builder through the continued maintenance of the subdivision’s common areas is not a sufficient basis for finding a quasi-contract.

Finally, the association argued that the declaration included specific build-out dates so that builders who fall behind on the schedule are required to begin paying assessments by a certain date. The appeals court again found this argument unavailing. Instead of mandating that builders develop a certain number of lots within a specific timeframe, the declaration clearly provided that the build-out schedule was proposed for the contemplated development.

The trial court’s judgment was affirmed.

©2015 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Owner Not Responsible for Associationís Legal Fees

Pebble Court Condominium Association v. Jain, No. 1-13-3613 (Ill. App. Ct. Dec. 23, 2014)

Attorney’s Fees: An Illinois appeals court reversed an award of attorney’s fees and costs to an association because the unit owner was the prevailing party in the lawsuit.

Pebble Court Condominium in Hanover Park, Ill., is managed by Pebble Court Condominium Association (association). Sonia Jain purchased a unit at a foreclosure sale in January 2012.

In February or March 2012, Jain attempted to pay the unit’s assessments multiple times, but Jain and the association could not agree on the amount owed. The association sought to collect assessments and other fees that accrued prior to Jain’s purchase, which Jain refused to pay. Jain tried to pay the portion that both parties agreed was due, but the association would not accept anything less than the full amount it claimed was due.

In April 2012, the association sent Jain an account statement which included the phrase “reject payment” on the account status line. In June 2012, the association filed suit against Jain to collect $4,558.55 for alleged outstanding assessments, utilities, attorney’s fees and other charges.

The trial court determined the association was not entitled to any amounts from Jain accruing prior to her ownership because the association did not institute an action against the prior owner. In October 2013, Jain paid, and the association accepted, the undisputed assessments. The trial court dismissed the association’s claim for assessments, finding that no outstanding assessments were due. However, the trial court awarded the association $2,670.04 in attorney’s fees and costs. Jain appealed the award of attorney’s fees and costs.

The association based its entitlement to attorney’s fees on the Illinois Condominium Property Act (condominium act) and the Illinois Code of Civil Procedure (civil code). The civil code provides that, when a lawsuit is filed because a unit owner fails to pay his or her assessments, other expenses or fines that the court finds are due to the plaintiff, the plaintiff is entitled to judgment for the outstanding amounts and reasonable attorney’s fees and costs.

The appeals court held that the civil code did not entitle the association to attorney’s fees or costs because the statute requires that the trial court find that expenses or fines are due to the plaintiff. In this case, the trial court found that no expenses or fines were due to the association.

The condominium act provides that, if a unit owner fails or refuses to pay the amount of expenses, fines, interest and late charges, then reasonable attorney’s fees and costs incurred in collection will constitute a lien on the unit.

The appeals court held that this section did not apply because the unit owner had not failed or refused to make a payment. Instead, the trial court found that the association was seeking money to which it was not entitled.

The condominium act further provides that attorney’s fees incurred by the association due to an owner’s default be made part of the unit owner’s share of common expenses. The appeals court also held this provision did not entitle the association to attorney’s fees because the unit owner was not in default.

The association argued that Jain was, in fact, in default because she did not make her assessment payments until the lawsuit was filed. The appeals court rejected this contention because Jain actually tendered payment, but the association rejected them, insisting that it was owed more than it was entitled.

All points of contention in the lawsuit were resolved in Jain’s favor. The association incurred attorney’s fees, not because of any default by Jain, but due to the association’s own misunderstanding of the condominium act. Had the association simply accepted Jain’s payments, it would have received everything to which it was legally entitled, and it would not have incurred any attorney’s fees.

Accordingly, the appeals court reversed the trial court’s judgment awarding attorney’s fees and costs to the association.

©2015 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Owner Not Entitled to the Benefit of Typographical Error in Declaration

Waterford Harbor Master Association v. Landolt, No. 14-13-00817-CV (Tex. App. Nov. 6, 2014)

Documents/Powers of the Association: The Texas Court of Appeals upheld an association board’s decision to correct a figure in the declaration used to allocate assessments that was an obvious typographical error.

Waterford Harbor is a subdivision in Galveston County, Texas, managed by Waterford Harbor Master Association (association). In 1991, Michael Landolt and his wife, Ann Wismer (the Landolts), purchased a home in Waterford Oaks (the Oaks), a gated section within Waterford Harbor. The Oaks contains a park (Oaks park) that is accessible to all Waterford Harbor residents.

The Oaks is subject to a declaration (Oaks declaration) as well as a master declaration of restrictive covenants (master declaration) that applies to the whole community. The master declaration identifies the Oaks as Reserve G. Exhibit B to the master declaration sets out each reserve’s square footage and the percentage of the entire subdivision it represents. Exhibit B states Reserve G is 394,254 square feet. However, the Waterford Harbor plat and the Oaks declaration each state its square footage is 594,254 feet.

Each reserve, and each lot owner in it, is responsible for a percentage of association expenses based on its percentage of square feet.

In December 2002, the association’s board of directors changed the Reserve G square footage from the figure shown in Exhibit B to the larger figure shown on the plat and Oaks declaration. Beginning in 2003, the association calculated assessments using the larger figure. The Landolts claimed their assessment increased by 7 to 8 percent. Since that time, the Landolts have paid their assessments under protest.

In May 2012, the association called for a vote on a master declaration amendment to approve the change to the Reserve G square footage in Exhibit B. The amendment passed with a 52.93 percent vote.

In June 2012, the Landolts received a letter from the association asking them to verify their lot’s square footage. The letter explained the square footage figures were taken from the county’s records, which showed the Landolts’ property as 35,911 square feet. Landolt testified that the property was approximately 36,911 square feet.

The Landolts sued the association, seeking to have Oaks park deemed common facilities under the master declaration. The Oaks assessment would be reduced if the common facility square footage was not included for calculating assessments.

They sought to recover overpayments based on the 2002 change to the Oaks’ square footage allocation. The Landolts also asked the court to require the association to use the square footage listed on the plat, not the county records, for voting purposes.

The trial court ordered that the board’s change to the square footage was invalid. It also found the May 2012 vote to change Exhibit B invalid because it was based on invalid voting numbers from 2002. The trial court held that Oaks park was not a common facility. The Landolts were awarded four years of assessments, along with attorney’s fees and interest. The association appealed.

The Landolts argued that the board’s 2002 action violated the master declaration provision stating that, if additional property is submitted to the master declaration, a lot owner or a reserve owner’s percentage could not be increased without that owner’s written consent.

The association argued that no property was added to the subdivision, so this provision did not apply. The association maintained that the board simply corrected a typographical error consistent with the master declaration’s specific language and the document as a whole. Moreover, the plat and the Oaks declaration both identify Reserve G’s square footage as 594,254. Only Exhibit B used a different figure, and there was no evidence that it was accurate.

The appeals court held that, when the master declaration, the plat and the Oaks declaration were considered together, the figure in Exhibit B was indeed a typographical error and that those who originally drafted the documents intended to use the larger figure 594,254 square feet to calculate assessments. Typographical errors must yield to the original drafters’ intentions, notwithstanding errors and omissions. To further this goal, words, names and phrases that were obviously intended may be supplied. Accordingly, the appeals court held that the board’s 2002 action changing the figure in Exhibit B was proper.

The association argued that the change in total square footage for Reserve G only affected the assessment calculation and not voting rights. The master declaration allocates votes as follows: “Except as otherwise provided on Exhibit ‘B’ to this Declaration or as reallocated as provided in the definition of Pro Rata Share or under Section 2.5, each Class A Member shall be entitled to one vote for each Net Square Foot of land contained in the Reserve or Lot owned by that Member.” (Emphasis added by the court). The appeals court held that voting rights are reallocated only if property is added to the subdivision, which did not happen here.

Votes allocated to each owner are also based on square footage, but the master declaration neither identified each lot’s square footage nor specified where to find this number. The appeals court held it would be reasonable for the association to use the county’s figures.

Finally, the appeals court found no support for the Landolts’ contention that Oaks park should be deemed a common facility under the master declaration because it was a common area under the Oaks declaration. The same party drafted both declarations, yet different terms were used. The appeals court determined that, had the drafter intended the master declaration term “common facilities” and the Oaks declaration term “common area” to mean the same property, the same term would have been used in both documents. Therefore, the appeals court affirmed the trial court’s conclusion that Oaks park should be included when calculating assessments.

©2015 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Association May Not Assess to Fund Infrastructure Costs

Central Austin Apartments, LLC v. UP Austin Holdings, LP, No. 03-13-00080-CV (Tex. App. Dec. 8, 2014)

Powers of the Association Powers/Assessments/Developer Liability: A Texas appeals court held the association did not have the authority to levy assessments to fund initial infrastructure construction.

University Park is a mixed-use redevelopment of the former Concordia University campus in Austin, Texas. The Austin City Council approved site plans for the project as a planned unit development (PUD). Once established as a PUD, the city will not issue building permits or a permanent certificate of occupancy (CO) to any lot owner until all subdivision and lot requirements are met.

East Avenue IG LP (East Avenue), as the “declarant,” recorded a declaration of covenants, conditions and restrictions (declaration) and organized the East Avenue Property Owners’ Association, Inc. (association). The declaration gave the declarant various rights to control the PUD and the association for a certain time.

East Avenue intended to fully fund and complete the original subdivision infrastructure but became insolvent before streets, drains, sidewalks and utilities were complete. The cost to complete construction was estimated at $5.5 million.

At the time East Avenue became insolvent, two lots containing a condominium and an office building were owned by other parties. Through a series of transactions in January 2010, East Avenue pulled out completely and transferred a number of lots to UP-32nd Street, LLC, Central Austin Apartments, LLC and UP-32nd Street Hospitality, LLC, who were all affiliated with Cypress Real Estate Advisors, Inc. (collectively, Cypress).

East Avenue also transferred common areas, existing construction permits and materials to the association. It further assigned to the association all the declarant’s rights to develop the common areas.

East Avenue transferred its remaining declarant rights to UP-32nd Street, LLC (successor declarant). Cypress representatives assumed positions on the association’s board.

In 2011, UP Austin Holdings, LP acquired the office building, and UP Austin Land Holdings, LP (collectively, UP Austin) acquired some undeveloped lots.

There was no plan for accomplishing the PUD requirements, and no one acquired an obligation to complete the infrastructure. The fragmented ownership significantly complicated the situation. For example, UP Austin could not obtain a permanent CO for its office building until a water-quality pond was constructed on a Cypress lot. The lot owners attempted to negotiate a solution to their mutual infrastructure problems but appeared to reach an impasse.

The association decided to undertake some of the needed construction and levied a $2.99 million special assessment to cover the costs. The infrastructure the association planned to build did not include the work necessary for UP Austin to obtain a permanent CO. Cypress had enough votes to approve the special assessment over UP Austin’s opposition.

The declaration allocated assessments among the lots based on each lot’s appraised value. Since UP Austin had the only lot that had been commercially developed, the formula resulted in 55 percent of the special assessment being allocated to UP Austin, even though it owned only 27 percent of the assessable property.

The successor declarant also exercised its unilateral authority to amend the declaration to extend the declarant control period, to increase its voting power by giving itself two additional votes for every vote allocated to non-declarant owners and to remove a cap on special assessments.

UP Austin refused to pay and filed suit against Cypress and the association to, among other things, invalidate the special assessment, have a receiver appointed for the association and recover damages from Cypress based on a minority oppression theory. The association counterclaimed against UP Austin for the special assessment. Cypress brought a cross-claim against the association to recover the amounts paid if the special assessment was voided.

The trial court found that the declaration and bylaws do not give the association the authority to levy a special assessment for the purpose of constructing initial site infrastructure and ordered a return of any special assessments paid. It also found that Cypress oppressed UP Austin by levying a special assessment through the Cypress-controlled association that would disproportionately impose infrastructure costs on UP Austin, yet not include the infrastructure needed by UP Austin.

The trial court further found the declaration amendment to be contrary to good faith and fair dealing to the prejudice of UP Austin and other owners not affiliated with Cypress because it substantially defeated the reasonable expectations central to a purchaser’s decision to buy in the PUD. The trial court invalidated the declaration amendment and issued a permanent injunction (order prohibiting or commanding certain action) prohibiting the successor declarant from further amending the declaration to increase its voting power or extend the declarant control period without UP Austin’s consent. The trial court denied the request for a receiver since the injunction would protect UP Austin.

All parties appealed. The central question on appeal was whether the association had the authority to levy special assessments to build the original subdivision infrastructure.

The declaration provides that assessments will be used exclusively for protection of the health, safety and welfare of the lot owners; protection of the value and desirability of the PUD; operation, maintenance, repair, replacement, preservation and protection of the common areas; and performance of the association’s functions under the declaration.

The appeals court agreed with the trial court that the declaration unambiguously limited the association’s authority to initiate construction. Thus, the association’s authority to levy assessments to fund activities other than those reasonably required to protect the PUD’s value and desirability was also limited. The association argued that it was required to take action to prevent the approved site plan from expiring in order to protect property values. However, while there was some evidence of a potential property value decrease if the site plans expired, there was no evidence that such expiration would permanently impede development.

The appeals court found the infrastructure’s purpose was to create value for the property. Construction designed and intended to create value and desirability does not meet the requirement that the association’s funds be used for activities to protect value and desirability. The appeals court upheld the trial court’s invalidation of the special assessment.

While the appeal was pending, the Texas Supreme Court held that there is no common law action for minority oppression in Texas. Rather, the remedy for oppressive conduct is the appointment of a receiver if the statutory requirements are met. Accordingly, the appeals court reversed the permanent injunction against the successor declarant and remanded the case to the trial court to appoint a receiver for the association.

©2015 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Insurance Covers Equipment Posing a Fire Risk

Houston Specialty Insurance Company v. Meadows West Condo Association, No. 13-02150 (W.D. La. Dec. 9, 2014)

Risks and Liabilities/State and Local Legislation and Regulations: A Louisiana federal district court held that a condominium insurance policy provided coverage for equipment repairs after the equipment was determined to be a fire risk and building officials ordered the repair.

Meadows West Condominiums in Lafayette, La., is managed and maintained by Meadows West Condo Association and The Meadows Apartment Owners Association, Inc. (collectively, Meadows West). The project consists of 124 units in 18 buildings.

A fire in December 2012 that originated in a unit’s HVAC duct damaged two units in one building. The remaining units were undamaged. Meadows West’s insurer, Houston Specialty Insurance Company (Houston), paid to repair the fire damage, but a dispute arose as to additional costs claimed by Meadows West.

Five other fires had occurred at the project since 1997. The Lafayette Fire Department’s investigator, Alton Trahan, determined that the heat source for the 2012 fire was a 90-degree bend in the ductwork where combustible materials accumulated.

Determining that the previous five fires originated in identical areas, Trahan believed the HVAC design was faulty. However, because the building was older, he was uncertain whether the design met code requirements when it was built.

The fire department turned the matter over to Larry Manuel, the Chief Building Official. Manuel informed Meadows West in January 2013 that it must have a mechanical engineer design a safe repair. Manuel suggested that a rigid metal duct might replace the flex duct or that the HVAC units be relocated to the attics. He advised Meadows West that if he did not hear back from them in two weeks, he would take legal action and get the State Fire Marshal involved.

In April 2013, Manuel sent a second letter to the association stating he was obligated by the building code to see the fire hazards corrected, and he set a deadline of September 2013 for the association to complete the work. If the repairs were not completed by that date, Manuel stated he would have the power turned off to all units.

Meadows West moved forward with a rigid duct design, and the work was completed in all 18 buildings by July 2013 at a cost of $316,489. Meadows West submitted a claim to Houston for the corrective work.

Houston denied coverage for the reconfigured ductwork not damaged by fire and filed suit against Meadows West to resolve the matter. Both parties filed motions for summary judgment (judgment without a trial based on undisputed facts).

The policy provided that, in the event of a covered cause of loss (such as fire), Houston would pay for the loss to the undamaged portion of the building caused by the enforcement of any ordinance or law that (1) requires demolition of undamaged portions of the building, (2) regulates the building’s reconstruction or repair, and (3) is in force at the time of the loss. Meadows West contended that a law was in effect at the time of the fire that required the reconfiguration of the HVAC system. The International Building Code, which was adopted by the city in 2011, provided that structures or equipment that are a fire hazard are deemed unsafe and must be removed or made safe, as the building official deems necessary.

Houston argued that the building code provision relates to the process and authority for a building official to address unsafe structures and does not govern how the building should be repaired or reconstructed. Houston urged that Manuel was not enforcing an actual ordinance or law requiring repair, and Manuel did not cite any law that Meadows West had to follow.

The court found that the policy’s ordinance or law provision applied because Manuel deemed it necessary under a building code in force at the time of the fire.

Houston asserted that a policy exclusion applied, which denied coverage for any loss due to the insured’s failure to comply with the law. Houston contended that Meadows West knew of the unsafe conditions following the 2010 fire and failed to take corrective action. After investigating the 2010 fire, Trahan stated that the ductwork and debris in the duct may have contributed to the fire. The court found that there was no determination that the HVAC system was unsafe and needed repair until the 2012 fire was investigated. In addition, the building code was not adopted until after the 2010 fire. No one identified any law that Meadows West violated prior to the 2012 fire.

Finally, Houston contended that coverage was excluded for faulty, inadequate or defective construction and design. However, there was no determination that the HVAC design was actually faulty. Trahan suggested that the original design may have been faulty, but he also indicated he did not know whether the system met the building code when it was constructed.

The court granted Meadows West’s motion for summary judgment, finding that the policy’s ordinance or law provision provided coverage to repair undamaged ductwork. The court denied Houston’s motion for summary judgment because Houston failed to show that the policy’s faulty, inadequate or defective exclusion applied.

©2015 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Failure to Disclose Adverse Facts May Constitute Misrepresentation

VRC, LLC v. RCR Vail, 12-cv-00928-RPM (D. Colo. Nov. 21, 2014)

Sales and Leases/Federal Law and Legislation: A Colorado federal district court allowed a case involving alleged Interstate Land Sales Full Disclosure Act violations to proceed to trial where a seller induced a purchaser to agree to a purchase contract amendment without disclosing adverse developments occurring after the purchase contract was executed.

RCR Vail, LLC (seller) developed a condominium project called The Ritz-Carlton Residences, Vail (Vail Ritz) at the base of Vail Mountain in Colorado. Slifer Smith & Frampton—Vail Associates Real Estate, LLC (Slifer) was the real estate brokerage company hired by the seller to market and sell the Vail Ritz units.

Vail Ritz, LLC (purchaser) is a limited liability company formed for the purpose of buying a Vail Ritz unit to be used by its members. The purchaser is managed by Robert Vogl.

The Vail Ritz marketing plan emphasized the project’s proximity to a proposed ski lift and ski-village development known as Ever Vail. Without the ski village, the marketing department viewed Vail Ritz as too far from town. The marketing materials stated that the proposed ski lift was subject to approval by the U.S. Forest Service and the Town of Vail.

Prior to entering into a purchase and sale agreement (PSA) for a unit, Vogl was given a 500-page binder containing various disclosure materials, including the form PSA, the condominium documents and a property report filed with the U.S. Department of Housing and Urban Development.

The PSA’s estimated unit completion date was November 2009, but no later than January 2010. However, the property report listed the completion date as December 2010.

The PSA also disclosed there was no guarantee of “ski-in-ski-out” access from the project to Vail Mountain and that no representation was made concerning development or planned uses for properties outside of Vail Ritz. In the PSA, the purchaser acknowledged that it had not relied on representations beyond those in the PSA and that the PSA and its exhibits represented the entire agreement.

In April 2005, the purchaser executed the PSA and paid a deposit.

In April 2007, Slifer realized the completion date in the PSA was in error and informed the seller. In May 2008, Slifer and the seller realized that construction was behind schedule.

In April 2009, the seller offered all buyers a “special new program” contained in a PSA amendment. It offered a 15 percent reduction in price as well as a 15 percent refund of earnest money, and membership at a private club with the initiation fee waived. The PSA’s estimated completion date would be revised to October 2010, and the guaranteed completion date was December 2010.

In the amendment, the purchaser also acknowledged that the property report contained an accurate completion date, despite the “scrivener’s error” in the date. The purchaser executed the amendment in June 2009.

Vail Ritz was completed in August 2010, and the purchaser’s closing date was set for October 2010. The purchaser did not close on the purchase, and the seller retained the earnest money deposit.

The proposed ski lift was never constructed, although the seller continued to pursue the required government approval. In spite of knowing about the difficulties in getting the lift approved, Slifer never updated buyers, and Ever Vail did not move forward.

The purchaser filed suit against the seller for, among other things, misrepresenting, concealing and/or omitting various material facts about the project. The purchaser also brought claims against Slifer and its broker, Larry Peterson, for fraud, misrepresentation, negligence and violation of brokerage duties. Slifer and Peterson filed a motion for summary judgment (judgment without a trial based on undisputed facts).

The purchaser claimed the seller violated the federal Interstate Land Sales Full Disclosure Act (ILSA), which makes it unlawful “to obtain money or property by means of . . . any omission to state a material fact necessary in order to make the statements made (in light of the circumstances in which they were made and within the overall offer and sale or lease) not misleading, with respect to any information pertinent to the lot or subdivision.”

The standard for summary judgment is whether, taking the facts and drawing all inferences in the purchaser’s favor, a reasonable juror could conclude that a reasonable purchaser would have relied on the seller’s misrepresentations and/or omissions regarding Vail Ritz in deciding whether to buy the unit.

The court found sufficient evidence for a jury to conclude that a reasonable buyer would rely on the seller’s recurring emphasis on the ski lift in its promotions. In addition, the failure to update purchasers on the difficulties with the ski lift could be viewed as an omission that made Slifer’s representations to Vogl—that they believed the ski lift was moving ahead—misleading. The court also determined a reasonable juror could find topographical models on display at the sales office and marketing materials showing a ski village supporting a reasonable person’s decision to purchase a unit.

By the time the PSA was amended, the seller knew Ever Vail was not proceeding and the ski lift was not approved. Instead of disclosing the adverse facts, the seller framed the amendment as a “special new program.” The court held that a reasonable buyer could rely on those omissions and misrepresentations in deciding to sign the amendment.

In sum, viewing the facts and circumstances in the light most favorable to the purchaser, the court determined that the purchaser had a viable case that should proceed to trial to decide whether an ILSA violation occurred. The motion for summary judgment was denied.

Editor’s Note: While this case is not final, and there has not been a finding of wrongdoing by the seller, the case illustrates the need for full disclosure to avoid protracted litigation.

©2015 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

Constitution Protects Disseminating Campaign Materials

Dublirer v. 2000 Linwood Avenue Owners, Inc., No. 069154 (N.J. Dec. 3, 2014)

State and Local Legislation and Regulations/Association Operations: The New Jersey Supreme Court held that a board’s ban on disseminating board election campaign materials to residents violated the New Jersey Constitution’s free speech protections.

2000 Linwood Avenue Owners, Inc. (Linwood) owns a 483-unit apartment building in Fort Lee, N.J., known as Mediterranean Towers South or Med South. Operated as a cooperative, or co-op, Med South residents buy shares in Linwood, and they occupy their apartments as leaseholders. Similar to a condominium, the co-op’s shareholder-residents are bound by Linwood’s bylaws and rules, and Linwood is governed by a board of directors.

In 2002, Robert Dublirer bought shares in Linwood and became a resident in Med South. A regular critic of the board, Dublirer was interested in running for a seat on the board. He asked the board if he could distribute campaign materials in the building.

The board denied Dublirer’s request, citing a house rule that barred solicitation and distribution of written materials. The board said the rule had two purposes: to preserve the residents’ quiet enjoyment of their apartments and to cut down on litter. However, there are several exceptions to the rule. The board itself distributes various documents under apartment doors, including written “updates” that criticize the board’s opponents. The board also permits shareholders to knock on doors to solicit proxies for shareholders’ meetings, but the shareholders are not allowed to discuss issues or candidates as they do so.

Dublirer publishes the “Med South Gadfly,” a newsletter that he hands out at shareholder meetings. The house rule bars Dublirer and others from placing a newsletter under a resident’s door. Shareholders can post items on the lobby bulletin board, distribute materials at shareholders’ meetings or send materials to shareholders by regular mail (at a cost of more than $200 per mailing). Shareholders also can seek board approval to place signs or notices in the building, but there are no guidelines to direct the board’s discretion.

In March 2008, Dublirer filed suit against Linwood, challenging the house rule and seeking an injunction (an order prohibiting or mandating certain action) against it. Both parties moved for summary judgment (judgment without a trial based on undisputed facts). The trial court ruled in favor of Linwood, finding that the house rule was not unconstitutional. Dubliner appealed.

The appeals court reversed and struck the house rule on free speech grounds. The appeals court found that Dublirer’s comments constituted “political-like speech” because it related to common-interest community management and governance. The appeals court determined that the house rule was content-based and that it left Dublirer without reasonable alternatives to convey his message. Linwood appealed.

The supreme court held that the house rule violated the free speech guarantee in New Jersey’s Constitution, which bars the government from abridging free speech and also protects against unreasonably restrictive or oppressive conduct by private parties in certain circumstances.

The supreme court had established a test to determine when a private property owner was required to permit others to exercise free speech. When the private property is in a common-interest community, the supreme court also applies a test to balance the rights of fellow property owners. Courts are to focus on the purpose of the speech in relation to the property’s use and balance expressional rights with private property rights.

The supreme court held that Dublirer’s communication was akin to and should be treated as political speech, which is entitled to the highest level of protection. The supreme court found his proposed communication would interfere only minimally with the interests of other residents, and it would be compatible with the nature of Med South. It also found the alternative means available for Dublirer to engage in the same expressional activity were simply not the same as delivering a leaflet to a neighbor.

The supreme court noted that the board could have reasonably restricted distribution time, place and manner that served Med South’s interests, but it did not. The court found it significant that the board allowed itself—but not its critics—to distribute materials throughout Med South. In applying the balancing test, the supreme court found the restriction on Dublirer’s right to disseminate materials unreasonable. A resident’s right to speak about his community’s governance outweighs the board’s concerns. Accordingly, the appeals court’s judgment was affirmed.

©2015 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

[ return to top ]

County Not Responsible for Assessments on Foreclosed Units

Harbor Watch Condominium Association v. Emmet County Treasurer, No. 316858 (Mich. Ct. App. Dec. 4, 2014)

Taxes and Tax Regulation/State and Local Legislation and Regulations: The Michigan Court of Appeals ruled that a county that acquired condominium units following tax lien foreclosures was not responsible for association assessments.

Harbor Watch Condominium Association (association) manages the Harbor Watch condominium project in Petoskey, Mich. The Emmet County Treasurer (county) is a governmental unit authorized to foreclose on properties for delinquent property taxes under Michigan’s General Property Tax Act (GPTA).

The county initiated foreclosure proceedings for 37 delinquent Harbor Watch units. In February 2011, the trial court entered foreclosure judgment in favor of the county if the units were not redeemed in accordance with GPTA by March 2011. The redemption period lapsed, and a foreclosure notice for each unit was recorded in the deed records in May 2011.

The county conducted two public sales. Two units were sold in September 2011, and the remaining units were sold in November 2011.

The association initiated a collection action against the county, asserting that the county was required to pay assessments for the time it owned the units. The association claimed the county owed $97,366.09 in assessments, late fees and interest. Both parties filed cross motions for summary disposition (judgment without a trial based on undisputed facts).

The county asserted that the GPTA required it to foreclose the tax liens, making it an involuntary property taker. As an involuntary taker, the county did not agree to be bound by the condominium documents. The county further asserted it was not authorized to pay association assessments because the GPTA controls how the county must allocate the funds received from a tax sale. The GPTA does not provide a mechanism for paying assessments.

The county further argued that paying association assessments would violate the Michigan Constitution and would be against public policy because the GPTA foreclosure proceedings were intended to allow municipalities to collect unpaid taxes and quickly return delinquent properties to productive use.

The association countered that the condominium documents and the condominium act do not draw a distinction between private owners and public owners. The association also argued that the county was a voluntary taker because the GPTA specifically provides that “[t]he foreclosure of forfeited property by a county is voluntary and is not an activity or service required of units of local government for purposes of section 29 of article IX of the state constitution of 1963.”

The trial court granted the county’s motion for summary judgment and dismissed the case, finding that the county’s ownership was involuntary. The association appealed.

The appeals court agreed with the trial court that the county’s ownership was involuntary because GPTA required it to foreclose on tax liens, even though the language quoted by the association used the term “voluntary.” The appeals court held that the phrase “for purposes of” indicated that the words that followed limited the statute’s application. Accordingly, the phrase was used to indicate legislative intent, not to violate article IX, section 29, which prohibits creating an unfunded mandate. To say that the term “voluntary” is evidence that GPTA foreclosures are not mandatory would render “for the purpose of” meaningless.

The appeals court agreed with the county that the GPTA provides no mechanism for the county to pay assessments. The county is required to deposit the foreclosure sale proceeds into a restricted account and use them only for limited purposes, which do not include condominium assessments.

The association argued that the GPTA allowed the county to use the funds to pay maintenance costs, and the association’s expenses were maintenance costs. The appeals court held that, even if this was true, it did not help the association in this instance. Sales proceeds must first be used to pay all taxes, interest and fees on the delinquent property. The public sales here did not generate enough proceeds to cover the taxes due, let alone the costs of the foreclosure sales and proceedings.

The association urged that the county should have included the assessment amounts in its minimum bid calculation. The appeals court pointed out that the GPTA limited the sales proceeds to the purposes listed in the statute.

The trial court’s judgment was affirmed.

©2015 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