June 2020
In This Issue:
Recent Cases in Community Association Law
Condominium Plan Had to be Reformed to Account for Incomplete Development
All Parties Must Consent for Dispute to be Arbitrated
Lenders Lose Security Interest in Undeveloped Condominium Property
Owners Cannot Recover Overpayment to Association
Collection Does Not Equate to Foreclosure
Board Email Exchange Did Not Constitute Proper Board Vote
Parties Confused About Calculating Foreclosure Purchaser's Obligation to Pay Six Months of Pre-Suit Common Expenses
Declaration Amendment Failed to Unify the Community
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 illustrations 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. In addition, the College of Community Association Lawyers prepares a case law update annually. Summaries of these cases along with their references, case numbers, dates, and other data are available online.

Condominium Plan Had to be Reformed to Account for Incomplete Development

Beckman Holdings, Inc.v. Sunnyside Resort Condominium Association, Inc., No. 347543 (Mich. Ct. App. May 21, 2020)

Assessments: The Court of Appeals of Michigan held that percentage values assigned to condominium units had to be reformed because the original development plan contemplated that construction was complete and did not account for units that remained vacant lots.


Sunnyside Resort Condominium Association, Inc. (association) governed a lot condominium on Lake Gogebic in Gogebic County, Mich. Beckman Holdings, Inc. and Meinke Construction, Inc. (collectively, plaintiffs) owned units in the condominium.

The 14-unit condominium was established in 2004 by the recording of a master deed. Units 1–8 contained cottages (cottage units) valued at $129,000–$159,000. Units 9 and 10 had larger homes with more deluxe improvements and were valued at $229,900 and $349,900, respectively. Units 11–14 were vacant lots on which the developer initially intended to build residences, but he ended up selling them as vacant lots.

In 2006, the plaintiffs purchased Units 11 and 13. The vacant lots were valued at $13,000 each and did not have utilities, septic systems, wells, or other improvements. In the purchase documents, the developer agreed that the units would not be charged association assessments until structures were built on them.

After there was a change in leadership on the association's board of directors (board), the association began assessing the plaintiffs' units at the same rate charged to the cottage units. In 2012, the association sued the plaintiffs to recover assessments for Units 11 and 13 dating back to 2006.

While that lawsuit was pending, four unit owners (collectively, builders) constructed a four-stall garage and a single-stall garage on the common elements at their expense. The builders did not obtain the association's approval for the construction, although two of the builders were on the board (director-builders). The director-builders did not consult with the third director about the construction, although they did ask the association's attorney about how to proceed. The attorney advised that they had to comply with the process for changing the common elements by obtaining the approval of all owners and mortgagees.

After the attorney learned that garage construction had been completed, the attorney said the garages belonged to the association. However, the board did not inform the owners, and the builders retained exclusive use of the garages. In July 2015, the plaintiffs stopped paying assessments for their units.

The plaintiffs sued the association, alleging that the construction created five additional units that were not being charged any assessments while the vacant units were still being charged the same rate as the cottage units. The plaintiffs asserted that the garage construction constituted a material change to the condominium plan that required a recalculation of the percentage value assigned to each unit. The plaintiffs sought an equitable reformation of the percentage values for their units under the Michigan Condominium Act (act). The association counterclaimed, seeking to recover the unpaid assessments on the plaintiffs' units.

The association said that it had since made the garages available for the use of all owners, so the construction did not result in the creation of new units. However, after the second lawsuit was filed, the board adopted a resolution dividing up the common elements into assigned parking spaces for all units.

The trial court ruled in the plaintiffs' favor and reformed the percentage values for their units to 0%. The act required that the percentage value be fair, just, and equitable in accordance with the basic formula used to originally establish the unit values. The trial court concluded that the developer's original formula was based solely on structure size. Since Units 11 and 13 remained vacant, the trial court concluded that their percentage values should be 0% until such time as structures were built, and then the percentages were to be calculated based on the structure size.

The trial court held that the plaintiffs did not owe the association any assessments and that the association must follow the act and the master deed requirements for converting common elements into private ownership. The association appealed.

The master deed specified that the percentages of value for the units were computed based on a combination of market value, size, and allocable expenses for maintenance. Then, the resulting percentages were reasonably adjusted to total 100%. The association argued that "size" meant lot square footage. However, the act defined "size" as the cubic feet or square feet of ground or floor space within each unit, computed by reference to the condominium plan. The appeals court found that Units 11 and 13 contained no floor space, so an allocation of 0% to those units was appropriate.

The association argued that the condominium subdivision plan had not been revised by the fact that certain units remained vacant lots. The appeals court disagreed. The master deed stated that each unit was intended for residential purposes. The master deed exhibits also depicted structures on the vacant units, which were not labeled "need not be built" or "must be built" as the act required for construction that was not completed at the time the condominium was established.

The condominium disclosure statement further indicated that the construction of the four unfinished units had commenced in June 2004. The association budget included in the statement indicated that it assumed that 14 units were occupied. It also stated that Units 11–14 were newly constructed and were served by their own well. Thus, the developer deviated from the original plan when he sold those units as vacant lots, and it was appropriate for the trial court to reform the plan after the fact.

The association insisted that the judgment applied only prospectively and that the plaintiffs remained liable for the assessments already levied in accordance with the then-existing condominium plan. The appeals court disagreed, stating that the assessments were based on improper calculations that failed to account for the vacant units and the exclusive use of the garages by the builders.

Accordingly, the trial court's judgment was affirmed.

©2020 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

All Parties Must Consent for Dispute to be Arbitrated

Copperfield Villas Association v. Tuer, No. 348518 (Mich. Ct. May 21, 2020)

Powers of the Association: The Court of Appeals of Michigan held that an association bylaw requiring arbitration of disputes between an owner and the association required both parties' consent, as stated in the Michigan Condominium Act.


Copperfield Villas Association (association) governed a condominium community in Livingston, Mich. Barry and Allison Tuer (the Tuers) owned a home in the community.

In the fall of 2018, the association notified the Tuers that they had violated the condominium documents multiple times by failing to weed and maintain their lawn, parking vehicles on the lawn, placing gravel on the common area, and making improvements to their lot without association approval (constructing a dog kennel, expanding their driveway, and installing a parking lot). The Tuers attempted to negotiate with the association, but the parties could not reach a resolution.

The Tuers then demanded arbitration, but the association proceeded to file suit against the Tuers. The Tuers asserted that the association's bylaws contained an arbitration requirement that could be invoked by any party to a dispute. The association argued that the bylaws' arbitration requirement violated the Michigan Condominium Act (act) and, therefore, was unenforceable.

The bylaws provided that, in the event of a dispute between the association and an owner, any party to the dispute may demand that the suit be resolved by arbitration as provided in the act. If a demand for arbitration is made, no lawsuit may be commenced in court.

The act required that the bylaws provide that arbitration of disputes relating to the interpretation or application of the governing documents shall be submitted to arbitration upon the election and written consent of the parties to the dispute. In the absence of the election and written consent of the parties, neither party is prohibited from filing suit in court. The election by the parties to submit any dispute to arbitration prohibits the parties from filing suit in court regarding the dispute.

The association contended that the bylaws provision violated the act because it required that a dispute be arbitrated if either party demanded arbitration, but the act required the consent of both parties to arbitrate a dispute. The association emphasized that the act referred to the consent of the parties (plural) in three different places, so the act must be interpreted to mean that both parties have to waive their rights to try the case in court before the dispute can be arbitrated.

The Tuers also complained that the bylaws required the association to obtain the vote of a majority of the owners before it could file any litigation. The trial court determined that, although the bylaws seemed to require arbitration if one party demanded it, the act's mutual consent requirement was incorporated into the bylaws by the clause referencing the act. The trial court said that the association could continue with the litigation, but it had to obtain the consent of a majority of the owners. Since the association had not conducted an owner vote prior to filing suit, the trial court dismissed the case. The association appealed.

The appeals court determined that the consent of both parties was required to submit a dispute to arbitration. Regardless of the bylaws' wording regarding disputes, other bylaws provisions specified that the act would control in the event any provision of the bylaws conflicted with the act. The appeals court noted that the act referred to the consent of the parties, and it took two to consent or agree to action. Since the association did not agree to arbitration, it was free to file suit with respect to the claims.

In addition, the association was not required to obtain the approval of a majority of the owners before filing suit because the bylaws expressly exempted from the owner approval requirement any suit to enforce the condominium documents or to collect delinquent assessments. In the lawsuit, the association alleged that the Tuers violated the condominium documents, so the claims clearly fell within the exemption.

The appeals court found that the trial court should have permitted the case to proceed toward trial. Accordingly, the trial court's judgment dismissing the case was reversed, and the case was remanded for further proceedings.

©2020 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Lenders Lose Security Interest in Undeveloped Condominium Property

Trustees of the Kettle Brook Lofts Condominium Trust v. Kettle Brook Lofts, LLC, No. 15 MISC 000302 (DRR) (Mass. Land Ct. April 16, 2020)

Developmental Rights: The Massachusetts Land Court held that a developer's lenders lost their security interests in undeveloped property subject to a condominium master deed when the developer failed to create units in the property before the development period ended.


The trustees of the Kettle Brook Lofts Condominium Trust (trust) governed the Kettle Brook Lofts Condominium in Worcester, Mass. Kettle Brook Lofts, LLC (developer) owned four tracts of land containing industrial buildings that the developer intended to develop into residential units. The land was subject to mortgages held by Commerce Bank and Trust Company (Commerce) and Haymarket Capital, LLC (Haymarket) (collectively, the lenders).

In 2008, the developer created the condominium by recording a master deed and declaration of trust (master deed) covering all four tracts of land. The master deed established a seven-year period (development period) in which the developer was authorized to develop up to 109 units. The initial phase included 33 units. Through amendments to the master deed, the developer added 18 more units, bringing the total number of completed units to 53 (completed units).

The developer sold 48 of the completed units. Each time a unit was sold, the lenders signed partial releases releasing the unit and its undivided interest in the common area from the mortgages.

The day before the development period expired in 2015, the developer recorded two amendments to the master deed. One amendment purported to extend the development period for another seven years. The second amendment attempted to add 56 partially completed units (unfinished units) to the condominium.

A lawsuit ensued between the trust, the developer, and the lenders concerning the unfinished units. In a 2018 decision, the court ruled that the developer's attempt to extend the development period was invalid. It also determined that the final number of units was fixed at 53 at the end of the development period, and no additional units could be added without a vote of the owners of the completed units.

The trust then sought a ruling that the unfinished units were a part of the common area owned by the owners of the completed units, free and clear of the lenders' mortgages. The lenders argued that their mortgages continued to burden the unfinished units and that foreclosure of the mortgages would extinguish the master deed's application to the unfinished units.

At the end of the development period, the unfinished units became part of the common area by default because the property was made subject to the master deed, the unfinished units did not qualify as units, and there were no more development rights in such property. A basic principle of condominium law is that the land within the condominium outside of the individual units constitutes common area owned by the unit owners as tenants in common, such that percentage interests of all owners always total 100%.

The interest in the common area assigned to a unit cannot be separated from the unit, and such interest is deemed to be conveyed with the unit even though the interest may not be mentioned in the deed. Therefore, when the lenders released the completed units from the mortgages, they also necessarily released such units' interests in the common area. Once the development period expired, the lenders' mortgage interests in the unfinished units evaporated.

The lenders complained that the partial releases they signed did not express an intent to release the unfinished units from the mortgages. However, the partial releases did not make an exception for the unfinished units. The court explained that, once the development period expired, there was no third category of property interests that existed separate from the completed units and the common area, and the unfinished units automatically became part of the common area.

The lenders then asked the court to exercise its equitable powers to afford them some relief with respect to the lost mortgage interests because they were owed millions of dollars. They argued that the owners of completed units would be unjustly enriched at the lenders' expense if the unfinished units were not subject to the mortgages. The principle of unjust enrichment provides that a person who has been unjustly enriched at the expense of another is required to make restitution to the other.

The court noted that it is necessary to show that retention of the benefit would be unjust, which necessarily depends on the expectation of the parties. The court stated that it was not clear whether the unfinished units were a benefit or a liability to the owners due to the state of partial construction and the fact that the property had fallen into disrepair after the litigation began. The lenders complained that the trust had not acted in good faith by allowing the unfinished units to fall into disrepair. The court was unpersuaded that the lack of maintenance warranted granting equitable relief to the lenders, stating that any harm due to a lack of maintenance would be to the trust's detriment, not its benefit.

The court also found that the reasonable expectations of the parties were established by the master deed, which clearly provided for the development period to terminate after seven years. Moreover, the court found that lenders had ample opportunity to protect their interests because they worked with the developer throughout the development, had the right to determine the collateral necessary to secure the loans, and chose to execute releases releasing their security.  

The court granted summary judgment (judgment without a trial based on undisputed facts) in favor of the trust.

©2020 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Owners Cannot Recover Overpayment to Association

Koeller v. Malibu Shores Condominium Association, Inc., No. SD36129 (Mo. Ct. App. May 22, 2020)

Assessments: The Court of Appeals of Missouri held that unit owners could not recover an overpayment to the association based on the voluntary payment rule.


Malibu Shores Condominium Association, Inc. (association) governed a condominium in Camden County, Mo. Wendy and Michael Halliday (the Hallidays) owned Unit 3 in the condominium. The Hallidays also leased a boat slip from the association.

The Hallidays became delinquent in paying their unit and dock assessments, and the association sued the Hallidays. In March 2016, the association obtained a judgment against the Hallidays in the amount of $6,156 for assessments, late fees, and interest, which also was a lien on the unit. The judgment also ordered the boat slip lease terminated, and the association took possession of the boat slip.

Angela and Randall Koeller (the Koellers) and Jeff Haskenhoff (Haskenhoff) also owned units in the condominium. At the time the Halliday judgment was obtained, Mrs. Koeller and Haskenhoff served on the association's board of directors (board).

In May 2016, Mr. Koeller and Haskenhoff (collectively, plaintiffs) purchased Unit 3 at a sheriff's sale for $52,000. They asked the association the amount of the lien on the unit, and the association responded that they owed $8,154 to satisfy the lien. This amount included the judgment amount plus interest, lien fees, and attorneys' fees, but it also included dock assessments for May and June 2016.

Mr. Koeller questioned the amount, but Haskenhoff insisted that they owed the full amount. The plaintiffs paid the full amount requested by the association. In November, the plaintiffs obtained a release of all liens from the association and then sold the unit.

The plaintiffs later sued the association for negligent and fraudulent misrepresentation with regard to the lien amount and validity. Mr. Koeller died while the case was pending, and Mrs. Koeller was substituted as a plaintiff in his stead. The trial court concluded that the lien was valid and owed by the plaintiffs after they purchased the unit, but even if the amount asserted was incorrect, the plaintiffs still did not have a claim against the association based on the voluntary payment rule. The plaintiffs appealed.

Under Missouri law, the voluntary payment rule provides that a person who voluntarily pays money with full knowledge of the facts of the case, and in the absence of fraud and duress, cannot recover the payment back even though it may not have been owed and/or was paid under protest.

The plaintiffs argued that the lien amount was not valid because no dock assessments were owed after March 2016 since the association had taken the boat slip back. The appeals court said the plaintiffs' overpayment was a mistake of law and did not amount to fraud or duress. A mistake of law occurs when a person is truly acquainted with the existence or nonexistence of facts but is ignorant of or comes to an incorrect conclusion as to their legal effect.

Mrs. Koeller and Haskenhoff were on the board and had full knowledge of the judgment against the Hallidays and the facts giving rise to the lien. The plaintiffs' mistake of law fell within the voluntary payment doctrine and barred their attempt to recover amounts they voluntarily paid to the association in error.

Accordingly, the trial court's judgment was affirmed.

©2020 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Collection Does Not Equate to Foreclosure

Merritt Medical Center Owners Corp., Inc. v. Gianetti, 197 Conn. App. 226 (Conn. App. Ct. May 5, 2020)

Assessments: The Appellate Court of Connecticut held that a board's vote to send a delinquent account to collection did not satisfy the Connecticut Common Interest Ownership Act's requirement that the board specifically approve foreclosure action against the unit.


Merritt Medical Center Owners Corp., Inc. (association) governed an office project in Fairfield County, Conn. Charles Gianetti (Gianetti) owned two medical office units in the project.

Gianetti allegedly failed to pay all association assessments when due, and the association filed liens against his units. The association asserted that Gianetti owed $2,564 for one unit and $2,277 for the second unit. The association commenced foreclosure actions against Gianetti's units to foreclose its liens. Gianetti claimed that he had written checks to the association that had not been deposited and that the association failed to provide information about the debts.

Gianetti also asserted that the association's foreclosure actions did not comply with the Connecticut Common Interest Ownership Act (act). The trial court ruled that the association had complied with the act's requirements and granted judgment in the association's favor. The trial court also set a date for the foreclosure sale. Gianetti appealed.

The act imposes three requirements that an association must satisfy before it can commence a foreclosure action. One of these requirements is that the association's executive board has either voted to commence a foreclosure action specifically against the unit or has adopted a standard policy that provides for foreclosure against the unit. Gianetti claimed that the association's board of directors (board) neither voted to commence foreclosure actions against his two units nor adopted a standard policy for foreclosure.

The association's manager testified that the board met and voted to send Gianetti's two units "to collection." The association also provided minutes of the meeting stating the same thing. After the meeting, the association's attorney sent a collection letter to Gianetti, demanding payment of the delinquent amounts and advising that the letter was an attempt to collect a debt. The letter also stated that Gianetti could avoid litigation by making payment through the attorney's office.

The association conceded that it had not adopted a standard collection policy, but asserted that collection meant the same thing as foreclosure. The appeals court disagreed, stating that the terms "foreclosure" and "collection" were distinctly different. A foreclosure is a legal proceeding to terminate the debtor's interest in the property. By contrast, in a collection action, a creditor seeks to receive payment of a debt from a debtor.

The association protested that the board clearly meant foreclosure when voting to send the account to collection because foreclosure was the only means for collecting a statutory assessment. Again, the appeals court disagreed, stating that the act did not prohibit suits against delinquent owners to collect amounts due or prohibit the association from accepting a deed in lieu of foreclosure from the owner.

The appeals court stated that the act clearly contemplated alternative remedies—collecting unpaid amounts from the delinquent owner or foreclosing the association's lien. Furthermore, the attorney's collection letter to Gianetti did not mention foreclosure or the possibility that Gianetti could lose ownership of his units.

Finding that the board neither voted to commence a foreclosure action specifically against Gianetti's unit nor approved a standard policy providing for foreclosure against Gianetti's unit, the trial court erred in granting judgment in the association's favor. Accordingly, the trial court's judgment was reversed, and the case was remanded with instructions to dismiss the foreclosure action.

©2020 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Board Email Exchange Did Not Constitute Proper Board Vote

Sander v. Country Brook Homeowners' Association, Inc., No. CA2019-08-079 (Ohio Ct. App. April 20, 2020)

Association Operations: The Court of Appeals of Ohio held that a board's disapproval of an architectural change application was ineffective because the board did not properly disapprove the application either at a meeting or by written consent in lieu of a meeting, in accordance with Ohio nonprofit corporation law.


Country Brook Homeowners' Association, Inc. (association) governed Country Brook Subdivision in Warren County, Ohio. Michael and Katherine Sander (the Sanders) owned a home in the community.

A declaration of covenants, conditions and restrictions (declaration) governing the community required prior association approval for improvements, alterations, or additions by lot owners. On May 26, 2017, the Sanders submitted an application to the association's board of trustees (board) for approval to install solar panels on the rear slope of their home. At the time, Tim Edmunds (Edmunds), Andrew Heekin (Heekin), and Sheila Willhoite (Willhoite) served as the three trustees.

The board forwarded the application to an architect for review. The architect recommended to Edmunds that the application be approved on the condition that the panels be installed on the rear slopes of the home. The application and the architect's comments were emailed to all three trustees. Edmunds spoke with Heekin by phone about the application. Edmunds separately spoke with Willhoite. All three trustees agreed that the application should be disapproved, but Heekin and Willhoite never spoke with each other about the application.

A letter disapproving the application (disapproval notice) was prepared and circulated among the trustees before it was sent to the Sanders on June 3, 2017. The Sanders then sued the association, alleging that the board's disapproval was not in accordance with the declaration because the application was not reviewed or disapproved by a design review committee (DRC) within 14 days as required by the declaration. The Sanders also asserted that the board's disapproval of the application was not a decision either made at a board meeting or by written consent in lieu of a board meeting, in accordance with the Ohio nonprofit corporation law (act).

The trial court determined that the declaration permitted the board to review and act upon architectural alteration applications in lieu of a DRC. It also found that the email exchanges among trustees approving the disapproval notice satisfied the act's requirements for acting without a formal meeting. The Sanders appealed.

The act provides that, unless the corporation's governing documents provide otherwise, any action that may be taken or authorized at a board meeting may be approved without a meeting with the affirmative vote or approval in a writing or writings signed by all trustees, and any such writing shall be filed with the corporation's records. The appeals court interpreted the act as containing three requirements to approve action outside of a meeting. First, the trustees must unanimously agree on the action (unanimity requirement). Second, there must be a signed writing from each trustee containing his or her affirmative vote on the action to be taken (signed writing requirement). Third, the signed writing(s) must be filed with the association's records (memorialization requirement).

The act further states that the signed writing requirement is satisfied by any transmission through authorized communications equipment containing an affirmative vote or approval of a corporate officer to corporate action. "Authorized communications equipment" includes transmission by telephone or electronic means from which it can be determined that the transmission was authorized by, and accurately reflects the intention of, the trustee involved. Therefore, a vote on an issue cast by telephone or by email would qualify as a "signed writing" under the act.

The trustees agreed in separate conversations that the application should be disapproved, satisfying the unanimity requirement. However, the board could not produce any writings evidencing the trustees' approval of the disapproval notice, and the disapproval notice was not signed by any of the trustees. The trustees could only generally testify that there was some email exchange concerning the disapproval notice, but they could not produce any of the emails.

The appeals court stated that the mere exchange of emails does not satisfy the signed writing requirement. To constitute a signed writing under the act, the email must contain an affirmative vote or approval of the corporation action to be taken. There was no evidence providing any specificity as the emails' authors, the emails' content, or when the emails were sent. In addition, the emails were not in the association's possession or filed with the association's records to satisfy the memorialization requirement.

The appeals court held that the application's disapproval was ineffective since the trustees failed to disapprove the application either at a meeting or without a meeting in accordance with the act's requirements. The association insisted that the disapproval should be upheld because the trustees acted in good faith. The appeals court disagreed, finding nothing in the act or case law to support the proposition that unauthorized corporate action should be upheld simply because it was taken in good faith.

Accordingly, the trial court's judgment was reversed.

©2020 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Parties Confused About Calculating Foreclosure Purchaser's Obligation to Pay Six Months of Pre-Suit Common Expenses

Shannon Court Condominium Association v. Armada Express, Inc., No. 1-19-2341 (Ill. App. Ct. May 15, 2020)

Assessments: The Appellate Court of Illinois interpreted the Illinois Condominium Property Act to determine whether to include the association's attorneys' fees and costs to rent the unit in the foreclosure sale purchaser's obligation to pay six months of pre-foreclosure assessments.


Shannon Court Condominium Association (association) governed a condominium in Streamwood, Ill. Robert and Kimberly Voelker (the Voelkers) owned a unit in the condominium.

The Voelkers became delinquent in paying association assessments, and the association filed suit against them. In January 2018, the association obtained a monetary judgment against the Voelkers in the amount of $5,272 and a judgment for possession of the unit, but the unit remained subject to the Voelkers' mortgage. The association took possession of the unit and began renting it, after spending some money to make it suitable for rental. Between August 2018 and December 2018, the association collected $2,625 in rent for the unit.

In December 2018, the mortgage company foreclosed on the unit. Armada Express, Inc. (Armada) purchased the unit at a judicial foreclosure sale the following month. In February 2019, the trial court confirmed the sale, and a judicial deed to Armada was issued on March 1, 2019.

On April 5, 2019, Armada paid the association $1,117 for the unit's assessments for the months of February, March, and April 2019 plus a $25 late charge for February. A few days later, Armada sent the association another payment of $59 along with a cover letter indicating that the check was in full payment of all amounts due pursuant to the Illinois Condominium Property Act (act).

In May 2019, the association sent Armada a delinquency notice and demand for possession of the unit. The letter stated that $19,122 was due to the association with respect to the unit. Armada did not pay the amount demanded, and the association sued Armada to collect the delinquent amount and for possession of the unit. Armada denied that it owed anything to the association.

The act provides that the purchaser of a unit at a judicial foreclosure sale has the duty to pay the unit's share of the common expenses assessed from and after the first day of the month after the date of the judicial foreclosure sale. The purchaser also has the duty to pay the unit's share of common expenses that were due during the six months immediately preceding the initiation of the collection action. Such payment confirms the extinguishment of the association's lien for pre-foreclosure unpaid amounts.

The trial court found that the unpaid assessments levied on the unit within the six months prior to the foreclosure sale totaled $2,681. It also determined that the $2,625 rent the association collected should be deducted from that amount, leaving a balance of $56. The trial court determined that Armada's $59 payment covered the full amount due, and it granted summary judgment (judgment without a trial based on undisputed facts) in Armada's favor. The association appealed.

The association contended that it could include its attorneys' fees incurred in pursuing the Voelkers as well as the amount it spent to make the unit ready for rental to the six months of assessments due by Armada. The association also asserted that it was not required to deduct the rent it collected from the balance due by Armada.

The appeals court held that the unit's unpaid common expenses for the six-month period preceding the filing of the Voelkers' collection action could include the attorneys' fees incurred by the association during this period related to the Voelkers' default. The appeals court noted that "incurred" is not synonymous with "paid." A debt is incurred when it is suffered or when one is exposed to liability or expense.

The trial court's judgment included $272 for work done by the association's attorney prior to filing the Voelker suit. The association paid another $970 in attorneys' fees after the Voelker suit was filed, but the appeals court determined that the fees were incurred before suit was filed. This amount should have been included in the six months of assessments due by Armada.

The appeal court determined that Armada was not responsible for the association's expenses in preparing to rent the unit, as those costs were incurred after the Voelker suit. However, it found that the act clearly specified that the rental income received by the association was to be applied first to the Voelkers' unpaid assessments and interest and then to the attorneys' fees and court costs incurred by the association in pursuing the Voelker case. Thus, it was error to simply reduce Armada's balance due by the amount of the rental income.

Accordingly, the trial court's judgment in favor of Armada was reversed, and the case was remanded for further proceedings.

©2020 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is strictly prohibited.

[ return to top ]

Declaration Amendment Failed to Unify the Community

Sunburst Farms East, Inc. v. Braden, No. 1 CA-CV 19-0144 (Ariz. Ct. App. April 23, 2020)

Documents: The Court of Appeals of Arizona determined that a proposed amended and restated declaration unifying the declarations for different neighborhoods was invalid because it was not approved by all neighborhoods.


Sunburst Farms East is a residential community in Maricopa County, Ariz., comprising four neighborhoods (sections 2, 3, 4, and 7). Each section had its own declaration of covenants, conditions and restrictions (declaration), but the declarations obligated all lot owners to be members of Sunburst Farms East, Inc. (association).

The declarations stated that the association's purpose was to provide irrigation water and agricultural tillage services to the owners. The association owned a private well in addition to irrigation infrastructure throughout the community, including well stands, pumps, and piping on each lot. The declarations gave the association the power to levy assessments and lien rights. Each declaration could be amended by a majority vote of the owners in that section.

A majority of the owners in sections 3 and 4 voted to amend their declarations to eliminate the assessment obligation and the association's lien rights. A majority of the owners in section 7 voted to remove the same provisions from its declaration as well as the mandatory membership obligation. None of the amendments altered the declarations' amendment provisions.

Litigation ensued, and disputes concerning the declarations continued for more than 40 years. In 2007, the association's board of directors (board) proposed unifying the four sections under a single governing declaration (2007 declaration). The 2007 declaration stated that the majority of the owners in the four sections desired to amend and restate their respective declarations and that all previously recorded declarations for the four sections were superseded in their entireties. It provided for optional membership in the association but required mandatory assessments from all owners, irrespective of membership. It also gave the association lien rights.

The board recorded the 2007 declaration after reporting that a majority of the owners in each section had voted for it. Kenneth Braden and other owners in sections 3 and 4 (collectively, homeowners) filed suit against the association to enforce a prior settlement agreement. The association countersued, seeking a judgment as to the validity of the 2007 declaration.

The homeowners argued that the declarations for sections 3 and 4 could be amended only by the unanimous vote of all owners in those sections. The trial court determined that unanimous consent was not required. The homeowners then discovered that a majority of the section 7 owners had not, in fact, approved the 2007 declaration. The trial court determined that uniformity was not necessarily required and that the 2007 declaration was valid for everyone except section 7 owners. The trial court awarded the association $300,000 in attorneys' fees as the prevailing party. The homeowners appealed.

The homeowners argued that they could not be forced to be association members without their consent under the Arizona nonprofit corporation act (act). However, the homeowners had already impliedly consented to association membership because the declarations for sections 3 and 4 had never been amended to remove the membership obligation.

The appeals court noted that the association was created to maintain the community irrigation system for the benefit of all owners and that each owner had the right to use the irrigation services. The homeowners also were on notice that association assessments had, at one time, been mandatory and that each declaration could be amended by a majority vote. The appeals court found that a majority vote reverting to mandatory assessments was not unforeseeable or unfair.

The homeowners argued that many of the owners did not use the association's irrigation services because they did not have landscaping that required irrigation. The appeals court stated that such personal choice did not negate that the association made the irrigation service available for the entire community.

The homeowners contended that the ballot impermissibly combined multiple proposed actions (amendments to the declarations and the bylaws) into a single ballot question. To utilize voting by ballot in lieu of a meeting, the act requires that the ballot set forth each proposed action and provide an opportunity to vote for or against each proposed action. The ballot used presented a single question to the entire community—whether to adopt the 2007 declaration and amend the bylaws.

The appeals court determined that the provisions of a single proposed action should be sufficiently related to a common purpose or principle that the proposal could be said to constitute a consistent and workable whole on the issue that it should logically stand or fall as a whole. The appeals court found that voting on amendments to the declarations and bylaws were properly joined. The bylaws amendments were not intended to take effect if the declarations were not amended, so the two issues had a common purpose.

The homeowners asserted that the 2007 declaration was never approved because a majority of the section 7 owners did not vote for the amendments. The association contended that the ballot presented the owners with the opportunity to vote for or against independent amendments to their respective section's declaration. The appeals court determined that, by referencing the 2007 declaration in the ballot question, the association asked the owners to vote on whether to adopt a single, unified document to govern the entire community. The 2007 declaration specifically stated that it would govern all sections, that a majority of the owners in each section had approved it, and that all prior declarations for the four sections were superseded in their entireties. The 2007 declaration also defined the property subject to it as encompassing all lots in all four sections.

The association argued that all references to section 7 could simply be removed since the 2007 declaration contained a severability clause allowing any invalid provision to be stricken while allowing the remaining portions to stand. The appeals court disagreed, stating that the ballot proposition made clear that adoption of the 2007 declaration and the bylaws amendment was conditioned on approval of the owners from all four sections. Since a majority of the section 7 owners did not approve the 2007 declaration, the ballot proposal failed, and the 2007 declaration never became effective for any section.

Accordingly, the trial court's judgment was vacated, and the case was remanded for entry of judgment in favor of the homeowners.

©2020 Community Associations Institute. All rights reserved. Reproduction and redistribution in any form is 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