December 2020
In This Issue:
Recent Cases in Community Association Law
Developer Consent Not Required for Declaration Amendment
Declaration Made Association Strictly Liable for Facility's Continuous Operation
Statute of Limitations Bars Construction Defect Claims in Multi-Year Condominium Project
Lot Owner Must Prove Damages Were Sustained by Neighbor Cutting Protected Trees
Association Did Not Violate the Fair Housing Act When It Was Not Aware of a Disability
Lawyer Liable for Pursing Foreclosure without Complying with Legal Requirements
Appeals Court Confirms for the Second Time that a Developer Was Liable for Assessments
Lot Owner Can Look at Newly Constructed, Prohibited Pool But Canít Use It
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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, CAI’s College of Community Association Lawyers prepares a case law update annually. Case law summaries along with their references, case numbers, dates, and other data are available online.

Developer Consent Not Required for Declaration Amendment

Bouma v. Silverado Community Association, No. 80853-2-I (Wash. Ct. App. Nov. 23, 2020)

Documents: The Court of Appeals of Washington held that a declaration that allowed amendments with the consent of less than 100% of the owners could be amended to the alleged detriment of the remaining developer lots, where the amendment was not unreasonable and was consistent with the general plan of development.

In the early 2000s, Gene Bouma Development, Inc. (developer), owned by Gene and Maralee Bouma (collectively, the Boumas), developed rural property in Whatcom County, Wash., into two eight-lot subdivisions—Silverado East and Silverado West. The Boumas recorded identical declarations of covenants, conditions, and restrictions (collectively, the original declarations) for the two subdivisions. Silverado Community Association (association) was established to govern both subdivisions.

Seven of the lots in both subdivisions were about one acre each, but the remaining lot in each subdivision was more rural and about 32–33 acres (collectively, the big lots). The Boumas retained the big lots and sold the remaining lots.

Each declaration provided that it could be amended in whole or in part by a document signed by 60% of owners of lots subject to the declaration. In 2015, all of the owners in both subdivisions except for the Boumas signed a single amended and restated declaration of covenants, conditions, and restrictions (2015 declaration), which unified the two declarations under a single document and made a number of changes to them.

In 2017, the Boumas sued the association, asserting that the 2015 declaration was unenforceable against their lots because they did not sign it. The trial court found that the 2015 declaration was validly adopted, granted summary judgment (judgment without a trial based on undisputed facts) in the association's favor, and dismissed the Boumas’ claims. The trial court also awarded attorneys' fees and costs to the association. The Boumas appealed.

The Boumas argued that the 2015 declaration was ineffective without their signature based on the statute of frauds for real estate, which requires that every contract or conveyance creating a burden on real estate shall be signed by the party bound by such document. The appeals court determined that the statute of frauds did not require that every party bound by the declarations sign any amendment where the declarations expressly authorized amendments with the signatures of fewer than all owners.

The Boumas also complained that the amendments were not consistent with the general development plan and imposed unreasonable, disparate impacts on their lots. In addition to the approval required under the declarations, Washington law required that the amendment power be exercised consistently and reasonably whether the restriction was entirely new or a modification to an existing restriction. Where the covenants permit a majority to change them but not create new covenants, a simple majority cannot add new restrictions that are inconsistent with the general plan of development or have no relation to the existing covenants.

The Boumas complained about a number of provisions of the 2015 declaration, but the appeals court found no merit in any of the complaints. For example, the Boumas asserted that the association attempted to turn an easement over the big lots into ownership of the property because the 2015 declaration included the easement in the definition of common areas. In the subdivision plats, the developer conveyed to the association common and recreational easement areas in the big lots for drainage, wells, and utility purposes.

The appeals court found that the conveyed property interest was not just utility easements but common and recreational areas for the subdivisions. The plats listed the easement areas as common areas that the association may use and must maintain. The 2015 declaration merely duplicated the easement area description already stated on the plats.

The Boumas asserted that the 2015 declaration improperly expanded the easements over the big lots to include signage, lighting, and electrical purposes. The original declarations made the association responsible for maintaining and repairing streetlights and decorative lights within the common areas. The association also had the authority to make repairs to the water systems on the big lots under shared well agreements. The appeals court stated that a maintenance obligation implies both access and the ability to install necessary lights, signs, and electrical systems.

The original declarations limited out-of-county guests to a six-week stay in a recreational vehicle (RV) parked at a lot owner's home. The 2015 declaration restricted the ability of an owner to live in an RV on a lot. Since the subdivisions were not designed to be RV parks, the appeals court failed to see how a restriction on permanent RV living violated the general plan of development.

The original declarations banned keeping livestock and poultry on lots, but a 2008 amendment allowed the Boumas to keep farm animals on the big lots for personal use, hobby, and activity. The 2015 declaration eliminated this right. The appeals court was not persuaded that this change was inconsistent with the general plan of development. In sum, the Boumas failed to show that any changes in the 2015 declaration were inconsistent with the general plan of development, imposed unreasonable or disparate impacts on the big lots, or were otherwise invalid.

Accordingly, the trial court's judgment was affirmed.

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Declaration Made Association Strictly Liable for Facility's Continuous Operation

Castleton Corner Owners Association, Inc. v. Conroad Associates, L.P., No. 19A-PL-2687 (Ind. Ct. App. Oct. 30, 2020)

Risks and Liabilities: The Court of Appeals of Indiana found that, even though an association was not negligent in maintaining a sanitary lift station, it was still liable to an owner for damages following a malfunction and sewage overflow.

Castleton Corner Owners Association, Inc. (association) governed the Castleton Corner development in Indianapolis. Conroad Associates, L.P. (Conroad) owned a building in the development that it leased to Pier 1 Imports (U.S.), Inc. (Pier 1).

The project's declaration of development standards, covenants, and restrictions (declaration) required the association to maintain various infrastructure in operational and good condition, including sewers and a sanitary lift station, and to pay all costs necessary for such upkeep, maintenance, and repair and any other expense reasonably necessary or prudent for the continuous operation of such facilities.

Wastewater from sinks and toilets in the project was directed to the lift station. The lift station used two electrically powered pumps to lift the wastewater to an elevation where the pipes joined the public sewer system. If the pumps failed, there was a window of two to three hours before the lift station would overflow. If the lift station overflowed, the raw sewage could flood the buildings at low points in the project's sewer system. Conroad's building was located at the lowest point of the system.

The association engaged McKinley, Inc. (McKinley) to provide maintenance services. Curtis Pitts (Pitts), a McKinley employee, was responsible for visually inspecting the lift station every Friday and testing the generator serving the lift station every Monday to ensure that it functioned normally. Pitts also was always on call to respond to issues with the lift station.

On Friday, Feb. 13, 2015, Pitts inspected the lift station and determined that it was operating normally. However, when a Pier 1 employee opened the store on Saturday morning, the employee found one-quarter to one-half inch of water in the back of the store containing raw sewage, and the water continued to rise. The store employee called a plumber, who was unable to stop the flooding. Pitts was not notified of the problem until 6  p.m.. Pitts determined that there was a power failure at the lift control panel and arranged for a plumbing company with a vacuum truck to remove the sewage. However, the sewage had already seeped into the drywall and the flooring. The electrician was able to repair the electrical problem by Sunday morning.

Pier 1 initially said it would not pay rent until the building was repaired. Conroad engaged a restoration company to clean and restore the building. However, on March 1, 2015, Pier 1 terminated its lease and paid Conroad a termination payment of $128,000. The Pier 1 lease term ended on Feb. 29, 2016, but Pier 1 had the option to extend the lease for two additional 5-year terms. On April 12, 2016, Conroad relet the building to Furniture Discounters, Inc. (Furniture Discounters) with a lower base rent than Pier 1 would have paid.

Conroad sued the association for breach of contract, negligence, and breach of fiduciary duty. Conroad showed that its total lost rent from Pier 1's early termination of the initial lease term was $49,656, after accounting for the termination fee paid by Pier 1. However, Conroad would have collected an additional $49,948 from Pier 1 for this period for taxes, insurance, and common area maintenance charges. Also, had Pier 1 renewed the lease for the two additional 5-year periods, Pier 1 would have paid $485,000 more in rent than Furniture Discounters paid to Conroad.

The trial court ruled in the association's favor on Conroad's negligence and breach of fiduciary duty claims. However, it determined that the declaration's requirement that the association keep the infrastructure in continuous operation imposed a strict liability obligation on the association in the event the system was not in continuous operation. The trial court awarded Conroad $213,588 in damages for Pier 1's initial lease term but ruled that Conroad was not entitled to lost rent after the initial lease term ended. Both parties appealed.

The association argued that it could not be liable for Conroad's damages since the trial court determined that it was not negligent. However, a breach of contract can occur without negligence being involved. The association insisted that the phrase "reasonably necessary or prudent" limited its contractual liability. The appeals court found that the phrase applied only to "other expenses" not already described in the maintenance obligation. Further, the specific requirement that the association pay all of the necessary costs related to the systems controlled over the more general "catch-all" phrase.

The trial court found that the sudden failure of electrical components was an inherent risk of lift stations. Therefore, the consequential damages resulting from the system's failure were contemplated and reasonably foreseeable when the declaration requirement was drafted. Nonetheless, the declaration assigned the risk of a lift station failure to the association. The appeals court agreed that the association was liable for Conroad's lost rent and reimbursable amounts during the initial lease term, but the trial court incorrectly calculated the amount of damages because it appeared to factor in the reimbursable amount twice.

The appeals court rejected Conroad's contention that it should be awarded lost rent for Pier's 1 two additional lease terms. Conroad insisted that it was reasonably foreseeable that Pier 1 would have renewed the lease for additional terms because it had been in that location for 20 years, the building was built to suit Pier 1, and the rent was at or below market value. However, there was no evidence that Pier 1 had taken any steps or otherwise indicated that it intended to renew the lease. Damages may not be awarded merely based on speculation.

Accordingly, the trial court's judgment was affirmed in part, reversed in part, and remanded with instructions to recalculate the damage award to Conroad.

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Statute of Limitations Bars Construction Defect Claims in Multi-Year Condominium Project

D'Allessandro v. Lennar Hingham Holdings, LLC, 156 N.E.3d 197 (Mass. Nov. 3, 2020)

Construction Defects: The Supreme Judicial Court of Massachusetts held that the statute of limitations for construction defect claims begins to run when each discreet improvement is completed in a phased condominium project.

Hewitts Landing Condominium Trust (association) governed the Hewitts Landing Condominium in Hingham, Mass. The condominium comprised 28 buildings containing a total of 150 units. The buildings were constructed in phases between 2008 and 2015.

In 2017, the association's board of trustees (board) filed suit in Massachusetts superior court against the developer, Lennar Northeast Properties, Inc., the party named as declarant under the condominium master deed, Lennar Hingham Holdings, LLC, and other related parties (collectively, Lennar). The suit sought damages for alleged design and construction defects to the condominium common elements and limited common elements.

Lennar removed the case to federal court and sought partial summary judgment (judgment without a trial based on undisputed facts). Lennar argued that the Massachusetts statute of limitations for construction defects barred all claims with respect to six of the buildings. The statute of limitations provided that any claim arising out of any deficiency or neglect in the design, planning, or construction of an improvement to real property must be commenced within three years after the claim accrued. However, in no event shall a claim be commenced more than six years after the earlier of: (1) the opening of the improvement to use; or (2) substantial completion of the improvement and the taking of possession for occupancy by the owner. The six-year component of the statute is referred to as the statute of repose. A statute of limitations extinguishes the right to pursue a claim after the lapse of a certain period of time after the claim accrued. A statute of repose limits potential liability by regulating the time during which a claim can arise.

The federal court concluded that all 28 buildings should be treated as a single improvement for purposes of calculating the statute of limitations. Lennar objected and asked the federal court to certify the question of interpreting the Massachusetts law to the Supreme Judicial Court of Massachusetts (supreme court). Certification is a process by which a federal court abstains from deciding a question involving a state law until the highest court of the state has had an opportunity to rule on the question. Certifying a question to a state court does not transfer the case to state court, but the case remains on hold in the federal court until the state court answers the certified question.

The central question was whether the statute of repose was triggered only once when all of the buildings were complete or whether the completion of each building triggered a separate statute of repose for just that building. The board contended that the "improvement" referenced in the statute of limitations referred to the entire condominium common elements since the common elements are undivided. The board argued that the statute of repose did not begin to run until the last building was opened for use or substantially completed.

The statute of limitations did not define the term "improvement," and there was no legislative history to guide the interpretation of the term. The supreme court also found the dictionary definition of little help in this context. However, the supreme court found it significant that the statute of repose was amended in 1984 to shift the focus away from the performance of construction, planning, and design being the triggering event to instead create two independent triggering factors: (1) whether the improvement is open for use; and (2) whether the improvement is substantially complete and the owner has taken possession for occupancy.

The supreme court concluded that this shift in focus indicated that the legislature intended the completion of each building or component to separately trigger the statute of repose with respect to that building or component. Accordingly, the supreme court held that the issuance of a certificate of occupancy for each individual building (or for all units within the building) triggered the statute of repose for all common elements and limited common elements pertaining to that building. It further held that, where a particular improvement is integral to and intended to serve multiple buildings within a single phase, buildings across multiple phases, or the project as a whole, the statute of repose begins to run when the discrete improvement is substantially complete and open for its intended use.

The supreme court acknowledged that this interpretation may pose some difficulty for associations where the developer retains control over the association until after the statute of repose has already run (such as in this case), but addressing that inequity is something that must be done by the legislature, not by the courts.

The case will now continue in the federal court based on the supreme court's interpretation of the statute of repose.

Editor’s note: CAI filed an amicus brief in support of the association in this case. CAI files amicus curiae (friend of the court) briefs to inform courts about important legal and policy issues in cases relevant to community associations. If your association, municipality, or state is faced with a poorly formulated legal opinion, consider submitting a request for an amicus brief. Contact Phoebe E. Neseth, Esq., at​ with any questions.

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Lot Owner Must Prove Damages Were Sustained by Neighbor Cutting Protected Trees

Galipeau v. Bixby, Nos. S-17365, 7491 (Alaska Nov. 13, 2020)

Use Restrictions: The Supreme Court of Alaska held that a lot owner could only recover the lost value of the property due to the neighbor cutting protected trees on his property in violation of the declaration.

Sisters Briana and Mei-Lani Bixby (the Bixbys) grew up in a home on lot 4 of a subdivision in Valdez, Alaska, which they inherited after their mother's death. In 2013, Douglas Galipeau purchased the vacant lot 3 next door.

The lots were subject to a declaration of covenants, conditions, and restrictions (declaration), which stated a goal of maintaining the maximum natural beauty and aesthetic value of the property. To that end, the declaration prohibited destroying or removing any evergreen tree having a trunk measuring 6 inches or more in diameter at a height of 4 feet from ground level without specific approval from an architectural committee.

There was a 1980s site plan for construction of a cabin on lot 3 on file with the city, which had been approved by the building inspector. Intending to build a cabin, Galipeau hired a company to remove several trees on his lot, but he never sought permission from the architectural committee.

In 2017, the Bixbys sued Galipeau for violating the declaration. The trial court granted judgment in favor of the Bixbys, finding that Galipeau was liable for cutting the protected trees. The trial court also found that Galipeau was liable for punitive damages based on a statute establishing a right of action for the act of cutting down trees owned by another, or trees in common ownership, without lawful authority. The trial court concluded that a plaintiff seeking damages for trees destroyed or felled on the defendant's land could seek the same damages as the plaintiff would be entitled if the defendant had committed trespass by cutting trees on the plaintiff's land.

An arborist examined lot 4 and calculated that the felled trees were of varying sizes between 14 inches and 38 inches in diameter. Although the arborist opined that the value of the felled trees was about $378,000, she explained that it would cost around $54,600 to replace the trees because it would be better to replant smaller trees. Even though it would take decades for the replanted trees to reach the size of the cut trees, smaller trees can more easily adapt to being transplanted. The arborist stated that it would be extremely unlikely that living trees of the same size could successfully be moved to lot 4.

An original subdivision developer also testified that the trees helped to moderate the wind. The Bixbys testified that the loss of the trees made their house more susceptible to wind and reduced their privacy. They also testified about the emotional impact of the tree loss since they had enjoyed the trees since childhood. The home on lot 4 was located close to the property line, and there was insufficient room between the Bixbys' home and the property line to plant additional trees on lot 4 in order to reap the same benefits the trees on lot 3 provided.

The trial court found that Galipeau intentionally cut down protected trees without architectural committee approval with full knowledge of the declaration prohibition. The trial court declined to order Galipeau to plant new trees because it believed Galipeau would actively work to thwart the replacement trees' survival based on the animosity between the parties. The trial court awarded the Bixbys $54,600 as compensatory damages for the trees' value as well as punitive damages in the amount of $163,800.

Galipeau appealed, challenging the damage awards as having no bearing on the damages sustained by the Bixbys, which included only a general loss of privacy and aesthetics and increased wind exposure. In addition, the Bixbys made no attempt to place a dollar value on such damages. A restrictive covenant is considered a contract, and a plaintiff alleging a breach of contract must present evidence sufficient to calculate the amount of loss caused by the breach. Although the amount of loss need not be proven with exact detail, the evidence must provide a reasonable basis for the court's determination. Damages may not be awarded merely upon there being a breach; rather, the damages awarded must correspond to the injuries resulting from the breach.

The appeals court found that using the cost of restoring the trees was the wrong measure of damages. Restoration costs are an appropriate measure of damages only if those costs are not disproportionately larger than the diminution in the value of the land and there is no personal reason to the owner for restoring the land to its original condition. Since there was no evidence as to the loss in value of the Bixbys' property, there was no basis for the trial court to make a finding as to whether the restoration costs were disproportionately high.

The appeals court concluded that the Bixbys were not entitled to damages based on restoration costs or the value of the cut trees, only in proof of their property's loss in value. The appeals court also held that the Bixbys were not entitled to punitive damages. Punitive damages are not recoverable for breach of contract unless the conduct constituting the breach constitutes an independent tort. Even if Galipeau willfully and intentionally violated the declaration, it was still a breach of contract. An independent tort, by definition, is one that would exist even if there were no contract. Absent the declaration's protection of the trees, it would not have been a tort for Galipeau to cut trees on his own property.

Accordingly, the trial court's award of compensatory and punitive damages was vacated, and the case was remanded for the trial court to recalculate the damages.

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Association Did Not Violate the Fair Housing Act When It Was Not Aware of a Disability

Kooman v. Boulder Bluff Condominiums, No. 20-1219 (6th Cir. Nov. 5, 2020)

Federal Law and Legislation: The U.S. Court of Appeals for the Sixth Circuit found that an association did not violate the federal Fair Housing Act by rejecting a request to install a stair railing when it was not informed that the request was for a resident with a disability and there was nothing to indicate to the board the railing was necessary.

Boulder Bluff Condominium Association (association) governed the Boulder Bluffs Condominium in Georgetown, Mich. The condominium comprised 17 buildings containing 145 units. The association employed Gerow Management Company (Gerow) to provide management services.

Terry Romig (Terry) owned a unit in the condominium. In 2012, her ex-husband, Bob Romig (Bob), moved in with Terry after his heart problems worsened. Bob fell several times off the 8-inch-high porch in front of the unit and the short step leading up to the porch. Terry and her daughter, Bobbie Jo Kooman (Kooman), decided that a handrail was needed next to the porch step.

The association's bylaws required approval from the board of directors (board) for any structural modifications to a unit. The bylaws prohibited the board from approving any structural modifications that would jeopardize or impair the condominium's soundness, safety, or appearance.

In 2016, Kooman called Natasha Biegalle (Biegalle), a Gerow employee and the liaison to the board. Kooman requested permission to install a railing to aid her father, stating that he had fallen several times. Biegalle asked Kooman to make the request online. On June 17, 2016, Kooman sent Biegalle an email requesting permission to install a railing and included a picture of the proposed railing. The email did not mention Bob or why a railing was requested. Biegalle forwarded the email to the board the same day.

The board discussed the proposed railing over the next couple of weeks. Kooman then told Biegalle that the contractor could install the railing around July 4. On June 27, Kooman informed Biegalle that Bob fell off the porch again and had to go to the hospital. She demanded an answer about the proposal as soon as possible and said that the request should have already been approved to prevent injuries.

On July 1, the board denied the request because the proposed railing would be a permanent change to the unit's overall appearance in comparison to the rest of the project and because the installation would damage the concrete porch. However, the letter invited Kooman to contact Gerow with any questions. Biegalle also phoned Kooman and explained that the board might approve the railing if she submitted a note from Bob's doctor explaining the need for the railing.

On July 5, Bob's doctor issued a letter stating that Bob had a disability and needed to have side and handrails for his safety. Rather than sending the note to the board, Kooman contacted an attorney. On August 3, the board received a letter from the family's attorney, which included the doctor's note, demanding that the board reverse its decision regarding the railing.

On Aug. 20, Bob fell again and broke his hand. The board approved the railing on Aug. 23 but asked Terry to remove it once Bob no longer lived in the unit. Several months later, Bob died due to heart problems. Kooman, on behalf of Bob's estate, sued the association and Gerow in federal district court, alleging that their handling of the railing request violated the federal Fair Housing Act (FHA) and several state laws.

The district court granted summary judgment (judgment without a trial based on undisputed facts) in the association's favor with respect to the FHA claim and declined to exercise jurisdiction over the state law claims. Kooman appealed.

The FHA prohibits discrimination arising from a refusal to permit a person with a disability to make reasonable modifications to the residence at their own expense if the modifications may be necessary to afford such person full enjoyment of the premises. To prevail in her claim, Kooman had to show that the association denied the request, that the association knew or should have known of Bob's disability at the time the request was rejected, and that the requested modification was reasonable and necessary.

The appeals court determined that the association's July 1 letter did not count as a statutory rejection of a modification for FHA purposes. Kooman presented the association with an expedited request and demanded a quick response. The letter suggested that Kooman contact Gerow for more information, but more importantly, Biegalle contacted Kooman and urged her to obtain a doctor's note. Based on the proposed railing installation date, it was clear that the board needed to reject the proposal until further information could be obtained.

Also, although Kooman told Biegalle on the phone that Bob had fallen, Kooman also never expressly informed the association that the request was for a person with a disability. None of the board members knew that Bob was had a disability when they voted to deny the request, and some of the members did not even realize that the request was being made on Bob's behalf. Some of the board members understood that Bob was in poor health, but poor health does not automatically equate to a disability under the FHA.

Further, at no point did Kooman provide information or evidence to show that the railing was "necessary" for Bob's full enjoyment of the residence, as required by the FHA. To be necessary, the railing had to be more than helpful; it had to be essential to giving Bob the same opportunity to use and enjoy the home compared to residents without disabilities. Until it received the doctor's note, there was no way the board could have known that a railing for an 8-inch-high porch was something Bob could not do without since he had lived in the unit for many years.

Kooman insisted that the board should have requested a doctor's note before it sent her the rejection notice. The board had no obligation to make such a request, particularly when it did not even know the request related to a person with a disability. There also was nothing to prevent Kooman from submitting a doctor's note with the initial request. Moreover, there was nothing to suggest that Biegalle or the board acted out of discriminatory animus. Rather, Biegalle tried to aid Kooman by encouraging her to get a doctor's note.

Accordingly, the trial court's judgment was affirmed.

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Lawyer Liable for Pursing Foreclosure without Complying with Legal Requirements

O'Donnell v. Vial Fotheringham LLP, No. 3:19-cv-00579-SB (D. Ore. Sept. 15, 2020)

Federal Law and Legislation: The U.S. District Court for the District of Oregon found that a law firm's attempt to pursue foreclosure without complying with the Oregon Condominium Act's requirements violated the federal Fair Debt Collection Practices Act.

Gateway Arbors Condominiums Owners Association (association) governed a condominium in Oregon. John O'Donnell (O'Donnell) owned a unit in the building.

By August 2013, O'Donnell owed the association $1,047 in unpaid assessments. The next month, the association recorded a lien against O'Donnell's unit. O'Donnell's debt to the association continued to accrue. By 2018, O'Donnell owed the association $22,155 in unpaid assessments, late fees, interest, and attorneys' fees.

The association's attorney, Vial Fotheringham LLP (VF), filed a foreclosure action seeking to foreclose the lien plus continuing assessments, interest, late fees, attorneys' fees, and costs. VF sent O'Donnell two demand letters—one in December 2018 demanded $30,484 and one in April 2019 asserted a payoff of $45,652, including $22,234 in attorneys' fees.

To avoid foreclosure, O'Donnell sold his unit in May 2019. From the sale proceeds, he paid $22,342 to the association and $22,234 to VF, for a total of $45,576, to resolve the foreclosure action. O'Donnell then sued VF, alleging a violation of the federal Fair Debt Collection Practices Act (FDCPA). FDCPA prohibits representing that nonpayment of the debt will result in the sale of the property unless such action is legal. It also prohibits threatening to take action that cannot legally be taken and using false representations, deceptive means, or unfair means to collect or attempt to collect any debt.

The Oregon Condominium Act (OCA) requires that an association record a lien notice prior to initiating a suit to foreclose the lien. The lien notice must contain a statement that, if the owner fails to pay any assessments when due, as long as the original or any subsequent unpaid assessment remains unpaid, the unpaid amount of assessments automatically continue to accumulate with interest without the necessity of further recording.

The lien notice recorded by VF stated that it was a continuing lien, and the amount would increase as additional unpaid assessments accrued. VF argued that this statement was sufficient to satisfy OCA's requirement. The court found that the notice did not state that the amount would accumulate with interest and without further recording. The statutory lien notice was a prerequisite to filing a foreclosure action, so the association was not legally authorized to pursue foreclosure at the time VF filed the foreclosure action. Filing a foreclosure action without legal authority and demanding and collecting attorneys' fees in connection with such foreclosure action is a clear violation of the FDCPA.

VF acknowledged that its lien notice did not include all of the OCA's requirements, but it insisted that the notice substantially complied with the requirements. The magistrate judge found the OCA's notice requirements to be abundantly clear mandates and not mere guidance.

VF argued that it was not liable for the FDCPA violations because they were the result of a bona fide error. However, the bona fide error defense is a narrow exception to strict liability under the FDCPA. The bona fide error defense provides that a debt collector may not be liable for a FDCPA violation if the debt collector can show, by a preponderance of the evidence, that the violation was unintentional and resulted from a bona fide error in spite of maintaining procedures reasonably adapted to avoid any such error.

The bona fide error defense does not apply to mistakes of law, only to mistakes of fact. The magistrate judge found that VF's decision to file the foreclosure action without satisfying the OCA's prerequisites was a legal error rather than a mere clerical error, so the bona fide error defense was not available to VF.

O'Donnell contended that VF also failed to satisfy the association's own requirements for foreclosure. In 2006, the association's board of directors (board) adopted a resolution drafted by VF that required the board to turn over delinquent accounts to VF for collection. The resolution required VF to notify the owner within 20 days of recording the lien notice. VF did not send O'Donnell a copy of the lien notice until more than 20 days after recording, and it was sent to the wrong address.

The resolution also required that VF file suit against the owner for a money judgment unless the board, after recommendation by VF, determined that lien foreclosure was advisable under the circumstances. The association's bylaws required that the board take action either at a board meeting or by a written consent signed by all of the directors. The board did not discuss O'Donnell's foreclosure action at a board meeting. Two directors informally approved the foreclosure by reply emails to the association's manager stating, "I don't have any objections" and "Okay with me." The magistrate judge found these email replies by only two of the directors to be insufficient to satisfy the requirement that all directors sign a written consent approving the action.

VF asserted that it reasonably relied on a representation that the board had approved the foreclosure because the manager asked VF to proceed. However, VF presented no evidence to show that its reliance on the manager's instruction was reasonable. In fact, the manager forwarded the board's email string to VF, which showed that only two directors had responded. Thus, VF was on notice that the board had not formally approved the action.

VF also insisted that mailing of the lien notice to the wrong address was an inadvertent error, and it had policies in place to conform a debtor's address. However, VF did not provide any evidence as to such policies. When asserting a bona fide error defense, a debt collector must show that it actually used procedures to avoid errors, and the procedures must be reasonably adapted to avoid the specific error at issue.

The magistrate judge found that VF's failure to follow both the association's and the COA's requirements for foreclosure violated the FDCPA and recommended that the district court enter judgment in O'Donnell's favor.

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Appeals Court Confirms for the Second Time that a Developer Was Liable for Assessments

Pines of Greenwood, LLC v. The Village Pines at the Pines of Greenwood Homeowners' Association, Inc., No. 20A-PL-373 (Ind. Ct. App. Nov. 10, 2020)

Assessments: The Court of Appeals of Indiana held that an association could recover only statutory interest on unpaid assessments where the declaration did not state a specific interest rate and the board never adopted a rate, and late fees could not be disproportionate to the unpaid assessments.

The Village Pines at the Pines of Greenwood Homeowners' Association, Inc. (association) governed a community in Greenwood, Ind. Pines of Greenwood, LLC (developer) developed the community and recorded a declaration of covenants, conditions, and restrictions (declaration) for the community. The declaration also provided that, so long as Arbor Homes, LLC (Arbor Homes) was the exclusive homebuilder in the community, it had the same rights under the declaration as the developer.

In the declaration, the developer covenanted and agreed to pay, on behalf of itself and all future owners, annual assessments and other amounts as required by the declaration. Annual assessments were to be assessed equally against all members and their lots. The declaration defined "member" as a lot owner, which specifically included the developer. The declaration also obligated the association to establish and maintain an adequate reserve fund for capital improvements, replacements, and repairs of the common areas.

In 2006, the association commissioned a reserve study to analyze the existing reserve fund and recommend a reserve funding plan to meet anticipated future needs. The reserve study found that the association could face a reserve funding shortage by 2010 if it continued to collect assessments at the 2006 level, and it recommended that the annual reserve contribution be nearly doubled by 2009.

In 2008, the developer recorded a declaration amendment for the purpose of correcting "unintended ambiguities" regarding the developer's obligation to contribute toward the association's common expenses. The declaration provided that, so long as the developer owned at least one lot, it could unilaterally amend the declaration to correct clerical or typographical errors—provided the amendment did not substantially impair the declaration's benefits or substantially increase any owner's obligations. The amendment changed the assessment obligation to provide that all owners other than the developer were obligated to pay annual assessments to the association.

In 2009, the developer relinquished control of the association to the owners. In 2011, the association sued the developer and Arbor Homes for breach of fiduciary duty and breach of contract. The association claimed that the developer and Arbor Homes owed assessments for the lots they had or still owned.

The trial court entered judgment in favor of the developer and Arbor Homes, and the association appealed. In Village Pines at the Pines of Greenwood Homeowners' Assoc., Inc. v Pines of Greenwood, LLC, 123 N.E.3d 145 (Ind. Ct. App. 2019) (reported in the May 2019 issue of Law Reporter), the appeals court reversed, finding that the declaration amendment was invalid because it could not be characterized as merely correcting clerical or typographical errors. The appeals court also found that the developer and Arbor Homes (collectively, the defendants) violated the declaration by not having paid assessments for nine years. The case was remanded for the trial court to determine the association's damages.

On remand, the trial court awarded the association damages in excess of $1 million as follows: $225,525 for unpaid assessments, $148,275 for late fees, $626,110 for interest, and $87,683 for attorneys' fees and costs. The defendants appealed a second time.

The defendants insisted that the association was not damaged because the developer had funded deficits. All common expenses were paid every year, and the defendants claimed the association would receive a windfall if they also had to pay assessments. However, the trial court had deducted the deficit payments from the total amount of assessments the defendants should have paid, so there was no windfall.

The defendants argued that the association did not have its own damages and that if anyone suffered damages, it was the owners who had to pay higher assessments. They maintained that the association could only recover damages if it had associational standing to represent the individual owners with respect to individual damage awards. The appeals court found that the association never asserted any claims on behalf of individual owners. Rather, the particular claim litigated belonged to the association. The declaration stated that it was the board of directors' (board) duty to enforce the collection of any amounts due under the declaration, and the declaration plainly obligated the defendants to pay assessments. The association was damaged by the amount of the unpaid assessments.

The defendants complained about how the unpaid assessments were calculated. The appeals court agreed that there may have been a mathematical error that required clarification from the trial court.

The defendants argued that incorrect interest was charged. The declaration allowed the association to charge delinquent owners interest at the rate of up to 18% per annum. An association officer testified that the association had always charged 18%, but there was no evidence that the board had adopted that interest rate. Since the declaration did not state a specific interest rate and there was nothing to show the association had formally adopted an interest rate, the appeals court said that the association could recover only statutory interest. The Indiana Code provided for interest at 8% on monetary judgments when no contractual provision specified an interest rate, computed from the time the principal amount was demanded or due.

This raised a question as to when interest should begin to accrue. The association asserted that the assessments were due starting in 2001, but there was no demand for payment until later. Discussions about the assessments were first raised in 2006, and the association filed suit in 2011. Under the circumstances, the appeals court determined that interest should not begin earlier than the date the complaint was filed.

The defendants argued that the late fee of $25 per month amounted to an illegal penalty. Although the declaration specified the $25 per month late fee for each month the delinquency continued, prior case law indicated that the amount of the late fee cannot be disproportionate to the unpaid assessments. Under these particular circumstances, the appeals court found that a repeated monthly late fee per lot beginning in 2000 on more than 300 lots constituted an impermissible penalty.

Accordingly, the trial court's judgment was affirmed in part and reversed in part. The case was remanded for the trial court to confirm the amount of assessments due, to reduce the interest award (based on 8% starting in November 2011), and to vacate the late fee award.

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

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Lot Owner Can Look at Newly Constructed, Prohibited Pool But Canít Use It

Tonsberg v. Lanza, No. 19-P-1465 (Mass. App. Ct. Dec. 2, 2020)

Use Restrictions: The Appeals Court of Massachusetts found that restrictive covenants on lots abutting a golf course could be enforced by any lot owner, not just the golf course owner.

Matthew and Jeannette Lanza, as trustees of the Lanza Trust (the Lanzas), owned a home in the Indian Pond Estates development in Kingston, Mass. Roberta Tonsberg owned the home next door. Both properties were in phase IV of the development and bordered an 18-hole, private golf course. The developer retained ownership of the golf course and country club.

The entire subdivision was subject to restrictive covenants, but the lots bordering the golf course were subject to more stringent restrictions. In particular, one covenant prohibited swimming pools on lots bordering the golf course.

In 2015, the Lanzas added an expansive deck to their home, but by 2017, the Lanzas decided they needed a pool to complete the backyard along the fairway of the golf course's second hole. The Lanzas approached the developer and asked for a waiver of the pool prohibition. It is not clear whether the developer could have granted a waiver, but in any event, it did not. The Lanzas then considered buying a nearby lot that was not adjacent to the golf course and not subject to the pool prohibition, but someone else bought the lot first.

The Lanzas decided to proceed with a pool addition anyway. When Tonsberg saw the pool being constructed, she quickly filed suit to stop the construction. The trial court declined to issue a preliminary injunction (requiring a party to take or refrain from taking certain action) prohibiting the Lanzas from continuing with construction, but the trial court warned the Lanzas that they were moving forward at their own peril.

After a trial, the trial court found that the Lanzas violated the pool prohibition and entered judgment in Tonsberg's favor. The trial court did not require the Lanzas to remove the pool but prohibited them from using it and provided for penalties if the Lanzas did use the pool. Both parties appealed.

The Lanzas argued that only the golf course owner had standing to enforce the pool prohibition because the developer testified that the purpose of the prohibition was to protect the golf course's integrity. However, the developer and various other witnesses also testified about the interrelationship between the design of the golf course and the surrounding lots. The integrated design elements, together with the restrictive covenants, were designed to promote a "country club aesthetic." The appeals court found that the evidence unmistakably indicated that the developer was seeking to achieve an atmosphere of groomed pastoral affluence. The developer's full testimony made clear that one of the purposes of the pool prohibition was to protect the owners of the golf course lots. As intended beneficiaries of the prohibition, the golf course lot owners could enforce the restriction.

The Lanzas insisted that Tonsberg could not enforce the restriction because she would gain no substantial benefit from its enforcement. Massachusetts statutes state that a plaintiff has standing to enforce a restrictive covenant only if the plaintiff stands to gain an actual and substantial benefit from doing so. The appeals court said there was ample evidence that Tonsberg would reap a substantial benefit from the pool prohibition's enforcement. Not only did she complain about noise from the pool, but there was evidence that other owners of golf course lots had expressed an interest in building a pool.

The Lanzas complained that the trial court set the quantitative threshold too low for what constituted a substantial benefit, but the appeals court found that the degree of benefit that Tonsberg would receive from the pool prohibition's enforcement was comparable to that found in cases previously decided by the appeals court.

The Lanzas insisted that changed circumstances rendered enforcement inappropriate. As a result of the recession, the developer changed its original plans and ended up building denser housing on remaining undeveloped lots in phase IV. A judge has broad discretion to decline enforcement or to tailor enforcement of a restriction if warranted by the equities or changed circumstances. However, the trial court found that such changes did not materially detract from phase IV's "country club aesthetic."

Tonsberg contended that the trial court was required to order the pool's removal after determining the pool was a violation. She also argued that the judgment effectively allowed the Lanzas to use the pool as they desired; they had only to pay a stipulated penalty for doing so, which Tonsberg equated to the "cost of doing business." Tonsberg said the judgment would leave the parties in a perpetual state of conflict and place the burden of enforcement on her, while any penalties paid by the Lanzas would go to the Commonwealth.

The appeals court decided that the trial court's order fully addressed the only direct impact that Tonsberg provided evidence about—the noise. Also, while the remedy fashioned by the trial court may lead to further conflict, the trial court's order did not foreclose other possible sanctions. The appeals court read the trial court's judgment as retaining in the judge the full panoply of contempt of court sanctions.

Accordingly, the trial court's judgment was affirmed.

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

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