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What it Means for Ultra Vires HOA Actions to be Void

Wrongful legal actions by community association boards generally fall into two categories. The first are contracts, resolutions or other actions that the board generally has the authority under the declaration to take, but they failed to properly do so pursuant to the bylaws or applicable law. For example, suppose the HOA has the authority to enter into a landscaping contract, but the documents required the contract to be signed by a director and it was only signed by a manager. Or the HOA has the power under the declaration to regulate use of the service elevator, but the rules on the website have not yet been formally adopted by the board, and were only signed by one director. As another example, the declaration allows the board to adopt rules and regulations regarding parking on the common area, and the manager is towing guest cars despite the fact that the board has not adopted a parking permit system. These are the kinds of defects that can be corrected by conducting a proper meeting with a quorum and conducting necessary business according to the governing instruments. For such items, the board’s discretion is probably protected by the business judgment rule, so long as they follow the declaration. When HOA officers take actions informally, sometimes later these actions are “ratified” by formal board action with a quorum in a properly noticed meeting. It can often by difficult for lot owners who are not aligned with the majority to challenge policies on such matters, if the board can later “fix” any procedural defects by a later, properly conducted assembly. This is why HOA boards, managers and attorneys argue for a broad reading of the declaration and other governing instruments. It can be difficult for an owner to challenge a decision or policy such as this if they at one time acted in a way that seemly condoned it or failed to object. Nonetheless, just because an issue lies within the board’s discretion does not give them carte blanche. Ineffectively adopted policies are unenforceable until properly decided according to the statutes and bylaws, and they have to be enforced equitably. For these reasons, the scope of the board’s “mandate” in the development is important to directors and owners alike, but it may not be 100% clear if the governing instruments are ambiguous. Just because a covenant seems ambiguous does not mean that it is devoid of meaning or means whatever the board says. The law of property includes rules on how to interpret conflicting or ambiguous legal documents.

The other, more exciting kind of problems are where the association’s leaders act in a way that is outside the scope of their legal authority. For example, the covenants say nothing about regulation of trees and shrubs, and only talk about architectural standards for garages and sheds. If the board adopts and tries to enforce rules regarding replacement of dead trees that are cut down, such rules may be void from the get-go. As other examples, the board may be dominated by directors who want to undertake the maintenance and repair of property that is not actually a common area.  The state laws and governing instruments establish parameters around which a community may regulate or spend money. Where the “line” is may not always seem clear, but the existence of such legal limits on board authority is important. If the association does not have the authority to do something, then the corporate action may be deemed “ultra vires” (Latin for  “beyond the powers”). Challenges by individual owners to ultra vires HOA actions often have more “traction” or “legs” than those that concern things properly within the board’s authority. This is because “ultra vires” acts are ordinarily “void ab initio” (void at the outset).

An older, published Virginia case involved an ultra vires contract made by agents of a bank, City of Bristol v. Dominion Nat ‘l Bank, 153 Va. 71 (1929). The Virginia Supreme Court of Appeals observed that, “When the contract is once declared ultra vires, the fact that it is executed does not validate it, nor can it be ratified so as to make it the basis of suit or action, nor does the doctrine of estoppel apply.” Lawyers are always trying to find ways to make things workable despite the lack of authority. The doctrine of estoppel allows for a party to be held responsible for something because they induced another party to rely upon a representation or action that was made. What the Supreme Court was saying in City of Bristol v. Dominion National Bank was that when an action is truly ultra vires, it cannot be rendered valid because people acted as though it was. Colorfully, Justice Henry W. Holt remarked about ultra vires contracts: “As a contract it is wastepaper and as a contract worthless.” Lawyers have nightmares about court’s ruling like that about that things they draft for clients.

Justice Holt observed that an ultra vires contract may nonetheless include a remedy: “But it by no means follows that a claimant is always without remedy. There may be a recovery on an implied assumpsit for benefits conferred and kept.” So, if someone received goods or a service then they might be responsible for paying for them, on a theory of quasi-contract. The doctrine of ultra vires does not necessarily mean that everything becomes “free.”  

When homeowners find themselves in legal disputes with HOA or condominium boards and managers, frequently they will be told that the association’s lack of specified authority in the governing instruments does not matter, because the lot owner waited too long to challenge what is being done, or they agreed to pay a fee or assessment, or otherwise knew about what was happening but did not quickly object. However, such arguments ignore longstanding legal principles about what it means to be a “chartered” organization. Community Associations often assert such defenses as estoppel, statutes of limitation, laches, waiver, condonation, and so on. However, if the board’s action was truly ultra vires, then those arguments may not apply.

The discussion about HOAs and ultra vires contracts and resolutions illustrates why association directors and their advisors want to be able to easily amend the governing instruments, and control that amendment process. Older HOAs and condominiums tend to have covenants and bylaws that are more “owner friendly” in terms of allocation of rights between the lot owners and the board. A valid amendment can change the size or shape of the board’s procedural requirements and/or substantive authority, potentially transforming something that would otherwise be ultra vires into legitimately within their mandate. Even the “benign” community associations are one election or one amendment away from a potentially toxic situation. The good news is that the reverse is also true: election of good directors or adoption of an improved declaration can improve the situation in a community association. Sometimes its hard to tell if the person or document being proposed would be good or bad.

(Note that the photograph associated with this blog post is a stock image and does not depict anyone or anything referenced in the article)

When a HOAs Entity Status becomes Inactive by Automatic Termination

Under Virginia law, a nonstock corporation must submit annual filings to avoid having its corporate status automatically “terminated” by the State Corporation Commission pursuant to Va. Code § 13.1-914. When people see that a corporation’s status is deemed “inactive” as terminated by a regulatory agency, they wonder if it no longer “exists,” particularly in the HOA context. It is common for HOA boards to neglect their annual registration requirements, because every one or two years a new board is elected that may not be aware of such requirements. Lot owners become interested in the meaning of the “inactive” status because HOAs are frequently demanding that members pay assessments and obey architectural restrictions. Anyone can check the status of a corporation by logging on to the SCC website. As a legal matter, the “automatic termination” of the HOA’s corporate status usually does not mean much. Under Virginia law, “incorporated” status is a feature of statutes that confer certain powers and responsibilities on a business or association that would not otherwise apply. Persons in business or associations are attracted to incorporation because of the liability shield, legal immunities available to the board of directors, and the ability to open a bank account.

Ordinarily, upon termination, the property and business of a corporation pass to the last board of directors as “Trustees in Liquidation” who are responsible for winding up the affairs of the company. Va. Code § 13.1-914. This sounds like a big deal. However, Va. Code § 13.1-916 allows a nonstock corporation to reinstate its active corporate status by filing a form and certain fees within five years of the date of automatic termination. BOOM! The corporation is “active” again. If a HOA corporation has periods of “automatically terminated” status in its history, what does that mean? Does that mean that the actions of the board of directors or officers are voided? Do all debts owed to or duties owed by the HOA vaporize? No. If the automatically terminated corporation is reinstated within the five year period, by Virginia law its as though the “termination” was never in effect:

Upon entry of the order of reinstatement, the corporate existence shall be deemed to have continued from the date of termination as if termination had never occurred, and any liability incurred by the corporation or a director, officer, or other agent after the termination and before the reinstatement is determined as if the termination of the corporation’s existence had never occurred.

Va. Code § 13.1-916.

This statute is not some sort of scheme dreamed up by a HOA industry lobbyist. The statutes for stock (for profit) corporations and limited liability companies are similar. But in any case it can be the cause of confusion. If a nonstock corporation is currently in a state of “automatic termination,” its members may not know whether will ever reinstate. According to the statutes, the last board of directors acts as trustees for the corporation, and can sue or be sued in a fiduciary capacity.

Even if the HOA’s directors or trustees fail to reinstate the corporation’s active status within five years, that does not mean that the association necessarily ceases to exist. Virginia law allows for unincorporated associations, including property owners associations. Of course, an unincorporated association does not enjoy the legal powers of an incorporated association. But that does not mean that it ceases to exist. This is because the incorporated status is a legal characteristic of the group, and not its cause for existing. When HOAs are automatically terminated for over five years, sometimes their leaders decide to re-incorporate. Corporate law includes the notion of a business maintaining continuity that perpetuates beyond the change of business form.

As a side note, some community associations in Virginia are initially organized in a manner that does not contemplate incorporation. Condominium associations are usually not incorporated. Some HOAs are initially organized as unincorporated associations and the covenants may not accommodate future incorporation without amendment. Such associations may need to amend their declaration if they incorporate.

Remember that a property owners’ association is not some sort of local government entity created by a municipal charter coming from the state capital. When a community association law problem arises, the starting point of any legal analysis is the declaration of covenants and any amendments. That is the document that the courts treat as the “contract” between the lot owners and the association.  

Update (Feb. 5, 2021):

The 2018 Mendez case in Fairfax Circuit Court is instructive about what can happen with a “lapsed” nonstock HOA corporation. The Huntington Forest HOA negligently allowed their corporate status to lapse for longer than five years, while continuing to function through a board of directors. When the board later realized what had happened, they re-incorporated the homeowners association with the SCC. The Circuit Court observed that the declaration of covenants “survived” the automatic termination of the corporation’s existence. Upon termination, the property of the association is held by the last board of directors as trustees in liquidation. However, the POAA does not require for property to be formally owned by the incorporated HOA entity to endure in its status as a common area. The POAA looks to whether the common areas are designated as such in the declaration, and whether the association is obligated to maintain or operate the common areas. The Circuit Court found the nonstock corporation holding the “new” SCC charter to be in continuity with the original throughout the functioning yet unincorporated period of its organizational history. The Court found that the newly incorporated entity to be the “true” Huntington Forest HOA board, and not the trustees in liquidation of the terminated one. The “new” corporation was not owed legal recognition because it was calling itself the same HOA or was performing the functions as before. The court, in essence, ruled that this is NOT one of those instances where a group of interested neighbors get together and form a nonstock corporation for the purposes of collecting dues and telling people what to do with their land. The subdivision maintained continuity through the declaration of covenants as the principal governing instrument. The outcome of the Mendez case may have been different if the declaration had different language or had been amended in a way that was incompatible with the reincorporation.

Mendez v. Huntington Forest HOA, 99 Va. Cir. 160 (Fairfax Co. Jun. 4, 2018).

Modernizing HOA Law or Exploiting a Crisis?

“Never let a good crisis go to waste.” -Winston Churchill.

The Virginia General Assembly is currently in session. One interesting bill to Virginia homeowners is 2021 HB1816. This bill seeks to amend the Property Owners Association Act and Virginia Condominium Act regarding the use of “electronic means” for meetings and voting. Making videoconference a larger and better part of HOAs and condominiums is a good thing. But this flawed bill ought to undergo changes necessary to protect Virginia landowners and the integrity of the community association “open meeting” policies in place in Virginia.

I am a practicing attorney who represents lot owners and unit owners in community association matters. Sometimes my clients are in opposition to association boards, and in other cases they are dealing with a dispute with a neighbor where they are aligned on the same side as the board. I am familiar with the essential role of already existing “open meeting” statutes for community association in establishing procedural safeguards. To the extent that state law gives associations substantial power, these open meeting rules must be preserved and strengthened.

As Virginia law currently stands, the statutes require almost all deliberations of boards of directors to be conducted in properly-noticed meetings that owners are able to attend or follow along and participate in contemporaneously. The POAA (and Condo Act) prohibits boards and committees from doing business in informal “work sessions” or email exchanges (with very limited exceptions for executive session). Va. Code § 55.1-1816. This is important, because most HOAs have the power under their governing instruments and the POAA to adopt rules and regulations that can impose limits on how they can use or improve their property. Va. Code § 55.1- 1819. This is significant because the ability to use or improve property is an essential aspect of its value as an investment, and the freedoms we enjoy as Americans have to be exercised somewhere, and the home is the most important place for exercising freedoms of all kinds. The “open meeting” requirements for HOAs and Condos, which are supposed to (supposedly) function as “mini-democracies”, are similar to the open government laws that require local government board members to conduct all business (with very limited exceptions) in noticed meetings.

HB1816 would weaken these protections, and in associations where safeguards are not otherwise enshrined in their governing instruments, facilitate common practices by HOA boards, committees, and managers to circumvent the “open meeting” requirements by making important decisions for the community by text message, email, telephone, or informal social gatherings.

HB1816 , in the amendments to § 55.1-1832(F) and § 55.1-1935(E), would allow any meeting of a HOA or condominium, be it a board meeting, committee meeting, or annual or special meeting of the members to be conducted by “electronic means.” Most Virginians are now familiar with various forms of videoconference, be it Zoom, WebEx, Google Meets, Microsoft Teams, GoToMeeting or other similar programs. The Coronavirus has made these technologies a common practice. I have previously posted about the use of remote meeting technology in my December 2020 article, Presenting to HOA Boards and Committees in Remote Hearings. I use these services and think that they are a great thing. I think that they ought to be used in Condominium and HOAs because they have the power to increase participation by many members who may not otherwise be able to participate because of a disability, mobility concerns, inability to drive, or childcare obligations. This also promotes access to justice because homeowners are more likely to be able to retain an attorney to help them in such hearings because it reduces travel time.

In 2020, the General Assembly passed special, emergency legislation that helped for association boards to meet and conduct business during the coronavirus epidemic. I posted analyses of that in my May 2020 post, Virginia Temporarily Relaxes HOA Open Meeting Statutes for Coronavirus. HB1816 would work to make that permanent and more. It’s the “more” part that is a problem.

The problem with HB1816 is not that it facilitates use of these videoconference programs in HOAs is that it goes well beyond that. In conjunction with other changes, HB1816 seeks to broaden the definition of “electronic means” in Va. Code § 55.1-1800 and § 55.1-1900 to include “teleconference, videoconference, internet exchange, or other electronic methods.” Those statutes incorporate the definitions found in Va. Code § 59.1-480 of the Uniform Electronic Transactions Act. That statute defines “Electronic” as “relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.” But the referenced statute doesn’t define “internet exchange” or “other electronic methods”. The definition as written is broad enough to encompass text message and email correspondence between board members, committee members and/or members. This is a terrible way for HOAs and condominiums to decide important questions such as enactment of million dollar budgets, to change rules to governing the use of land in the subdivision, or to impose penalties against an owner for an alleged rule violation. In many HOAs and condominiums, this would facilitate boards changing the rules on an informal basis, as they see fit. Founding Father John Adams believed that the USA ought to be “a government of laws, not of men.” In other words, everyone has to follow the laws (or the declaration or contract), including the rulers or directors. HB1816 would in many cases cause the POAA to reflect a public policy that the rules and standards in the governing documents simply don’t matter, its whatever the board wants. The is because HB1816 would remove statutory protections requiring HOA boards to follow their own rules and to not change the rules whenever they want to do something different.

HB1816 easily passed the House of Delegates and now sits in the General Laws Committee of the Virginia Senate. I hope that it does not get out of that committee, without changes to the definition of “Electronic Means.” Note that passage of this bill as written would not be “game over” for homeowners dealing with HOA bullies. But failure to fix the language would “bless” all sorts of mischief that needs to be stopped. Boards still need to follow the declaration and bylaws and the other protections of the POAA and common law. But legal reforms ought to make the law better and more clear, not the opposite. It appears to me that certain people are promoting this bill at this time to try to exploit the pandemic before it is over, by use of this bill which is ostensibly to help people do social distancing. For these reasons, I do not support HB1816. I think that the definition of “Electronic Means” needs to be revised, to only include technologies similar to Zoom, WebEx, MS Teams and the like, and to not include text message, chat rooms or emails.

January 28, 2021 Update:

On the evening of January of January 27, 2021, the Virginia Senate General Laws Committee reported out SB 1183 which appears to be a bill originating in the senate that is identical, or nearly so with, HB1816. This legislation has not yet been voted on by the full senate.

February 9, 2021 Update:

Around February 5, 2021, the Virginia Senate postponed further action on HB1816 and SB 1183 to the General Assembly’s “special” 2021 session which is essentially an extension of time for the “general” session.

Close of Special Session Update:

In the General Assembly’s 2020 Special Session 1, HB1816 was passed by both legislative chambers and signed by Governor Northam.

Referenced Legal Authority:

Va. Code § 55.1-1800 (POAA Definitions – Existing Law)

Va. Code § 55.1-1816 (POAA Board Meetings – Existing Law)

Va. Code § 55.1-1832 (POAA Technology – Existing Law)

Va. Code § 55.1-1900 (Condo Act Definitions – Existing Law)

Va. Code § 55.1-1935 (Condo Act Technology – Existing Law)

Va. Code § 55.1-1949 (Condo Act Meetings – Existing Law)

HB1816 (General Assembly Website)

SB1183 (General Assembly Website)

Who Is My Virginia Legislator?

(the photo for this post is a stock image and doesn’t depict anyone having to do with this post)

Presenting to HOA Boards and Committees in Remote Hearings

Following enactment of 2020 General Assembly legislation, most HOAs and condominiums in Virginia carry on business through “remote” videoconferencing technology such as Zoom, WebEx and Microsoft Teams. Because of the Coronavirus, Americans of all ages are now more familiar with this technology. In the HOA context, boards and committees use remote hearings to decide matters that significantly impact the lives and property of many people. This presents challenges owners do not ordinarily face when using zoom for other reasons, such as religious services, educational programs, or social gatherings. Zoom allows owners to participate in HOA meetings and hearings that is in some ways more convenient than before. Travel time is unnecessary. The owner may be able to avoid arranging for childcare. On the flipside, the owner will not be able to present their arguments or requests by simply showing up at a meeting location in person with a folder of materials. In this blog post, I would like to identify certain issues that an owner must consider when a HOA schedules an architectural application or notice of violation for decision at a remote hearing.

The Technology Itself. Before the hearing, the owner should become familiar with the software being used. One tech-friendly judge in Fairfax recommends that attorneys practice using WebEx with a friend or family member to make sure they can access a meeting through both the video and audio features. Many people find it easier to use a headset or their cell phone because such devices often have better speakers and microphones than laptops and tablets. WebEx, Zoom, Microsoft Teams and Google Meet are not the same.

The Notice of the Hearing. Procedural “Due process of law” consists of (1) the right to be heard by the judge or official, (2) decision by a neutral tribunal, and (3) adequate advance notice of that hearing and the subject matter at issue. HOAs and condominiums usually give affected owners notice of scheduled meetings and how to access the meeting. However, sometimes an affected owner is not given adequate notice for one reason or another. If an owner submits an application or complaint to the HOA, they ought to monitor their emails and the information available online to see if anything is happening. Sometimes an affected owner can identify themselves as such to the HOA and be notified of hearings before they occur.    

Recording the Videoconference or Downloading a Recording. With limited exceptions, HOA boards and committees must conduct business, deliberate, and make decisions in “open” meetings, and that rule also applies when they use remote technology. In Virginia and some other states, owners have a right to record the meeting. Some associations record the meetings themselves and post the videos online after the meeting. However, the owner often cannot rely upon the HOA to make a recording and then make that available. There are several reasons why an owner would want to preserve such information. Sometimes neighbors or board members will say something in a meeting and then later deny that it was said or change their position. The record can lock them in. Also, if the HOA decides that the owner has legal grounds to challenge, whether on appeal within the HOA or in a court of law, the record of what happened in the HOA meeting is valuable to explain what happened and why.

How to Present One’s Position. In these hearings, its common for the “chair” to give owners a certain number of minutes to present their request, opposition or position to the board or committee. Usually, the directors or committee members read the written submissions beforehand, but not always. The owner may be required or well-advised to put things together in a written submission. In the case of architectural approvals, the declaration or guidelines will usually set forth specific information that must be included in the application in order for the committee to hear and approve it. Sometimes HOAs approve applications that are facially incomplete or will impose application requirements not found in the governing instruments. In architectural control matters, the burden is on the applicant to explain what they want and to show why this is proper. An owner supporting or opposing an application, complaint or violation notice ought to be aware of what the guidelines require or forbid. An owner or her attorney can put more information into a written submission than can ordinarily be stated in a limited amount of time. Its common for the written materials to be presented to the viewers. For this reason, visual aids such as photographs, drawings, surveys, and diagrams may present better than an email in 10-point type. Many attorneys organize their presentation into a PowerPoint or PDF slide presentation that they submit to the HOA for review beforehand. Remember that these meetings typically occur in the evening, when directors and committee members are already thinking about dinner, anxious to call it a day or feel fatigued. The owner ought not to overwhelm the HOA with voluminous, repetitive written or emailed submissions.

During the Meeting Itself. The members of the board and committee know each other and the HOA’s management staff. However, the owner or attorney may not be familiar with who is on the board or committee and who the chair or manager is. The board or committee members may not introduce themselves, leaving participants to guess who is a decisionmaker or not. An owner can find out who is on the board of committee before the meeting starts. One wants to know whether someone speaking is on the board or not. One ought to introduce oneself when talking and to again state your name if you speak again, so people know who they are. So, I would start by saying “John Cowherd, attorney for Homer Simpson, neighbor to the applicant Ned Flanders.” If I spoke again, I might say “John Cowherd” again but not repeat the details of my role again each time. Once one is allowed to speak, sometimes they are interrupted by another participant or are forcibly “muted” by a chair or staff person in mid-sentence. This is why I like  written submissions. Sometimes boards will use “executive session” to confer with one another and their attorney without the other parties participating. Another bad practice is to tell participants that the portion of the hearing for their matter is concluded, and then after certain owners leave the electronic meeting, they will discuss it again later.

The use of remote videoconference technology has real advantages to lot owners, because they can participate in HOA proceedings from the convenience of their own homes. If used properly, Zoom can increase owner participation and the overall effectiveness of governance. If the hearing is conducted online, the owner can have any qualified, licensed attorney represent them, regardless as to where the attorney lives in the country. If used properly, videoconferences can increase access to justice because its easier to find an attorney to dial in to a remote meeting than show up at a specific place on a weeknight. That said, many HOAs do not like dealing with attorneys. Remote technology can make it easier for the hearing to be recorded. Despite these advantages, technology provides additional practical tools for HOAs to evade open meeting requirements, “mute” objectors, and disregard governing instruments. What will happen to HOA meetings after the Coronavirus Epidemic is over? Some associations may revert to entirely “in-person” meetings and hearings. Others may continue with remove videoconferencing, or adopt a “hybrid” approach, where owners have the option of attending in person or accessing remotely. Overall, I expect videoconference technology to be more widely used for a variety of purposes after the epidemic than before. After everyone can get the vaccine and masks are set aside, we will be dealing with a variety of legal repercussions of the epidemic shutdowns for years to come.    

Note that the photo associated with this blog post is a stock image that does not depict anything referenced in the article.         

Is the Architectural Control Committee a Government of Laws or of Men?

Founding father John Adams observed that a republic is, “a government of laws, and not of men.” Adams contrasted a republic with an empire, where, “what pleases the prince has the force of law.” In Adams view, a government of laws surpasses one where a single individual (or a small group) holds unlimited power. If the prince does not have to follow the laws in exercising his authority, the language of the laws is not significant. Nowadays, HOAs and condominiums advertise as “mini-democracies,” where an elected board implements powers prescribed by  recorded instruments for the subdivision. In Virginia, when an owner purchases their lot, they get a packet including the declaration of covenants, easements, bylaws, articles of incorporation, and other disclosures. The governing instruments, particularly the declaration, legally define the relationships between the HOA and the lot owners. Practically speaking, however, what lot owners often get is a small group of persons making decisions (collecting funds, managing common areas, regulating architecture, etc.) according to a generous reading of the definitions of   their discretion and jurisdiction. Often it is up to the lot owner to vindicate their rights according to the meaning of the words in the instruments. John Adams’ concern plays itself out in the “community theater” of HOAs and condominiums, with the owner arguing that the law mandates that HOA’ stated authority be construed narrowly, in favor of free use of property, and the HOA’s representatives arguing that it is the democratic process of the HOA that produces boards that exercise “business judgment.”

Often covenants expressly grant boards or committees’ discretion for purposes that cannot be effectively achieved by enumerated prohibitions or requirements. For example, most HOA declarations requires owners to apply to a board or committee to obtain approval of architectural changes. The declaration may not enumerate, within its four corners, all criteria needed for a committee to decide a design change proposal. Lots typically have differing dimensions, access to rights of way, grading conditions, and other features. It may be impossible to set forth answers to all questions in the declaration or design handbook,  if the purpose is to achieve substantial cohesiveness. HOA volunteers typically have little training, education, support, or experience in land use management. Because directors own land in the subdivision, they have a conflict of interest, to some degree. Decisions may lack consistency – with personnel changes bring policy changes. Many people criticize the HOA model for private land development in that the laws and rules are not much help because they are poorly written or simply ignored. However, Virginia law provides ample grounds for owners to craft effective legal strategies to protect their rights. This blog post is about limits on the discretionary power of the architectural control committee.

Will courts enforce provisions in covenants that require owners to obtain approval of designs prior to construction, or does any prohibition have to be specifically enumerated in the recorded instrument? The Virginia Supreme Court considered this question in a 1977 decision, Friedberg v. Riverpoint Building Committee, before the General Assembly enacted the Property Owners Association Act.  The Friedbergs sought to resubdivide a 75,000 square foot parcel in Norfolk, Virginia into three home sites. The covenants only allowed one detached single-family dwelling on each lot. The covenants required,

No building shall be erected placed, altered, or installed on any building plot in this subdivision until the building plans showing the location of such building have been approved in writing as to conformity, and harmony of external design, with existing structures in the subdivision and as to location of the buildings with respect to property and set back lines by a committee  . . .

The covenants forbade erecting a building on any lot any less than 7,500 square feet. The Friedbergs wanted to build a one-story house of less than 3,000, without dormer windows. The committee consistently required all houses to be at least 3,000 square feet in size, two stories in height, or if they wanted a one story house, they had to include dormer windows to make it look like it had an attic living area. The committee did this to “keep cracker boxes out” and establish a “relative stable, high-class residential area.”  Mrs. Friedberg wanted to resubdivide so that her son could live next door. The committee told her that she could only put one house on the “original” (unsubdivided) lot. The Friedbergs added a house on a subdivided lot anyway. One of her neighbors happened to be Edward Ferebee, a retired attorney and chairman of the committee. Mr. Ferebee took it upon himself to go to the construction site to tell them they lacked committee approval. When the Friedbergs applied, the committee rejected it because (1) the house was only one story, less than 3,000 square feet, without dormer windows and (2) the subdivision of the lot was not approved. The covenants did not specifically forbid resubdivision or specifically enumerate a minimum house size. The court agreed with the architectural control committee, because the covenants contemplated that each lot would have at least 7,500, finding it implicit in the lot size requirement that one cannot circumvent the rule requiring at least 7,500 square feet for home sites by resubdivision.

The Friedbergs also argued that the architectural control committee’s requirement of dormer windows on a one story, 3000 square foot or less house was not enumerated in the covenants or even formalized into standard written guidelines. Mr. Ferebee testified that since the beginning, the committee consistently applied the principle that houses must be of two stories, or one story of at least 3,000 square feet, with dormer windows. On a one-story house, the dormer windows gave the appearance that the second floor was used as a living area. Ferebee stated that the committee never gave any lot owner an exception to this rule. The Supreme Court of Virginia was satisfied by this, adopting the following legal doctrine:

Generally, a restrictive covenant for a residential subdivision which requires consent to construction or approval of plans of construction, even though the provisions of the restrictions do not establish standards of approval, will be declared valid when such covenants apply to all the lots as a part of a uniform plan of development. But such covenants will be enforced only when there has been a reasonable employment of such restrictions. John Perovich, Annotation, Validity and Construction of Restrictive Covenants Requiring Consent to the Construction on Lot, 40 A.L.R.3d 864 (1971).

Virginia courts allow covenants to require owners to submit building plans to a committee for approval before construction. In certain instances, such as in the Friedbergs’ case, it may not be necessary for the covenants to enumerate standards of approval. But the covenant has to apply to all the lots, in the context of a uniform plan of development. In reading this ruling, my eyes focus on the language, “will be enforced only where there has been a reasonable employment of such restrictions.” What does “reasonable employment” mean here? One can imagine a board member asking the lawyer how to apply the restriction, with the lawyer explaining that the courts require “reasonableness,” and the director misunderstanding this to mean that their discretion is unfettered. Based on other case law, it would be a mistake to view “reasonableness” here as that of a “reasonable person” or some other deferential standard. What constitutes “reasonable employment” is determined by interpreting the declaration of covenants as a whole, together with the subdivision plat and the designs for the development plan. Virginia law includes doctrines that tell lawyers and judges how to interpret the language in statutes, contracts, and deeds. For example, if you look back at the design control language in the Riverpoint covenants, it says “building.” What if the Friedbergs wanted to put in holiday lights, shrubbery, a fence, or other features that are not a structure with four walls, a foundation, and a roof? One would need to check to see if “building’ is defined elsewhere in the document, and if other provisions specifically addressed such matters. Hypothetically speaking, the committee might think that it is “reasonable” for the Friedbergs to replace any dying trees with a similar tree in the same spot, but they may or may not have the authority to require that, under a reasoned reading of the covenants. One must also review the declaration to determine if it grants the HOA authority to adopt rules and regulations regarding enumerated subject matter without formal amendment of the covenants. If the covenants do not contain a rule, do not authorize the board to make the rule, and the rule is not established by consistent, reasonable application in the uniform plan of development, then the HOA’s arbitrary covenant enforcement may be subject to legal challenge. This is why HOAs like to put out a design handbook (to avoid issues like in the Friedberg case), but not everything in the handbook may be enforceable. When changes require architectural control committee approval, and those provisions actually apply to the changes the owner wants to make, it is in the owners best interest to prepare a proper application using the standard form, a letter explaining the request, a copy of the contractors’ proposal, photographs, a survey plat showing the desired location, and other details. By following procedures necessary under the terms of covenants, the owner can position themselves favorably if a neighbor or subsequent board or manager does not like the change, months or years later. Even if the owner failed to do so before construction, they may be able to obtain formal approval later by going through the process to have what was done “blessed” by the ARC. The purpose of this is to lock the HOA in by principles of estoppel and waiver. If the proposal is wrongly rejected, the owner can use the process to framing issues for court challenge.

In the big picture, is it a good public policy to allow developers to delegate to a committee of neighbors control over changes to an owner use or improvement of the property? Personally, I am not attracted to living in such a place. Some people like the idea of a board going after their neighbors for “unsightly” or “problematic” architectural or vegetation changes. Some HOAs do have covenants, bylaws, design handbooks and other documents are clearly written, that on paper would accomplish certain community goals that many find desirable. However, in real life what purchasers get are groups of people (directors, committees, complaining neighbors, managers, attorneys, etc.) making decisions that may not conform to the words of the governing documents. Unfortunately, many owners are unaware of what their property rights are and that they can be vindicated legally. I think that John Adams would be disappointed if ignorance allowed “men” to prevail over “laws” that limit their powers, which is why I think blogging about these matters is important.        

Legal Authority:

Friedberg v. Riverpoint Building Committee, 218 Va. 659 (1977)

Unit Owners Ass’n of BuildAmerica-1 v. Gillman, 223 Va. 752 (1982)

Sainani v. Belmont Glen Homeowners Ass’n, 297 Va. 714 (2019)

Memorandum of Association Assessment Lien

HOAs and condominiums continually chase after their members for unpaid assessments imposed for maintenance of common areas and amenities. Normally, a creditor who wants to go after a defaulting “customer’s” property or assets needs to sue them for a judgment if they want to record a lien in the land records. Association boards grew tired of paying law firms to file multiple little collection suits taking months or over a year to resolve. Assessments, when proper, represent a share of common expenses, set annually, and paid monthly. Through lobbying efforts, community associations convinced state legislatures to grant them statutory liens for assessments that they may perfect against a lot or unit by fulfilling procedural requirements. These statutes allow associations to bypass the ordinary requirements to file a lawsuit and obtain a money judgment if they want a lien for certain things.  Recordation of an assessment lien allows the association to then foreclose on the owner’s property to satisfy the lien amount.

Use of foreclosure to collect on assessment liens is controversial. Numerous news articles and lawsuits illustrate the abuses or harshness of the HOA lien-and-foreclosure process. In some examples, unscrupulous debt collectors deprive people of their homes to satisfy a few hundred or thousand dollars of assessments, all without the owner understanding what is happening, and speculators receive valuable property at a discount. To borrow a catchphrase of a slick-looking guy in a popular internet meme, “it’s free real estate”.  Owners need for boards to spend money to maintain common areas, such as roads, retaining walls, drainage systems, elevators, et cetera to protect access and use of their own homes. Some items in association budgets are questionable, many are not, most have inadequate reserves. The necessity of repairs does not mean that all collections methods are just (or even necessary). I question whether HOA and condo boards ought to be able to lien-and-foreclosure without proof or process in court. Owners need to engage with their legislators about which collection remedies associations ought to enjoy. I would like to focus today on how the memorandum of association assessment lien works in Virginia, how this legal device is misused, and how owners can protect themselves from improper attempts to lien or foreclose their property by the debt collectors. Without understanding how existing legislation fails to protect people (and solve cashflow problems), it is not possible to figure out how to solve a specific owner’s dilemma or to have an informed “big picture” policy discussion.

Black’s Law Dictionary defines a “lien” as, “A legal right or interest that a creditor has in another’s property, lasting usually until a debtor or duty that secures it is satisfied.” A payment obligation may be owing without the existence of a lien. Assessment liens arise by the effect of statute. The Virginia Condominium Act grants a lien on each condominium unit for unpaid assessments levied by the board in accordance with the Condo Act and the association’s governing instruments. Assessment liens are subordinate to recorded tax liens, prior liens, and first mortgages. To preserve the lien, the association must file a proper memorandum of association assessment lien in the land records. The Condo Act requires the association president to swear or affirm the details of the memorandum. In 2004, the Circuit Court of Fairfax County found that this duty was non-delegable and invalidated a lien signed only by the association’s attorney. These kinds of liens do not exist in the common law.

The condominium association must record the lien before the expiration of 90 days from the time the first assessment identified in the lien became due. This is a short “lookback” period for perfection of the statutory lien. This requires the association’s representative to establish an effective system for tracking assessment payments and collections if they want to use the statutory lien remedy without waiver.

The lien memo must adequately describe the property encumbered by the lien. Its easy for the manager or debt collector to put in the wrong address or lot number.

The memorandum must state, “The amount of unpaid assessments currently due or past due together with the date when each fell due.” There is a debate in Virginia over what assessments or other charges may be included in a lien memorandum. Monthly assessments or special assessments whose due dates fell within 90 days preceding the filing of the memorandum easily fall within the statute. However, association debt collectors frequently try to throw additional claims into these lien memoranda. For example, some governing instruments allow boards to “accelerate” the remaining assessments due by an owner in a fiscal year if the owner defaults on a monthly payment. Some governing instruments require the board to decide to accelerate the remaining future unpaid monthly payments and provide the owner with a letter specifying the future effective date (perhaps two weeks or one month in the future) when the remaining assessments become due in a lump sum. Acceleration of assessments is an attractive idea to debt collectors. Acceleration allows the association to consolidate its debt collection activities. It is more difficult for an owner to crawl out of default when the reinstatement amount is larger. The Condo Act does not specifically authorize the addition of accelerated assessments into recorded lien memoranda.  In 1994, the Circuit Court for the City of Alexandria observed that a board cannot collect accelerated assessments in a lien memorandum because of the statute. Even if the governing instruments provide some sort of mechanism for acceleration, the association may not have properly followed such procedures by conducting a proper meeting and sending a notice. An association may have the right to accelerate assessments but the inability to include it in the lien memorandum.

This is confusing to many people, including some law school graduates. A unit owner may be liable to the association for a fee, a charge, or some other amount that the association can obtain a money judgment for but cannot add to a memorandum of lien. The statutory lien is a narrower remedy than what an association may be able to hold a unit owner accountable for in a civil suit. The statutes of limitation are different.

In addition to looking back beyond 90 days or looking forward past the day the lien is recorded, sometimes associations will try to throw attorneys fees or other costs into the amount of the lien. This is another source of confusion, because the association may have the right to make claims for attorney’s fees, filing fees, costs, etc. under the declaration or other sections of the condominium act. The lien statute provides that the association may obtain an award for attorney’s fees and costs when suing to enforce the lien. That is different from including the fees and costs in the lien instrument itself.

Debt collectors easily make errors in a memorandum of association assessment lien. When an association appoints a substitute trustee to foreclose on the lien, many owners are unaware that the trustee relies upon an improperly perfected lien. A condo unit or subdivision lot cannot be foreclosed upon by use of an invalid lien memorandum, but where the process is non-judicial, the owner must stick up for themselves. It is necessary to carefully review the memorandum, governing instruments, statement of account, and the statute to determine if the lien is enforceable. Even if the foreclosure sale takes place, the owner may have legal means to void the sale and come current on the assessments. Sometimes this does not require going to trial.

For owners in a HOA or condominium that validly imposes assessments on its owners, its best to pay such in full and on time, whenever possible. Once the association records the lien, the owner may need qualified legal counsel to help untangle the situation before the foreclosure goes through.  

Legal Authority:

Va. Code § 55.1-1966, formerly, Va. Code § 55-79.84 (Va. Condo. Act)

Va. Code § 55.1-1833, formerly, Va. Code § 55-516 (Va. Property Owners Ass’n Act)

Wilburn v. Pinewood Lawns Condo. Phase I, 65 Va. Cir. 372 (Fairfax 2004).

Unit Owners Ass’n of Buildamerica-1 v. Gillman, 223 Va. 752, 292 S.E.2d 378 (1982).

In re Chen, 351 B.R. 355 (E.D. Bankr. 2006).

English v. Parkfairfax Condo Ass’n, 34 Va. Cir. 114 (Alexandria 1994).

HOA Design Review Application Form

Most homeowners’ associations require owners to submit a Design Review Application Form to approve changes to exterior features of their lots, be it a deck, patio, fence, driveway, or addition. Some even require approval to remove or add trees or change the grading. Owners often misunderstand their rights because the Design Review Application form includes language that obscures the issues or confuses them regarding their obligations to the HOA. The form may not adequately inform them of the criteria that the committee ought to use to evaluate the submission. The application forms provided by the community manager may call for the owner to sign off on things that the HOA does not have any authority to demand. These forms play a prominent role in standardizing the process of controlling what people do with their land or to discourage disputes among neighbors.

Some of my readers may ask whether it makes sense, as a matter of policy, for non-governmental boards or committees to have the authority to make rules or exercise discretion to veto exterior changes to private property. Those are good questions that I have touched upon elsewhere on this blog. The focus of this article is on the interests of a lot owner navigating the HOA design review process or opposing a neighbor’s improper application.

Sometimes, HOA approvals or denials of design proposals resurface years later. These decisions ordinarily become a part of the HOA’s file (to the extent any records are kept) for that lot. Owners ought to pay close attention to the wording of these forms so that they can better protect their own rights in the event of a dispute or to challenge an objectionable application by another member.

Community associations law is about making, changing and supplementation of rules regarding the development, alteration, and maintenance of property, be it a common area or owner’s lot.  A developer creates a HOA by encumbering property in the subdivision by recording a declaration of covenants. These contain rules about what lot owners, or the board of directors can or must do to use or maintain lots or common areas. Those rules may be changed by a formal amendment process. Also, the Property Owners Association Act allows boards to supplement the rules in the declaration with an architectural handbook, to the extent that the declaration establishes rulemaking authority. Newer declarations require an owner to first apply to the board or a committee to obtain approval for changes, even where they do not seek a variance from the covenants or rules. The HOA may be exercising discretion that goes beyond applying established general rules to a new application. These committees often seem to be more case-by-case legislating and less like ministerial gatekeeping. Many owners complete, sign, and submit the Design Review Application Form without considering the scope of the HOA’s authority over use and improvement of their property. This is risky since these forms often include requirements inconsistent with, or absent from, the HOA declaration.

Design Review Application forms vary widely from HOA to HOA, but they mostly keep to the same pattern. In Northern Virginia, there is a prominent law firm that represents many HOA’s and condominiums. A variation of the Design Review Application Form they prepared is the one many managers provide to lot owners. This Design Review Application Form is not based on any statewide laws (and it does not have to). Consideration of these forms illustrates how these HOAs exert control over their members.

First, the statements and disclaimers included in the language of the form may not accurately reflect the governing instruments of the subdivision. The text may mislead the lot owner regarding her rights and responsibilities. However, misleading language in the form presents added problems. The lot owner is expected to sign the Architectural Design Review Application form. The owner may later be accused of having waived certain rights that she had otherwise. Legally, the Board cannot force a lot owner to forgo her legal protections or to enhance its own power without the lot owners’ consent. Many HOAs use these little forms to frame issues in a way that is friendly to their own interests.  

The Design Review Application Form provides space for the lot owner to summarize the changes. The declaration may in fact leave certain improvements, such as those for vegetation or repairs that will not change the appearance, to be “by right.” Lot owners ought to consider whether any application is necessary at all. To a lot owner with little experience, it may be unclear what level of detail is appropriate. It is common for architectural committees to approve applications that are unwarranted or incomplete or to deny ones that are sufficient. The declaration and handbook may require a specific description of the proposed location, color, design, features, illustrated in a written summary, a marked-up survey plat, a design from a builder or engineer, photographs or drawings of products or materials. To the extent that HOA architectural approval is legally necessary, the owner ought to put in the application what is necessary to fulfil the requirements indicated in the declaration. The owner wants to place himself in a position where, after the project is completed, the work cannot be successfully challenged on the basis that a material aspect of it was not disclosed or identified. From a lot owner’s perspective, the process can discourage or prevent later challenges. It is difficult to accomplish this if the application does not adequately describe the location, materials, style, design, et cetera.

HOAs have reoccurring problems with owners getting approval from the committee on an application, and then after the change is made the neighbor voices a complaint about the result and the lack of notice. The Design Review Application Form also provides space for adjoining neighbors to sign to acknowledge receipt. Often these forms specify that the adjoining owner only signs to acknowledge receipt of the document. The governing instruments usually do not state whether such adjoiner signatures are required as part of the application or what the legal effect is of signing the document and then not opposing the application.

Design Review Application forms typically include “Owner’s Acknowledgements” for signature by the applicant. For example, a form used by many Virginia HOA says,

I/we understand and agree 1. That such approval by the Committee shall in no way be construed as to pass judgment on the correctness of the location, structural design, suitability of water flow or drainage, location of utilities, or other qualities of the proposed change being reviewed.

What does this mean? The application form is required because management deems architectural approval of location, design, and other qualities to be carefully considered before the lot owner may implement them. “Passing judgment on correctness” seems to be whole point. Addition of this item seems odd. I understand that the HOA does not want an owner to come back later and complain that it approved a design that resulted in structural failure or wrongful water diversion. From the face of the document it may be unclear whether the design choices were requested by the owner or dictated by the HOA. To the extent that HOAs use the architectural process to impose design requirements on lot owners, the HOA does not want to be held responsible for liabilities to that lot owner or a neighbor in the event that there is resulting damage or impairment of use or enjoyment. The broad scope of Acknowledgement #1, interpreted generously in favor of the HOA, could mean that the owner applicant could later be asked to change or move the approved improvement. I would disagree with this interpretation because it would render the process meaningless. Owners can address the ambiguity by being specific in their design proposal regarding these issues. They can also provide details in a letter as to why the location, design and other details are chosen (as opposed to other designs or locations) to made it more difficult to challenge. An owner could try not initialing this item or using handwriting to change it. Again, if it is not in the declaration or reflective of common sense then the owner is not legally obligated to acknowledge it.

Another reason to make sure that the design application form and supporting materials are complete and accurate is because if the lot owner doesn’t like the decision of the committee, she may have to appeal to the board or ask the circuit court for judicial review. it is more difficult to achieve a desirable outcome on appeal or review if the application is haphazardly prepared.  

Unfortunately, the HOA architectural design review process has gotten out of hand over the years – often it fails to prevent or resolve neighbor disputes, does not succeed in achieving harmonious or attractive effects for the whole neighborhood, or give lot owners a sense that they can rely upon the decisions made by the committee. Many owners discover that they need a professional or experienced person to help them prepare the materials or guide them through the process, or to review what a neighbor is doing with a project that poses a nuisance. If the HOA wrongfully denies an unobjectionable submission or approves an adversarial neighbor’s faulty application, legal counsel may be necessary to bring a timely challenge before the court or board. The assistance of legal counsel may be necessary to avoid waiver or abandonment of rights on procedural or substantive grounds.