December 23, 2020
The Negativity Effect in Real Estate Decision-making
Kids, we are counting down the final days to Christmas 2020. Many of my readers are familiar with the 1957 Dr. Seuss book, “The Grinch Who Stole Christmas.” In honor of the Grinch and the Whos, I would like to share a few insights from a 2019 book I recently finished reading, “The Power of Bad: How the Negativity Effect Rules Us and How We Can Rule It” by John Tierney and Roy F. Baumeister. “The Power of Bad” is not a book about property matters per se. That said, I think that the principles of the negativity effect animate much of what is going on in real estate. The authors define the negativity effect as, “the universal tendency for negative events and emotions to affect us more strongly than positive ones.” There are many examples of this. If you visit a restaurant, and the experience is overall positive, but there is one discrete problem, then the customer walks away remembering the negative thing. When people read hotel reviews or other online ratings, they look to the bad reviews and tend to give more weight to descriptive negative reviews even if there are other positive ones for a business. On a larger scale, Anti-Terrorism is a good example. After one tragic, evil event the government makes all sorts of decisions, some warranted, but many unnecessary and harmful. In fact, the threat of terrorism is less of a risk than being struck by lightning. Empirical studies show that it often takes 3-4 good experiences to cancel out the effect of one bad experience on someone’s perceptions of a person, organization, or place. The negativity effect makes people susceptible to manipulation, particularly by media organizations chasing viewership through eye-catching news of the latest problems, a politician or candidate developing a voter base through fear, or merchants selling some product. Of course, there are bad things that people need to know to protect themselves against. The psychological power of bad experiences and associations distorts decision-making by warping perceptions through exaggerating a potential risk or threat.
The book does not go into the topic of real estate, but I can see how policymakers and property owners are particularly susceptible to negativity. Owners are afraid that their homes will become less useful, attractive, or valuable because of something that happens. Threats to one’s home affect people in deeply personal ways. Many fear an external threat to their enjoyment of their home, be it criminals taking over the neighborhood, increased traffic from new development, or a home-based business popping up next door. It is commonplace for people to buy homes subject to restrictive covenants that give power to HOA directors to impose fines for architectural “violations.” In effect, many paying extra each month to have someone tell them what to do with their own property. Why does this happen? The negativity effect convinces many (but not all) landowners that the threat of other people ruining the neighborhood by breaking the architectural restrictions outweighs the risk that the HOA may overstep its authority. However, the architectural violations that HOAs often find with owners’ properties rarely pose any substantial threat to the value or use of neighboring real estate.
The Power of Bad book provides an example of how workplace disciplinary systems can illustrate effects of the negativity bias. This example reminded me of the systems of fines used in many HOA communities. The food company, Frito-Lay discovered that workers in a Texas factory were writing obscene messages on potato chips before bagging them. During investigation, corporate discovered that the factory used a new “progressive discipline” system to deal with tardiness and safety violations. After a first “violation,” the worker’s file was noted and she was given a verbal warning. If there was another violation, the worker would be brought into an office to acknowledge receipt of a written violation notice. At that moment, the worker would feel like they were being forced to admit something without being given a chance to defend themselves. The employee was given another black mark in the file whether they sign the violation notice or not. If there was a third violation, the employee would be given an automatic three-day suspension without pay. The worker would return to the plant even angrier. The subsequent violation notice resulted in termination. Tierney and Baumeister saw this toxic disciplinary system as illustrating the “The floggings will continue until morale improves” management approach. Frito-Lay discovered that the managers hated the disciplinary system as well, because it eroded professional relationships and made them unpopular. Instead of making the disciplinary process more equitable by ratcheting-up punishments evenly, it caused the factory to become more arbitrary. The managers avoided handing out violations until they just could not stand a worker anymore, after which they tried to railroad that problem employee through the stages of the disciplinary system so they would be terminated. Frito-Lay ended up scrapping this progressive disciplinary system in favor of a different design. This “progressive” disciplinary system reminds me of the dysfunctional covenant enforcement and dues collection systems many homeowners or condominium associations use to implement board policies. When owners receive rule violation notices, they frequently observe that the rule is not being enforced in the community, and their property does not really break the rules, but others are. Sometimes the notice states that a hearing was held without the owners knowing that their case was even before the board. Often, the board does not even have the authority to adopt the rule quoted in the violation letter. When owners receive fines for things that do not actually violate any legal obligation they have to the HOA, they lose motivation to maintain their property to keep up the neighborhood. Vindictive and incompetently managed rule violation systems can actually diminish the natural impulses that people often have to work in their yards to keep pace with their neighbors. Some people may become more worried about violation notices than actually yardwork. Sometimes bogus violation notices, fines, and late fees are focused on owners who are particularly unpopular with the board members or managers. Once associations record liens or institute foreclosures, the owner can feel “trapped” in a situation where they have few options other than paying a large monetary demand that includes items the collector is not entitled to, lying low and hoping that a suit or lien does not come, or retaining an attorney to solve the problem. These bad experiences can actually get away with these improper things, leaving them with few outlets other than posting attacks against the board or managers on social media (the contemporary version of scribbling on potato chips). Compounding things, there are people on the internet highlighting all of the “bad” about HOAs, to enhance the public’s attention to these issues, in the hopes that HOAs will become abolished and punish the malefactors (certain directors, managers, attorneys, etc.). This can detract from more useful discussions about how owners can, through education or working with an attorney, develop strategies for solving their own problems with HOAs. Sometimes news articles or social media posts, taken in the aggregate, actually re-enforce the false belief that it is futile to resist HOA bad behavior. But this is not true. It is common for landowners to successfully avoid, prevent, solve, or escape legal difficulties involving their neighbors or community associations. This happens all the time, but the news reports and social media buzz focuses on the hopeless cases because they draw more attention. If an owner has a problem with a homeowner’s association, they should not stop their research at doomsayer articles about other communities where a problem spiraled into a disaster. Those articles may be true, but they are not going to identify solutions that someone can use in their own situation. If an owner already purchased the house in a community association, they cannot wait for their HOA to be abolished in the future, because that is not going to happen. Often, the best thing is for the owner, a board member, neighbor, attorney, or other advisor to try to help the owner to resolve the problem before it becomes a larger financial burden, cause additional property damage, further limit the use of property, or mushroom into a larger interpersonal conflict. In what I have seen, landowners who cultivate positive vibes within themselves and their relationships are the ones that have the resiliency necessary to overcome the injustices they suffer. The Whos of Whoville were thankful and undeterred in the face of the Grinch’s scheming. My favorite chapters in “The Power of Bad” are the ones that talk about how positivity can overcome negativity and the negativity bias can be mitigated. In real life, one cannot count on the Grinch to have a change of heart when you need him to. In real estate matters, quite often overcoming the negativity bias involves refocusing away from vindication and shame to identifying tools (facts, resources, people, laws, etc.) that can be harnessed to solve the problem, which sometimes requires going before a judge, but often can be done in the context of settlement. Sometimes re-framing bad HOA covenants, rules or statutes as the byproduct of the negativity effect can convince decision-makers to interpret them narrowly and decline to enforce them in a particular instance. In HOA matters, often the answer to the problem can be found in a recorded declaration or other instrument that applies to the facts but has been ignored because people commonly think of the HOA as the organization you get rather than what is or is not expressed in the rules.
Note that the photo used for the blog post is just a stock image and does not depict anything referenced in my article.
December 18, 2020
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.
December 4, 2020
The Voluntary Payment Doctrine and HOA Liens
Homeowners disputes with HOAs and condominium associations frequently revolve around disputed demands for payments, large and small. Homeowners often wonder if they have to pay their monthly assessments if their HOA failed to fulfill an obligation. Generally speaking, if the assessments were legitimately determined by the HOA’s board of directors pursuant to its recorded instruments, then lot owners have to pay them. The assessments are made to fund the upkeep of commonly owned property. Ordinarily, the obligation to pay legitimately imposed assessments and the HOA’s obligations to its members are “independent covenants.” The lot owners usual remedy is to compel the HOA’s performance, not to withhold dues. However, under certain circumstances the owner must not voluntarily make a payment in order to preserve a legal challenge to the payment demand. This is because when an owner is in full knowledge of all of the facts, and makes the payment anyway, then it is as though he waived the legal challenge to the payment. Various courts recognize that application of the Voluntary Payment Doctrine can be harsh. Some consumer protection advocates call for its abolition. But as of 2020, it remains the law in Virginia. This rule has a number of important caveats and exceptions. The doctrine is particularly important in the context of the financial realities of community association life.
A 2020 court opinion from Missouri illustrates one way the Voluntary Payment Doctrine may be applied. Michael and Wendy Halliday owned a unit in the Malibu Shores Condominium, located on the Lake of the Ozarks. The Hallidays became delinquent on their assessments. In March 2016, the condominium obtained a $6,156.46 court judgment against them and lien against the condo unit. In May 2016, Randall Koeller and Jeff Haskenhoff purchased the unit at the sheriff’s sale. At that time, Jeff and Randall’s wife Angela were directors on the condominium board. Yes, dear reader, this is shady! It is not uncommon for people with family or business connections with an association board to purchase foreclosures, especially in a waterfront development where many are rentals or second homes. However, such connections may not insulate them from the risks and surprises that can come from investing in foreclosures. In June 2016, Randal and Jeff asked what the amount was of any lien. They were told that it increased to $8,154.00 because of additional months, finance charges, late fees, and attorneys’ fees. In fact, Jeff (who was a board member) assured Randall that this amount was correct. In July 2016, Randall and Jeff signed separate checks, each paying half of the updated demand. Later Randall and Jeff sold the unit to a third party at a profit.
But the story does not end there. Later, Randall and Jeff sued the condominium for allegedly misrepresenting the value and validity of the lien. The trial court found in favor of the association, finding insufficient evidence of misrepresentation, and ruling that by paying the sum, the two men could not later challenge its legality.
The Missouri Court of Appeals focused on the trial court’s application of the Voluntary Payment Doctrine. The Missouri rule is that a person who voluntarily pays money with full knowledge of all of the facts in the case, and in the absence of fraud and duress, cannot recover it back, even though the payment is made without sufficient consideration and under protest. The Missouri Court of Appeals explained the reason behind the rule.
a person who, induced thereto solely by a mistake of law, has conferred a benefit upon another to satisfy in whole or in part an honest claim of the other to the performance given, is not entitled to restitution. The underlying reason for those requirements is that it would be inequitable to give such a person the privilege of selecting his own time and convenience for litigation. . . .
In other words, when all the facts are known to the payor, the time for objecting is when the demand is made, not after the payment is made. In this case, Angela (the widow of Randall) and Jeff both were fully aware of the facts because they were also board members of the same association. This circumstance deprived them of the ability to claim that they were unaware of the facts relevant to their decision to make the payment. For this reason, the court deemed this to be purely a mistake of law, not of fact. In other cases where the association may claim voluntary payment, the homeowner may not be imputed full knowledge. In fact, many associations keep their owners in the dark about many decisions, including those that may affect specific lot owners in unique ways. This illustrates why directors may have legal problems when they do transactions with the association even though the deal may not be forbidden by the covenants or statutes. A purchaser who was less in the know may have been able to challenge the amount of the lien.
The Malibu Shores case concerned unique facts where the payor was imputed full knowledge of the facts because of their unique position as board members, transforming it into a purely legal question. In other cases, the question turns on whether the payment was voluntary or involuntary. For example, in a recent Supreme Court of Virginia case, Rene Williams obtained a money judgment against Kerry Ann Sheehy and recorded it in the land records where Sheehy owned property. After initiating an appeal, Sheehy sold the property, and Williams obtained a payoff check out of the real estate closing. In Virginia, a defendant forfeits her appeal if she voluntarily pays off a judgment. The Supreme Court of Virginia contrasted the voluntariness of a payoff of a lien in a real state closing with payments made by the defendant during post-judgment execution proceedings such as garnishments, levies, or judicial sales. Such post-judgment collection proceedings would constitute coerced payments that do not fit into the definition of a voluntary payment. The Supreme Court of Virginia noted that there may be coercion in the foreclosure context. The Supreme Court remanded the case for the trial court to determine whether the transactional payoff was in fact voluntary.
In D.R. Horton, Inc. v. Board of Supervisors of Warrant County, the Supreme Court of Virginia observed that for purposes of the Voluntary Payment Doctrine, it doesn’t matter if the payor submits a written protest of the legality of the demand at the time payment is made for purposes of determining voluntariness. However, in D.R. Horton, the Court recognized three exceptions to the Voluntary Payment Doctrine: (1) in the event of “an immediate and urgent necessity,” (2) the payment is made to release his person or property from detention and (3) to prevent an immediate seizure of his person or property. As seen by these cases, what constitutes a necessity, detention or seizure is akin to duress or coercion, and not just an inconvenience. Also, the Voluntary Payment Doctrine does not apply where the plaintiff is not suing for return of erroneously sums paid.
The state legislatures granted HOAs and condominium associations substantial legal powers by allowing recordation of a lien without first initiating a civil claim and reducing it to a judgment at trial. In a sense, the legislation blesses, through legal recognition, attempts to coerce owners to pay certain sums to their associations, be they assessments, fines, late fees, attorneys fees, interest. It is common for associations to overstep what they are entitled to charge. Sometimes representatives of an association do not want the owner to climb out of default, for various reasons. For many owners, payment of the lien is seen as less troublesome and more certain than mounting a legal challenge or defense. However, owners do not have to surrender to extortionary or overbearing tactics. How is one to know whether payment would be necessary to prevent further bona fide collections action or if it would constitute a waiver of legitimate claims? Often it may not be clear to the landowner whether making the payment or refusing to pay is the right thing to do. The answer may require review of the governing instruments in light of state law. There is a “big picture” to the HOA-owner relationship that frames the issues raised by a specific demand for payment.
Referenced Legal Authority.
Koeller, et al. v. Malibu Shores Condo. Ass’n, 602 S.W.3d 283 (Mo. Ct. App. May 22, 2020)
Sheehy v. Williams, Nos. 190802 & 191089 (Va. Supreme Ct. Nov. 25, 2020)
D.R. Horton, Inc. v. Warren Co. Bd. of Supervisors, 285 Va. 467 (2013)
NOTE: The photo associated with this blog post does not illustrate anyone specifically referenced in the text of the article.
November 11, 2020
Dead Tree Lawsuit Against HOA Arborist Dismissed
Contemporary land development policies would not work well without trees. Lot owners use trees for shade, ornamentation, and to screening. Subdivisions, especially cluster developments, often include common areas where trees or shrubs provide dense visual screening of the development. Vegetation can be more attractive and taller than fences. When a tree dies, it transforms from an asset to a liability, threatening damage to nearby structures or people. It is in a lot owner’s self-interest to remove dead trees from their own lots to avoid potential damage. In HOAs, it is common for large trees to rot on common areas. Boards sometimes lack focus or motivation to address such concerns. When common area trees die and cause damage, aggrieved parties want to hold someone responsible. HOA covenants impose general duties on the board to maintain the common areas but may not contain language that would hold the HOA responsible for personal injury or property damage caused by dead trees. In an HOA, the directors typically do not personally perform landscaping work themselves. The board or a manager will hire advisors and tree men for such things. What happens if the HOA hires an arborist to inspect trees in a forest and the consultant overlooks a tree that later causes harm? That’s the subject of a case currently pending in the Circuit Court of Fairfax County. In Cawlo v. Rose Hill Reserve HOA, et al., homeowners sued the HOA, property manager and arborist when a tree fell and hurt them a year after the arborist conducted an inspection on an adjacent conservation easement. In August 2017, the HOA contracted with arborist Adam Wingo to inspect all trees on a conservation easement to assess which ones were dying or otherwise posed a threat to others, including the Cawlo property. Mr. Wingo identified certain trees that the HOA removed. Eleven months later, Mr. Cawlo and his daughters were playing in the backyard when a 40-foot-tall tree fell on them, causing injuries. The Cawlos alleged that Mr. Wingo owed a duty to them and caused or contributed to their injuries.
Mr. Wingo’s attorney filed a demurrer to the Cawlos amended lawsuit, and the court dismissed the claims against him personally. Judge John Tran explained his rulings in an opinion letter. Judge Tran observed that under Virginia case law, a property owner does not owe a duty to others who are harmed outside his property due to a “natural condition” such as a dead tree failing down. The Court found that although the HOA hired the arborist to assess trees that might be a threat to adjoining owners, Mr. Wingo did not have a legal duty to protect the Cawlos. In this case, the arborist did nothing to make the trees more unsafe, and this particular tree was not in imminent risk of collapse during his inspection. This tree did not fall until 11 months later. Trees are living, natural things that lack legal qualities of manmade structures. If the development plan contemplated a 10-foot-tall fence instead of trees, and the fence fell on the family, the owners might have a stronger lawsuit. It doesn’t matter if the tree sprouted because nature brought a seed to that location or was planted by human design. These legal particulars enhance the value of trees for landscape design. For lot owners, many HOA covenants don’t treat trees as a “structure” requiring HOA approval for installation or removal.
The HOA was in a “contractual” relationship with the Cawlos with regard to the conservation easement, as defined by the recorded instruments. However, Mr. Wingo was not a party to that document. The family alleged that they could hold Mr. Wingo personally liable on a theory that he assumed a duty of care towards them by the nature of what he agreed to inspect for the HOA. To make a claim for negligence based on a theory of assumption of duty, the plaintiffs must show an agreement, promise or express intent to undertake a duty specific to the plaintiffs. The Court found that he never said or did anything to expressly assume a duty to the Cawlos. For those reasons, the judge entered an order dismissing the lawsuit with respect to Mr. Wingo. The opinion implies that litigation continues against the HOA.
The Supreme Court of Virginia held in Fancher v. Fagella that an adjoining owner may sue a neighbor for nuisance when encroaching trees and plants cause actual harm or pose an imminent danger of actual harm to adjoining owners. The owner of the tree or plant may be held responsible for harm and may also be required to cut back the encroaching branches or roots, assuming the encroaching vegetation constitutes a nuisance. The adjoining landowner may, at his own expense, cut away the encroaching vegetation to the property line whether or not the encroaching vegetation constitutes a nuisance or is otherwise causing harm or possible harm to the adjoining property. However, the principles of Fancher v. Fagella don’t seem to apply in a case where the tree is entirely on the adjoining land.
Tree law problems won’t decline as Northern Virginia transforms into an urban area. Many people desire secluded, natural locations within convenient distances to commercial areas. Some cities, counties and HOAs want landowners to replace trees they cut down. Trees and shrubs will continue to play a prominent role in giving people a sense of privacy while increasing density in Northern Virginia. People are drawn to seclusion for the relaxing psychological effects achieved by separation from noise, traffic and eyesores. However, a large dead tree next door forces the homeowner to live in a continual fear of harm compounded by the stress of interpersonal conflict. Under the law of Virginia and most states, it matters a great deal if it is a 40-foot dead tree or a 40-foot builders’ crane that fall on top of the family, even if the effect is similar. Communities that fail to adequately address the problem of dead or invasive trees will continue to see problems with trees causing harm. Homeowners ought to carefully consider the threat posed by large, older trees on adjoining property.
Legal Authority:
Cawlo v. Rose Hill Reserve Homeowners Ass’n, CL2019-11705 (Fairfax County Nov. 6, 2020)
Fancher v. Fagello, 274 Va. 549 (2007).
Note that the image used for this blog post does not depict anything specifically referenced in the article or cited case authority.
October 8, 2020
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)
June 4, 2020
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).
May 18, 2020
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.
May 1, 2020
Virginia Temporarily Relaxes HOA Open Meeting Statutes for Coronavirus
In March 19, 2020, I posted an article entitled, “Do HOAs Have to Meet Openly During the Coronavirus?” This explored how existing community association open meeting statutes might apply during the Coronavirus epidemic. The epidemic has since spread, particularly in the Washington, D.C. metropolitan region and other cities. On March 23, 2020, Virginia Governor Ralph Northam issued an emergency order directing citizens to stay at home, maintain social distancing, and restricting many normal public activities. That is expected to remain in effect for some time. Continuing effects of the epidemic and emergency orders are felt in community associations, particularly high-rise buildings where residents rely upon hallways, stairs, elevators, laundry rooms, and other common areas. Lobbyists representing the community association industry (lawyers, managers, and other HOA vendors) convinced the General Assembly to add community association boards to the list of “public bodies” that now temporarily enjoy relaxed restrictions on making their meetings accessible to their constituents.
These “open meeting” or “open government” statutes exist for good reason. HOA and condominium boards gravitate towards deliberating and deciding in an informal, nondisclosed fashion whereby affected landowners cannot determine what is going on and how they can participate. Normally, “open meeting” protections take the form of in-person, publicized meetings with an opportunity to record the meeting or make comments. For many reasons, there are challenges in translating this “openness” to a hearing conducted on ZOOM or some other audio or video-conferencing technology. However, owners’ interests can also be prejudice if legal or health considerations interfere with the boards ability to meet. As an attorney who represents lot or unit owners in disputes with neighbors or boards, I want the board to have timely, properly conducted meetings so that things can get done.
On April 24, 2020, Governor Northam signed House Bill 29 into law during a special legislative session. The General Assembly added to this budget bill some temporary laws facilitating use of remote meetings for official business. While HB 29 is in effect, when the Governor declares a state of emergency, any public body, including the governing boards of community associations governed by the Condominium Act or Property Owners Association Act may meet by technological means without a quorum physically assembled at a brick-and-mortar location. This relaxation of legal requirements only applies to the Board of Directors. HB 29 says nothing about committees, association architectural review boards, or meetings of the members at large. Many people will be confused by this and mistakenly believe that this confers substantive or procedural powers on community association boards that it does not. This blog post is to push back on any false “We can do whatever we want” viewpoint.
HB 29 says that they may only meet in such a fashion if,
(i) the nature of the declared emergency makes it impracticable or unsafe for the public body or governing board to assemble in a single location;
(ii) the purpose of meeting is to discuss or transact the business statutorily required or necessary to continue operations of the public body or common interest community association as defined in § 54.1-2345 of the Code of Virginia and the discharge of its lawful purposes, duties, and responsibilities;
(iii) a public body shall make available a recording or transcript of the meeting on its website in accordance with the timeframes established in §§ 2.2-3707 and 2.2-3707.1 of the Code of Virginia; and
(iv) the governing board shall distribute minutes of a meeting held pursuant to this subdivision to common interest community association members by the same method used to provide notice of the meeting.”
Of these four, (ii) raises the most questions for associations. First, does this mean that the HOA or condo board can only carry on “essential” business at these technology-driven meetings or can they conduct any business discussed in the governing instruments? How much deference should boards receive in determining what is necessary or essential? HOA boards typically have issues that they want to get resolved. Often there are directors who view certain things as urgent or important that could easily be deferred until after the epidemic is over. Landowners ought to remain vigilant and not disregard notices or letters from their HOA because the governors stay at home orders are in effect.
Second, under the Condo Act and the POAA, the recorded instruments define what is necessary and lawful for the board of directors. The declaration and bylaws provide the substantive rights and responsibilities of the board and individual owners. They also outline the procedural requirements to schedule and conduct meetings and hearings of the members, directors or committees. HB 29 does not overwrite any substantive or procedural requirements memorialized in otherwise valid HOA or condo governing instruments.
Third, under Virginia law, statutes are interpreted and applied by the courts by a rebuttable presumption that they ought not to be interpreted in a fashion to rewrite a deed or covenant. HB 29 relaxes certain “open meeting” statutes found in the Nonstock Corporation Act, POAA or Condo Act or other legislation. How to reconcile HB 29 with those statutes, and the particular “contractual” obligations found in governing instruments may present thorny legal questions for lawyers, owners, directors and courts to struggle with.
Many boards are adopting rules and regulations that outline temporary protocols for how to handle certain matters during the coronavirus epidemic. However, HB 29 and the “permanent” statutes do not give boards special powers to bypass the legal requirements to amend the declaration without the signatures of 2/3 of the members or whatever other criteria found in their governing instruments. The declaration may not give them the authority to adopt by board vote the language they have chosen in the emergency resolutions.
Item (iv) is also interesting. For many years, HOA and condo boards have been loath to post meeting minutes of director meetings on their websites. But under this temporary legislation, they must make the available to exercise these privileges.
If a HOA or condo board desires to use this statute, they are subject to the following further requirements:
1. Give notice to the public or common interest community association members using the best available method given the nature of the emergency, which notice shall be given contemporaneously with the notice provided to members of the public body or governing board conducting the meeting;
2. Make arrangements for public access or common interest community association members access to such meeting through electronic means including, to the extent practicable, videoconferencing technology. If the means of communication allows, provide the public or common interest community association members with an opportunity to comment; and
The nature of the emergency, the fact that the meeting was held by electronic communication means, and the type of electronic communication means by which the meeting was held shall be stated in the minutes of the public body or governing board.
Notice that this does not require boards to use technology that allows members to make comments, but merely suggests that they do. ZOOM or similar technology has many practical limitations that Americans are becoming more familiar with. I do not like the wording that seems to give HOA boards discretion to determine how much access they want to give their members into what business they are conducting on their behalf. Business conducted in HOA hearings tends to be document intensive.
HB 29 expressly prevails over prior contradictory laws. However, there are many provisions of the Condo Act or POAA that relate to these matters but do not directly “contradict” them. In Virginia, the courts attempt to reconcile seemingly contradictory statutes to give meaning and effect to all provisions. If owners were to seek legal challenge of HOA board action taken pursuant to HB 29, it is likely that the courts would interpret HB 29 in a fashion to avoid overriding existing law except when there is no real other rational way to resolve difficulty in interpretation. HB 29 does not mean that boards get to completely set aside the Condo Act or POAA.
HB 29 does not state whether technologically driven meetings may be used to hear an architectural application, alleged rule violation, or consider other action that directly impacts a member. Can the measures described in HB 29 be used in such an instance if that owner objects or is not permitted to comment or submit materials in respond to director or manager questions? Does HB 29 override the “due process” that owners are supposed to be afforded in rule violation hearings? I think that the answer is “no.”
Many HOA or condo boards already disregard the “open meeting” requirements imposed on them by statute. Some officers or directors with inadequate professional assistance may lead themselves to believe that HB 29 provides them with a mandate to do whatever they see to be expedient during the COVID-19 emergency.
Other boards may decide that HB 29 is simply too much trouble to implement or not worth the hassle and expense of purchasing the technology and training people in how to use it. Remember that most boards meet only once a month.
While the coronavirus epidemic continues and governor emergency orders are in effect, landowners ought to pay close attention to what their HOA and condominium boards are doing and seek legal advice as necessary to protect their rights. There are people, be they rogue unit owners, board members, vendors or other members of the community who may not be above attempting to exploit a crisis to settle a score or for personal benefit.
Legal Authority:
https://budget.lis.virginia.gov/item/2020/1/HB29/Chapter/4/4-0.01/
https://budget.lis.virginia.gov/item/2020/1/HB29/Chapter/4/4-13.00/
March 19, 2020
Do HOAs Have to Meet Openly During the Coronavirus?
Updated March 20, 2020
Landowners frequently complain that the board for their HOA or condo association makes important decisions in secret. Virginia law imposes significant “open meeting” requirements on community associations, allowing for attendance and participation by members. This is almost always in person. Open meeting laws can protect landowners from arbitrary or self-interested board action. The Coronavirus pandemic poses unique challenges to “open” HOA operations. State governments currently impose limits on the number of people that may legally congregate simultaneously in one place. Some states are starting to impose even stricter limits than the 10-person rule. The virus is easily communicable through sneezed or coughed droplets in the air. HOAs and condominium residents are at risk, especially older residents, who chose these communities because of the services offered. Older Americans tend to be more civic minded than younger citizens, and devote more time to community organizations, including HOAs. Residents have a civic duty to obey the mandates and recommendations of federal, state and local health officials to “flatten the curve” in the fight against the epidemic. HOAs provide important services to their members, especially at a time when many people confine themselves to their neighborhoods. In this hour, questions about the open or fair management of community associations ought not to be trivialized. Owners must pay their assessments regardless of whether they presently have income or HOAs responsibly spend the money. In condominium buildings, effective response to the threat of spread of Coronavirus may be a matter of life or death to the residents and perhaps the greatest challenge that board will ever face as a group. High-rise condominiums include shared, enclosed facilities such as elevators, hallways, fitness facilities, and so on. Owners may need to use enclosed common areas to access their units. The community association statutes and governing instruments generally do not consider how to carry on necessary business under such circumstances. So, this is an aspect of the epidemic that is below the radar for many people.
This blog post focuses on what Virginia statutes say and how lot and unit owners can protect their rights and determine their responsibilities with respect to the business of association boards and committees during the Coronavirus epidemic. I’m not going to focus on annual meetings or elections. I’m interested in owner interaction with boards and committees in the context of architectural approval applications, notices of violation, and direct negotiations between owners and boards. The following applies to HOAs that qualify as an “association” for purposes of the Property Owners Association Act or a condominium organized under the Condominium Act.
The Condominium Act and Property Owners Association Act obligate boards and committees to meet, deliberate, and make decisions in settings open to all members. Boards may not use “work sessions” or informal gatherings to circumvent statutory open meeting requirements (this is already a common practice despite the statutory prohibition). Boards and committees are supposed to provide owners with notice of upcoming meetings. Except for matters to deliberated in executive session, packets of information provided to directors and committee members are supposed to also be provided to owners who attend. Boards may meet in closed session during a noticed meeting, but such restrictions are only supposed to be used for attorney-client communications, personnel matters, litigation, pending contracts, and other statutory purposes. Any member may record a meeting using equipment. Boards can use telephone conference or video conference, but at least two members of the board are required by statute to be physically present at the noticed meeting place. Boards and committees may not vote by written or secret ballot.
Virginia statutes require boards to establish reasonable, effective, and free methods for lot owners to communicate with the association’s representatives. Declarations and bylaws also contain express or implied duties and rights for communications between boards and their members. There is no authority for boards to suspend their communications with members during an emergency. If anything, the existence of a health or safety issue of community concern ought to heighten such duties.
In Virginia, if the declaration allows for the board to impose fines for violations of covenants or rules, the member is entitled to a reasonable opportunity to be informed of the alleged defect and a period of time in which to correct or address it. Boards cannot simply shut off an owner’s use of a common area, facility or service because of an alleged violation when they don’t want to hold meetings. Before imposing fines, the board must provide the owner with notice of a hearing before the board or committee where defense against the violation may be heard. Virginia statutes state that HOAs and condominiums have a duty to provide owners with “due process” in the conduct of such hearings. While due process is a flexible standard, at a minimum it includes proper notice and the right to be heard. There is no statutory authority for dispensing with “due process” requirements because the board or committee wants to impose a punishment without a proper hearing, even if the documents require an in-person meeting.
Virginia law allows for associations to use technology in the conduct of their open meetings. However, few HOAs or condominiums are set up for this (yet). In fact, few city or county boards, commissions and authorities are set up for remote participation in public hearings. Many declarations and bylaws don’t provide for remote participation. Virginia law provides that if an owner doesn’t want to participate through technology, then arrangements must be made for them to participate “live.” So remote access is practically unavailable.
Homeowners associations that are also nonstock corporations are also governed by the Virginia Nonstock Corporation Act. The POAA and NSCA both have provisions with respect to board and committee meetings, but the provisions are not the same. Because the POAA is more specific to HOAs than the NSCA, courts are very likely to find that the POAA controls over the terms of the NSCA to the extent that they vary. However, case law also requires judges to make every attempt to harmonize, whenever possible, when two statute sections apply to the same set of facts.This already controversial in Virginia because when disputes arise between owners and boards over open meeting requirements, HOAs tend to cite the NSCA as authority and owners point to provisions of the POAA that support their arguments.
For example, the NSCA allows for boards to act without an actual meeting if each director signs a consent describing the action to be taken and delivers it to the corporation. Under the NSCA, if the articles of incorporation allow, the board may act without the written consent of all the directors if no less than a majority sign written consents. There are provisions in the NSCA for objecting directors to submit notices. Va. Code § 13.1-865 has specific requirements for actions by directors without a meeting. Use of this statute by HOA boards is controversial. The Supreme Court of Virginia has not ruled on whether or not the boards in HOAs that are also non-stock corporations can make use of this statute allowing for action without a meeting. I expect that this controversy to intensify as the Coronavirus crisis grows. It’s unlikely that the courts would construe 13.1-865 so broadly as to allow an exception to swallow the rule.
Many HOAs, large and small, conduct business to some degree without open meetings. HOAs are going to be under intense pressure to maintain and operate common areas and services without interruption and without contributing to the spread of the virus. As far as owners communicating with HOAs about individual concerns, I think that often they are not prejudiced by the lack of an open meeting. Some owners may have no reason to object to the failure of their HOA to not follow the open meeting statutes in particular instances. They want to get to a resolution with the HOA without delay. It’s the other owners who may be impacted by such a decision that may be prejudiced by the lack of open deliberations and an opportunity to be heard. So, an owner must consider whether they believe that insisting upon exercise of the open meeting statutes or related provisions in the governing instruments is in their best interests.
In the context of the Coronavirus, the lack of technological participation methods, and the open meeting statutes, it will be easier for owners to use legal counsel to postpone the decision of matters that require an open meeting to be convened in person. This means that “due process” hearings on notices of alleged violations of covenants and rules will be pushed back in many cases. That said, many HOA boards, especially those that don’t use lawyers or managers much will want to press forward with enforcement or architectural review matters because of the personal opinions of the officers of the association. Bullies will use any convenient circumstances to try to impose their will on others. At the HOA level of “government,” there are often conflicts of interest or personal animosities that play large roles in the dynamic of board-owner relations. The public health emergency isn’t going to make those conflicts go away, it’s only going to intensify the stress of the parties.
If a HOA or condominium fails to follow the statutes or its governing instruments in their procedural handling of making a decision, is the result legal? Under Virginia law, corporate actions that are legally deficient may be found to be “void ab initio” or merely “voidable.” A resolution is void ab initio if the board or committee had no authority to do what they did even if they followed all of the procedural requirements that would apply. In such instances, the result would be a legal nullity. If the board had the authority to do the kind of thing they were doing but performed it in a procedurally deficient matter, then the resolution may later be voided by a court or new board. The improperly procured decision may also be later ratified in a proper meeting. Its more difficult for an owner to challenge a voidable decision than a void one. Challenge to an action that is merely voidable is susceptible to litigation defense tactics than something that is an outright nullity. The parties may not know whether or not the action was legitimate, void or voidable without court review. Such questions are best considered with the advice of legal counsel.
All these controversies are going to occur while the parties may not be able to get a court to hear a petition for redress. Virginia courts are continuing “non-essential” civil matters, and there are no HOA exceptions. When the courts go back to hearing civil cases, there is going to be a huge backlog, and trial dates will be pushed out even further than they are now. It will likely take more than a year to get a trial date in many civil cases. Owners should consult with counsel if it seems that their HOA is improperly pressing forward with something prejudicial to them while the courts, schools and other businesses are closed.
Legal Authority:
Va. Code §§ 55.1-1807 & 55.1-1939
Va. Code §§ 55.1-1816 & 55.1-1949
Va. Code §§ 55.1-1817 & 55.1-1950
Va. Code §§ 55.1-1819 & 55.1-1959
Va. Code §§ 55.1-1832 & 55.1-1935
Va. Code § 13.1-865
March 18, 2020
HOA Regulation of Trees and Shrubs
Spring is prime planting season, and many landowners are now making decisions on what landscaping changes they want for 2020. Trees, shrubs and other plants fill essential roles in residential subdivisions. They unlock the value of property by providing shade, screening, beauty, use transitions, and erosion control. Property owners like to control the planting, trimming and cutting of plants on their property. Disputes frequently arise between owners of coterminous lots (or with the HOA regarding common areas) over boundaries, trimming, aesthetics, obstructed views, or the effect of root systems on structures or improvements. Association covenants and local land use ordinances frequently regulate trees and shrubs less strictly than walls, fences or other contractor (or factory) creations. Nonetheless, HOAs frequently seek to force lot owners to remove, trim or replace trees or other plants that do not conform to the Board’s view on architectural harmoniousness. Disputes between HOAs and lot owners frequently arise in the context of landscaping issues ancillary to requests to approve additions, decks, fences or other proposed structures. In any subdivision dispute over vegetation, the threshold issue is the location of the existing or proposed trees or shrubs. Is the location entirely on a lot? Is it within an easement defined by a deed or declaration? Is it on a common area adjacent to an owner’s structure? Some trees sit on boundary lines or mark the corners of property, and specific legal doctrine applies to them. State laws and the associations’ governing documents typically grant boards substantial discretion in removal, maintenance, and replacement of trees on defined common areas.
Many owners, directors and committee members operate on mistaken beliefs regarding the authority of HOAs to regulate trees and shrubs on owners’ lots. The courts will look to the declaration, amendments and rules & regulations to determine what, if any authority the HOA may have. Many older HOA declarations of covenants do not contain significant restrictions on the cutting or planting of trees and shrubs or delegate the authority to the board to make rules and regulations regarding such things. Its common for the declaration to be mostly silent on such issues because the developer is not concerned about the long-term growth or disease of trees in the subdivision. Many years later, boards may struggle with tree issues. If the declaration (or valid amendments) are unambiguous or “clearly silent” on tree issues, then its easier for lot owners to determine the extent of their rights and responsibilities on such issues. However, many declarations are unclear in defining the scope of rulemaking powers or what changes require architectural approval. In Virginia or other states, the silence of the declaration on a topic may mean that the board does not have the authority to regulate it. Rarely, courts will find a restriction to be absent from the express language of the document but reasonably implied by the terms of the covenants. It is common for HOA declarations to specifically require committee or board approval for “structures or improvements” to property. Sometimes the term “structure” is well defined. In other instruments, the parties are left to try to determine from context what the terms “structure” or “improvement” means. Black’s Law Dictionary defines “structure” as “Any construction, production, or piece of work artificially built up or composed of parts put together.” In my opinion, a living thing such as a tree is not a “structure” because it isn’t put together by human hands. A tree would become a structure if someone cut it down and carpentered it into something such as a fence or playground. But a developer could easily lay down specific restrictions regarding trees or delegate authority to the board to make rules, enforce them in hearings or require architectural approvals by submission of plans to a committee.
To the extent that an association’s declaration and amendments do not regulate trees or authorize the board to regulate trees, this silence often will make the planting, cutting, or pruning of trees and shrubs by an owner on her lot largely “by-right” and only limited by common law considerations such as nuisance or encroachment. Sometimes HOA boards will adopt rules and regulations applying to trees and shrubs in the absence of legal authority to do so or enforce such things. The authority to make and enforce rules regarding trees is important, because in Virginia and many other states, the HOA cannot take advantage of out-of-court remedies such as fines, liens, foreclosures, suspension of common privileges or voting rights in the absence of clearly delineated authority. Otherwise, the board could end-run the amendment provisions of the declaration or statute by simply voting to enforce rules that aren’t in the declaration.
In the wording of some governing instruments, the lot owner may be held to maintain the plants on their property to substantially conform to the landscaping design originally adopted by the builder. However, it may be difficult for the owners or directors to determine what that design was and how it would apply to tree questions. Sometimes drawings are lost.
If the planting, cutting, and maintenance of trees in a subdivision is largely or entirely “by right,” then that makes it much easier for lot owners to use plants to maintain and develop their property as they see fit. A good example of this is with the use of arbor vitae or other vegetation to define a boundary between adjacent parcels or to soften the visual impact of a fence, wall or building. Some lot owners use arbor vitae near their boundary lines because you can grow trees taller than the height restrictions imposed on fences. In Virginia, an adjoining owner can trim branches up to the boundary line. But the trees don’t have to be planted on the boundary line.
It takes time for trees and shrubs to mature and achieve their potential as screening or buffering between uses or adjoining properties. Lot owners ought to carefully consider the location and variety chosen (in addition to whether or not HOA approval is required) because if the trees die or taken down, it may take years for replacements to mature.
To untangle a tree law question, a lot owner may need to consult with a qualified attorney, surveyor, arborist or designer to avoid making decisions or failing to act in a manner that is prejudicial to one’s own rights. When HOAs in Virginia issue notices of violation or schedule fine hearings or architectural improvement requests, owners may only be given a few days to act in response to action by the board, committee, or an adjoining owner. Tree or shrub issues are not an inconsequential matter to which the owner should feel compelled to subordinate their interests to a board or committee in the absence of proper authority. However, agreements can often be achieved through negotiations that avoid the necessity of court review. Vegetation grows or dies, and consideration of an architectural application or notice of violation must consider the long-term effect of how one handles a tree dispute.
March 17, 2020
Be Safe When Property Disputes Coincide with a Public Crisis
When a public crisis occurs, pre-existing problems don’t go away. The crisis falls on top of all other burdens and conflicts of life. The Coronavirus epidemic is no different. This pandemic poses unique challenges not present in other crises. No one knows how long this will last, how many people will be affected or how far governmental restrictions will go. Some things can be deferred indefinitely without much difficulty, especially if they are only in the planning stages. If you have always wanted to put an addition on your house and planned on doing it in 2020 but haven’t bought anything, signed any contracts or other preparations, it’s easy to just put it on hold.
Other problems are not so easily deferred. For example, if a tenant is behind on her rent and the landlord wants to evict, the landlord’s mortgage payments aren’t going to be excused simply because the tenant isn’t paying, and the courts are not hearing eviction cases. Likewise, if an owner is in the middle of a major construction project requiring many people to be on the jobsite at the same time while the government is encouraging everyone to stay at home and delivery of materials are not coming on schedule, then decisions have to be made now. In this blog post, I would like to share a few thoughts about handling property-related disputes amid a public health crisis. This is not intended to replace the instructions of the authorities or other best practices to avoid getting sick. Note that these ideas may become obsolete as the situation continues to evolve. Generally, people should put health concerns first. However, sometimes there are urgencies or deadlines that must be considered.
- Availability of Court Remedies Will be Substantially Delayed. In Virginia, the District of Columbia and other places, courts are cancelling trials, postponing hearings and discouraging the sick, elderly and those with health conditions from coming. As a practical matter, while the doors of the courts may be technically open for filing, aggrieved parties may not be able to get a hearing anytime soon. When the Courts return to their regular schedule, the system will be clogged with a backlog of rescheduled hearings. Nonetheless, statutes of limitation and other deadlines may still be in effect. People should not assume that they can ignore a summons just because the governor is encouraging everyone to stay home.
- Consult with Counsel Before Exercising Self-Help. Sometimes, parties can exercise self-help legal remedies without court assistance. For example, residential landlords can’t just throw a tenant’s belongings out and change the locks just because they stop paying rent. They need a court order to direct the sheriff to transfer possession. However, on the commercial side, self-help may be an option. When adjoining owners have boundary or easement disputes, they may want to simply construct a fence in a disputed location, lock a gate across an easement or dispose of encroachments in the face of an adverse neighbor and without the blessing of the courts. However, there are potential unapparent risks of self-help, especially when the conflict has already escalated. For example, self-help can sometimes lead to threats of violence or someone calling the police. Landowners should consult with counsel to determine if some form of self-help would be helpful or risky.
- Law Enforcement and Regulators are Overwhelmed. Sometimes when disputes between adjoining owners, HOAs, contractors or landlords and tenants escalate, people may want to call the police, county departments or other regulators to protect themselves. During a public health crisis, law enforcement is already overwhelmed and may not view a neighborhood dispute with the same sense of urgency as someone living there. Code enforcement officials may be swamped with other work because of persons taking leave or other urgent matters. Unless there is an eminent threat of physical harm, theft or other crimes that cannot wait for a lawyer to respond to an inquiry, landowners ought to consider consulting with an attorney before contacting law enforcement.
- Avoid Physical Confrontations or Defects Posing Safety Threats. Sometimes neighborhood disputes escalate to the point that the parties come to fisticuffs or leave their property in a dangerous condition. Landowners should take every precaution to avoid contributing to a situation where someone gets hurt or must go to the doctor or hospital, and further burden the healthcare system.
- Avoid Homeowners Association Meetings, Hearings, and Events When Possible. The Coronavirus epidemic poses a unique threat to Americans living in condominiums and HOAs. This is because the community association form of living requires people to interact with each other to manage common concerns. The residents of associations tend to be older and at higher risk of infection. Governing instruments and state laws require “open” meetings which take place in person with the entire community free to attend, unless closed session is available. Owners are legally entitled to use common areas and facilities. Few statutes or declarations address emergency management or remote access to meetings. Many managers or directors will pursue their own agendas despite warnings from experts. Smart boards and committees will postpone nonessential meetings, prevent or discourage unnecessary gatherings and take commonsense measures to prevent common areas from becoming a venue for transmission of the virus. If an owner receives a notice of violation letter from the HOA or condominium board, she should consult with legal counsel if a postponement is not offered.
The Coronavirus has the potential to make deadlocked property disputes worse because everyone will be under greater stress, economic hardship and the legal system offers fewer immediate remedies. However, the advice of a trusted advisor such as a qualified attorney can lead to devising a self-protection strategy when the ordinary rules do not seem to apply.
February 20, 2020
HOA Records and the Exclusion of Hearsay from Evidence
HOAs and condominiums, as legal entities, are creatures that derive their power from documents. Governing documents must be in writing. Rules, regulations, policies, and resolutions must be put into writing. To maintain and manage the common areas, the board must make contracts with vendors. Covenant enforcement requires data collection and issuance of notices to lot owners. The process of making and collecting assessments is also document driven. Owners in disputes with associations frequently complain that they cannot obtain access to essential records necessary to resolve the disputes or discover that the records do not exist. The creation, organization, and storage of paper and electronic records and documents are essential to the operation of a community association. HOAs derive power from the creation, organization, and control of this information. Owners often complain that they cannot get the records they want from their association or documents that would exculpate them cannot be found.
Once judges call disputes between owners and HOAs forward for trial, the conflict over HOA records shifts to the inclusion or exclusion of association exhibits as evidence. The rules of evidence allow for the exclusion of hearsay. Hearsay is an out of court statement offered to prove the matter asserted in the statement. The hearsay rule applies to oral statements, written materials or electronic records. The hearsay rule prevents a party from proving their case with alleged passed-on statements by persons who cannot be cross-examined at trial. The right to cross-examine one’s opponent is an element of “due process”. Not all statements are presented to “prove the matter asserted.” Some statements are introduced to show that a party was on notice of or aware of a contention or some other basis other than the truth of a statement or document. Even if a statement is hearsay, there are many well established exceptions to the hearsay exclusion. For example, an admission by one’s opponent is admissible hearsay, because the party can offer evidence to try to explain the admission. Another is the “business records” or “shop-books” exception. Businesses rely upon the accuracy of data collection, entry and storage to make informed decisions, operate and make money. Properly kept business records are considered trustworthy because they are not made for purposes of having a self-serving answer, which are needed at the moment. In community associations cases, the lawyers must understand the business records exception to navigate hearsay objections.
When associations try to use their business records, one problem they experience is that the documents were made and kept by a director, community manager, accountant or other custodian who does not testify. The directors of a condominium or HOA constantly change. When members elect new boards, frequently they change management companies because of complaints about the former managers. Even within a “tenured” management company, there is significant employee turnover. A community association may have voluminous records, but no one may have personal knowledge about the making and keeping of many of them.
The business record exception to hearsay frequently arises in community association litigation. In 2013, the Fourth District Court of Appeal of Florida considered an appeal of a final judgment of foreclosure brought by Sebastian Lakes Condominium Association against Connie Yang and Frank Romero. Sebastian Lakes sent Yang and Romero letters stating that they owed over $10,000.00 in unpaid assessments and recorded a lien in the land records. Later Sebastian Lakes filed complaints to foreclose on the liens. The owners contended that the new property management company failed to accurately apply credits to the account in the records because the wife’s father made an advance payment of approximately $18,000.00 in 2008.
Yang and Romero also alleged that the association pursued the foreclosure and other “scare tactics” to retaliate against them for participating in an investigation into $100,000.00 in missing condominium funds.
At trial, Sebastian Lakes called one of the management company’s employees as a witness to testify and introduce an account ledger for the husband. The defendant owner’s attorney objected to the introduction because the plaintiff’s attorney laid insufficient foundational testimony for admission of the ledger under Florida’s business record exception. The owner challenged the association’s evidence on the grounds that they could not establish accurate balances to the owners’ ledger accounts prior to the current management company’s takeover. The owner contended that the new management company failed to accurately reflect a large payment made before the takeover. The owner contended that he stored a copy of the $18,000.00 casher’s check in his unit. He could no longer get into his condo unit. Note that the ledger amounts were submitted for their truth because the true dollar amount owed was in controversy in the foreclosure action. The trial judge cut the presentation of the owners’ evidence off after about 20 minutes and entered judgments of foreclosure in favor of the condominium association.
Yang’s and Romero’s appeal focused on their objections to the introduction of the hearsay HOA records. Under Florida law, the party seeking to use the business records exception must lay a foundation of witness testimony that (1) the record was made at or the time of the event, (2) the record was made by or from information transmitted by a person with knowledge, (3) was kept in the ordinary course of a regularly conducted business activity, and (4) it was a regular practice of that business to make such a record. The rule in Virginia is similar but not identical. The rules and practices for the business record exception vary in each state. I am not a Florida lawyer – I am using this case as an example. On direct examination, the condominium’s lawyer asked the normal foundational questions and the employee of the new property management company gave the expected answers. The trial judge overruled the owners’ objection that there was an inadequate foundation for use of the business records exception to hearsay. However, on cross examination the employee admitted that records from before the takeover were maintained by the prior accountant and she had no knowledge of how that prior accountant kept or maintained the ledger records. The witness could not explain how they verified the starting balances. Based on this testimony, the appeals court found that the introduction of the account ledgers failed to include a proper foundation of witness testimony for the use of the business records exception. The court reversed the judgments of foreclosure in favor of the association. Note that the cross examination revealed the foundation problem after the court overruled the hearsay objection. The opinion does not state whether the defendants’ counsel voir dire’d the witness or moved to strike the hearsay after the cross examination. Practitioners need to know how to properly handle such a situation should it arise to avoid waiving grounds to object to the hearsay specifically or challenge the plaintiff’s evidence generally.
Not all association records may constitute hearsay, and there are other exceptions to the hearsay exclusion other than the business records exception. However, in a HOA case everyone needs to be aware of how the business records exception works in that court system. The effect of this rule can cut both ways. Sometimes the owner may be the one trying to authenticate the books and records of the association for litigation use.
Often, associations use hearsay business records to enforce covenants or collect assessments where they bypass the evidence rules and the courtroom entirely. In Virginia (and many other states), to the extent that statutes and the declaration allow, associations can send owners notices of architectural violations, hold hearings before a board or committee, and decide whether to fine the owner without going before a judge who would impose the rules of evidence. Also, state statutes allow for associations to record liens for unpaid assessments without first obtaining a court judgment. When HOAs and condominiums take such action, often they rely upon business records that would require a proper foundation to be admitted under the hearsay exception in a court of law. These HOA and condominium statutes that allow for bypass of civil litigation is that they relieve associations of the challenges associated with turnover among the directors, management companies and employees. Yang and Romero successfully defended the assessment foreclosure action because the court rules for evidentiary foundations and cross examination uncovered that the balance used in calculation of the unpaid assessment amount was unreliable. Understanding the business records exception is essential to navigation community association litigation.
Yang v. Sebastian Lakes Condo. Ass’n, Inc., 123 So.3d 617 (Fl. 4th App. Dist. Aug 28, 2013)
