July 28, 2017
Freedom of speech is a hot topic in community associations. Some of these First Amendment disputes concern the freedom of a property owner to display flags, signs or symbols on their property in the face of board opposition. Conflict between association leadership and members over free speech also spreads into cyberspace. One such case recently made its way up to Florida’s Fifth District Court of Appeals. On July 21, 2017, the appellate judges reversed part of the trial court’s ruling in favor of the association. Howard Adam Fox had a bad relationship with certain directors, managers and other residents of The Hamptons at MetroWest Condominium Association. Several lessons here for anyone who communicates about associations on the internet.
The July 21, 2017 appeals opinion does not describe the social media communications and blog posts that gave rise to the dispute. I imagine that they consisted of personal attacks that may have been alleged to contain slanderous material. The details are left out of the opinion, probably with a sensitivity towards the persons discussed by Mr. Fox online. In general, I do not like the spreading of false, slanderous statements in personal online attacks. To the extent that Fox had legitimate grievances about goings on at the Hamptons at MetroWest, the character of his criticisms seems to have eclipsed any merit. There are usually better ways of solving problems than angrily venting them in online forums.
The board filed a complaint seeking a court order prohibiting Mr. Fox from, “engaging in a continuous course of conduct designed and carried out for purposes of harassing, intimidating, and threatening other residents, the Association, and its representatives.” The association alleged Mr. Fox violated the governing documents of the condominium by his blog posts and social media activity. The court granted an ex parte injunction prohibiting the alleged wrongful conduct. This means that the judge initially considering the case did not wait for Mr. Fox to make a response to the lawsuit. Later, Mr. Fox and the board reached a written settlement wherein Fox agreed to cease certain activities. The final order in the court case incorporated the terms of the settlement. Making terms of the settlement a part of the final order means that the association does not have to start its lawsuit all over again to enforce the deal. They just need to bring a motion for contempt if Fox violates the order. Howard Fox represented himself and did not have an attorney in the trial court and appellate litigation.
Soon thereafter, the association filed a motion for contempt, alleging that Fox violated the settlement and final order. In the contempt proceeding, the trial court went further than simply enforcing the terms of the settlement. The judge forbade Fox from posting or circulating anything online about any residents, directors, managers, employees, contractors or anyone else at the Hamptons. The judge required him to take down all current posts. If someone asked him on social media about his community, and he wanted to respond, he would have to call them on the telephone.
Fox appealed this contempt order on the grounds that it violated his First Amendment rights under the U.S. Constitution. The Fifth District Court of Appeals agreed. The trial court’s ruling was what is called a “prior restraint.” The contempt order did not punish him for past wrongful actions. It looked permanently into his future. Prior restraints against speech are presumptively unconstitutional. Temporary restraining orders and injunctions are “classic examples” of prior restraints.
The appellate court focused on the public nature of the type of speech the lower court order forbade. This makes sense. While an association is private, it is a community nonetheless. There is no real conceptual difference between online communications and other types of speech. Matters of political, religious or public concern do not lose their protected status because the content is insulting, outrageous or emotionally distressing. In a condominium, many matters of community concern could easily be characterized as political, religious or public. Federal, state or local rulemaking may impact the common business within the association. While community associations are “private clubs,” the things that members communicate about are mostly public in the same sense as town or city ward communities. To paraphrase this opinion, “hate speech” is protected by the constitution, unless certain very limited exceptions apply, such as obscenity, defamation, fraud, incitement to violence, true threats, etc.
This Florida appellate court found that the trial court violated Fox’s First Amendment rights when it ordered the “prior restraint” against him making any posting of any kind online related to his community. On appeal, the court preserved the rulings finding contempt for violation of the settlement agreement. So, Fox must still comply with the terms of the settlement. The case will go back down for further proceedings unless there is additional appellate litigation. Nerd-out further on the constitutional law issues in this case by reading the useful Volokh Conspiracy blog post on the Washington Post’s website.
The appeals court did not find that any covenants, bylaws, settlements, or other association agreements violated the First Amendment. This opinion does not mean that people cannot waive their rights in entering a private contractual relationship with each other.
Usually, only “state actors” can be found to violate the Constitution. An association is not a “state actor” because it is not really governmental. Here, the “state actor” in the constitutional violation was the trial-level court and not the association. What difference does it make? Ultimately, the courts, review the validity of board actions, determine property rights and enforce covenants. The association board requested relief that apparently lacked support in the covenants or the settlement agreement. To protect their rights, owners must understand when their board is doing something or asking for relief outside of its contractual authority.
There is one final point that the court opinion and the Volokh Conspiracy blog do not discuss which I want my readers to appreciate. Owners of properties in HOAs do not simply have a right to communicate with each other and the board. They have an obligation. The covenants, bylaws and state statutes provide for the board to be elected by the members. Members can amend governing documents by obtaining a requisite of community support. The non-director membership is supposed to be an essential part of the governance of the association. If the members and directors do not have an effective means to communicate with each other, then the community cannot function properly. Community associations can have thousands of members and residents. The may cover the acreage like that of a town or small city. The internet, in both password protected and public sites provides a convenient way for information and messages to be shared. Limits on an owner’s ability to communicate with her board or other parties to the “contract” prejudices her rights under the governing documents. I do not like covenants or bylaws that limit an owner’s ability to obtain information or communicate concerns within the governance of the association. Donie Vanitzian recently published a column in the LA Times entitled, “Freedom of Speech Doesn’t End Once You Enter a Homeowner Association.” She discusses proposed California legislation to enshrine owners’ rights to assemble and communicate with each other about community concerns. Ms. Vanitzian makes an important point that because speech may be deemed “political” should not justify management suppression. Having rights to participate in the meetings of one’s HOA without the right to talk about what is going on is like owning land deprived of any right of way or easement to the highway. While the new Florida opinion does not discuss this point, it is consistent with the basic values of the First Amendment.
For Further Reading:
May 31, 2017
The proponents and critics of HOAs and Condominiums both tend to over-simplify the law and governing documents in a way that ignores many rights of owners (and boards). Some are explaining community associations law the wrong way. This area of the law is confusing, even to law school graduates and real estate professionals. Among the governing documents are declarations, bylaws, rules & regulations, architectural guidelines, articles of incorporation and amendments. Virginia law includes the Condominium Act, Property Owners Association Act, Nonstock Corporation Act, for the state Common Interest Community Board. This is not to mention federal laws such as the Fair Housing Act. On top of this you have the state and federal constitutions and published court opinions. If a legal dispute emerges between a board and an owner, the parties will struggle to determine which, if any of these statutes and documents apply to the situation. If more than one speaks to the problem, how do you reconcile ambiguities or discrepancies. Given the rat’s nest of law and governing documents, it is a challenge for anyone to quickly sort out these things without the assistance of legal counsel.
So how do you begin to explain community associations law? Most people are visual learners. They sort out complex matters faster with cartoons, charts and other graphics. Some lawyers practicing community associations law have tried to do this for association laws and governing documents. For example, an attorney in Washington State created this graphic. I’ve seen similar graphics for other states prepared by others. Charts like this don’t explain the hierarchy of authorities in a way that reduces confusion. I don’t want my readers to think that I’m picking on the author of this chart. Perhaps this is useful for Washington State. I will explain why this approach is unhelpful with respect to Virginia law.
The General Assembly enacts legislation and private parties join covenants and other contracts. The legislature declares what statutes say. The same can be said for private parties and contracts. Under our constitutional system, the judiciary’s mandate is to declare what legislation and contracts mean in the controversies brought in litigation. Sometimes this is easy because the “plain meaning” of a statute or contract is apparent on the face of the document. Often adversaries bring with them conflicting interpretations of documents or laws when they come into the courtroom. The contract or statute may not be clear on what remedies are available for breach of a statute or contract.
Often, the courts enforce claims, defenses and remedies that aren’t memorialized in any constitution, statute, regulation, contract, etc. Someone can read all community association legislative enactments and the association’s governing documents and not identify fundamental legal rights or duties that the owner (or board) may hold. This is because Virginia, like almost all other states, has “common law” legal doctrine enshrined in older case decisions that applies, except where abolished or superseded by statute:
The common law of England, insofar as it is not repugnant to the principles of the Bill of Rights and Constitution of this Commonwealth, shall continue in full force within the same, and be the rule of decision, except as altered by the General Assembly. Va. Code § 1-200.
American judges further interpreted the common law in case decisions applying it from 1776 to the present day. The common law includes a highly-developed set of doctrines regarding property rights, covenants, defenses and court remedies. The Supreme Court recently published an opinion in Tvardek v. Powhatan Village HOA discussing how the common law disfavors restrictive covenants. Here is a link to my previous post discussing the Tvardek case. That case is still important even though the General Assembly enacted legislation in 2017 in response. Enactments of the General Assembly that strengthen the enforcement of covenants are narrowly interpreted by Virginia courts because they limit owners’ common law property rights. This means that the statutes are not interpreted to give HOAs broad powers. The authority must be sufficiently articulated. This is why the proponents of community associations are so active in state capitals.
What are these common law rights, defenses and remedies and why do they matter? There are too many to summarize in this blog post. I will provide one example. A declaration of covenants is a type of real estate contract. The Property Owners Association Act makes it easier for covenants to be legally enforced against owners (and associations) that allegedly breach them. But common law defenses to breach of contract are still available to oppose the legal action. For example, if a board is found to have clearly or consistently failed to enforce the architectural guidelines, then an owner may be able to assert common law defenses such as waiver, estoppel, abandonment of the restriction or acquiescence in the alleged violation. Common law defenses like waiver and estoppel don’t need to be in the governing documents or statutes to be asserted by the owner. Where applicable, the owner just needs to understand the definition of the common law defenses and whether they have been abrogated by statute or the covenants themselves. This is just one example of common law defenses. The Washington state community associations law graphic fails to show common law rights, defenses and remedies that are valuable to boards and owners alike.
The common law is a secret treasure trove to property owners defending themselves against board or neighbor overreach. Property owners have legal rights that aren’t described in the statutes or governing documents. These rights don’t require wing-and-prayer appeals to various state officials or convoluted constitutional arguments. They are already there in legal treatises available in law libraries. In the fast-pace of litigation where parties don’t have months or years to sort out the diverse array of legal authorities and governing documents, owners need qualified legal counsel to help them identify and protect their rights.
March 15, 2017
Property owners frequently have complaints about construction contractors. Some of these complaints involve thousands of dollars in damage or serious infringement upon the use or value of property. These property owners (and their attorneys) want to know who to turn to. Should homeowners bring complaints against contractors before courts or regulators? This question raises issues about how the government ought to enforce its laws and resolve disputes. There is a perspective that regulatory boards ought to be a welcome forum for owners threatened or damaged by alleged contractor misconduct. In this blog post I will explain why I believe that, for all its imperfections, the judicial system is the best venue for vindication of legal rights in consumer disputes.
In 2015, the Court of Appeals of Virginia decided an illustrative case arising out of a complaint of a home purchaser about the seller’s contractor. Around 2002, Mark Holmes purchased an Alexandria, Virginia home, including an addition constructed by Culver Design Build, Inc. Mr. Holmes was unhappy about defective construction of the addition. He went to the city government, whom the General Assembly tasked with enforcing the building code in his locality. The City Code Administration found extensive water damage caused by construction defects and issued a Notice of Violation to Culver. Holmes was not satisfied with Culver regarding corrective work, so he filed a complaint with the Virginia State Board of Contractors. Holmes asked the Board to suspend Culver’s license until it corrected the violation. Culver Design Build, Inc. argued that Holmes did not have legal standing to seek judicial review of the Board’s ruling because this was a license disciplinary proceeding. The Holmes case also includes issues about how deferential the courts should be to a licensing agency’s administrative rulings. This case is unusual in that Mark Holmes represented himself in his appeal to the Court of Appeals of Virginia. Mr. Holmes acknowledged that unlike the seller, he lacked the privity of contract with the contractor which potentially could be used to go to court in breach of contract. The Court of Appeals agreed with Culver and the Board for Contractors.
When homeowners conclude that a state-licensed contractor or tradesperson committed a wrongful act depriving them of their home or damaging its value, it is easy to see why the aggrieved party would want a governmental agency to help them. Most people deal with governmental agencies much more than courthouses or law offices. Lawsuits require significant commitments to pursue or defend. Public resources go to supporting various agencies that have apparent subject-matter authority. This may appear to be a taxpayer-financed legal authority to go after the professional. However, this strategy often does little more than aggravate the licensed professional, the agency officials and the consumer. The Holmes v. Culver case illustrates one key weakness with homeowners pursuing consumer complaints through the professional licensure and disciplinary board process.
When consumers are harmed by unprofessional conduct, usually what they want is to have the defect corrected, an award of money or the transaction voided. These kinds of remedies are conventionally handled in the court system. The professional regulatory boards focus on licensure. They consider whether a business is properly licensed, should the license be suspended or revoked, should fines be assessed, and so on. Prominent members of the industry typically dominate these boards. For example, licensed contractors sit on the Board for Contractors. Initiating a professional licensure proceeding is a clumsy means of advancing the specific interests of the consumer having a transactional relationship with the business. It is the judiciary that can grant money damages or other remedies arising out of the formation and any breach of the contract. Regulators focus on whether disciplinary action is warranted regarding the registration or licensure of the business. In the Culver Design Build, Inc. case, the Board for Contractors and the Court of Appeals for Virginia agreed that Mark Holmes did not have standing to contest a regulatory decision in favor of the contractor. The board had authority to punish Culver for failing to abate a regulatory violation. However, the board had no authority to order the contractor to take any specific action at the job site. The board did not deny Homes any right or impose upon him any duty in its decision, because its authority revolves around Culver’s licensure. It is the State Building Code Technical Review Board that has the authority to review appeals of local building code enforcement decisions, not the Board of Contractors. One of the appeals judges suggested that if Holmes’ contentions were taken to a logical conclusion, the new buyer of the house could have greater leverage over a contractor than the previous owner, whose remedies may be limited by the contract. In his oral argument, Mark Holmes admitted that trying to resolve his complaints through the Board of Contractors complaint process was, “cumbersome and very long lasting.”
Even if the consumer unhappy with an adverse decision made by a regulatory agency in response to a complaint has standing, her appeal to the courts may encounter other obstacles. The licensure dispute is unlikely to starts afresh on appeal. The courts tend to be receptive to the agency’s interpretation of the legislature’s statutes. In Virginia, courts accord deference to an agency’s reasonable interpretation of its own regulations (as adopted by the board pursuant to the statutes). A consumer’s ability to raise new factual issues may be strictly limited in her attempts to get the courts to overturn the board’s decision. Judicial deference to agency rulemaking is not without controversy. Judge Neil Gorsuch, whom President Trump nominated for the U.S. Supreme Court is a high-profile critic of judicial deference to agencies. In his August 23, 2016 concurrence to a federal appeals decision Gutierrez-Brizuela v. Lynch, Judge Gorsuch explained that concentration of both legislative and judicial power in regulatory agencies creates constitutional problems. The constitution protects the public from authoritarianism by separating the government by the type of power, not the subject-matter. Under the constitution, the legislature prescribes new laws of general applicability. Taken to its logical conclusion, doctrine that courts should defer to agencies’ quasi-judicial determinations of what the statutes mean unconstitutionally undercuts the independence of the judiciary. The constitutional problems identified by Judge Gorsuch are illustrated in the arena of housing industry occupational regulation.
Where does this leave an owner when property rights are infringed by regulated professionals? Should everyone should go back to renting? Certainly not! This is what the independent judiciary is there for. Usually owners have privity of contract with the contractor and do not need to go to an agency. They can sue for remedies for breach of contract or deceptive practices. Consumer advocates with an interest in legislation should focus on increasing access to the court system and not promoting an administrative process that may not be a good fit for the homeowner. If you find yourself needing to bring or defend a construction claim, contact my office or a qualified attorney in your jurisdiction.
October 16, 2014
How are Virginia homeowners to evaluate competing threats from their mortgage bank and property association foreclosure? For many years, owners unable to pay their bills associated with their homes have focused on the threat of foreclosure from their mortgage lender.
Homeowners’ Varying Obligations to Lenders and Property Associations:
The conventional wisdom, in Virginia at least, is that homeowners should focus on keeping bills paid in the following priority: (1) local property taxes (have priority as liens, and are non-dischargable in bankruptcy), (2) mortgage lenders (monthly payments largest) (3) the monthly dues and special assessments of the homeowners association or condominium unit owners association. These notions are reinforced by mortgage lenders who escrow property taxes but not association assessments. Should owners continue to follow this in making decisions in the face of risk of payment default? Tax liens will certainly continue to enjoy a super-priority. However, a unit owner’s rights and responsibilities to their community association are of a different nature than bank mortgages. The rights of Associations to fix dues, special assessments and fines change. The General Assembly can amend the statutes. Courts make new legal interpretations. The owners can vote to change the Association Bylaws. Although the Association has significant influence over a unit owner’s rights, its lien is often overlooked to the detriment of many owners. What foreclosure, rights, if any, may an Association use to enforce its assessments? Florida and Nevada tend to be bellwethers of national trends in property associations because of their extraordinary number of condominiums and other associations. One recent case illustrates the chaos that may arise from these competing claims.
Las Vegas Foreclosure Contest Between HOA, Bank and U.S. Government:
On September 25, 2014, Judge Gloria Navarro of the U.S. District Court for Nevada issued an opinion providing clues to how Virginia homeowners may one day find themselves caught up in legal crossfires between banks and HOA’s. Emiliano & Martha Renteria owned a single-family home in Las Vegas that was a part of the Washington & Sandhill Homeowners Association (“HOA”). This is not a condominium but the issues are analogous. In September 2009, they defaulted on their Bank of America mortgage. Like Virginia, Nevada allows non-judicial foreclosure proceedings wherein title is transferred transactionally. The Court becomes involved if there is a dispute. In July 2012, the Bank-appointed Trustee foreclosed on the property. Five months later they rescinded that foreclosure. In May 2013, the Bank completed a foreclosure (in a do-over), claiming title to the property. On May 17, 2013 the Bank conveyed the home to the U.S. Department of Housing & Urban Development in a claim under the Single Family Mortgage Insurance Program.
To make matters more confusing, the HOA pursued its own foreclosure proceedings on the property at the same time to enforce its lien for the Renteria’s failure to pay their assessments. Most of the procedural aspects of Nevada condominium foreclosures are substantially different from Virginia. The HOA purchased the Renteria property at its own foreclosure sale in May 23, 2012, before the Bank’s first foreclosure sale. In July 2012, the HOA filed a release of its lien. A couple of months later, the HOA resumed its foreclosure, asserting an unpaid assessment lien of $4,983.00, this time against the Bank as owner. In October 2012, the HOA reacted to the Bank’s conveyance of the property to HUD, asserting a lien of $1,250.00 against the government. Note that this association foreclosed on a single-family home in an urban area to satisfy only $1,000-$5,000. When those demands went unpaid, the HOA abandoned this position. On October 9, 2013, the Association filed a federal lawsuit claiming ownership pursuant to the May 23, 2012 sale. In the lawsuit, the HOA disputed the Bank and HUD’s claims of title.
On September 18, 2014, the Supreme Court of Nevada ruled in a similar case that a HOA foreclosure extinguishes a mortgage lien such as that held by the Bank. Local readers may be interested that on August 28, 2014, the D.C. Court of Appeals reached a similar decision. In Nevada, Judge Navarro discussed how it is illogical for the HOA to simultaneously claim to be the rightful owner of a property and also assert an assessment claim against another party as owner. She found that under Nevada law, the Association was not permitted to waive its right to extinguish the Bank’s prior lien through foreclosure. The Court decided that the HOA’s subsequent release of the lien against the Renterias and new liens against the Bank and HUD were not valid because it had no right to change course. Had an individual investor purchased the property from the Bank’s foreclosure following the HOA’s release, he would have found himself caught up in this mess. The Court did not discuss whether these latter actions also created unwaivable rights. Judge Navarro ultimately decided that the HOA claim of title violated the U.S. Constitution. She dismissed of the Association’s lawsuit on the grounds that the HUD enjoyed an interest in the property under the Single Family Mortgage Insurance Program that could only be released under federal law. The Property Clause of the Constitution states that, only “Congress has the Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States.” Since the Bank’s mortgage was HUD-insured, a HOA cannot violate the government’s rights as insurer. This case is currently on appeal.
All of this caught my attention because it illustrates how HOA’s and Banks may use nonjudicial foreclosure procedures to duel over residual rights in distressed real estate. This case illustrates, if nothing else, why title examination and insurance are valuable investments to individual investors who may find themselves caught up in such a case. Well-advised home buyers must study the association bylaws and other disclosures carefully before waiving the contingency. If legal developments like this continue, associations will likely require a substantial legal reform. Otherwise, property values, especially condominiums will be in jeopardy, banks may restrict financing in fear of HOA lien priority, and investors may lose interest.
Will a Reordering of Rights of Banks and HOA’s Come to Virginia?
The competing rights of HOA’s and Banks is a critical aspect of the foreclosure crisis. On October 2, 2014, Nevada real estate attorney Bob Massi was interviewed on cable news about trends in HOA foreclosures. He predicted that lenders will start requiring borrowers to make their HOA payments into a bank escrow so that the lender’s foreclosure rights are not prejudiced by unpaid assessments.If this becomes a reality, mortgage servicers will become collection agents for associations. What remedies will owners have with respect to the escrow if they have disputes with the association over a fine? Will lenders change their underwriting guidelines to make loans more difficult for property subject to association covenants?
I expect that the issue of HOA lien priority will soon return to the Virginia Supreme Court and General Assembly. What responses to these trends can homeowners expect in Virginia? In a later installation in this new blog series about Association Foreclosure, I will discuss how a 2003 Supreme Court of Virginia decision presently limits a Condominium Association’s remedies for unpaid assessments. This Virginia opinion limits the rights of Virginia’s community association to disturb a lender’s rights under a purchase money mortgage. Given these new developments in Nevada and D.C., this 11-year-old opinion is important to every owner, association and lender with an interest in Virginia condominiums.
If you are a lender and have questions whether an association’s lien has priority over your own mortgage, contact qualified legal counsel. If you are an owner and have questions whether an attempt by your association to enforce a lien on your property runs afoul of the law or your condominium instruments, contact a real estate attorney to protect your rights.
Case citation: Washington & Sandhill Homeowners Association v. Bank of America, et al., No. 2:13-cv-01845-GMN-GWF (D.Nev. Sept. 25, 2014)(Navarro, J.).
Thanks to Shu Bartholomew, host of the weekly property rights radio show “On the Commons,” for letting me know about the Bob Massi interview.