HOA threatens to fine members over negative social media comments

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hoa

Living in a community with a homeowners’ association is not always for the faint of heart. My husband and I attended our very first (and what turned out to be our last) annual meeting when we bought a new property several years ago.

A kindly looking older gentleman raised his hand to ask what appeared to us to be an innocuous question, and the president immediately threatened to have him escorted from the meeting. There were audible gasps…two from the Mannings in attendance. There was never a public explanation of what had just happened, but there was a lot of post-meeting gossip and sniping.

We’ve learned a lot about the personalities of the other property owners since that meeting. One thing we know for sure is to never step between this kindly looking gentleman and his kindly looking female neighbor across the street. It’s not a safe place to be. We don’t even drive our golf cart down the street that separates their houses. (I’m kidding, but we do laugh about that meeting when we drive down that road.)

One lesson we learned for sure is that retired folks who formerly had high-powered jobs up north can be prickly when it comes to their properties. And they have lots of time on their hands to manage things.

We decided we would be good neighbors. We would pay our assessments on time, keep our property clean and up to neighborhood standards, join in clean-up efforts and generally be happy and friendly neighbors.

But we decided we would never actively participate in the governance of the owners’ association.

Some homeowners in a community in Phoenix, Arizona have probably decided on the same course of action. Apparently, board elections got heated in the Val Vista Lakes community, and the neighbors engaged in a heated debate on social media, specifically on the association’s Facebook page. The debate included topics concerning the qualifications of the individual candidates and how the association was spending money.

The administrator of the Facebook page has apparently been instructed to take down the negative comments. But, more drastically, the Val Vista Lakes owners’ association sent out a letter threatening to fine residents as much as $250 per day for posting negative comments on social media.

Some residents have claimed this action would result in censorship.

What do you think, lawyers? Would this fine be enforceable in South Carolina? Would we need to read the formative documents to determine whether the association has the power to levy this fine? Would any of us want to live in that community?

HOA seeks to oust orphan from age-restricted neighborhood

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HOA grandparents grandson

Image from KOLD.com (News 13), Tucson, Arizona

 

A fifteen year-old California lad lost both of his parents last year. Collin Claybaugh’s mother, Bonnie, died in the hospital from a long-term illness. And his father, Clay, took his own life two weeks later.

What do good able-bodied grandparents do in this situation besides grieve the loss of their children? They take in their grandson, of course. That’s what Randy and Melodie Passmore did. The Passmores are both in their 70’s and live on a small pension plus social security. They own their home in The Gardens at Willow Creek, a 55-plus community in Prescott, Arizona.

The age restriction apparently has a limited exception for residents who are 19 years of age and older. But a 15-year old boy is definitely not allowed by the rules.

The Passmores received a letter from the homeowners’ association advising them that Collin must move out. The letter said that the board must balance the interests of all parties involved, not just the Passmores. The HOA board said they are concerned that if they fail to enforce the age restriction, they could endanger the ability for the development to remain an age-restricted community.

The Passmores’ only alternative is to sell their home and move, which they believe will be difficult considering their age and financial position. They do not have funds to mount a legal battle.

My husband and I would love to downsize at this point in our lives, and we would be interested in living in a community where the exterior and grounds are maintained by someone else. But this story convinces me to stay clear of age-restricted communities.

How do you think this story would play out from a legal standpoint in South Carolina?

Recent HOA foreclosure case leads to new rule in Beaufort County

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Master imposes rule based on Chief Justice Beatty’s concurring opinion

foreclosure notice

This blog recently discussed the remarkable homeowners’ association foreclosure case, Winrose Homeowners’ Association, Inc. v. Hale, South Carolina Supreme Court Opinion 27934 (December 18, 2019.) You can read the earlier blog here.

The case focused on the inadequacy of the foreclosure sales price and the business model of a third party to leverage a nominal debt to secure an exorbitant return from homeowners who fear eviction. I believe the case will require HOA foreclosure attorneys to rethink their approach going forward.

In his concurring opinion, Chief Justice Beatty said he would go a step further than the majority opinion and adopt the equity method of determining an adequate sales price for residential property in a foreclosure. The equity method compares the winning bid price to the equity in the property. The alternative debt method compares the total debt on the property to its fair market value.

The majority opinion stated that our courts have not established a bright-line rule for what percentage “shocks the conscience”, but a search of our South Carolina’s jurisprudence reveals that our courts have consistently held a price below ten percent definitely does. In this case, the debt method would have resulted in a ratio of 53.9 percent, while the equity method would have resulted in a ratio of 4.9%.

The new rule of the Beaufort County Master-in-Equity Marvin Dukes focuses on a totally separate issue in the case. The homeowners, who were in default, did not receive a notice of the date and time of the foreclosure sale. Judge Dukes’ office disseminated a message to foreclosure attorneys requiring new wording in foreclosure orders.

The new required wording entitled “Special Default Foreclosure Order and Sale Notice Service Instructions” reads as follows:

That, in addition to all notices to the property owner(s) which are required by the  SCRCP or other law, in a case involving property owner’s SCRPC 55 default, or any other case or circumstances where property owner(s) would not ordinarily receive a copy of the Order of Foreclosure and/or Notice of Sale, the party seeking foreclosure (Foreclosing Party) shall, within 5 (five) days of the execution of this Order cause this Order and Notice of Sale (if available) to be served by US Mail upon said property owner(s).

An affidavit of such service shall be filed with the Clerk of Court expeditiously.

In cases where the Notice of Sale is executed later in time than the Order, service shall be accomplished separately, and shall be sent no later than 5 (five) days from receipt by the Foreclosing Party.”

I suspect additional guidance will be coming from our courts about whether the Winrose case will have broad application in foreclosure cases or be limited to its facts. I’m confident foreclosure attorneys feel they need more information.

SC Supreme Court may have eradicated HOA foreclosures

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Third party bid was held grossly inadequate

gavel house

On December 18, the South Carolina Supreme Court decided a case that will force homeowners’ association attorneys to carefully consider whether they will initiate foreclosure actions in the future*. This blog discussed the Court of Appeals case last April. You can read that blog here but the very short version is that the Court of Appeals did not upset any apple carts and left the foreclosure process status quo.

The facts are simple. Mr. and Mrs. Hale bought their home in Richland County in 1998 for $104,250. In the next 20+ years, they built up $60,000 in equity, and the property now has a fair market value of $128,000.

In 2011, the Hales fell behind on their homeowners’ association payments. The HOA initiated a foreclosure complaint seeking a sale of the property in exchange for $566.41 in principal and interest. The Hales defaulted.

Interestingly, after the affidavit of default was filed, the HOA sent the Hales a bill for $250, which they paid. Also interestingly, the law firm representing the HOA sent the Hales a notice that the lien had been satisfied.

Three months after the HOA filed the affidavit of default, the Master entered a default judgment, calculating the amount due to the HOA as $2,898.67, comprised of $250 in principal, $80.87 in interest, $542.80 in litigation costs and $2,025 in attorneys’ fees. The property was sold at auction two weeks later to a third party, Regime Solutions, LLC.

This is the Hale’s explanation of the facts in their motion to vacate the sale:

“When we were served with the lawsuit to take away our home, I put the papers in a drawer and forgot about them. Some time after that, we received a bill from the HOA asking for the $250.00. I paid that without a problem. In November, we received a letter from the law firm of (the HOA) telling us that the Lien had been Satisfied…I thought that everything was OK after that. The next thing I know, someone is knocking on my door telling me that they bought my home and that me and my family were being evicted.”

The Master denied the Hales’ motion and adopted the position that the “effective sales price” was $69,040, consisting of the successful bid plus the balance of the mortgage. In his order, Richland County’s Master-in-Equity, Joseph Strickland, stated that “the practice of homeowners’ association foreclosures would effectively be eradicated if (the Hale’s) position came to bear.”

The appeal was handled by the law office of my friend, Brian Boger, a Columbia lawyer and well-known champion of consumers’ rights. The appeal argued that the $3,036 bid “shocked the conscience” and violated equitable principles.

The Court of Appeals affirmed.  Chief Justice Lockemy dissented, saying:

“A buyer at a judicial sale in which a senior lienholder is not a party takes the property subject to that lien, but the buyer is not responsible for its payment. The evidence in this cases shows (the Hales) have continued to pay the mortgage for a home for which they have no title because they will suffer the severe consequences of default if they do not. The buyer (Regime) has paid nothing. I do not believe it proper to give a judicial sale buyer credit for assuming a debt which is not legally required to pay.”

The Supreme Court seemed truly troubled by Regime’s business model. In a footnote, the Court stated that Regime either allows the senior mortgagee to (re)foreclose on the property or quitclaims the property to the original homeowners for a hefty fee. The Court seemed to be disturbed by Regime’s failure to assume mortgages in the ordinary course of its business.

The Court discussed two methods to calculate whether a bid price is so grossly inadequate as to shock the conscience. The debt method is a ratio comparing the total debt on the property to the fair market value. Under the debt method, Regime would have paid 53.9% of the value of the property. The equity method is a ratio comparing the winning bid price to the equity in the property. Under the equity method, Regime would have paid 4.9% of the value of the property.

The Court stated that our courts have not established a bright-line rule for what percentage “shocks the conscience”, but that a search of our jurisprudence reveals our courts have consistently held a price below ten percent definitely does.

The Court stated that when the foreclosure purchaser assumes the mortgage, the debt method should be used. But the court rejected the blind application of the debt method because of the facts in this case. Under these facts, the Court stated, applying the equity method is the only logical option.

The Court expressed concern about the foreclosure proceeding itself, stating that it morphed in to “a proxy to capitalize on a small debt”. The Court said it was especially troubled by Regime’s participation in a foreclosure proceeding to accommodate its business model of leveraging a nominal debt to secure an exorbitant return from homeowners who fear the prospect of an eviction. The Court said, “We do not countenance the improper use of foreclosure proceedings by the HOA, its attorney or Regime.”

The decision should not be read as a shift toward providing relief to homeowners despite their own poor choices, according to the Court. The Court said the case would have turned out very differently if the HOA and Regime had pursued “foreclosure in the normal course and made affirmative efforts to assume the Hales’ mortgage”. And that under the “unique facts of this case”, the Hales have demonstrated Regime’s bid was grossly inadequate.

I am quite sure my foreclosure lawyer friends are deciding how to change their practices in light of this case. I’m not sure the Court is correct about the normal course of foreclosures. I also doubt that the facts in this case are unique.

Justice Beatty concurred in a separate opinion, stating that he would adopt the equity method generally. That approach would certainly provide more clarity. Justice Beatty also said, “homeownership is the quintessential American dream. Purchasing a home is the largest investment that most South Carolinians will make. To allow the hard-earned equity to be confiscated by a bidder’s minimal investment is unconscionable. This is especially troubling when the foreclosure sale is the result of an HOA lien.”

For many reasons, I am glad today that I am not a foreclosure lawyer!

*Winrose Homeowners’ Association, Inc. v. Hale, South Carolina Supreme Court Opinion 27934 (December 18, , 2019).