homeowners association

You have to love amusing HOA stories from Florida

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Lots of entertaining real estate stories arise in the Sunshine State, and I say that fondly because I spent my middle school and high school years there. In fact, I’m heading down to Panama City for a milestone high school reunion in September.

This story was reported by ABC News and other sources. Florida passed legislation this year affecting homeowners’ associations that, among other consumer-protection efforts, prohibited associations from limiting the rights of owners to park personal vehicles, work vehicles, and assigned first responder vehicles in their driveways.

One news story I saw related the excitement of one resident of a restrictive HOA who was elated he could begin to park his work truck in his driveway. His alternative had been to park his truck almost a mile away from his home in a rented storage area and walk the distance in the Florida heat twice each workday.

But the legislation contained a “loophole” that allowed the HOA to keep the parking restrictions in place. The resident was crestfallen when he learned his neighborhood could keep rules in place that were effective when the legislation was enacted. He still has to park his truck a mile away and walk.

Another resident said she was upset because she must continue to pay $1,000 to park her Mercedes Sprinter that contains her mobile spa (the Maui Skin Bus) in a remote location and walk home after each break in her appointment schedule.

The goal of the HOA, according to its manager, is to keep the vision of the developer of the neighborhood in place. The developer saw beautiful homes, well-manicured lots, and only nice, personal vehicles parked in driveways.

Family of teenager shot after ringing the wrong doorbell sues HOA

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Image from The New Yorker

Several media outlets are reporting that the family of Ralph Yarl, a black teenager who rang the wrong doorbell in a white neighborhood in Kansas City, is suing the homeowners’ association in addition to the man who fired the shot.

The theory against the HOA is that it failed to exercise reasonable care regarding the use of firearms in the neighborhood. There are apparently no rules against discharging firearms.

Yarl rang the doorbell on April 13, 2023, mistaking the house for a friend’s home. He had been sent to pick up his siblings, but the correct house was about a block away.  The homeowner opened the door and allegedly shot Yarl twice with a Smith & Wesson .32-caliber revolver. He said he was afraid someone was trying to break into his home.

Missouri has “stand your ground” and “castle doctrine” legislation that indicates a homeowner may use deadly force for self-defense if he reasonably believes that deadly force is necessary. A criminal case is pending against the homeowner in addition to the recently filed civil case.

The HOA is reported to be an unincorporated association with minimal annual assessments.  If that is true, it wouldn’t be surprising to see the individual homeowners named.

Any South Carolina dirt lawyers who represent homeowners’ associations will want to advise them of this lawsuit. Rules and insurance issues should be explored.

Be careful out there!

Virginia court holds HOA assessment invalid

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Dirt lawyers hear stories of dysfunctional homeowners’ associations routinely. I have one for you!

My husband and I built a second home at the beach in a relatively modest subdivision in 2011. Many of the houses are owner occupied, but many are on rental plans. My twenty-something daughter met a neighbor who asked her two questions, (1) “Is this your family’s first vacation home?” and (2) Your parents aren’t going to rent this house, are they?” It wasn’t a good start to our relationship.

We had several issues with ARB approvals during the building process, which were handled by our builder. At one point, he threw his hands in the air in frustration and said, “These people need to understand this isn’t DeBordieu.” In other words, the ARB seemed to believe the subdivision is much more affluent than it is.

When we attended our first (and only as it turns out) annual meeting of the owners, the president of the board promptly threw one of our neighbors out of the meeting for asking a question!  It was during the first five minutes of the meeting. We were shocked and vowed to steer clear of those meetings.

During our first winter, we received a very nasty letter telling us we had a dead tree that must be removed immediately. We were in Columbia, didn’t know about the dead tree, and even when we investigated, we decided the tree didn’t look any worse than the other winter trees. But we quickly took it down! We heard another neighbor received a similar letter telling him his mailbox was dirty and needed to be cleaned immediately.

We decided that we were going to be good neighbors and properly maintain our house and yard, but we would enjoy the beach and the gatherings of our growing family (including the four grandchildren we’ve been blessed with since we built the house) without getting involved with the neighbors.

Believe it or not, this story has a happy ending. Apparently, all the problems were caused by one homeowner who managed to get herself elected to the board and the ARB. She roamed the streets looking for rules violations and wrote the letters herself.  About the time we figured out the problem, she and her husband, thankfully, moved. The trouble among the neighbors immediately improved. Now, we have delightful neighborhood parties and enjoy getting to know our neighbors. And it seems everyone has a story about the bad neighbor. We stand around drinking beer and telling stories.

My guess is that our earlier bad HOA is like the one described in Buckholder v. Palisades Park Owners Ass’n, Inc.*, a Virginia case where the HOA imposed an assessment on all owners to fund the cost of inspecting each property for the purpose of finding violations of the HOA rules. Homeowners sued to have the assessment declared invalid.

Virginia has a statute that provides, “(e)xcept as expressly authorized by the Act, the declaration or as otherwise provided by law, no association shall…make an assessment or impose a charge against a lot owner unless the charge is a fee for services provided or related to use of the common area.”

The court invalided the assessment and remanded the case to the lower court.

I read about this interesting case on the DIRT listserv that I recommend routinely. You won’t be sorry if you sign up for the emails!

Professor Dale Whitman who moderates the listserv commented that this is the sort of thing that gives HOAs a bad name. He also commented, “While most states won’t have a statute exactly like Virginia’s, the lesson of the case remains applicable. If an HOA or condo board is going to impose an assessment to be used on anything other than the common areas (or reserves that will ultimately benefit the common areas), it needs to be certain that it has the legal power to do so, either by virtue of an applicable statute or its own declaration. This is particularly true if the assessment is almost certain to irritate and raise the hackles of some owners, as this one was.”

Several lawyers commented about the nature of folks who like to serve on HOA boards. Read the comments if you need a good laugh. The listserv is searchable.

I think I’ll share the case with my neighbors at the beach.

*76 Va. App. 577, 882 S.E.2d 906 (2023)

Charlotte TV station reports on Fort Mill HOA “service fee”

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Charlotte television station WSOCTV (Channel 9) published a story on May 23 delving into an HOA fee from Baxter Village in Fort Mill. The story, entitled “South Carolina HOAs can charge substantial fee to leave neighborhood”, focuses on a residential seller who was shocked to find a more than $1,700 charge from her owners’ association on her closing statement.

The line item read “HOA Service Fee to Baxter”, and the fee was almost double the annual regular assessment of $950. According to the story, the covenants provide that the sale of a home will result in a fee which shall not exceed the greater of $500 or .25% of the gross sales price. The reporter interviewed a spokesman for the subdivision’s management company who said the fee has been in place since 1998. The sales price for the home highlighted in the story was $685,000.

The reporter interviewed a lawyer familiar with homeowners’ association issues in North Carolina as well as South Carolina. He said that North Carolina’s legislature had passed a Planned Community Act in 2010 that banned exit fees except in a few specific cases. South Carolina, of course, does not have similar legislation.

As with every residential purchase, the buyer should be advised by the attorney of the existence of covenants and should be encouraged to read them in their entirety to avoid surprises.

What do you think, dirt lawyers? Should we pass similar legislation in South Carolina?

Homeowners’ Association information at your fingertips

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The South Carolina Department of Consumer Affairs announced on May 12 the availability of its website containing a wealth of information about homeowners’ associations. Check out the website here.

The site includes frequently asked questions about homeowners’ associations as well as an outline of South Carolina law, contact information of individuals who may be able to help and other resources.

If you represent homeowners’ associations, you probably have this information at your fingertips, but if you are a dirt lawyer who infrequently gets asked questions like, “Can my homeowners’ association impose a fine or file a lien if my renter….

  • Drives a motorcycle into the neighborhood;
  • Hangs towels to dry on the deck;
  • Parks an RV in the driveway;
  • Let’s too many kids use the pool?”

Or, “can I withhold the payment of assessments to my homeowners’ association because it refuses to enforce the prohibition against the chickens my neighbor maintains?”

Or, “I want to paint my front door fuchsia. There are a variety of crazy colors in the neighborhood, but the homeowners’ association guidelines say only a set of approved colors can be used on the exterior of residences. Can they enforce that rule?”

Have you heard questions like this? I certainly have.

Use this website to be able to communicate the answers to your clients in a succinct way, without a lot of legal research.

HOA threatens to fine members over negative social media comments

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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

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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

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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).

SC Court of Appeals takes a deep dive into developer duty case

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Was I’On Village’s developer obligated to convey specific amenities to the HOA?

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Photo courtesy of Iioncommunity.com

This case was called “convoluted” by our Court of Appeals, and I couldn’t agree more with that characterization! The February 27 decision involved I’On Village in Mt. Pleasant. * The community, founded in 1995, was named for the first mayor of the Town of Sullivan’s Island, Jacob Bond I’On and is a mixed use “new urbanist development”, meaning it consists of charming walkable neighborhoods containing a wide range of housing and job types.

At the heart of the case is the developer’s alleged promise to convey certain amenities in a residential community to the homeowners’ association. Specifically, homeowners allege the developers promised to convey a community dock and creekside park on a lot containing a boat ramp to the owners’ association but instead sold those amenities to a third party. The developers alleged that they promised to convey and did convey a “generic” community dock and creekside park to the association, but not the specific ones located on the boat ramp lot.

This blog will attempt to stay out of the weeds of this 27-page case in an effort to point out only those decisions of the Court that may be of interest to real estate practitioners.

Does a developer have a fiduciary relationship with the homeowners’ association and its members requiring it to convey common areas?

The Court’s answer is “yes”, but the duties of the developer should be determined by a careful reading of the restrictive covenants.

The developer had argued that the “business judgment” rule would control, and that absent a showing of bad faith, dishonesty or incompetence, the judgment of the developer should not be set aside in a judicial action. The Court rejected the argument that the business judgment rule precludes the existence of a fiduciary relationship. Citing an earlier case, the Court stated that the business judgment rule is compatible with the good faith requirement for fiduciaries.

The Court said a confidential or fiduciary relationship exists when one reposes a special confidence in another, so that the latter, in equity and good conscience, is bound to act in good faith with due regard to the interests of the one imposing the confidence.  Citing a second case, the Court said anyone acting in a fiduciary relationship shall not be permitted to make use of that relationship to benefit his own personal interests, specifically, a developer in control of an owners’ association may not make decisions that benefit the developer’s own interest at the expense of the association and its members.

However, the Court held, South Carolina precedent does not impose on developers a generic fiduciary duty to convey title to a subdivision’s common areas to the owners’ association in every case. Rather, the restrictive covenants of the subdivision controls. The Court decided that the record in the case did not support the duty of the developers to convey to the association the specific amenities demanded.

Does the after-acquired property doctrine apply to a recreational easement in South Carolina?

The Court’s answer is “no”.

In February of 2000, the developer conveyed to the owners’ association a “Recreational Easement and Agreement to Share Costs”. Curiously, the developer did not obtain title to the property in question until six months later. At trial, the circuit court issued an order declaring the document invalid and void ab initio.

The developer argued on appeal that the after-acquired property doctrine would have acted to ratify the easement when title was obtained, but the Court of Appeals, finding no South Carolina authority for the proposition that this doctrine applies to the grant of an easement, declined to apply the doctrine to the recreational easement in question.

 May a derivative action be filed by property owners when a developer-controlled owners’ association fails to protect the interests of the owners?

The Court’s answer is “maybe”, but only if the complaint properly outlines the efforts made by the owners to obtain the action sought from the board of directors of the association and the reasons for failure to obtain the action or for not making the effort. The pleadings in this case did not satisfy the “demand requirement” to the Court’s satisfaction nor did they allege facts indicating a demand on the board of directors would have been futile. So the Court rejected the derivative action.

Litigators may find fascinating long discussions about statutes of limitations in various causes of action, abuse of process, amalgamation of parties and awards of attorney’s fees, but I’m opting to spare dirt lawyers any discussion of those issues. Read the case if you find those issues captivating. This litigation is not over as the Court of Appeals remanded the case for consideration of several issues by the trial court. My guess is that we will probably visit this case again.

 *  Walbeck v. The I’On Company, LLC, South Carolina Court of Appeals Opinion 5588 (February 27, 2019)