YLD Transactional Super Group Newsletter
A Publication for the Members of the YLD’s Antitrust, Business Law, Corporate Counsel, International Law, Intellectual Property and Internet Law, Tax, and Real Property, Probate and Trust Law Committees

Homeowner Associations and the Unneighborly Brouhaha
By Robin S. Cromer

In Season Six of the X-Files, Agents Scully and Mulder went undercover to investigate the mysterious disappearance of homeowners who did not follow homeowners’ association (HOA) regulations in the “Arcadia” subdivision. In one scene from the program, when Agent Mulder asks the HOA president if he can put up his basketball goal, the HOA president looks through a thick binder of CC&R’s (Contracts, Covenants and Restrictions) and tells him no, because “Rules are rules. It may not sound like anything — a simple basketball hoop — but from there, it's just a few short steps to spinning daisy reflectors and a bass boat in the driveway.” Most HOA’s don’t resort to mysterious disappearances. They prefer litigation.

History of Restrictions

In the 50’s and 60’s when the “subdivision” first gained widespread popularity, restrictive covenants seemed like the perfect solution to keep neighborhoods neat and uniform. Most of these restrictive covenants focused on the size of home and method of construction. Deed restrictions have been in use for many years, but widespread litigation seems to have started over racial restrictions in the 1920’s and 1930’s. The U.S. Supreme Court ruled private racial restrictive covenants were not enforceable by injunction in Shelley v. Kraemer 344 U.S. 1 (1948). In an interesting article published in September 2002, “Covenants & Conventions,” Richard R. W. Brooks of Northwestern University Law School notes that the enforcement of such covenants was expensive on both sides of the litigation, and the NAACP often made it a policy to consistently litigate against these unfair covenants.

Recent Example

The most hotly contested case I worked on this year involved a homeowner association (HOA) suing a homeowner. The homeowners had just begun remodeling their dream vacation home in the Arcadian Shores Subdivision in Myrtle Beach, South Carolina, when they had a surprise visit from two neighbors claiming that their remodeling project and their parking their motor home on the property were violations of restrictive covenants and HOA rules.
The homeowners were surprised by the visit because at their closing the only restrictive covenants in the chain of title were from 1965 and did not mention motor homes. The homeowners, being avid RV’ers, had also questioned the prior owners about motor homes and HOA’s prior to purchasing the property. The prior owners told them the HOA had dissolved years before, and that they had parked an RV for years on the property with no problem. It appeared that just a handful of neighbors recognized the HOA as a valid entity, but these few were also willing to sue to resolve the dispute. In one letter before the case was filed, one neighbor wrote to the other neighbors that they needed to resolve this issue before it evolved into an “unneighborly brouhaha.” It was too late, and within one month the HOA had filed suit against my clients for an emergency restraining order, permanent injunction, and damages.
The problem for my clients, the homeowners, is that they really had no way of knowing about the HOA and its alleged rules prior to purchasing the property and beginning remodeling, because there were no recorded documents in the chain of title. South Carolina is a race-notice state, and purchasers are only deemed to have notice of documents that are properly recorded at the Register of Deeds’ office. Therefore, we felt that any changes to the restrictive covenants could only become part of the chain of title if they were signed by the current property owners, thereby becoming part of the chain of title. The alleged HOA had attempted to make changes but the changes were not signed by a majority of owners as the original 1965 restrictive covenants required. After four days of hearing late this year, more than twelve witnesses, and stacks of photographs and documents, the Master in Equity decided in favor of my clients, the homeowners.

Homeowner associations are ubiquitous in new developments. The good news for us (attorneys) is that these matters require a lot of legal services: attorneys to set up the restrictive covenants for the developments, attorneys to advise the developer and/or HOA in interpreting the covenants, rules and regulations, and yet more attorneys to resolve disputes between developers, HOA’s and homeowners. There is no shortage of legal issues to resolve in these disputes. For example, were the original covenants valid? Did the HOA enforce them or waive them by failing to enforce them? Is the HOA interpreting the covenants, rules and regulations correctly? When and how can the HOA make changes to covenants and regulations drafted by the original developer? Some have blamed attorneys for stirring up HOA trouble to earn more fees. Typically the HOA is the plaintiff and the individual homeowner is the defendant. In some cases the HOA can be the defendant. In our county a group of plaintiffs is suing a condominium association and developer after a devastating fire destroyed several condominiums and hurt several people. The lawsuit alleges that the condominium had insufficient fire walls and possibly insufficient insurance coverage.

Variations Among States

Many states have laws governing community associations, including condominium associations, HOA’s, resort property associations, and master associations governing the groups of condominiums at certain resort properties, among others. Legislators in the fastest growing states are finding reasons to update many of these laws. Last year (2005) California passed three laws to protect homeowners in HOA’s. One of the bills was designed to protect homeowners from unfair non-judicial foreclosure for the failure to pay HOA dues. There were some news reports that California homeowners had lost their homes through non-judicial foreclosure over unpaid HOA dues assessments of less than two hundred dollars. The homeowners claimed they did not even know that they were late on the dues, much less realize that they had lost their home to a non-judicial foreclosure. Senator Ducheney from San Diego introduced the bill that gave homeowners the right to redeem their properties for 90 days after a non-judicial foreclosure and required a minimum amount of $1,800 in unpaid assessments. Homeowner advocates are concerned that HOA’s still have too much power and homeowners have too little protection from an unfair enforcement of the rules and regulations.

Several years ago the state of Nevada appointed an ombudsman to help reduce tensions between associations and their members after it was reported that an elderly gentleman was fined for leaving his lawn half-mowed while taking a break from the Las Vegas heat. There have been radio programs in Las Vegas dedicated to discuss homeowner issues.

The Community Associations Institute www.caionline.org is an organization dedicated to the research of residential community association living. Their website reports that a 2005 national research study found that 39% rated association living as “very good” and 5% rated it as “very bad,” and that overall 71% found association living to be a positive experience. They offer resources for developers and residents who are interested in setting up associations.
Florida has sunshine laws that require condominium and HOA to post notices of meetings, permit members to attend meetings, keep minutes, and permit the taping of meetings. After litigation begins, the minutes of these meetings can become important evidence. There are often conflicts in the minutes from year to year and between different boards so these can be used to assist you in any homeowner association case.

Tips for Counsel

Many homeowners do not realize what power the HOA has when they purchase their property. Sometimes the first time they realize they are in an association is when they receive a bill in the mail or a letter that they are violating some regulation. Most of the HOA’s created in the last ten years mandate that all homeowners are members of the association upon the purchase of the property. They have mandatory dues assessments that if unpaid can give the HOA the right to foreclose upon the property. The closing attorney (in South Carolina attorneys are required to perform home closings), or settlement agent (in other states) should be particularly careful to review these obligations with the purchasers. Normally an HOA can foreclose much easier and quicker than a lender can foreclose on a mortgage, because there are few if any consumer protection laws governing the conduct of HOA’s. More states are considering laws like California passed last year to give homeowners more protection. Nevada has worked on legislation requiring election of HOA boards by secret ballot to make control of the HOA more fair and a disclosure statement for prospective home purchasers to sign at closing to inform them of some of the implications of association living. Fast growing states like California, Florida, and Nevada, with the most new home development, have the most HOA’s and the most HOA litigation.

Even in HOA’s that have no mandatory dues, association boards often attract the people who enjoy telling their neighbors what to do. An innocuous regulation can quickly become burdensome depending on who is judging whom. One website, the American Homeowners Resource Center, www.ahrc.com, has plenty of stories and news articles illustrating some of these scenarios. This web site reports that over 50 million Americans now live in homeowner associations.

Any attorney representing a home buyer should make special effort to explain the buyer’s obligations to an HOA as well as the deed restrictions, restrictive covenants, and HOA regulations. That will not stop every dispute, but it will go a long way to prevent those “surprise” non-judicial foreclosures and it may prevent some “unneighborly brouhahas.” Not all states require attorneys to perform home closings like South Carolina, and that may be part of the problem in some other states. Even with the attorney requirement, homeowners and HOA’s are not shy about litigating the enforcement of regulations. The rulings in these cases are often very fact-specific because they turn on the wording of the regulations. The best preventive tool in these types of cases is for neighbors to work together and get along with each other. That was a great but unexpected byproduct in the case I worked on here in South Carolina. By the time my clients had spent so much time talking to their new neighbors about the case, and many of the new neighbors testified on their behalf about the unfairness of the HOA, they had made some close friends right in their own subdivision.

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