5800 HVB, LLC v. Harbour View Commerce Association, Inc.; (Court of Appeals of
Virginia)
The requestor in this matter's client, a property owners association (POA), denied a landowner's application to build a 7-11 and a National Tire & Battery on the premises pursuant to authority in the POA's declaration and the development guidelines referenced in the declaration. The landowner sued claiming the POA's declaration does not allow the association to restrict development on the basis of use and that the development guidelines were not enforceable because they were not recorded. The POA prevailed in the trial court, but the landowner has appealed to the Court of Appeals, which is a statewide appellate court. The requestor included with this submission the briefing by the other side. The requestor believes that they have strong arguments that the Association acted within its authority and that the development guidelines are enforceable. But the requestor would like the support of CAI to bolster their position and speak to how enforcing development guidelines referenced in the recorded declaration not recorded in the land records themselves is commonplace in the industry and that following appellant's argument would create significant issues.
It is important that the Court of Appeals not render a decision without realizing the impact that it could have on community associations, residential and commercial, statewide. For example, if the Court of Appeals rendered a ruling that nonrecorded association documents were not enforceable, that could create a significant problem across the Commonwealth of Virginia for associations. The requestor believes that CAI, speaking on behalf of its members, can articulate that much more effectively than we can as counsel for a particular party.
Amicus Virginia
Court: Court of Appeals of Virginia
Topic: Recordation of Declarations
Brief Author: Todd Sinkins, Esq., CCAL of Rees Broome, Virginia.
Filed: September 11, 2023
CAI Amicus Review Panel:
Mr. Robert Diamond, Esq., CCAL, Co-Chair of Amicus Committee (VA)
Mr. Edmund Allcock, Esq., CCAL, Co-Chair of Amicus Committee (MA)
Mr. Augustus Shaw, Esq., CCAL, CCAL BOG Liaison (AZ)
Mr. Gary Daddario, Esq., CCAL (NH)
Ms. Noelle Hicks, Esq. (TX)
Mr. Todd Skowronski, Esq. (MI)
Mr. Brian Fellner, Esq. (MD)
August
Arizona Creditors Bar
Association, Inc., et al., v. State of Arizona
Proposition 209 was voter initiative approved by the citizens of the State of Arizona in the November 2022 election (“Prop 209"). According to reputable sources, Prop 209 was funded by California special interest groups and unions who used Arizona as a test case due to the ease of running a voter initiative, before rolling out the initiative in other States. Prop 209 was advertised by those who ran the initiative as a way to fight back against predatory medical debt. Unfortunately, the marketing campaign for Prop 209 did not accurately represent its ultimate impact on the law.
The language of Prop 209 was not limited to medical debt, but instead amended multiple garnishment and exemption statutes rendering nearly one-half of all Arizona citizens, including homeowners in community associations, judgment-proof. Prop 209 amended existing law to incorporate, among other things, the following changes:
- The maximum withholding in garnishment was reduced from 25% to 10% of the judgment debtor's disposable income;
- The minimum withholding in garnishment was reduced from 15% to 5%;
- Exemption on earnings were increased from 30 times minimum wage per week to 60 times minimum wage, preventing garnishment of wages unless the judgment debtor makes more than approximately $50,000 per year (which excludes nearly half of the population of the State); and
- The homestead exemption was increased from $250,000 to $400,000, with an automatic increase each year.
The Arizona Creditors Bar Association, Inc., in conjunction with several other plaintiffs, including Desert Ridge Community Association and Augusta Ranch Community Master Association, filed a Complaint against the State of Arizona seeking a temporary restraining order, as well as a permanent injunction preventing the enforcement of Prop 209 as unconstitutionally vague. The litigation focused on the language of the savings clause. The savings clause purports to make application of the statutory changes adopted by Prop 209 prospective only. The language of the Savings clause reads as follows:
This act applies prospectively only. Accordingly, it does not affect the rights and duties that matured before the effective date of this act, contracts entered into before
the effective date of this act or the interest rate on judgments that are based on a written agreement entered into before the effective date of this act.
The Plaintiffs alleged that Prop 209 was unconstitutionally vague because of the contradictions
among the various provisions of the Savings clause. The Savings clause identifies three ways in
which pre-Prop-209 debts will be exempt from application of the initiative: (1) Prop 209 does not affect rights and duties that matured before its effective date; (2) Prop 209 does not affect contracts entered into before its effective date; and (3) Prop 209 does not affect the interest rate on judgments that are based on written agreements entered into before its effective date.
Plaintiffs argued that two of the exemptions are tied to the date the relevant contract is
entered, but one of the exemptions deals with noncontractual actions. Because garnishment actions are considered distinct actions in Arizona, separate from the underlying judgment, a new garnishment imposes new duties arising after the effective date of Prop 209. Thus, the noncontractual element of the Savings clause effectively un-saves all garnishment actions that
would otherwise be exempt from application of Prop 209 according to the date the underlying
contract was entered. Consequently, despite the language of the Savings clause asserting that Prop 209 will apply prospectively only, the language exempting only rights and duties that matured prior to the effective date renders the Savings clause impossibly contradictory.
The trial court failed to focus on the contradiction created by the three applications of the Savings clause and instead focused exclusively on the language exempting rights and duties based on their “maturity" date. The trial court determined that the language exempting rights and duties that matured prior to the effective date was not itself unconstitutionally vague. Consequently, the trial court denied the Plaintiffs' request for an injunction.
Although on its face the pending appeal may not appear to directly raise issues related to community associations, in application, this case will have a tremendous impact on community associations in Arizona. Moreover, if information is correct that Arizona was the first target of a nationwide push to enact similar laws throughout the Country, it has the potential to have a devastating impact everywhere a similar law is passed. Community Associations are only able to function if they have tools that enable them to collect the assessments that fund them. Assessments are the life blood of any community association. And collecting those assessments is a primary objective of any community association. Prop 209 directly impacts the ability of community associations to collect assessments they are owed.
Amicus Brief
Court: Court of Appeals of Arizona
Brief Author: Chad Gallacher, Esq., Austin Baillio, Esq., and Garren Laymon, Esq., of Maxwell & Morgan, P.C., under the supervision of Brian Morgan, Esq., CCAL of Maxwell & Morgan, Arizona.
Filed: August 7, 2023
CAI Amicus Review Panel:
Mr. Robert Diamond, Esq., CCAL, Co-Chair of Amicus Committee (VA)
Mr. Edmund Allcock, Esq., CCAL, Co-Chair of Amicus Committee (MA)
Mr. Augustus Shaw, Esq., CCAL, CCAL BOG Liaison (AZ)
Mr. David Ramsey, Esq., CCAL (NJ)
Ms. Gabriella Comstock, Esq., CCAL (IL)
Ms. Alexis Firehawk, Esq. (AZ)
Ms. Olga Tseliak, Esq. (VA)
Mr. Thomas Slaton, Esq. (FL)
May 2023
Thompson Thrift Development v. Albertson, et al.; (Court of Appeals Arizona)
This litigation involves an older subdivision that was developed with “residential only" deed restrictions in 1965. Some of the lots are on the corner of streets that are now highly trafficked arterials. In 2020, a 69% majority of lot owners voted to amend the deed restrictions to enable commercial development on the corner. This type of amendment (a selective release of restrictions on some lots) was explicitly authorized by an Arizona statute enacted in 2016. Thompson Thrift Development, Inc., is the proposed commercial developer.
In the ensuing declaratory judgment litigation, the unhappy/dissenting owners have challenged the amendment on various grounds. Specifically, the amendment is not retroactive to existing property; the legislation that authorized such amendments violates the contract clause of the Constitution; and the dissenters did not receive sufficient notice under the common law. Thompson Thrift Development, Inc., prevailed in the trial court. The case is pending in the Arizona Court of Appeals.
In March 2022, the Arizona Supreme Court issued an Opinion called Kalway v. Calabria Ranch, 252 Ariz. 532 (2022) that has created great uncertainty over amendments to all types of deed restrictions. The uncertainty hovers over communities with and without homeowner's associations. In Kalway, the Arizona Supreme Court concluded that amendments to deed restrictions are subject to a common law “notice and foreseeability" standard. Thus, a general provision in the deed restrictions reserving the power to amend is not sufficient notice. Some parts of the Kalway opinion imply that the Court's logic only applies to amendments that impose new obligations, while other statements in the opinion suggest that it applies to all amendments, including amendments that reduce or remove use restrictions. It is likely that the appeal in my case will address this issue.
This is obviously important within Arizona. Because Kalway may become a leading case on the standards of Section 6.7 of the Restatement (Third) of Property, it has national resonance as well.
Amicus Brief
Supreme Court of Arizona – March 2024 Opinion
Court: Court of Appeals of Arizona
Topic: Covenants
Brief Author: Mark Lines, Esq., CCAL, Shaw & Lines, LLC, Phoenix, Arizona.
Filed: May 18, 2023
CAI Amicus Review Panel:
Mr. Robert Diamond, Esq., CCAL, Co-Chair of Amicus Committee (VA)
Mr. Edmund Allcock, Esq., CCAL, Co-Chair of Amicus Committee (MA)
Mr. Augustus Shaw, Esq., CCAL, CCAL BOG Liaison (AZ)
Mr. Bruce Jenkins, Esq., CCAL (UT)
Mr. Todd Sinkins, Esq., CCAL (VA)
Ms. Karyn Kennedy Branco, Esq. (NJ)
Ms. Joan Lewis-Heard, Esq. (CA)
Burkey v. The Courtyards of Huntersville Condominium Association, Inc (North Carolina Court of Appeals)
The Courtyards of Huntersville Condominium Community was developed by EPCON with a total of 53 individual, free-standing, ranch-style units. David Bayne Alexander and twelve (12) other unit owners (Petitioners) filed suit when Association issued opinion that the Association would maintain portions of the individual residential buildings housing the units including maintaining the roof, siding and gutters as common elements. Petitioners sought a declaration that these were not common elements, were not to be maintained by the Association as common or limited common elements, that each owner of an individual unit should be charged with the costs of maintenanceof their building including roof and exterior walls, and that each owner would be charged with the insurance costs on “their" building, including the roof and exterior walls.
A lawsuit between unit owners, the developer, and the association resulted and the trial court entered summary judgment consistent with the Association's position that the exterior of the building are common elements and that the Association is to insure the buildings and units. This decision was appealed and the Court of Appeals found that the Association is obligated to insure the roof, gutters, other limited common elements serving their unit, and remanded the proceeding to review the issue of insurance.
The Association then adopted an amendment reallocating maintenance responsibility for the exterior portions of buildings containing units. The judge on remand struck this amendment finding that the Association is obligated to insure the common elements and limited common elements, including exterior of buildings. The Association has now filed a Notice of Appeal to the North Carolina Court of Appeals.
The appellate issue here is very simple: whether an association, relying on language within a state condominium act that mirrors the Model Act, may reallocate maintenance responsibilities from an owner to an association for limited common elements. The trial judge relied on language in the North Carolina Condominium Act, virtually identical to the Model Act that states that ownership of limited common elements cannot be reallocated absent 100% approval of all unit owners. The
Association here did not do that and contends that the amendment was properly approved with approval of 67% of the voting interest of the Association. The adverse parties, for their part, contend that reallocation of ownership and reallocation of maintenance responsibilities are one and the same, and that the amendment failed based on the failure of the Association to secure 100% approval of the membership.
Fundamentally, the real problem in this case is that EPCON, the original developer, constructed condominiums that look like single family homes. They are free-standing and not attached. The vast majority of the members in this 55 and older community wanted maintenance free living and purchased with the understanding that the Association would maintain their gutters, roofs and siding. A very few owners object and have fought this reality every step of the way.
The issue being raised in this case is of enormous importance. There are dozens, if not more, of free-standing condominiums in this State that allocate maintenance responsibilities to their association. And, condominiums routinely decide, for various reasons, that certain limited common elements should be maintained by the association and adopt amendments to effectuate that. This firm has likely drafted hundreds of amendments over the years that do this with the requisite authority under the Condominium Act or governing documents, but without 100% approval of the membership. A decision from the Court of Appeal here that such unanimous approval was needed would have serious negative impacts on all of the communities. And, given that North Carolina's Condominium Act and its amendment language is virtually identical to the Model Act, a decision here, flying in the face of all precedence, that somehow 100% approval was needed for such amendments could have disastrous effects on communities across the country.
Amicus Brief
North Carolina Court of Appeals Opinion December 2023
Court: North Carolina Court of Appeals
Topic: Limited Common Elements
Brief Author: Alex C. Dale, Esq., Ward and Smith, P.A., Wilmington, North Carolina.
Filed: May 1, 2023
CAI Amicus Review Panel: Mr. Robert Diamond, Esq., CCAL, (VA) Co-Chair of Amicus Committee
Mr. Stephen Marcus, Esq., CCAL, (MA) Co-Chair of Amicus Committee
Mr. Ed Allcock, Esq., CCAL (MA)
Mr. Steven Sugarman, Esq., CCAL (PA)
Ms. Anthony Rafel, Esq., CCAL (WA)
Ms. Russell Robbins, Esq. (FL)
April 2023
City Bella Commercial, LLC, et al vs. City Bella on Lyndale (Minnesota Supreme Court)
This case involves a cooperative that was formed in 2004 with the intention of being a mixed-use property. It has 2 separate buildings that are connected through an area that was designated as commercial space. The commercial space was to be owned by the cooperative and leased out to various commercial tenants. Because of this arrangement, the original declaration did not allocate any of the common expenses or votes to the commercial space. Early in the development phase and before the developer sold any shares to cooperative members, it was determined that this arrangement would have negative tax consequences for the cooperative. Therefore, the developer devised a scheme by which certain portions of the cooperative would be carved out as separate legal parcels and conveyed to a group of commercial investors, who would then lease those spaces to the commercial tenants. The parcels that were sold off included not just the commercial space, but portions of what were considered the cooperative's common areas, including portions of the parking garage as well as elevator lobbies and other common areas within the buildings
The Minnesota Common Interest Ownership Act, Chapter 515B (“MCIOA"), provides specific procedures for the severance of a portion of a common interest community as well as the conveyance of any common elements or any portion of a cooperative. Severance under Minnesota Statutes 515B.2-124 requires a written severance agreement containing specific provisions approving the severance of part of the community, approving an amendment to the declaration accomplishing the severance, authorizing the association to execute and record the amended declaration, allocating the assets and liabilities between the association and the severed units, etc. The agreement must be executed by at least 67% of unit owners and recorded in the property records and must specify a date by which the severance must be accomplished by the recording of the amendment to the declaration. There is also a separate statute regarding conveyance of common elements or portion of a cooperative, Minnesota Statutes 515B.3-112. This section provides that in a cooperative, part of the cooperative may be conveyed if 67% of the votes of the association, including 67% of the votes allocated to units in which the declarant has no interest, approve the action in writing or at a meeting. After the approval has been obtained, the association has a power of attorney coupled with an interest to convey the property and to sign any necessary instruments.
Over time, the commercial owners had requested and paid for maintenance and repairs to portions of the building despite there being nothing in the easement agreements requiring such payment. In 2019, on request of the commercial owners, the cooperative undertook a large-scale project involving the replacement of a roof that benefitted only the commercial units and major work on the exterior building envelope of one of the buildings. As per their normal course of action, the cooperative requested that the commercial owners pay a fair share of those costs that benefitted their tracts. However, for the first time (and likely based on the much larger cost), the commercial owners refused to pay anything and asserted that they are not obligated to contribute to the upkeep of the building that supports and surrounds their tracts. It was at this point that the cooperative discovered the errors in the initial conveyance of the commercial tracts and that those tracts were never severed as required by statute and that the attempted conveyance was void for failure to follow the required statutory procedures. As such, the cooperative asserted that the commercial tracts remained part of the cooperative and that the Commercial Owners were obligated to pay common expenses of the cooperative, including expenses for maintenance, repairs and replacements of building components that directly benefitted them. However, neither the declaration nor the amended declaration included any allocation of expenses or voting rights to those tracts, despite the fact that MCIOA requires the declaration to allocate expenses and voting rights to all units, so the cooperative devised a fair way to allocate expenses and made demand for payment based on that allocation. The commercial owners again refused to pay anything and brought a declaratory judgment action seeking a declaration that they were not required to pay any of these costs. The cooperative brought counterclaims for the commercial owners' share of those costs that specifically benefitted the commercial tracts based on the statutory requirements that the declaration must allocate common expenses to all units, as well as equitable arguments based on the parties' course of conduct and the inequities that existed when the commercial tracts were deeded and the easements entered into. The parties brought cross motions for summary judgement.
The issues that concern the LAC and the reason we are seeking to file an amicus brief are twofold; 1) the incorrect application of the 2-year statute of limitations for challenging an amendment to the declaration to the facts of this case and 2) the court's utter disregard for the statutory requirements for severance or conveyance of property out of a common interest community and the fact that a severance was never even attempted and that the statute says that failure to comply with the requirements to convey part of a cooperative renders the attempted conveyance void.
Amicus Brief
Supreme Court of Appeals, State of Minnesota, Opinion
Court: Minnesota Supreme Court
Topic: Minnesota UCIOA
Brief Author: Tony Smith of Smith Jadin Johnson, Bloomington, Minnesota
Filed: April 3, 2023
CAI Amicus Review Panel: Mr. Robert Diamond, Esq., CCAL, Co-Chair of Amicus Committee
Mr. Stephen Marcus, Esq., CCAL, Co-Chair of Amicus Committee
Ms. Hope Carmichael, Esq., CCAL (NC)
Mr. Stefan Richter, Esq., CCAL (PA)
Mr. Thomas Ware, Esq., CCAL (CA)
Mr. Brian Fellner, Esq. (MD)
Mr. Scott Pointer, Esq. (IL)
January 20223
City of Aspen v. Burlingame Ranch II Condominium Owners Association, Inc. (Colorado Supreme Court)
The City of Aspen acted as the developer and declarant of the Burlingame Ranch II Condominiums. After the end of declarant control, the Association demanded arbitration against the City of Aspen, alleging claims of breach of express contract, express warranty, and implied warranty. The Association did not allege any tort claims, as tort claims would be barred by Colorado's governmental immunity statute.
Upon motion from Aspen, the trial court extended governmental immunities to the Association's contract claims, holding that Colorado law recognizes tort duties and available tort theories for residential construction defect cases. Because the Association's contract claims, “could lie in tort," the trial court dismissed the case.
The Association appealed this lower court decision and the court of appeals reversed, holding that the ELR makes tort claims unavailable, therefore ordering the lower court to hold a hearing to determine if the Association's claims sounded in tort or contract. In doing so the court of appeal stated that the ELR would limit the Association's claims to contractual remedies.
This appellate court's holding is inconsistent with prior Colorado Appellate Court Cases holding that the ELR applies only to commercial and not residential construction. In re Estate of Gattis, 318 P.3d 549 (Colo. App. 2013); Hoang v. Arbess, 80 P.3d 863, 867 (Colo. App. 2003).
The unique nature of the Burlingame case puts the City of Aspen in the unusual position of arguing that, as a residential developer, it does have an independent tort duty to construct homes without negligence. Because this duty lies in tort, as well as in contract, Aspen argues that it has governmental immunity. The Association, on the other hand, is in the unusual position of arguing that the City has no tort liability as a result of the ELR, and therefore the City would not have governmental immunity.
Construction Defects is an advocacy priority for CAI.2 The two issues in Burlingame fall squarely within the CAI's Public Policy “Protection of Association Claims in Construction Defect Legislation," which was adopted in its current form by CAI's Board of Trustees on May 4, 2016. This policy provides, “Builders that construct homes and common elements for purchase by consumers must be required to deliver a product that is free from material defects and exhibits good workmanship." With the expansion of governmental immunities and the ELR at issue in this case, Colorado common interest communities and their members may no longer have an adequate remedy against material defects and poor workmanship, especially if the poor workmanship was committed by a governmental entity or causes harm to an original purchaser. Without adequate remedies, associations and their members would have no right to be made whole. This “Right to be Made Whole" is a key tenent in CAI's policy which supports enabling “the association and its homeowners to be in the position they would enjoy if no defects had existed."
If the ELR is permitted to be applied to residential construction defect cases, common interest
communities and original purchasers will have their remedies limited to breach of contract and
implied warranty causes of action. These causes of action are not typically covered by a builder's
commercial general liability policy. This would significantly harm community associations when
the builder is dissolved, insolvent, or in bankruptcy. In all but cases brought against deep pocketed national builders, community associations will have no opportunity to recover damages
for construction defects--no opportunity to be made whole.
Amicus Brief
Court: Colorado Supreme Court
Topic: Economic loss rule
Brief Author: Jeffrey P. Kerrane, Kerrane Storz, Broomfield, Colorado; Mari Perczak, Craig Nuss, Jennifer Seidman, Burg Simpson; Shane Fleener, Hearn & Fleener
Filed: January 30, 2023
CAI Amicus Review Panel: Mr. Robert Diamond, Esq., CCAL, (VA) Co-Chair of Amicus Committee
Mr. Stephen Marcus, Esq., CCAL, (MA) Co-Chair of Amicus Committee
Mr. Ed Allcock, Esq., CCAL (MA)
Mr. Tom Moriarty, Esq., CCAL (MA)
Ms. Mary Howell, Esq., CCAL (CA)
Ms. Lydia Linsmeier, Esq. (AZ)
Copper Creek Homeowners Association v. Kurtz (Washington State Supreme Court)
This case is about how long a bank can allow a home in an HOA to sit vacant before foreclosing. Here the owners of this property filed for Chapter 7 bankruptcies, surrendered the property, and then moved out. The property sat vacant for about eight years. As is often the case, the owners stopped paying assessments when they moved out. Finally, the Association started a foreclosure lawsuit and entered a stipulated receiver. The receiver spent over $20k repairing the vacant home and preparing it for rental. Immediately after renting the home, the bank sent a notice of default and scheduled a trustee's sale. Ultimately, the Association took the property via a deed in lieu of foreclosure and quieted title to the property from the bank's mortgage. The Court found that when the personal liability of the owners was discharged, it started a six-year statute of limitations on the entire mortgage consistent with many 9th Circuit decisions. The bank appealed, and the appellate court overturned the trial court's decision stating that a bankruptcy discharge does not accelerate a deed of trust and that the 9th Circuit got the law wrong. The Association appealed to the Washington State Supreme Court, and it accepted the issue for review.
The Association/Appellant is arguing that the banks cannot sit on properties indefinitely and that after the personal liability is discharged the bank needs to foreclose within six years. The bank/Respondent is arguing that even after a bankruptcy discharge the bank has the entire remainder of their installment payment loan to foreclose.
CAI's argument will focus on the impactt of vacant properties in a community, and how this is
not a victimless situation. The brief will discuss how the Association's dues are often unpaid,
and how a vacant home creates a risk of squatters, infestations, and unmaintained homes and
landscaping in these situations.
This issue is important because each year thousands of Associations are left with vacant homes and waiting for banks to foreclose. Now that homes from before the economic crash of 2008 are finally returning to their post-crash values, we are seeing an increase in old mortgages being foreclosed. This issue is nationwide and while each state may come up with different ways to handle this situation, it will shape the way this issue is handled across the nation.
Amicus Brief
Supreme Court of Appeal, State of Washington, Opinion
Court: Washington State Supreme Court
Topic: Chapter 7 Bankruptcy
Brief Author: Erin Maloney, Esq., CCAL, Fiore, Racobs, & Powers, Riverside, California, Anthony Rafel, Esq., CCAL, Rafel Law Group, Seattle, Washington
Filed: January 3, 2023
CAI Amicus Review Panel: Mr. Robert Diamond, Esq., CCAL, (VA) Co-Chair of Amicus Committee
Mr. Stephen Marcus, Esq., CCAL, (MA) Co-Chair of Amicus Committee
Mr. Ed Allcock, Esq., CCAL (MA)
Ms. Anthony Rafel, Esq., CCAL (WA)
Ms. Russell Robbins, Esq. (FL)