There’s a chance that we might fall apart before too long
(We Can Work It Out, The Beatles)
In my career as a community association attorney, I can’t begin to count the number of times I have heard from clients that life in a community association is akin to life in paradise … no muss, no fuss, no bother. Now that I have your attention, let’s talk turkey. Life in a community association is just like life in the rest of the world … while it can be wonderful and rewarding, it can also be challenging to say the least. The distinction is that challenges and disputes that arise in a community association have as their genesis not only ordinary societal issues (including differing attitudes, disagreements and a divided country), in a community association, disputes often arise as a result of non-compliance with the community’s governing documents, covenants and restrictions.
A couple of years ago, I authored a piece entitled “Peace of the Puzzle” which discussed best practices in avoidingconflict in community associations (Common Ground, May/June 2021 issue). But what happens when conflict cannot be avoided and it results in a dispute that needs to be resolved? We will discuss dispute resolution as it applies to community associations in this article.
Communication
Communication by and between the disputing parties is critical to resolving the dispute. Time and time again, I have witnessed parties engaged in a dispute actually stop communicating with one another. A practical question arises as it pertains to this strategy: how in the world will ceasing communication between the parties actually help resolve the conflict? The simple answer is: it won’t. In fact, it will generally make things worse. For clarification, I am not suggesting that parties who are engaged in a dispute where one party is abusing, intimidating or harassing the other (or a situation of such mutual behavior) should attempt to talk it out. I am suggesting (and recommending) that when parties can discuss their dispute professionally and in a civil nature, they should. This may actually lead to resolving the dispute, or may assist in getting to a resolution faster than if the parties were not communicating.
From the perspective of a community association being a party to a dispute with a unit owner (unrelated to the collection of delinquent assessments), I generally recommend that the association (through its Board and/or with a Community Manager) seek to meet with the adverse unit owner either formally or informally to discuss the dispute and try and resolve the matter.
Similarly, a unit owner battling with his or her community association or with another unit owner should strongly consider meeting with representatives of the association or with the other unit owner, as may be applicable, to attempt to resolve their dispute. Communication by and between any of the adverse parties can be worth its weight in gold.
Exhaustion of Internal Remedies
In virtually every community association in every jurisdiction, the governing documents and/or the controlling common interest community statutes will provide that when the association is enforcing its governing documents against a unit owner for a violation, the association must provide notice of the violation to the unit owner, and an opportunity to be heard (due process) on the violation to the unit owner prior to issuing the violation against and/or assessing a fine to the unit owner. (Statutes vary by jurisdiction, but the gist is the same; check with your community association attorney to ensure the required steps are being handled correctly). Following this process correctly would serve to exhaust all of the required internal remedies as it relates to the violation, and, if need be, would permit the association to move forward with further action(s) if the unit owner disputes the violation and relief from the court or some other remedy, such as a form of Alternative Dispute Resolution (ADR), such as mediation or arbitration, is sought to resolve the dispute.
As part of the internal remedy procedure, some states (like New Jersey, where I am licensed to practice) statutorily require that community associations affirmatively offer ADR to unit owners prior to going to court on all, or some, issues. Other states, such as Pennsylvania (where I am also licensed, and primarily practice) statutorily provide for voluntary ADR as part of the internal remedy procedure. The Pennsylvania statutes provide that: (1) All parties must agree to ADR; (2) ADR is not mandatory; any party may seek a private cause of action or other relief; and (3) Costs for ADR (excluding attorneys’ fees) are to be assessed equally against all parties to the dispute.
The common interest community statutes and/or association governing documents in many jurisdictions also permit a unit owner to file a complaint against the association for violations (generally for allegedly failing to enforce the covenants and restrictions) and/or for other disputed issues. In many jurisdictions, the statutes and/or the governing documents also require a unit owner to exhaust internal remedies as may be required prior to filing an agency complaint or taking the association to court on all or some issues. For example, Pennsylvania’s statutes permit a unit owner in good standing to file a complaint with the Pennsylvania Office of Attorney General’s Bureau of Consumer Protection for a limited number of issues (meetings, quorums, proxies, voting and association records). However, before a unit owner can file a complaint with the Pennsylvania Attorney General, all existing internal remedies must first run their course, and, if the association’s governing documents provide for internal ADR to first occur, a unit owner can’t file with the Pennsylvania Attorney General until ADR is exhausted and no resolution results, or one-hundred days have passed with no resolution. A unit owner can immediately file a complaint with the Pennsylvania Attorney General if the governing documents do not contain ADR provisions or if the governing documents provide for ADR but the association refuses to agree to engage in ADR with the unit owner.
It is therefore strongly recommended that parties determine if their governing documents and/or respective jurisdiction’s statutes require ADR or some other dispute resolution mechanism to occur prior to engaging in other dispute resolution efforts or litigation. A final note: the required internal remedies that we have discussed invariably may lead to – you guessed it – some form of communication occurring between the parties that are engaged in the dispute … which, as we know, is better than no communication.
Actively Working to Resolve the Dispute Outside of Court
If communication and the exhaustion of internal remedies do not resolve the dispute, it’s time to seek other options. I generally recommend exploring if a formal or informal meeting with/between the party/parties to try and resolve the dispute is possible (even if attempted in the initial communication phase) – after all, it can’t hurt to try. The best case scenario is that the dispute gets resolved.
If a formal or informal meeting doesn’t work, or simply doesn’t happen, then the parties should explore formal Alternative Dispute Resolution (ADR) using a third party for a non-binding or binding mediation and/or arbitration based on the agreement of the parties (of course this need not be utilized if the parties were required to engage in ADR in exhausting the administrative remedies and it was not successful. The parties can attempt a second ADR session if they so choose at this point, which may or may not be successful). ADR is a popular and often much less expensive choice for associations who seek to resolve disputes without the need for full-blown litigation in court.
The two most popular types of ADR utilized by associations are mediation and arbitration. Mediation is generally heard by a sole mediator and is more of a “summary” proceeding where the parties and the attorneys submit information (usually mediation memoranda) to the Mediator (ahead of time and/or at the mediation) and discuss their cases with the mediator and/or with the mediator and one another without the need for evidence/actual testimony to be introduced/taken at the mediation). The mediator issues a recommendation for resolution at the conclusion of a non-binding mediation that the parties may choose to accept or turn down, or in the situation of a binding mediation, the mediator issues a mediation order which the parties agreed to abide by (sometimes the mediation order gets filed with the court and a judge enters an order, unless the mediation proceeding and/or the result is to remain confidential).
Arbitration is generally a more formal and technical proceeding that can be performed by a sole arbitrator or a panel of arbitrators. Arbitration memoranda are typically submitted by the attorneys prior to the proceeding, testimony is taken and evidence is introduced at the proceeding. The arbitrator or arbitration panel issues a recommendation for resolution at the conclusion of a non-binding arbitration that the parties may choose to accept or turn down, or in a binding arbitration, the arbitrator or arbitration panel issues a binding arbitration order which the parties agreed to abide by (sometimes the arbitration order gets filed with the court and a judge enters an order, unless the mediation proceeding and/or the result is to remain confidential).
I am typically a bigger fan of a non-binding mediation session over a binding ADR session, whether it is a binding mediation or arbitration, except in rare situations where a binding, final outcome is the best available option for the particular dispute. Being a non-binding session allows the parties to attempt to formally resolve the dispute with the assistance of a mediator who is a third party with no vested interest in the outcome (aside from his/or her fee). I have been involved in complex, multi-party litigation where multiple mediation sessions were required to resolve a dispute with finality, but even three, four or five mediation sessions is vastly cheaper and more efficient than participating in a four to six week trial which would be subject to appeal.
The Last Straw: Going to Court
Sometimes, despite our best intentions and attempts at resolving a dispute outside of court – we end up in court – because we have to. While cases often settle on the courthouse steps and/or during the trial itself, cases need to be prepared to go the distance, which is time-consuming and expensive for the litigants. A few thoughts about going to court are as follows:
When to go to court. This seems obvious, but sometimes it isn’t. Court is not just the “last resort” option when all else fails. Parties can actually spin their wheels for a long time attempting to resolve a dispute, where one party is purposefully leading the other party down the primrose path. In this situation, going to court sooner, rather than later, may be more beneficial and actually end up being more cost effective.
Focusing on What’s Important and Picking our Battles. I often tell clients, don’t sweat the small stuff, sweat the big stuff. In other words, focus on what’s important and pick your battles when identifying your litigation strategy – look at what the desired end result, and work to achieve that instead of getting lost in the weeds battling over minutiae.
Cost-Benefit Analysis. Every party in litigation should engage in a cost-benefit analysis as it relates to the desired outcome and the cost to get there. If the cost exceeds the desired outcome, then settlement of the dispute in lieu of trial is likely the best option.
Risk-Benefit Analysis. If the risk of losing at trial is greater than the potential benefit of going to trial, then settlement of the dispute in lieu of trial is likely the best option.
Impact on the Association, Board and Members/Owners. Litigation is expensive, time-consuming and can be emotionally exhausting. The association will need to pay its counsel to go to court and the Board and any impacted members/owners will need to deal with the case from inception through trial – many times this causes Board members to resign and members/owners sometimes move out of communities after being involved in protracted litigation.
After the suit – now what? To the victor go the spoils, or so they say. But is this really true in an association setting where it is association vs. unit owner? While there is a formal “winner” at the end of the litigation, the parties (Board members on behalf of the association and the unit owner) must still live next to one another as neighbors and attempt to coexist amicably. This is tough following a drawn-out court case, but the parties should do their best to put the past behind them and forge a new path moving forward. This is obviously much easier said than done, as human nature and behavior often get in the way. Sometimes the greatest goal following litigation for some parties is that they won’t end up in court again.
Parting Thoughts on Conflict Resolution
I am not trying to sound like a self-help guru, but my advice to association residents would be to keep an open mind, act in good faith and be neighborly – this may go a long way when a dispute arises and a resolution is required. As the Beatles taught us: we can work it out.
– Edward Hoffman, Jr., Esq., CCAL
* Content in this Blog post is also contained in an abbreviated/edited article by Edward Hoffman, Jr., Esq., CCAL, published in the November/December 2023 issue of CAI’s Common Ground magazine, entitled “We Can Work It Out”.
I’ve defended many Associations and their Boards/Board Members over the years in defamation actions. 2020 and 2021 saw a substantial rise in these actions being brought, and there’s no reason to believe 2022 and beyond will be any different.
Traditionally, in Pennsylvania, a lawsuit for defamation had to be filed in the county where the publication of the allegedly defamatory statement occurred. This all changed in November of 2021, when the Pennsylvania Supreme Court issued an opinion in Fox v. Smith, et al., 39 EAP 2019 (Nov. 17, 2021).
In Fox, Pennsylvania’s high court analyzed the venue issue taking into account internet-based publications (versus print-based, such as newspaper) of the alleged defamatory statement, and held that venue is appropriate in any county where publication of the defamatory statement occurred, even if it differs from the county where the injury (the making of the defamatory statement) actually occurred.
The Fox Court discussed that “under the applicable Rules of Civil Procedure, venue is proper … in counties in which a cause of action has arisen…” and “a cause of action for defamation arises where publication of defamatory statements occurs.” The Court went on the hold that “publication occurs where a third-party recipient understands the statement as being defamatory” and “when a person is defamed via a medium with worldwide accessibility, a cause of action may arise in multiple venues.”
Finally, the Court found that “per a straightforward application of the civil procedural rules, then, a plaintiff may select a single venue in a defamation action in any location in which publication and concomitant injury has occurred, albeit that publication and harm may have ensued in multiple counties.” A link to the Fox case is here.
Contact Hoffman Law LLC to discuss how we can assist your Association in handling and/or defending defamation allegations.
Look around, leaves are brown… There’s a patch of snow on the ground …
(A Hazy Shade of Winter, Simon and Garfunkel, lyrics by Paul Simon)
Every year, community associations face innumerable claims and lawsuits for accidents, injuries and damages for incidents involving snow and ice on association property. These claims and lawsuits are expensive and time-consuming and can potentially impact community associations’ insurance rates. A while back, I was interviewed* for CAI’s HOA Resources Blog regarding snow removal policies in HOAs. Below is the Q&A from that interview.
Q: Why should an association have a snow removal policy?
A: Every association with such a need should adopt a snow removal policy. Outdated snow removal policies can create just as large of a liability issue for the association as not having one. It’s important for the board to implement the policy and apply it uniformly and consistently.
Q: What are the top factors associations must consider when creating a snow removal policy?
A: First, associations should determine who is responsible for the snow removal, such as a service provider that will be performing contracted work. Boards and managers should check their insurance certificates and be certain that the association is named as an additional insured under each policy. The service provider’s proposal/specification sheet is not an actual contract.
Next, the threshold for snow removal must be determined. The industry standard in the Northeastern U.S. is generally 2 inches of accumulation. Special care should be attributed to ice and sleet events, meaning the association must address other hazardous conditions in the community.
Finally, consider what level of control the association is exerting over the service provider. The more control the board asserts while they work, the more potential liability should an incident occur. The association should contract for snow removal work according to the parameters set forth in a properly drafted and approved service contract.
Q: Should associations in areas that do not routinely get measurable snow have a policy?
A: Every association should have a policy for handling a snow event. There may not be a need for a snow removal contract in areas without measurable snowfall, but all associations should have a snow event action plan in place.
Boards and managers in an association without a snow removal policy should consider their options. While some areas without regular snowfall may not require one, having a snow event policy can prevent liability concerns later. Associations should review their snow removal policies periodically to determine their relevancy. One policy can be the difference between a winter wonderland and a slew of lawsuits.
– Edward Hoffman, Jr., Esq., CCAL
*The CAI HOA Resources Blog link to the interview can be found here: https://hoaresources.caionline.org/does-your-hoa-need-a-snow-removal-policy/
As a Community Association attorney, I’ve been on both sides of the fence as it relates to association litigation. Whether I am initiating litigation against others on behalf of the association or defending the association for claims brought by others, the following holds true: litigation is expensive, time-consuming and emotionally draining for those involved. The purpose of this Blog post is to educate community leaders on how to implement best practices in order to avoid litigation.
Association as a Plaintiff
Collections
Let’s face it: unit owner delinquencies are a problem for most associations. Sometimes avoiding litigation in collections is not possible due to chronically non-paying unit owners. But much of the time, litigation can be avoided if the association stays proactive in its efforts to collect overdue assessments.
To begin, every association should implement, and utilize, a practical collections policy that protects the interests of the association while, at the same time, seeks to resolve the arrears without the necessity of litigation. A multi-tiered policy is often the best way to try and collect the arrears while resorting to litigation as a last step. For example, after the account is deemed delinquent (as “delinquent” is defined in the collections policy), a warning/demand for payment letter is sent to the delinquent unit owner by the association, requesting payment within ten days. Should the owner not pay within the allotted time period, a final warning/demand letter is sent to the delinquent unit owner by the association, requesting payment within five days. Should the unit owner again fail to pay, the matter is to be turned over to the association attorney for collection. Depending on what the collections policy provides, the attorney can either send an attorney demand letter (in compliance with the Fair Debt Collection Practices Act) or immediately initiate suit against the delinquent unit owner in order to collect the delinquent account.
Utilizing this type of collections policy thus allows the association to have a “two (or perhaps three) strikes and you’re out” approach when it comes to collections in an attempt to avoid litigation until it becomes absolutely necessary.
Transition and Declarant Issues
The majority of lawsuits filed by an association against a declarant are filed after many months, or even years, of communication and negotiation between the parties. However, the earlier the parties can begin to communicate and attempt to resolve the disputed issues, the better.
For instance, associations often wait until the formal transition process begins to bring up any outstanding issues related to the common elements. While the declarant certainly needs to address valid issues at transition, there is no reason why the association has to wait until the actual transition to request that the declarant correct a deficiency with the common elements. Rather, the association should open the line of communication early in the process to put the declarant on notice of the issue. Sometimes, if it is logistically/economically feasible, a declarant may handle the issues as they occur in order to keep the relationship between the parties “positive” and to avoid having to handle everything all at once at transition (however, depending on the particular declarant, this may not be possible).
Also, with respect to the formal transition, rather than digging in, puffing out their chests and litigating every issue, the parties are encouraged to respectively discuss and negotiate their positions and enter into a “Transition Settlement Agreement” in order to finalize the remaining issues and send each party on its way.
The moral of the story is that while litigation between an association and a declarant is sometimes unavoidable, if the parties effectively communicate early on in the process, agreements may be reached and litigation may actually be avoided.
Contract Disputes
In the association world, most contractual disputes involve a contractor/vendor that the association believes didn’t live up to its end of the bargain. While breach by the other party is sometimes inevitable despite the terms of the contract, an association can seek to avoid litigation if it can craft/revise/amend the contract in such a manner that fosters the ability of the association and the contractor/vendor to resolve the issue and/or terminate the contract with an agreed-upon recourse (i.e., liquidated damages).
It is recommended that the association have its professional property manager review and assist in negotiating contracts on behalf of the association. Managers generally have many years of experience under their belts when it comes to contracts, and they are a tremendous resource for associations.
When it comes to larger (as far as cost), and more technically complicated, contracts, it is advisable to have the association attorney review the contract to ensure that the association is best protected. Many times, onerous and one-sided (and sometimes unenforceable) clauses are present in the contract and these provisions should be removed from the outset. Other times, there are issues pertaining to breach, notice and damages that the attorney must strengthen and/or bolster for the benefit of the association.
At the end of the day, an association can best seek to avoid litigation by being proactively involved in the drafting process prior to execution of the contract. Otherwise, it might be “too late” and litigation may become the only option available to the association.
Enforcement (injunctive relief)
Similar to collections matters, sometimes avoiding litigation in an enforcement matter is not possible due to perpetually non-compliant unit owners and/or due to the nature of the violation at issue. However, litigation can be avoided if the association stays proactive in its efforts to enforce its covenants.
To start, associations should enact reasonable rules and regulations in compliance with their governing documents and enforce same equally and uniformly against all unit owners. Care should be taken to ensure that the proper notice, hearing and appeal requirements are incorporated into the rules and regulations. Doing so not only ensures compliance with the law (i.e., procedural due process), it also provides a mechanism for the association to try and work with the unit owner(s) to voluntarily remedy the violation prior to engaging in litigation in order to force unit owner compliance.
Finally, associations should make every effort to communicate with the non-compliant unit owner(s) throughout the process in an attempt to resolve the violation. Only after every reasonable opportunity has been exhausted, should an association engage in litigation to seek injunctive relief to cure the violation (the author notes that when the alleged violation involves actual or potential damage to property and/or results/may result in physical harm or bodily injury to a person, the association should expedite seeking a remedy and obtain emergency injunctive relief if required).
Association as a Defendant
Personal Injury – Premises Liability
Associations must manage risk appropriately in order to avoid litigation in premises liability matters. Proactive risk management measures include, but are not limited to:
Asking the association general liability insurer to perform a risk management assessment in order to provide recommendations to the association on suggested risk minimization techniques;
Ensuring that various contractors fulfill their duties in a manner that minimizes risk (i.e., snow plow contractors, security guards, lifeguards, landscapers).
Making sure that the association is properly maintaining common elements to eliminate common risks (i.e., broken/uneven sidewalks, potholes, trees and tree limbs);
Having the property manager perform routine inspections of the property;
Enforcing rules and regulations as required in order to avoid risk caused by unit owner violations.
By being proactive about risk minimization, associations will reduce the number of claims that are brought, and in turn, the likelihood of litigation.
Director and Officer (D&O) Liability Actions – Breach of Fiduciary Duty
Litigation brought by unit owners for an alleged breach of fiduciary duty by the association board of directors is a growing phenomenon. In order to avoid these claims, the board should act in good faith, treat all unit owners equally and perform its duties reasonably and with sound business judgment.
While such allegations will invariably be brought by at least one unit owner in every association, the more documentation an association has to substantiate its actions, the better suited it will be when a claim is made. Accordingly, it is imperative that the association keeps minutes of all board decisions, correspondence to/from unit owners, copies of all contracts and accounting statements and audits, among other things.
Finally, the author notes that associations should obtain adequate director and officer liability insurance coverage in order to best protect the board and the association.
Enforcement Issues
Unit owners frequently bring claims against the association for “selective” or “unequal” enforcement, meaning that the association board is allegedly picking and choosing how it wishes to pursue enforcement of the association covenants and/or is selectively deciding which unit owners they will seek to enforce the covenants against (in other words, the association is allegedly using its enumerated powers to “punish” some owners, and let others “slide”).
Associations can avoid litigation for selective enforcement by always acting: (1) in good faith; (2) reasonably; and (3) with sound business judgment. By following the enforcement procedures set forth in the governing documents (including proper notice, hearing and appeal requirements) and enforcing the covenants equally and uniformly against all unit owners, the risk of such claims is reduced.
Finally, it is noted that claims brought for selective enforcement often concurrently involve fiduciary duty claims (discussed above) and/or fair housing/discrimination claims (discussed below).
Defamation
A suit for defamation can arise in an association when a unit owner (or even a board member) alleges that the association defamed (whether through slander or libel, or both) the owner by communicating about the owner in a manner that has harmed the owner. In the author’s home state of Pennsylvania, and in many other states, when bringing an action for defamation, an owner must prove:
The defamatory character of the communication;
Its “publication” by the association;
Its application to the owner;
The understanding of the recipient of its defamatory meaning;
The understanding of the recipient of it as intended to be applied to the owner;
The special harm resulting to the owner from its publication; and
At times, that abuse of a conditionally privileged occasion had occurred.
While many suits for defamation brought by unit owners are baseless in the law, the association still must defend the suit, which is time-consuming and potentially expensive. Associations should therefore seek to act reasonably and avoid making potentially defamatory communications about the owner. Some frequent issues that have brought about defamation complaints are as follows:
Publishing the name of a unit owner whose account is in arrears to all owners either in a newsletter or by posting on a community bulletin board (whether electronic or physical);
Publishing the name of a unit owner whose account is in arrears on an association website, allowing the “world” to view it; and
Publicly discussing a unit owner’s alleged covenant violation at an open board meeting prior to issuing a final determination on the issue.
Finally, if the association has any doubts on how to handle an issue that may lead to a potential defamation claim, it is encouraged that the association contact its counsel for an opinion on the issue.
Contract Disputes
Contractors and vendors with whom an association contracts often bring claims against the association for breach of contract. More often than not, the association believes that the vendor or contractor has not “performed” pursuant to the contract terms (and/or has overcharged) and has therefore breached the contract. The association then withholds payment, which causes the vendor or contractor to sue the association for breach.
The key to avoiding these suits is for the association to act reasonably in how it approaches a contract dispute, including how it handles the above-referenced situation. Rather than simply withholding payment for an alleged breach by the vendor or contractor, which will likely cause the situation to escalate into litigation, the association should seek to communicate with the vendor or contractor in an effort to amicably resolve the dispute. Frequently, these disputes can be negotiated and resolved in a manner that’s beneficial to both parties when compared with the cost, energy and time involved to litigate a breach of contract dispute.
Fair Housing Claims
Title VIII of the Civil Rights Act of 1968 (“Fair Housing Act” or “FHA”), 42 U.S.C. §§3601 – 3631, and its 1974 amendment, made it illegal to threaten, coerce, intimidate or interfere with anyone exercising a fair housing right or assisting others who exercise that right, or to advertise or make any statement that indicates a limitation or preference based on a protected class, which includes race, color, national origin, religion or sex (gender).The Fair Housing Amendments Act of 1988 (FHAA) added two more protected classes to the FHA: (1) familial status; and (2) individuals with disabilities. The FHA applies to community associations because the FHA prohibits discrimination, by the association, related to any services and/or facilities the association provides related to the residential housing in the association. 42 U.S.C. §3604(b).
The US Department of Housing and Urban Development (“HUD”) has interpreted the FHA to include two types of discrimination: Disparate Treatment and Disparate Impact (also known as “Discriminatory Effect”). Disparate Treatment involves discrimination due to different treatment, i.e., treating someone differently because of race, color, sex, religion, national origin, familial status or disability. Disparate Impact involves discrimination by different impact, i.e., when a neutral policy or procedure has a disproportionately negative impact on a protected class.
Fair housing claims have been increasing steadily against community associations across the country. The most common fair housing complaints in associations are as follows:
Failure to provide a “reasonable accommodation” for a disability – examples include requests for animals (service and emotional support/companion animals) and parking issues;
Failure to provide a “reasonable modification” for a disability;
Familial status violations.
In order to avoid fair housing claims and litigation, associations should be educated on the law, act reasonably when making determinations and, when handling an accommodation/modification request, review same and issue a fair and reasonable determination in a timely manner.
Finally, the author notes that fair housing issues are discussed in greater detail in the author’s Common Ground magazine article entitled “All’s Fair”, in the July/August 2014 issue.
Alternatives to Litigation (ADR)
Finally, sometimes the only way an association can actually avoid litigation is to agree to submit the dispute to alternative dispute resolution (ADR). This can be binding or non-binding in nature, based on the agreement of the parties. Popular forms of ADR include Mediation (generally heard by a sole Mediator and is more of a “summary” proceeding where the parties and the attorneys submit information to the Mediator (ahead of time and/or at the Mediation) without the need for evidence/actual testimony to be introduced/taken at the Mediation) or Arbitration (frequently heard by a panel of Arbitrators and can include testimony and evidence at the proceeding).
By Edward Hoffman, Jr., Esq., CCAL
An abbreviated version of this Blog post was published in Ed Hoffman’s article in the July/August 2015 issue of Common Ground magazine.
Perhaps you remember the chorus in Dave Mason’s 1977 soft rock hit, “We Just Disagree”:
So let’s leave it alone ‘cause we can’t see eye to eye. There ain’t no good guy, there ain’t no bad guy, There’s only you and me and we just disagree. Ooh-ooh-ooh, oh-oh, oh-oh-oh.
I know, you, the reader, isn’t happy with me as you won’t be able to get the song out of your head (I think it’s actually a pretty good song, by the way) … but, there’s a message here. The message is that residents in community associations won’t always see eye to eye on every issue … and, that’s ok because we simply aren’t wired to agree on every issue. However, sometimes a simple disagreement rises to the level of conflict in an association, which can impact the entire community. As a community association attorney and litigator, I believe the path to reducing conflict in associations begins with proactively and intentionally acting in a manner which will serve to avoid the disagreements, issues and other frustrations that ultimately lead to conflict. This article will outline some best practices that community associations should follow to reduce the likelihood of conflict.
Consistency and Uniformity in Enforcement
In every community association, the Board is charged with the responsibility to enforce the community’s covenants, restrictions and rules & regulations for the benefit of every member/owner in the community. This responsibility is not voluntary; rather, the Board has a fiduciary duty to (1) ensure that the covenants, restrictions and rules & regulations of the community are adhered to/followed by the members/owners; and (2) enforce the covenants, restrictions and rules & regulations against a unit owner who fails to adhere/follow them. Examples of frequently encountered enforcement issues include but are not limited to pools, trash, outdoor elements (architectural control), parking, pets/animals, curtains, outdoor storage, maintenance and playgrounds. Enforcing the governing documents with consistency and uniformity – regardless of the unit owner that is the subject of the enforcement – will greatly reduce the possibility of conflict in the association as well as potential liability for the association. How does an association do this?
Actually enforcing the covenants, restrictions and rules & regulations.
Though it is seemingly ridiculous to have to mention this, every association must actually enforce its own covenants, restrictions and rules and regulations. A failure to do so will lead to cries of inconsistent enforcement by unit owners, which will invariably lead to conflict.
Not playing favorites.
A Board MUST enforce its covenants, restrictions and rules and regulations against Ms. Jones in Unit B1 and Mr. Smith in Unit B2, even if Ms. Jones is the community pariah and Mr. Smith is the kindest person in the entire community. In other words, a Board must not play favorites. Picking and choosing some but not all unit owners as it relates to enforcement will certainly lead to conflict.
Avoiding stupid decisions.
Let’s not sugarcoat it. Community leaders make stupid decisions. Sometimes these stupid decisions lead to inconsistent enforcement of the community’s covenants, restrictions and rules & regulations. The key is either avoiding stupid decisions to begin with, or if that horse has already left the gate, recognizing and reversing course on the stupid decision before it becomes a problem for the association and leads to conflict. Stupid decisions can be avoided by adopting and implementing an enforcement policy which will be applied uniformly and equally to all owners.
Ensuring due process is provided to unit owners before fining.
In the author’s home state of Pennsylvania and many other jurisdictions, the statutes provide an association with the power to levy reasonable fines for violations of the declaration, bylaws and rules and regulations of the association – after notice and an opportunity to be heard is provided to the unit owner. Fining a unit owner and/or engaging in a related enforcement action prior to and/or without providing a unit owner with notice and an opportunity to be heard may lead to a successful lack of due process defense by the allegedly offending/violating owner, and will surely lead to conflict.
Stopping unofficial enforcement.
Unofficial enforcement involves situations where a Board member, committee member or some other person with actual or apparent authority to act on behalf of the association tells a unit owner to do something as it relates to the covenants, restrictions and rules & regulations, but without the consent (vote) of the [entire] Board of Directors. For example, a landscaping committee member unilaterally advises a unit owner to remove a tree because the committee member believes the tree is in violation of the covenants. This is unofficial enforcement because the committee member may be viewed to have authority to tell the unit owner to remove the tree although the committee member, in actuality, had no authority to do so. If a unit owner actually removed the tree as a result of the directive of the committee member, and the tree did not have to come down, conflict would likely be the result. Boards must therefore be cognizant of the propensity for this type of activity to occur and must properly educate and train all community leaders and volunteers to stop unofficial enforcement from occurring. Doing so will serve to reduce conflict in associations.
Good Governance
What does “good governance” in a community association mean, and how can it serve to avoid conflict? Good governance means that the Board makes good decisions for the benefit of the community and that it undertakes this process correctly. To clarify this issue a bit, in Pennsylvania, and similarly in many other jurisdictions, the Business Judgment Rule provides that Board members must make decisions (1) within the scope of their given authority; (2) in good faith; (3) using ordinary care; and (4) in the best interest of the Association (i.e., not in the best interest of the Board Members). The simple process of making decisions correctly will likely serve to reduce conflict, as unit owners will likely be less upset with Board decisions on certain issues and will be less apt to contest Board actions and initiate litigation.
Communication Between Association and Residents – Make Owners Feel Heard
An issue that has always caused strife and conflict between community associations and unit owners involves unit owners feeling and complaining that the Board doesn’t listen to unit owners – in other words, the Board doesn’t allow unit owners to feel heard on association issues, whether big or small. In my practice, I have actively advised and recommended to my clients that the Board should make considerable effort to listen to unit owners on issues – and, sometimes, unit owners bring great perspective and are “right” on the issues they want to be heard on.
In jurisdictions that do not require “open” Board meetings, such as Pennsylvania (absent requirements in the governing documents, of course), my recommendation would be to make some of the Board meetings open to the unit owners to attend. For example, if there is a Board meeting every month, I would suggest that the Board offer to make 25% of the meetings, or three Board meetings a year, open to the unit owners to attend (even if virtual, assuming it is permitted). This would go a long way to having the Board and unit owners actually get to know one another, and will likely lead to reduction in potential conflict between unit owners and the association.
Take Neighbor Against Neighbor Disputes Seriously
We have discussed conflict between the association and unit owners, but what about conflict between unit owners? “Neighbor against neighbor” disputes have been around since people have actually been neighbors to one another and such disputes frequently occur between unit owners in community associations. An association may choose to act as an intermediary between unit owners in order to facilitate harmony, avoid conflict and perhaps reach a potential resolution – and this action may in fact, actually be deemed necessary under HUD’s 2016 Final Rule entitled “Quid Pro Quo and Hostile Environment Harassment and Liability for Discriminatory Housing Practices under the Fair Housing Act”.
To boil it down to its essence as it relates to Hostile Environment Harassment, the Final Rule explains that “the reasonable person standard under which hostile environment harassment is assessed”is“‘[w]hether unwelcome conduct is sufficiently severe or pervasive as to create a hostile environment is evaluated from the perspective of a reasonable person in the aggrieved person’s position.’” In the association world, this means that a run of the mill neighbor against neighbor dispute may also trigger alleged violations of the Fair Housing Act so long as a member of a protected class (i.e., race, color, national origin, religion or sex (gender), familial status and individuals with disabilities) is making the claims against his or her neighbor.
Why is this a problem for associations if it is one unit owner accusing another unit owner of such conduct? An association’s Achilles heel as it relates to this issue is the fact that the Final Rule was revised to clarify that a housing provider (including a community association) is liable under the Fair Housing Act for third-party conduct (including but not limited to the conduct of a unit owner) if the housing provider knew or should have known of the discriminatory conduct, has the power to correct it, and failed to do so. The Final Rule provides that a community association would be liable for negligence for failing to take prompt action to correct and end a discriminatory housing practice by a third-party of which it knows or should have known was occurring.
With respect to dealing with third parties, HUD explains that a community association generally has the power to respond to third-party harassment by imposing conditions authorized by the association’s CC&Rs or by other legal authority. HUD further explains that community associations regularly require residents to comply with CC&Rs and community rules through such mechanisms as notices of violations, threats of fines, and fines. HUD submits that it “understands” that community associations may not always have the ability to deny a unit owner access to his or her dwelling and that the Final Rule “merely requires the community association to take whatever actions it legally can take to end the harassing conduct”. Thus, if a unit owner allegedly harasses another unit owner who is a member of a protected class under the Fair Housing Act, and the unit owner who is the subject of the alleged harassment advises the association of same, the association appears to have a duty to investigate the issue and affirmatively get involved in some manner to try and stop harassing conduct. If the association fails to do so, it may face liability for violating the Fair Housing Act in accord with the Hostile Environment Harassment provisions of the Final Rule, under the third-party liability rule.
Accordingly, if such allegations are made, the association may have a legal obligation to take swift action to enforce its covenants if applicable, or at least offer to get involved and assist in resolving the issue in order to reduce conflict between the unit owners for their benefit and for that of the association.
Govern With Empathy
Real people face real struggles in life. People were, and are, on edge, and many are ready to jump out of their skin. In an association setting, health, employment and other personal struggles impact unit owners’ jobs, which impact their ability to pay assessments. Personal struggles also impact owners’ ability to maintain their properties in accord with the covenants due to financial issues. When speaking to my clients about these issues, I advised that they should govern with empathy and utilize emotional intelligence, in addition to good faith and due diligence, in making decisions during this time period. I often repeated the mantra, “don’t leave empathy at the door when making important decisions”, and many associations took that advice to heart.
I believe that COVID really changed our outlook on what the concept of “community” really is – I also believe that we took “community” for granted. I know I see it, and I believe that you do as well. Community begins at home, and we had a lot of time at home to closely examine this concept in our own lives. We were, and still are, in all of this together. We must realize that we don’t live on an island onto ourselves and we should prioritize creating a safe and peaceful “community” where we treat others as we want to be treated and where we love our neighbors as we love ourselves.
Finally, if Boards govern with some level of empathy during this time period, it will serve to not only avoid conflict now, it’ll set the tone for when we get through this difficult time – and we will likely see a renewed concept of “community” in our associations.
– Edward Hoffman, Jr., Esq., CCAL
* The content for this Blog post is based in part on the prior written work of the author as originally published in the May/June 2021 issue of CAI’s Common Ground Magazine in an article entitled “Peace of the Puzzle”: https://lsc-pagepro.mydigitalpublication.com/publication/?i=702268&ver=html5&p=21
More than ever before, community associations are coping with financial shortfalls. Two issues which associations frequently encounter are short sales and foreclosures. This Blog post will discuss the implications of short sales and foreclosures as each relates to the community association.
Short Sales
A short sale occurs when a home is sold for less than the amount of the outstanding mortgage on the home, with the explicit agreement of the bank. In other words, the purchase price of the home is “short” of the remaining balance due on the existing mortgage.
Short sales are being used by owners in an effort to avoid foreclosure and possibly preserve the owners’ credit rating. While the home that is being sold via a short sale is not bank owned, the bank must approve (and ultimately determine) the sale price of the home as they are agreeing to reduce the amount owed on the mortgage. Banks generally prefer short sales over foreclosures because a short sale is accomplished in a much shorter period of time than a foreclosure and because the cost of a short sale is far less than that of a foreclosure.
Because community associations can possess a statutory lien on a particular property for past due assessments (which are usually present if the unit gets to the point of short sale), the association will be asked to approve the short sale. As a general matter, when a short sale is proposed and the association is contacted about the outstanding account balance, the association is offered only a percentage of the total amount it is owed so that the short sale can be accomplished (sometimes, the association is offered the full amount owed, but this generally occurs only when the total amount owed is proportionately very small when compared to the short sale price, and even then, such an occurrence is a statistical rarity). At this stage, the association must decide if it will accept less than the entire amount owed on the account or if it will “hold out” for the entire balance (it is noted that the amount the association ultimately accepts can and should be negotiated as the first offer provided is usually a “low ball” offer).
In making this determination, the association should consider the fact that after the short sale, a new owner will be present in the unit and will begin to pay assessments; therefore, the financial “bleeding” the association is facing will ultimately come to an end. Should the association refuse to accept a compromised offer on the amount owed, the likely result is that the short sale will not be consummated and the unit will end up in foreclosure. In a [Pennsylvania] foreclosure situation, the association is statutorily entitled to receive unpaid assessments, fees and costs that come due during the six (6) months immediately preceding the date of judicial sale of a unit. All other amounts owed to the association are divested in the foreclosure. Thus, community associations may actually end up in a more favorable financial position if a unit is sold in a short sale rather than in foreclosure. Of course, because each situation is factually unique, outcomes will vary. Associations should therefore seek the advice of a qualified property manager and/or counsel when they are faced with a short sale in the community.
Foreclosures
In general terms, a mortgage loan provides that the mortgagee (lender, usually a bank) possesses a security interest (lien) in a home purchased by the mortgagor (borrower). The foreclosure process begins when the mortgagor defaults on the loan, and the mortgagee begins legal proceedings to repossess the property.
As it pertains to community associations, and as previously indicated, in a [Pennsylvania] foreclosure situation, the association is statutorily entitled to receive unpaid assessments, fees and costs that come due during the six (6) months immediately preceding the date of judicial sale of a unit. All other amounts owed to the association are divested in the foreclosure. Once an Association learns that the property has been listed for Sheriff’s Sale, the Association should contact the Sheriff’s office to advise of the (1) existence; (2) nature; and (3) amount of the Association’s statutory lien. This being said, the association should always seek out the advice of counsel in order to determine a legally permissible course of action as Fair Debt Collection Practices Act (FDCPA) issues may arise in this setting.
Associations should also be aware that if the foreclosure process is completed and the foreclosing bank takes title (or if the bank takes a deed in lieu of foreclosure), the association should verify if a Sheriff’s deed has been issued to the bank and, if so, contact the bank and request payment of the prior assessments and other charges the association is entitled to receive. The association should also ensure that the bank, as [new] titleholder of record, will be promptly paying assessments going forward, as required by the community’s controlling documents. As a general matter, associations should stay on top of their collections efforts and apply them uniformly to all owners, including banks.
Associations should also be aware that federal law and federal programs have provided borrowers with additional options to be utilized in response to foreclosure proceedings and/or in an attempt to avoid foreclosure altogether. As a result of all of this, the foreclosure process is taking longer than ever before to get from start to finish, and Associations are waiting longer than ever before to see some sort of finality with respect same.
For example, the Home Affordable Modification Program (HAMP) provides borrowers with the possibility of lowering their monthly mortgage payments to make their homes more affordable. The population of homeowners that may be eligible for HAMP was expanded to include:
• Homeowners who are applying for a modification on a home that is not their primary residence, but the property is currently rented or the homeowner intends to rent it.
• Homeowners who previously did not qualify for HAMP because their debt-to-income ratio was 31% or lower.
• Homeowners who previously received a HAMP trial period plan, but defaulted in their trial payments.
• Homeowners who previously received a HAMP permanent modification, but defaulted in their payments, therefore losing good standing.
Moreover, other federal agencies, such as the Consumer Financial Protection Bureau (CFPB) and the Department of Treasury’s Office of the Comptroller of the Currency (OCC), are involved in the residential mortgage market from a regulatory perspective and can get involved on behalf of a homeowner whose home is in foreclosure. Accordingly, associations should be educated in and made aware of the various programs that exist and how each may impact the financial position of the association.
Finally, “other” issues occur during the foreclosure process that associations must handle in the best interest of the association. For example, when a unit is in the foreclosure process and the owner abandons the unit (and the foreclosing bank has not yet taken title), the association must examine its controlling documents and/or other legal requirements to determine what duty the association has to ensure that the unit is kept in good repair. It is noted that a foreclosing bank will often take similar action when a unit is abandoned by its borrower in an effort to protect its investment; however, the bank’s concern about preserving its collateral is different than the association’s potential responsibility in this regard because the association must examine its duty to keep the unit in good repair as it relates to the potential impact of the abandoned unit on all of the association’s owners/members and their units, not just the abandoned unit itself.
Because of all of the complicated financial and legal issues involved with short sales and foreclosures, and because each situation may be factually different than the those which have preceded it, associations dealing with these situations should seek the advice of both a qualified property manager and counsel to determine the best course of action for each specific situation.
Edward Hoffman, Jr., Esq.
* The content for this Blog post is based upon the prior written work of the author as originally published in the July/August 2012 issue of the CAI PA-DelVal’s Chapter’s Community Assets magazine.
