RSS Feed

Category Archives: homeowner association

Breaking bad; closing good. So is walking away.


The rebound of the real estate market in the Ozarks seems very real, judging from the calls I get from stressed out buyers and sellers who are approaching closing dates.

Buyers sometimes want break contracts, and sellers want to force the buyers to close.

If the buyer has not made objections to the condition of the property in the proper time, or if the reason for wanting out seem weak (by “weak” I mean petty or based on alleged fraudulent concealment that shouldn’t have fooled an inspector), I tell them to either close or buy their way out with money. It is difficult for a buyer to prove that a seller has breached a contract, and spending two or three years in a lawsuit  is a very expensive way to not have fun.

If a seller calls me because a buyer is threatening to walk away from the contract, I tell the seller that a suit for specific performance (asking the judge to force the buyer to close) is unlikely to be successful and would result in the property being taken off the market while the suit is pending.

The seller’s other alternative is to sell the house to someone else, then sue the buyer for damages, which are the difference between the contract price in the first contract and the price at which the property actually sells. In a rising market, there’s a good chance of finding another buyer and perhaps getting a better price, so litigation is unnecessary.

When I get these calls, here’s what I’m really thinking. I might have been able to prevent this situation if I had been asked to assist in the preparation of the contract. I would get to meet the client when the client was happy, rather than angry.

I could have looked at the title history to the property. I could have given advice based on my long experience in this market and knowledge about such things as:

  • subdivision covenants,
  • the developer of the subdivision,
  • the builder’s reputation,
  • how well the HOA is functioning,
  • drainage and road maintenance,
  • past or pending litigation involving the property or the subdivision

Instead, I speak to people who are already upset, who seem to resent that I don’t see the other party as a villain, and who have to make a decision in the next 24 hours.

It’s a joke among lawyers that a friend or client will call a lawyer to complain about a $200 traffic ticket, but will not talk to the lawyer about a $300,000 real estate contract. So when I get the call, I have to work really hard to be sympathetic.

Advertisements

Missouri appeals court reverses trial court, slaps down bank that manipulated HOA


The Missouri Supreme Court, on June 30, 2015, reversed much of this Court of Appeals decision discussed in this post, reinstating the judgment of the trial court, after determining that Jefferson Bank’s amendment of the covenants was proper. The amendment removed the requirement that the HOA’s board members be residents; the Supreme Court reasoned that unanimous consent of the lot owners was not required since the nature of the amendment was to remove rather than add a restriction.

After the real estate bubble burst, many Missouri banks ended up owning a majority of lots in subdivisions, standing in the shoes of the developers–the banks’ previous customers. Banks face many challenges in their effort to sell the lots that they had to take through foreclosure; not the least is high-end architectural standards imposed by the original developer that seem unworkable in this more austere era.

Jefferson Bank & Trust found itself in this fix after it became the owner of 13 of the 18 lots in the Arbors at Sugar Creek subdivision. In 2005, the developer had recorded covenants that gave the board of the homeowners’ association (HOA) approval rights over any new construction. The owners of the five existing homes  protested when the bank and its new partner proposed to build what the homeowners characterized as “tract houses.”

Because the original HOA had been dissolved by the Missouri Secretary of State for failing to file annual reports, the bank formed a new HOA and recorded a new declaration of covenants, since it had more than 67% of the voting power, as required by the old declaration for amendment. The new declaration eliminated the old declaration’s requirement that HOA board members be residents, and the bank appointed its executives to be the new board.

After a bunch of wrangling in court, the trial court ruled that the new HOA was legitimate, that the new board acted reasonably in approving the new building plans, asking that the HOA reimburse the bank for subdivision maintenance costs paid by the bank, and awarding other damages against the lot owners.

The appeals court in this October 28, 2014 decision, agreed that the new HOA was the successor to the old HOA, but threw out the rest of the trial court’s judgment, to find that the bank acted in bad faith, having

  • relied on its acquisition of majority voting power to unilaterally deny homeowners the benefit of self-governance that they received under the original declaration
  • used its command of the subdivision’s affairs to advance in own financial interest in redeveloping the subdivision in a manner contrary to the wishes of the newly disenfranchised residents
  • violated the implied covenant of good faith and fair dealing by amending the declaration and removing the residency requirement for board members so it could appoint its own executives to the board.

Having stacked the board of the new HOA, the appeals court ruled “all the board’s subsequent actions are null and void,” including the approval of development plans submitted by the bank’s partner.

The critical factor here is the requirement of the original declaration that the HOA board members be residents. The overreaching on this issue tainted everything else that the bank did.

It’s unusual to see a court roll over a bank in favor of homeowners. My guess is that the Missouri Supreme Court will be asked to review this decision.

Missouri governor signs HB1103, giving courts power to order maintenance of “private roads”


The Missouri General Assembly enacted HB 1103 in the past 2012 regular session, which explicitly grants circuit court judges the authority to impose financial responsibility for maintenance of certain “private roads” onto parcels of real estate that benefit from these roads. Governor Nixon signed the bill into law on July 12, 2012. There are many problems with rural roads in Missouri. Simple questions–such as determining who owns the road, whether it is a subject to property taxes, who has the right to use it, and who is obligated to pay for its maintenance–are often impossible to answer. HB 1103’s provisions regarding private road maintenance change section 228.368 RSMo and add three new sections to Chapter 228 of the Revised Statutes of Missouri. This legislation is an attempt to solve the problem of nobody stepping forward to pay for road maintenance in situations in which no provision was made when the road was created. But its definition of “private road” greatly limits its applicability. According to the new section 228.341, a “private road” means “any private road established under this chapter or any easement of access, regardless of who created, which provides a means of ingress and egress by motor vehicle for any owner or owners of residences from such homes to a public road. A public road does not include any road owned by the United States or any agency or instrumentality thereof, or the state of Missouri, or any county, municipality, political subdivision, special district, instrumentality, or agency of the state of Missouri.” Got that? Read the rest of this entry

HOA needs to get the owner’s name right to collect assessments


Whenever a homeowner association (HOA) gives me an account for collection, the first thing I do is verify the name in which the lot or unit is held. Frequently, the books of the HOA show owner as an individual or couple, often with a nickname.

Failure to keep track of the name in which property is held can defeat a claim for assessments, as shown in River Oaks Homes Association v. Lounce, a case that originated in Jackson County, Missouri.

The HOA obtained a judgment against Zeria Lounce, individually and as trustee of her living trust, for several years’ worth of delinquent assessments. Lounce appealed to the Western District of the Missouri Court of Appeals, claiming that the trial court erred in finding her personally liable and in finding the trust liable.

The River Oaks covenants provided that assessments were secured by a lien against the lot assessed and were also a personal obligation of  “the person who was the Owner of such property at the time when the assessment fell due.” Fifteen months after purchasing her townhouse in River Oaks in 1993, Lounce conveyed it to her living trust, with herself as trustee.

Nobody paid the assessments after 2004, and the HOA sued Lounce in her individual capacity. After filing suit, the HOA discovered that Lounce had put the property in the name of her trust and added Lounce, as trustee, as a defendant in the suit. Because the covenant provided for the personal liability of the Owner only, the court of appeals reversed the judgment against Lounce, as an individual.

The court of appeals didn’t let the trust off the hook, stating that the payment obligation ran with the ownership of the property, regardless of whether the HOA was aware of the change in ownership.

Here are the lessons for associations:

  • Pay attention to the county records of ownership. The county assessors’ websites (in most counties in Missouri) are a fairly reliable place to look for the names in which property is held; the recorder’s office is the best authority, though not always the most accessible online. This is important for making sure the proper parties are casting votes in elections, as well as for collections.
  • Ask your collection agency or lawyer to confirm the owners’ identities when preparing liens, sending demand letters and filing collection suits.

Carelessness about ownership can result in the loss of the ability to collect, shifting the burdens to the paying members of the HOA.

 

 

Invest now in vacation property!


In preparing for a short talk about how to convey various kinds of vacation real estate, I arrived at the unbrilliant conclusion that people make decisions to buy vacation real estate (RV lots, lake houses, timeshares) based on what they think they want at the time of purchase, with some attention, but not enough attention, to the future. A short version of my presentation is posted here.

Many decisions to purchase vacation property are made when buyers are in a state of vacation bliss, a kind of wistfulness, that makes them less critical than when they’re on their home turf. They hope the vacation property will be a place of togetherness for family and close friends, where memories are created. Perhaps it will become a retirement home, where the grandchildren will want to visit. The sales techniques for vacation property are addressed squarely at those sentiments.

Many of those good things do happen. But vacation properties have the same drawback as all real estate investments: real estate is immobile. If you must to sell it quickly, the price must be low. You probably can’t sell it yourself, because you’re not there.

Ownership of most objects becomes undesirable. Our family situations change. Rising fortunes suggest that we should upgrade. Declining fortunes require that we sell. Seclusion that initially provided peace now brings feelings of loneliness. Or seclusion is ruined by the tasteless vacation home just built next door. The only time available to be at the vacation property is consumed with mowing and repairs.

Now is a great time to buy, because many owners need to sell. Get some advice about your purchase from people who aren’t going to make a commission if the sale goes through, whom you can confide in about your needs.

The advisors you need when considering purchasing vacation property should be able to advise you on such topics as:

  • the history of the project (subdivision, resort, condominium), including the reputation of its developer
  • subdivision restrictions and plats
  • maintenance fees
  • responsibility for road maintenance
  • recreational amenities
  • water and sewer systems
  • lake or river access
  • police and fire protection
  • homeowner association status and activities
  • distance to medical facilities
  • resale opportunities
  • nearby employment opportunities

The information that you need probably isn’t available from just one person. Take your time in making a decision. Don’t sign anything while you’re in the wistful state.

 

 

 

 

 

 

 

Missouri Supreme Court throws a lifeline to an HOA


If a homeowner association doesn’t have the power to impose liens to collect delinquent assessments for common expenses, the HOA is unable to perform its responsibilities. Often, no other entity has the legal authority to fill the gap in insuring, maintaining, repairing and replacing common properties such as streets, water and sewer facilities, clubhouses and pools, etc., which were the responsibility of the original HOA.

Many Missouri HOAs are dissolved by operation of law, having failed to file annual reports with the Missouri Secretary of State. Often a new HOA is formed, but a series of Missouri court decisions have made clear that the new HOAs lack any authority to perform the functions of the old HOA, unless there is an assignment of the old HOA’s powers to the new entity. I’ve summarized those court opinions here, including an update on Debaliviere Place Association v. Steven Veal, in which the Missouri Supreme Court reviewed a lower appellate court decision on April 12, 2011, changing the result and remanding the case for a new trial.

The Missouri Supreme Court’s opinion, written by Judge Michael A. Wolff, clarifies that a defunct HOA, even though it has been dissolved for more than 10 years, still has the power to assign its rights to collect assessments, impose liens and enforce covenants. This new opinion overruled a court of appeals opinion that had indicated that a defunct corporate HOA was a non-entity after it had been dissolved for 10 years, lacking the power to do anything. This new opinion is based on Missouri’s statute 355.691, which allows a dissolved non-profit corporation to “wind up and liquidate its affairs,” transferring its assets and liabilities.

Judge Wolff’s analysis limited the effect of a now repealed Missouri statute (section 355.507), which prohibited any non-profit corporation from coming back to life after it had been dissolved for at least 10 years, at which time its corporate charter is permanently forfeited. Even though the 10-year limit has been repealed, it still applies to many HOAs that had been dissolved before its repeal.

For new HOAs which need to establish their authority, the recording in the county land records of an assignment from the old HOA to the new HOA of the old HOAs powers will be effective, unless the objecting owner can prove that the assignment is made without authority, an a contention that Veal did not assert against Debaliviere.

The defunct HOA problem continues in Missouri, legislation needed urgently


Homeowner associations (HOAs) are given responsibility by recorded subdivision and condominium documents for maintaining, insuring and operating private communities’ common properties, such as streets, drinking water systems, sewer collection and treatment systems, and recreation facilities.

With many developers having abandoned projects before the HOA is operated by residents, the residents and other lot or unit owners (such as lenders that have foreclosed) are often faced with HOAs that cannot properly Read the rest of this entry

%d bloggers like this: