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Posts Tagged ‘homeowners’

Enforcing an HOA Covenant

Posted on: February 12th, 2018

By: Jan S. Sigman

Many homes built in the metro Atlanta area in the past 20 years are located in subdivisions that have a homeowner’s association (HOA). In 1994, Georgia adopted the Property Owner’s Association Act.  If an HOA elects to become subject to the Act, then the covenants passed by the HOA are enforceable against all the current property owners in the association, as well as subsequent purchasers into the community. Covenants may include restrictions on the development and use of the property.

In Great Water Lanier v. Summer Crest at Four Seasons on Lanier Homeowners Ass’n, Case No. A17A1810 (January 2, 2018), the Georgia Court of Appeals enforced various HOA covenants on a subdivision plat where Great Water accepted but did not sign the warranty deed. On cross motions for summary judgment, the trial court held the parcel was subject to the HOA covenants.  Great Water appealed, but the Court of Appeals affirmed the trial court’s ruling.  By accepting the deed, the Court of Appeals held, Great Water voluntarily consented to be bound by the HOA covenants. This case illustrates the need for buyers to conduct due diligence into HOA covenants that could encumber the property.

Jan Seanor Sigman is licensed to practice in Georgia and represents contractors and design professionals in all construction matters including contract negotiations, payment disputes and delays, contract terminations, and defective work. If you have any questions or would like more information, please contact Jan Seanor Sigman at [email protected].

Cumis Counsel Limited: Insurer-Appointed Counsel Requires Actual Conflict of Interest

Posted on: February 9th, 2018

By: David G. Molinari

The California Third District Court of Appeals has ruled that the right to Cumis counsel, independent counsel paid by the insurer (San Diego Federal Credit Union v. Cumis Insurance Soc’y, 162 Cal. App. 3d 358 (1984)) requires an actual as opposed to a potential conflict.  In Centex Homes v. Saint Paul Fire & Marine Insurance Company, (Case C081266, January 22, 2018) the Court of Appeals concluded that Cumis counsel is not required absent a reasonable likelihood of an actual conflict when an additional insured carrier accepts a tender of a developer/general contractor’s defense subject to a reservation of rights and appoints defense counsel.

In Centex Homes the homeowners sued developer for construction defects.  Developer tendered the defense to the insurer of a subcontractor involved in the project as an additional insured.  The insurer provided an attorney to defend the developer under a reservation of rights against any claims not covered by the subcontractor’s policy.  Developer hired their own attorney who filed a cross-complaint against the subcontractors, including the subcontractor under whose policy the developer was being defended.  The developer argued that the case presented a “potential” conflict of interest that required the appointment of independent counsel under Cumis.

The Third District Court of Appeals ruled otherwise.  The court concluded to the extent Cumis suggests a potential conflict arises wherever the insurer reserved its right to deny coverage being sufficient to require the appointment of independent counsel, the plain language of California Civil Code Section 2860 limits the Cumis right.  Under Civil Code Section 2860 the conflict must be actual, not merely potential.  The insurer-appointed counsel in Centex Homes was in no position to control the outcome in the case which focused on causation.  On the issue of causation, the insurer and the developer had the same interests defending the underlying claim.

Further, the developer argued independent counsel was required because the insurer-appointed counsel had a conflict of interest under Rule 3-310 of the Rules of Professional Conduct: “Avoiding Representation of Adverse Interests.”  Again, the Court of Appeals determined otherwise.  The court concluded that while generally conceptualized, defense counsel represents the interests of both the insurer and the insured, they are not necessarily both clients in the matter as contemplated under the Rules of Professional Conduct for conflicts of interest.  As the Court of Appeal viewed Rule 3-310 (C), the rule was not intended to apply to the relationship between an insurer and a member of the bar when the insurer’s interest is as an indemnity provider and not a direct party to the action.  In Centex the court concluded there was no actual conflict of interest presented in the case.

Centex Homes may signal the limitation and narrowing of the right to independent counsel in construction litigation.

If you have any questions or would like more information, please contact David Molinari at [email protected].

Eleventh Circuit Holds That Property Manager For Homeowners Association Is Not “Debt Collector” Under The FDCPA

Posted on: March 7th, 2013

By: Bill Buechner

Past Due NoticeThe Eleventh Circuit recently held in a case of first impression that a property management company is not a “debt collector” under the Fair Debt Collection Practices Act (FDCPA).

In Harris v. Liberty Community Management, Inc., the property management company (Liberty) was designated in its contract with the homeowners association as the general agent for the HOA.  Liberty performed a broad range of tasks for the HOA, including contracting for maintenance of the pool and other common areas, obtaining utilities, and performing a variety of accounting and banking functions. Liberty also collected on current and overdue assessments.

Due to the accumulation of more than $140,000 in unpaid assessments, the HOA adopted an amendment to its governing declarations, authorizing the HOA to suspend water service if the homeowner owed more than $750 in unpaid assessments and received adequate notice of the water suspension. The plaintiffs had their water service suspended by the HOA pursuant to this provision and filed a lawsuit challenging this action. The plaintiffs asserted that Liberty was a “debt collector” under the FDCPA and that its actions constituted an unfair debt collection practice. The plaintiffs also asserted that Liberty’s actions constituted an unfair trade practice under the Georgia Fair Business Practices Act (GFBPA).

Affirming the district court’s grant of summary judgment in favor of Liberty, the Eleventh Circuit noted that “not all who collect debts are ‘debt collectors’” under the FDCPA. The Eleventh Circuit concluded that Liberty fell within an exemption in the FDCPA for entities “collecting or attempting to collect any debt owed … to the extent such activity is incidental to a bona fide fiduciary duty.” The Court emphasized the numerous tasks that Liberty performed for the HOA other than debt collection, and that debt collection was only incidental to Liberty’s obligations to the HOA as its general agent.

As to the Georgia Fair Business Practices Act claim, the Court noted that the termination of water service for non-payment did not fall within the 34 specified practices identified in the statute as examples of unfair business practices. In rejecting Plaintiffs’ GFBPA claim, the Court stated that “a natural consequence of a person’s failure to pay for a service is that, at some point, the service provider may refuse to continue to provide that service.” In support of this statement, the Court cited a United States Supreme Court decision noting that, under common law, a utility is entitled to terminate service for nonpayment of an undisputed charge.

As a result of the Harris decision, property managers for HOAs, condominium associations and apartment complexes likely are exempt from the FDCPA, as long as they are performing a broad range of tasks for these entities as their general agent. Also, as a result of the Harris decision, suspending water service for nonpayment of assessments likely does not constitute an unfair trade practice under the GFBPA, as long as the homeowner receives adequate notice and the homeowner does not dispute the assessments owed.

Recent Court Rulings Suggest Homeowners’ Associations May Selectively Enforce Covenants

Posted on: September 6th, 2012

By: Marc Bardack

In two recent rulings, state trial court judges have rejected homeowner claims against homeowners associations (HOAs) for failing to enforce covenants against a neighbor.  These rulings raise the question of whether HOA’s can enforce neighborhood covenants selectively as they see fit. 

In Sugarloaf Residential Property Owners Association, Inc. v. Greenwald, the homeowners sued the HOA for arbitrarily enforcing landscaping and other property improvement covenants against them and not against their neighbors.  In ruling against the homeowners, Gwinnett Superior Court Judge Michael Clark held that the HOA had the right to enforce covenants, but not an affirmative duty to do so.  He interpreted the HOA’s governing documents as providing that right but not making it an obligation.  Thus, the court effectively ruled that the HOA could enforce covenants as it saw fit.

Judge David Dickinson reached a similar conclusion in the Forsyth County Superior Court case of Lake Astoria Community Association, Inc. v. Ingmire v. Furr where the homeowner sued the HOA for failing to enforce neighborhood covenants consistently.  Similar to the declarations in the Gwinnett County case, Lake Astoria’s Declarations provided that the HOA could not “be held liable for any injury, damages or loss arising out of the manner or quality of approved construction on or modifications to any lot.”  Judge Dickenson ruled that this provision precluded Mrs. Ingmire from arguing that the HOA had a legal duty to enforce its architectural standards or design guidelines.  Again, the implication with this ruling is that the HOA is free to enforce its covenants when it sees fit to do so.

Of note is that neither court specifically addressed the “arbitrary and capricious” enforcement of covenants argument advanced by the homeowners.  While some would argue that such rulings negate the purpose of having an HOA and neighborhood covenants, homeowners are not without recourse.  For example, in both the Gwinnett County and Forsyth County cases described above, the homeowner did sue the neighbor who allegedly caused excess surface water runoff.  A question remains as to whether a homeowner would have standing to sue a neighbor for violation of a covenant when that violation did not cause direct damage to the homeowner.  In other words, it is clear that a homeowner could sue his next door neighbor for directing excess surface water onto his property and flooding his basement, but it is not as clear that the homeowner could sue the neighbor down the street for putting an addition on a house without HOA approval. Additionally, homeowners always have the option of getting involved on their HOA boards in order to push the enforcement of covenants. 

Nonetheless, these rulings do provide some relief to HOAs and their board members (as well as their insurers) who dread getting dragged into the middle of disputes between neighbors.  These rulings cast a broad measure of protection even if enforcement is in fact selective.