The South Carolina Community Association Law Blog - By D. Ryan McCabe
Covering the law of homeowners associations, property owners associations, condominium associations, cooperatives and other community associations.
Bio Link
My name is D. Ryan McCabe. I am a shareholder of Rogers, Townsend and Thomas, PC in Columbia, South Carolina. I primarily practice in the areas of Community Association Law, Construction Law and Business Law. I am a former drywall, stucco, steel stud framing, and painting contractor. I was a USG Certified EIFS Contractor and currently hold a SC Residential Specialty Contractors licenseSyndicate
South Carolina Community Association Law Blog
New Fannie Mae Underwriting Guidelines For Condominium Developments
Effective March 1, 2009, Fannie Mae adopted new underwriting guidelines which will make financing more difficult to obtain for purchasing condominiums. Fannie Mae may refuse to accept mortgages in condominium buildings where 15% or more of the owners are delinquent in their assessments or where any one owner owns more than 10% of the condominium units.
The new guidelines also permit Fannie Mae to exclude mortgages in existing condominium developments where more than 49% of the condominium units are being leased or rented. Fannie Mae has recently began requiring that 70% of the units be sold to non-investors before it will accept a mortgage. These underwriting guidelines will make it more difficult for condominium owners to sell their units.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
The new guidelines also permit Fannie Mae to exclude mortgages in existing condominium developments where more than 49% of the condominium units are being leased or rented. Fannie Mae has recently began requiring that 70% of the units be sold to non-investors before it will accept a mortgage. These underwriting guidelines will make it more difficult for condominium owners to sell their units.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Enforce Covenants Consistently to Avoid Waiver
The South Carolina Court of Appeals agreed with the Master-in-Equity and found an association waived its right to enforce certain covenants. See Arcadian Shores Single Family Homeowners Ass'n v. Cromer, 2007 S.C. App. LEXIS 98 (Ct. App. 2007).
The Association's declaration of covenants allowed association members to construct fencing upon "submitting plans and specifications to and obtaining written approval of the plans by the Developer," and later by the Association. One member built a three foot high solid stucco wall instead of the three foot masonry lattice wall the plans called for. The Association sought to compel the owner to tear down the fence. See id. at *4.
The Court concluded the Association waived the right to require approval of fencing plans and specifications, if any was granted by the declaration. See id. at *12.
A waiver is the "intentional relinquishment of a known right." Id. at *13 (citing Gibbs v. Kimbrell, 311 S.C. 261 (Ct. App. 1993). An association does not necessarily have to ensure every lot looks identical to maintain its enforcement rights. However, a neighborhood scheme must be apparent.
In this case, the Court found that the Association inconsistently enforced its right to require approval of fencing plans and specifications. Some members had obtained approval, others had not. Moreover, evidence showed that the Master himself visited the subdivision and could not determine the existence of a neighborhood theme. By repeatedly failing to require approval, the Association waived or lost its right to make plans and specifications conditional upon its approval. See id. at *14.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Gated Communities May Need to Remove or Replace Their Gates
On April 18, 2009, The Island Packet, a South Carolina publication based out of Bluffton and Hilton Head, reported the unfortunate death of one of the members of a gated community. The person had a heart attack. While the paramedics got to the community's gates in four minutes, they were held up for a few minutes because of not being able to open the gates right away. To read the full article, you may click here.
This unfortunate and sad incident may serve as a strong incentive for state officials to consider disallowing the use of such "unmanned" gates. State authorities may exercise their general police power granted by the federal and state constitutions for the protection of the public health, welfare, and morals. See Denene, Inc. v. City of Charleston, 359 S.C. 85, 93 (2004). Such broad powers allow local authorities to enact legislation prohibiting the use of the gates. Even if no legislation has yet been enacted, communities should consider how to prevent potential incidents such as that in Bluffton to avoid risking liability to injured parties. It is also prudent to make sure that this type of incident does not occur so as to endanger a community association's valid and beneficial use of a gate.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
An Association Must Be Represented by a Licensed Attorney
Section 40-5-320 of South Carolina Code of Laws Annotated makes it unlawful for corporations and voluntary associations to "practice or appear as an attorney at law for a person other than itself in a court in this State or before a judicial body." S.C. Code Ann. Section 40-5-320(A)(1).
South Carolina Supreme Court clarified the statute in Renaissance Enterprises, Inc. v. Summit Teleservs., Inc., 334 S.C. 649 (1999). The issue presented before the Court was "[w]hether a non-lawyer can represent a corporation in circuit and appellate courts." Id. at 651. Specifically, the question was whether a corporation's officer or designated employee may represent the corporation if he or she is not licensed to practice law in South Carolina.
The Court noted that a corporate non-lawyer agent may represent the corporation in small claims actions only. Id. at 652. South Carolina Administrative Court Rule 405 authorizes a non-lawyer corporate officer, agent, or employee to represent the business in civil magistrate's court proceedings. Id. at 651. However, the Supreme Court found that no such authorization is granted in circuit and appellate courts within our state. Id. at 653.
Therefore, an association's director or any other of its agents may not offer legal representation on behalf of the association unless he or she is authorized to practice law in South Carolina. Doing so without an attorney license would constitute unlawful practice of law and subject the association representative to civil liability.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
The Fair Housing Act as a Limit on Restrictions Imposed by Associations
The Fair Housing Act ("FHA") prohibits either disparate treatment or disparate impact. For discriminatory treatment, an association must be shown to intentionally discriminate against a protected class. Disparate impact, however, does nor require proof of discriminatory intent. Even if a rule or restriction is nondiscriminatory on its face, if impacts a protected class differently than other classes, it may be found in violation of the FHA.
An association may impose certain restrictions upon its members and their individual lots, usually within the scope of the association's Declaration of Covenants. The Indiana Supreme Court was presented with one such restriction in light of the limitations of the FHA. See Villas West II of Willowridge Homeowners' Ass'n v. McGlothin, 885 N.E.2d 1274 (Ind. 2008). Villas West II of Willowridge Homeowners' Association ("Association") prohibited owners from leasing their properties. An owner leased her property in violation of the covenant. When the Association brought suit against the owner to enforce restriction, the owner counterclaimed alleging that the covenant violated the FHA.
The Supreme Court stated that insufficient evidence was presented to form a conclusion that the Association intended to discriminate against a certain class. The court then noted a prior decision by the 7th Circuit which listed four factors that would entitle an alleged victim to relief under the FHA: (1) the strength of the plaintiff's showing of discriminatory effect; (2) evidence of discriminatory intent; (3) defendant's interest in enforcing the covenant; and (4) whether plaintiff is seeking affirmative relief or simply a prohibition upon defendant's interference with individual property owners.
The Supreme Court rejected, however, the Seventh Circuit's four-factors test. Instead, the court adopted a so-called prevailing test: the plaintiff must first show that a less restrictive alternative is more efficient and fair; defendant must then dismiss such alternatives.
Accordingly, the jurisdiction where an association is located may dictate the impact that the FHA may have on an association's powers to enforce its covenants. Being aware of the prevailing or majority test used in determining disparate intent or impact may serve as a guideline for imposing and delineating restrictions.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Assessments Due Upon Foreclosure
Section 27-31-210 of South Carolina Code of Laws annotated provides: Where the mortgagee of any mortgage of record or other purchaser of an apartment obtains title at the foreclosure sale of such a mortgage, such acquirer of title, his successors and assigns, shall not be liable for the share of the common expenses or assessments by the co-owners chargeable to such apartment accruing after the date of recording such mortgage but prior to the acquisition of title to such apartment by such acquirer."
Thus, a lender who forecloses on a property or a buyer at a foreclosure sale does not need to start paying association assessments until the lender or purchaser obtain title to the property, which does not occur until the end of the foreclosure process. This means that associations are usually unable to collect any assessments while a property is being foreclosed, which sometimes takes six or more months.
Associations have an incentive to advocate changes in the law that would either impose an obligation to pay assessments at an earlier stage or attempt to shorten or accelerate the foreclosure process. However, in light of the current economic situation and established foreclosure procedures, chances of any meaningful changes any time soon are arguable.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
A Possible South Carolina Homeowner's Association Act
On January 13, 2009, Bill 30 was introduced in the South Carolina Senate. The bill's sponsor is Senator Derrell Jackson. Bill 30 is a proposal to amend the Code of Laws of South Carolina, 1976, by adding a new chapter entitled "South Carolina Homeowners' Association Act."
The reasoning behind the proposal is the increased number of disputes between associations and their members. The bill would increase the transparency of an association's operations by requiring that association officers maintain certain documentation. Additionally, the law designates the Department of Consumer Affairs as the state agency to handle and monitor associations' dealings.
While state regulation of associations may arguably provide efficient and fair resulution of arising disputes, constitutional issues such as the right to privacy unavoidably come to mind. You may form your own opinion by reading the full text of the proposal on the South Carolina Statehouse website.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Issues Concerning the Enforcement of Claims against Declarants
An association board knows about the difficulties that arise when attempting to collect assessments and fines due. A similar problem emerges when a declarant or developer transfers the property to the association and abandons its continuing duties. The association is then forced into bringing claims against the declarant to recover for defects, maintain common areas, and enforce any other remaining obligations.
Mark L. Hankin addresses some of the issues related to a suit by an association against a declarant in the February 2009 issue of the Habitat. Mark L. Hankin, Brand New Board and Shoddy Construction: A Case Study, HABITAT, Feb. 2009. One such issue is the legal status of the declarant. The type of entity is a factor in determining who may be held liable as a declarant. In Hankin's example, the two partners facing potential liability were pointing fingers to each other. Such disagreements may be a distraction to the claim that may delay payment or repair. The association should focus on pursuing all parties possibly liable.
While a conflict among defendants may impede immediate remedy, defendants in disagreement may be helpful in resolving the liability issue. The more defendants blame each other, the more facts they reveal that determine the parties at fault. In addition, remember, many times all defendants are jointly and severally liable: any of them are liable for the entire amount.
As Hankin points out, litigation is usually necessary to resolve an association's claims against declarant. The conflict may last years and the resolution may only partially meet the owners' needs. In addition, recovery never includes legal fees.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Collection of Assessments in Lieu of the Federal Racketeering Act
Virginia Discrict Court for the Western District ruled that an association did not violate the Racketeer Influenced and Corrupt Organizations Act ("RICO"). Miller v. Dogwood Valley Citizens Assoc., Inc., C.A. No. 3:06cv00020, U.S. Dist. Ct., W.D. Va., Aug. 28, 2008. The association levied special assessments against association members without knowing or realizing that it did not have the authorization to do so. When two members sued the association for wrongfully pursuing foreclosure proceedings on delinquent properties, a court ruled that the association could not have levied special assessments.
The members then sued the association for alleged violations of the RICO act. The district court first noted that RICO liability only extends to "unlawful activities that pose a special threat to social wellbeing." RICO makes it unlawful to conduct or participate in the conduct of an enterprise using racketeering activity or collection of unlawful debt. The association, however, legitimately believed it had authority to collect debt. Once a court ruling was issued notifying the association of lack of such authority, the association stopped any attempts to collect special assessments. No violations under RICO occurred.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
An Association Need Not Present a Homeowner with Copies of Governing Documents to Be Able to Enforce Them
Board of Directors of Hill & Dale Homeowners Association, Inc. v. Cappello, 852 N.Y.S.2d 586 (2007).
The defendant fell behind on her monthly common charges payment ($429.18 per month) on her condominium and the Homeowners’ Association (Association) filed a breach of contract suit for the unpaid common charges, late charges, interest, and attorney fees. Although defendant agreed that she owed $429.18, defendant argued she did not owe the plaintiff late fees, interest or attorney fees as set out in the condominium’s by-laws and declarations because she was never provided a copy of those documents. The lower court agreed and ordered her to only pay the plaintiff $429.00, plus costs.
On appeal, the court disagreed with the lower court and held that defendant is presumed to be aware of the condominium by-laws and declarations since they were recorded in the Clerk of Court’s office and therefore, the defendant would have discovered those documents through a diligent title examination prior to the purchase of her condominium. The judgment of the lower court was reversed and a new trial was ordered.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.