Is Your HOA Following the Law with its Enforcement Measures and Fine Policy?

Nearly all states, whether there is specific HOA law, require notice and a hearing after a fine has been assessed.

The Foundation Behind HOA Enforcement Measures

The board of directors has what is called a fiduciary duty (which we have discussed previously in much detail) to the fellow community members meaning that they must apply prudence when completing community affairs.

Although the fiduciary duty of board members to the rest of the community is construed in a reasonably broad manner, as our previous article explains, today, we will narrow our focus to examining just one aspect of this duty: enforcement of community rules and guidelines.

From noise to parking to aesthetics, association boards draft rules requiring compliance by the members to ensure the quality of life for the residents and to protect the home values of all the member homeowners.

Now, if we lived in a Utopian community, this is where the work of the board would end: members would elect board directors that they trust and said directors would effectuate rules that would be embraced by the community and followed with gusto. However, we all know from personal experience that it is never that easy.

For example, if there was a requirement in the community that houses be painted white or yellow only, a homeowner could have a different understanding of how bright the shade of yellow is considered tolerable. It is nearly impossible to craft perfect rules that will not be ambiguous in some scenarios. Thus, the need for boards to use enforcement measures to enforce the rules.

If, for whatever reason, board members do not automatically comply with community rules, the board needs a means of deterrence. Commonly, boards will use a penalty system to ensure compliance with community standards. However, before we rush off into the next section that answers all the questions related to fines, let us quickly reiterate the importance of consistently and uniformly enforcing the rules.

As we discussed previously in-depth in our article regarding the duties and obligations of board directors, the fiduciary duty of boards gives the directors very little flexibility in choosing which rules to enforce. Because the duty is owed to each of the members of the community, board members are not permitted to substitute their own judgment for that of the established rules.

Back to our previous example, if the association promulgated a rule requiring yellow or white paint only to be applied on houses, and a fellow homeowner picked a pretty shade of green, action must be taken. Even if the majority of the board happens to like this shade of green and doesn't believe the violation is that big of a deal, the enforcement process needs to go into effect.

Uneven enforcement of community rules, like in this example, would leave the board members liable to suit from the other members of the community because the board is violating their fiduciary duty.

For more information on board duties owed to their members, check out the previous discussion linked above. For now, let us get a better understanding of how the enforcement procedure is supposed to work.

Fine Policy for CC&Rs Violations and Fine Schedule

Before we continue, it must be emphasized how much variation there is in the country regarding community association law. Some states like Florida and California have extensive statutes that regulate board of directors, while other states like Massachusetts, have nearly no law that governs these private communities.

Importantly, just because we provide homeowners an example of a statute in California, do not assume it applies to a particular situation in another state. Below are some specifics on how the states vary in HOA enforcement requirements but know that homeowners can find their own jurisdiction's applicable state laws.

Many states have passed statutes that dictate the procedure that an HOA board may fine a homeowner for violating community rules—California, Virginia, and Florida are three. A board director needs to have a full understanding of these statutes because non-compliance can lead to legal liability, sometimes even personal liability for the board members.

For example, in California, the Davis-Stirling Common Interest Development Act (linked above), requires a board to publish a schedule of the potential fines 30 days before they are to go into effect. Interestingly though, the California statute does not require that the amount of potential fines be distributed on the same schedule. Instead, the proper amount for a fine is based on a reasonable standard that we will discuss in a moment.

However, before assessing a fine to a homeowner in violation, the board must decide if they prefer to send a warning letter before instituting a fine. This process is a good policy in most cases unless the board is unwilling to carry through with the promises made in the warning letter.

An uncomplicated way for a board to avoid unnecessary suits from homeowners (for undue harassment or discrimination, for example) is to provide a warning letter to the homeowner in violation, establishing that the continuance of such behavior will result in a fine. That way, if there is a question about if the rule is being enforced fairly, the homeowner will have an opportunity to object before he or she loses money.

How important is this schedule stuff, really? Well, in a very recent case from Arizona, Turtle Rock III HOA vs. Linda A. Fisher, an appeals court struck down more than $9,000 in fines assessed to a homeowner not maintaining her property according to the rules. The reason? Her rights were violated by the association, never providing a schedule of the fines.

All this board needed to do was inform the community beforehand how the rules were going to be enforced.

Now, once the fine schedule has been published, nearly all states, whether there is specific HOA law, require notice and a hearing after a fine has been assessed. The reasoning behind this lies in one of the bedrock legal principles of our republic: due process of law.

Due process takes on different meanings depending on the legal and constitutional context. Simply put, it is illegitimate to take a citizen's property (money too) in America, without the citizen having the opportunity to argue the merits of an objection. It is unlikely that any board—especially with the assistance of counsel—would promulgate rules that permit fines without notice and a hearing. Such a policy would be a generous invitation for litigation.

Importantly, even if a board was to provide notice and hearing of a fine, and even if that fine is permissible under the association's documents, the board is still required by nearly all states only to assess a fine that is "reasonable," whatever that means.

What is considered a “reasonable” fine under the law?

Even if a state is generous enough to provide a statute governing association boards, it is unlikely to provide much guidance beyond ambiguous language. Virginia is an interesting example that does not prove any rule.

Under the Property Owners' Association Act (linked above), the Commonwealth establishes a fine limit of fifty dollars for a "single offense" with a ten dollar fine permitted each day of an "offense of an ongoing nature." Our readers may think, "Finally!" "a clear rule that is easy to follow." Perfectly willing to concede that it looks that way, but in practice, it is easy to see why more states prefer the ambiguous reasonable standard.

Let us pretend our homeowner's association does not permit parking in front of the commonly-held clubhouse overnight. If the homeowner decided to ignore the rule and parked there for seven days straight, would this be a "single offense" or would the "ongoing nature" provision kick-in? Which for which nights? What if he parked there for five straight nights, took a two-day vacation, and resumed overnight clubhouse parking?

The kind folks of the Commonwealth mean well, but in practice, this statute is just as difficult to enforce as the reasonable standard. "Fines cannot be arbitrary, discriminatory, and imposed in good faith by the board for the benefit of the community."

Generally, most states have statutes like Ohio that create a positive law that permits boards to impose "reasonable enforcement assessments for violations." Implicit in the writing of such a statute is an unreasonable fine is not permitted.

In order for a fine to be reasonable, the similar principles we have seen previously in our discussions of obligations and fiduciary duties apply: the fines cannot be arbitrary, discriminatory, and imposed in good faith by the board for the benefit of the community.

In the presumption of good faith, most states require boards to consider two factors to reasonably assess a homeowner: the seriousness of the violation and the economic status of the community.

The advantage of using the flexible, reasonable standard is that what is reasonable in a community of million-dollar homes may not be in a community of condominiums. The most common recommendation for a reasonable fine is around fifty-dollars (Virginia's choice was not arbitrary).

Yet, a board of an affluent community may determine that at that level is not a sufficient deterrence to abide by community rules. Certain wealthy communities could institute a much higher reasonable assessment, so long as they abide by the proper procedure in implementation.

What is interesting is that similarly situated communities may have different standards of a reasonable fine depending upon the state. Florida has a very permissive definition of what is a reasonable fine that might not be replicated in any other jurisdiction. The Florida statute permits a reasonable fine of $100 per single violation with fines permitted to accrue up to $1,000.

Most states would not view such a fine as reasonable because, at such a price, the fine is not in the prescribed spirit of why these assessments are permitted. The function of these assessments is the encourage compliance with community rules without the use of the court system. For the law to grant a private entity to the ability to take a citizen's property is a great responsibility; boards must ensure that fines do not cross the line into usury.

Another important note for homeowners before we wrap up, most states permit not only a reasonable assessment but also the ability of the board to recover reasonable attorney's fees. This is super important! A lawyer in many jurisdictions may bill quite a bit of money without a court stepping in declaring the charges unreasonable.

As an example, Mr. Mosby of Tampa Bay was fined $75 in October of 2014, a payment he missed. Because Florida permits a lien to be assessed to the property of a missed payment, Mr. Moby's board of directors retained counsel, and by February, the lawyer gave Mr. Mosby two days to pay the fine that had grown to more than $1,700 or be foreclosed upon. Pretty terrible story.

A useful takeaway is that a reasonable HOA fine may be affordable, but if homeowners owe reasonable attorney's fees, the costs can get out of hand in a hurry. Keeping up to date with reasonable assessments is undoubtedly in a homeowner's best interest. Other states besides Florida (Texas and Colorado are two), permit liens on a homeowner's property for unpaid assessments.

footnotes

[1] Boards have other enforcement mechanisms like the suspension of the use of common areas, but for simplicity's sake, this article will focus on monetary penalties.