Friday, June 17, 2011

Judge finds Maryland HOA cannot fine rulebreaker

The Orchards’ declaration of covenants does not give the HOA the right to impose fines, so it does not have that power, McGann wrote April 8. Amending its declaration with a bylaw did not give The Orchards the power to impose fines, he stated.

A smaller percentage of homeowners must approve a bylaw than a change to a declaration, giving bylaws less power than declarations and articles, Schild said. To change a declaration, a homeowners association must gather the approval of at least 75 percent of residents, he said, while a bylaw does not need even a majority vote.

“The power to fine is punitive and inherently comes from a state, or a city, or a municipality and it is done originally in the areas of criminal offenses,” he said during a March 29 hearing. “That is where the state has the ability to fine people.”
A Maryland judge apparently sees police powers reserved for public (constitutional) local government and not Privatopia.

1 comment:

Anonymous said...

Would love to see the opinion. Of course it is a power reserved for a legitimate political subdivision of the state and even then only some of them. "Consent" is a diversion from the legal issue of legality. "Consent" by virtue of involuntary membership is even further removed. I look forward to cases proceeding in other states addressing the legality (lack thereof) of HOA corporations "fining" anybody.

The "contract" theory of fining never made any sense given that
i) one party didn't consent,
ii) fines are disfavored/prohibited in the context of contract,
iii) the HOA corporation is not harmed so these aren't liquidated damages, and
iv) the assessor of the "fine" is the one profiting from it.

The HOA industry in Texas has taken the position that the restrictive covenants do not expressly prohibit the HOA corporation from fining. Of course, that is because the restrictive covenants were written based upon the public policy of free and unrestricted use of the land by the owner unless the restrictions are unambiguous and for a proper purpose. The industry position is absurd because the CCRs also don't prohibit the HOA corporation from simply taking your property, parking a plane on it, using it as a dump site, or burning down your house. That misses the point - it's supposed to be YOUR property.

If "fines" by a private person are to be recognized (the HOA corporation is a private person under the law), then every homeowner can impose their own restrictions on their property which impose "fines" on the HOA corporation to the extent that the existing restrictions don't otherwise curtail their ability to do so. Think about that one.

Another restriction that homeowners should consider imposing on their own lots is the "transfer fee". Now I think these things should be declared unlawful. But if the industry can take a bite out of your property, there is no reason you can't likewise utilize it as a foreclosure poison pill against the HOA corporation and its agents.

The legislation promoted by the industry in every state is to give legislative blessing to "transfer fees" of unlimited number and unlimited amount so long as they are paid to the HOA corporation, a governmental entity, the HOA's managing agent (who do you think lobbied for that), or a 501(c)(3).

So whether foreclosure is threatened by the bank or the HOA corporation, spend the time to record a restrictive covenant obligating payment of $XX,XXX by the seller (or buyer or both depending upon laws in your state) to the 501(c)(3) of your choice for each and every subsequent sale. Start going after the HOA law firms, management companies, and the HOAs for the transfer fees. Think about it.