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Subject: VA Associations, Do you still have the authority to use monetary penalties for violations?
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TimB4
(Virginia)

Posts:16360


03/01/2013 8:32 AM  
To all Virginia Associations, and perhaps others, does your Association actually have the authority it thinks it has in regard to using monetary penalties for covenant or rules violations?

Sorry for the long post. I tried to keep it short but informative and this was the length needed.

In VA there has been a few seminars surrounding the lessons learned from a few legal cases. These cases are:
Sarnir R. Farran, et al. v. Olde Belhaven Towne Owners Association a 2010 ruling
and
Zinone vs Lee’s Crossing Homeowners Association a 2011 ruling (note a MSWord document - page 13 starts discussing monetary penalties).
and
Fairfax County Redevelopment and Housing Authority v. Shadowood Condominium Association, et al. a 2012 ruling

Applicable laws in those cases were VA Property Owners' Association Act and the VA Condominium Act.

These cases, 2 from HOAs and 1 from a COA, all centered on the same question:
Does the Association have the authority to assess monetary penalties and where must that authority come from?

In the 2010 Belhaven case, the Circuit Court said no because the authority was not in the CC&Rs.
In the 2011 Lee’s Crossing case, the Circuit Court said yes because the authority was in a policy resolution.
In the 2012 Shadowood Opinion, the Supreme Court of VA made it clear that the statutes did not confer any power to assess charges against Plaintiff for rules violations. This power needed to come from the applicable Association Document/s (Condominium Instruments for COAs and the Declaration for HOAs).

Even though the Belhaven opinion and the Lees Crossing opinion were contrary to each other, The Shadowood opinion (based on legal articles and blogs) gave lawyers the opinion that the authority must come from the Declaration (CC&Rs) for HOAs or from the Condominium Instruments (CC&Rs and Bylaws) for COAs.

My Association, an HOA consisting of 130 lots in a town home development, doesn’t have an issue here because our governing documents (CC&Rs, Articles of Incorporation, Bylaws and Resolutions) clearly allowed the Association to adopt penalties and previous boards had already done that. However, what I learned in reading the court opinions and various articles about the cases was that the expression Expressio unius est exclusio alterius , a Latin phrase that means express mention of one thing excludes all others. The court ruled in Belhaven that since the CC&Rs specifically mentioned an enforcement method that the omission of other enforcement methods (i.e. monetary penalties) shows an intent to exclude. Per that court opinion [emphasis added]:

Although Va. Code § 55-513(B) does grant property owners associations authority to impose fines in certain circumstances, that authority is limited to situations where an association's declaration expressly allows it to impose fines or its declaration expressly allows it to adopt rules or regulations which impose fines. Neither situation applies here. In this case, the omission of a provision allowing Belhaven to impose fines as a method of enforcement shows an intent to exclude. Article XIII, § 3 of the Declaration provides the only methods of enforcement: a proceeding at law or in equity. Nothing in Va. Code § 55-513(B) gives Belhaven authority to exceed the power granted to it in its governing documents. As a result, the Court concludes that the Farrans have sufficiently pled that Belhaven's enactment of the Penalties Resolution was ultra vires. The demurrer is overruled as to the Penalties Resolution.

My Association was started in 1977. A rewrite of the documents was done in 1993 but I still consider them basically boiler plate documents. Nothing really special about them and the language used seems to be consistent with documents from other HOAs in VA that I've seen. Using the Court's analysis and reasoning (and my layman's understanding of them) I reviewed our governing documents. I discovered the following:

No where in our CC&Rs is the Association authorized to use monetary penalties as an enforcement option for violations of the CC&Rs.

No where in our CC&Rs is the Association authorized to adopt additional penalties for violations of rules and regulations.

Our Bylaws, which I suspect is similar wording for other VA Associations, does (or did) give the Association permission to adopt additional penalties:

Section 1. Powers. The Board of Directors shall have all of the powers necessary for the administration of the affairs of the Association including the following:

(a) adopt and publish rules and regulations governing the use of the Common Area and facilities, and the personal conduct of the members and their guests thereon, and to establish penalties for the infraction thereof;


However, that section of the Bylaws was written in 1977. The VPOAA was not adopted until 1989. In review, it appears that the section allowing the Association to adopt penalties is now in conflict with VA § 55-513 :

"Rules and regulations may be enforced by any method normally available to the owner of private property in Virginia, including, but not limited to, application for injunctive relief or damages. . . The board of directors shall also have the power, to the extent the declaration or rules and regulations duly adopted pursuant thereto expressly so provide to . . . (ii) assess charges against any member for any violation of the declaration or rules and regulations for which the member or his family members, tenants, guests, or other invitees are responsible.”

Since that statute defers to the Declaration (CC&Rs) and since the ruling in the Belhaven case specified that an omission in the Declaration shows an intent to exclude, it appears to me that my Association, even if it once had the authority, no longer has the authority to impose monetary damages.

Do you believe that my layman's analysis gives a correct understanding and, if you do and you live in VA, does your Association still have the authority for monetary penalties?



RayC4
(Virginia)

Posts:173


03/01/2013 11:26 AM  
Tim, thanks for the thoughtful analysis. I have posted on this subject before and still have doubts (uncertainty) in spite of the recent cases you mention.

I agree with the jist of your analysis. But the situation where, as in my own HOA (POAA), the Covenants do not give express authority but the Bylaws do, I still think is murky. My problems there are twofold:

1) the use of the court's wording as "the governing documents" in both Shadowood and Bellhaven, and

2) Va 55-513 ("to the extent the declaration or rules and regulations duly adopted pursuant thereto expressly so provide to . . . (ii) assess charges against any member for any violation...")

I am not an attorney. But I have always considered Bylaws to be part of the 'governing documants', and I have always thought that Bylaws establish 'rules and regulations.'

So my bottom line is -- IF Bellhaven had had a provision for monetary penalities in their Bylaws, I am not certain the court would have ruled as they did. (My presumption is that Bellhaven had no such Bylaw provision and the Court ONLY had the Covenants' enforcement provision to go by, which of course was null.) Since our HOA DOES have the wording in our Bylaws, I'm damned if I know whether we can 'fine' or not!
LarryB13
(Arizona)

Posts:4099


03/01/2013 11:55 AM  
Tim,

One of the problems I see repeatedly with both the courts and legislatures is a tendency to place all governing documents on an equal plane. That is, when they refer to governing documents the bylaws are given the same weight as the declaration.

I know of only one court decision where the court made a real distinction between the declaration and the bylaws. That was a case in Tucson where the association tried to make itself a 55+ community by amending the bylaws instead of the declaration. The court rejected that attempt by ruling that the declaration controls how the property will used and the bylaws govern how the association shall operate.

Here's a hypothetical situation: Suppose I join the non-profit Hangnail Survivor's Society (HSS) as I wish to prevent this dreadful condition from ever happening again. I pay my dues and get my membership card. Like any incorporated organization, the HSS has bylaws. Then the board of directors of the HSS decides that they wish to control how members behave and to impose fines on those who violate the Society's rules. They amend the bylaws accordingly. An HSS board member drives past my home and sees my garbage cans sitting next to the garage, a clear violation of the rules of the Society. They issue a fine, which I do not pay, and file a lien on my home and eventually we end up in court.

I do not dispute that the BOD of the HSS may amend the bylaws nor do I dispute that they did, in fact, do so. At some point the Hangnail Survivor's Society is going to have to prove to the court that there is a contractual relationship between them and me that allows them to impose fines and record liens. This question will hinge on whether I agreed to the terms and conditions or whether the board acted unilaterally in imposing those conditions. This is the same situation I see with HOA's.
RayC4
(Virginia)

Posts:173


03/01/2013 1:56 PM  

"I do not dispute that the BOD of the HSS may amend the bylaws....."

And now, Larry, take it one step further. Our HOA's ORIGINAL Bylaws (not an amendment) contains the 'fining' provision. It was there at the creation of the "governing documents" but just not in the Declaration specifically.

Now someone in our HOA, say, challenges a fine in court. And you guys say....?



P.S. how in blazes do you get 'quotes' on this board to come 'boxed and grayed'? I click on 'quote' (not reply) but it never works for me. I'm using Windows 7 and IE -- doesn't get more vanilla than that....UURRGGHHH!
TimB4
(Virginia)

Posts:16360


03/01/2013 3:02 PM  
Posted By RayC4 on 03/01/2013 11:26 AM

I am not an attorney. But I have always considered Bylaws to be part of the 'governing documants', and I have always thought that Bylaws establish 'rules and regulations.'

So my bottom line is -- IF Bellhaven had had a provision for monetary penalities in their Bylaws, I am not certain the court would have ruled as they did. (My presumption is that Bellhaven had no such Bylaw provision and the Court ONLY had the Covenants' enforcement provision to go by, which of course was null.) Since our HOA DOES have the wording in our Bylaws, I'm damned if I know whether we can 'fine' or not!




Actually, the governing documents would include all of the following:
The CC&Rs
The Articles of Incorporation
The Bylaws
Resolutions adopted by the Board

Since the Bylaws cannot be in conflict with the State statutes, the CC&Rs or the Articles of Incorporation, and since 55.513 specifically says that the authority must come from the CC&Rs, I do believe an argument can be made that a passage in the Bylaws is in conflict with the law (as the law defers to the CC&Rs) and would also be in conflict with the CC&Rs (based on the court opinion specifying the language in the CC&Rs showed an intent of excluding other enforcement methods). That said, because VA Supreme Court has sent mixed signals (not commenting on Belhaven, supporting Lee and being very specific in what could or could not be assessed in Shadowood, like you it's a gray area. Therefore, like you, I'm not real positive how a court would rule if someone challenged our documents as written. However, I'm fairly positive that if the paragraph that was in our Bylaws was moved to our CC&Rs it would stand against a legal challenge. Unfortunately, I'm also fairly positive that the membership won't support such an amendment in the numbers required by our documents.

Side note: I do not know if Belhaven had the authority in their Bylaws or not (I did go to their website but the governing documents were not available to the public).
TimB4
(Virginia)

Posts:16360


03/01/2013 3:04 PM  
Larry,

I think we are in agreement on this issue.
LarryB13
(Arizona)

Posts:4099


03/01/2013 5:39 PM  
Posted By RayC4 on 03/01/2013 1:56 PM
How in blazes do you get 'quotes' on this board to come 'boxed and grayed'? I click on 'quote' (not reply) but it never works for me. I'm using Windows 7 and IE -- doesn't get more vanilla than that....UURRGGHHH!




Ray,

When you click on "quote," you should see the quoted text inside a bunch of HTML code. You will NOT see the text highlighted in a box while you are editing. The boxed highlighting occurs only after you have clicked SUBMIT.

I do not know how to show you the entire HTML code because it will just be translated when I post this, but what you should see inside pointed brackets are the words "div class="NTForums_Quote"". This is the start of the quoted text. The end of the quoted text will also be inside the pointed brackets and will say "/div." You may also see a pair of brackets that say "br" inside them; these are just HTML code for line feeds to space the quoted text from your response.

Hope this helps.
DavidW5
(North Carolina)

Posts:565


03/02/2013 7:16 AM  
Tim,

I think your association may have an issue with fines based on your research. In our case I think our association is on solid ground. Our CCRs contain the following:

4.3 Rulemaking and Enforcement

(b) Enforcement. Subject to the limitations and requirements of Virginia Code Ann Section 55-513B, the board ...may impose sanctions for violation of the governing documents, after notice and hearing in accordance with procedures set forth in the bylaws. The board shall establish a range of penalties ... Such sanctions may include, without limitation:

(i) imposing a graduated range of reasonable monetary fines which, until paid, shall constitute a lien upon the violator's dwelling unit.... All remedies set forth in the governing documents are to be cumulative of any remedies available at law or in equity. In any action to enforce provisions of the governing documents, if the association prevails, it shall be entitled to recover all costs, including without limitation, attorneys fees and court costs reasonably incurred in such actions.

The definition of governing documents in the CCRs is "A collective term including the Declaration and any Supplemental Declaration, the Bylaws, Articles, and Design Guidelines, and rules and regulations adopted by the Board, as any such documents may be amended from time to time."
TimB4
(Virginia)

Posts:16360


03/02/2013 8:36 AM  
David,

I agree.
With your Association having that language in your CC&Rs you certainly appear to be on solid ground.
I also appreciate you sharing those passages as it gives me a starting point for a proposed amendment to the CC&Rs.

Tim
LarryB13
(Arizona)

Posts:4099


03/02/2013 8:42 AM  
David,

The language you quoted sounds pretty much bullet-proof to me but somehow someone will find a way to challenge it.

TimB4
(Virginia)

Posts:16360


03/05/2013 5:41 PM  
Well, I approached the board tonight about the probability that our Bylaws were in conflict with VA law concerning monetary penalties and that we might want to get a legal opinion.

After much discussion the issue centered around the cost of the opinion, the fact that laws change and that even if they are in conflict, it's not really an issue unless we actually try to collect any assessed penalty (vs. waiving them once the violation has been corrected).

The decision was to leave the documents as they are.

If monetary penalties are needed we would waive once the issue was brought into compliance (truthfully over the past 10-20 years we only ever assigned monetary penalties 3 times and each of those were waived once they came into compliance).

Therefore, I'll not be able to share any legal opinions over this issue.


Tim
TimB4
(Virginia)

Posts:16360


05/04/2017 6:47 AM  
I noticed that the link to the Farrin decision doesn't work anymore.
I've attached the opinion for those who are interested (two parts)


Attachment: 154472513871.pdf
Attachment: 154472518554.pdf

TimB4
(Virginia)

Posts:16360


03/30/2019 8:34 AM  
Updating the link to the Zinone case referenced in the original post.

ZINONE v. LEE CROSSING HOMEOWNERS ASSOCIATION
RoyalP
(South Carolina)

Posts:770


04/13/2019 6:34 AM  
Posted By LarryB13 on 03/01/2013 11:55 AM
Tim,

One of the problems I see repeatedly with both the courts and legislatures is a tendency to place all governing documents on an equal plane. That is, when they refer to governing documents the bylaws are given the same weight as the declaration.

I know of only one court decision where the court made a real distinction between the declaration and the bylaws. That was a case in Tucson where the association tried to make itself a 55+ community by amending the bylaws instead of the declaration. The court rejected that attempt by ruling that the declaration controls how the property will used and the bylaws govern how the association shall operate.

Here's a hypothetical situation: Suppose I join the non-profit Hangnail Survivor's Society (HSS) as I wish to prevent this dreadful condition from ever happening again. I pay my dues and get my membership card. Like any incorporated organization, the HSS has bylaws. Then the board of directors of the HSS decides that they wish to control how members behave and to impose fines on those who violate the Society's rules. They amend the bylaws accordingly. An HSS board member drives past my home and sees my garbage cans sitting next to the garage, a clear violation of the rules of the Society. They issue a fine, which I do not pay, and file a lien on my home and eventually we end up in court.

I do not dispute that the BOD of the HSS may amend the bylaws nor do I dispute that they did, in fact, do so. At some point the Hangnail Survivor's Society is going to have to prove to the court that there is a contractual relationship between them and me that allows them to impose fines and record liens. This question will hinge on whether I agreed to the terms and conditions or whether the board acted unilaterally in imposing those conditions. This is the same situation I see with HOA's.





PERFECT
RoyalP
(South Carolina)

Posts:770


04/13/2019 6:39 AM  
Tim,

ARTICLE X
PENALTIES AND COMPLIANCE

Section 3. Fines. In addition to all other remedies, in the sole discretion of the Board of
Directors of the Association, a fine or fines may be imposed upon an Owner for failure of an
Owner, his family, guests, invitees, or employees to comply with any covenant, restriction, rule or
regulation, provided the following procedures are adhered to:
(a) Notice: The Association shall notify the Owner of the infraction or infractions.
Included in the notice shall be date and time of the next Board of Directors meeting at
which time the Owner shall present reasons why penalty or penalties should not be
imposed.
(b) Hearing: The non-compliance shall be presented to the Board of Directors after which
the Board of Directors shall hear reasons why penalties should not be imposed. A
written decision of the Board of Directors shall be submitted to the Owner by not later
than twenty-one (21) days after the Board of Directors meeting.
(c) Penalties: The Board of Directors may impose special assessments against the
Owner's property as follows:
I) First non-compliance or violation: a fine not in excess of One Hundred and
NollOO ($100.00) Dollars.
2) Second non-compliance or violation: a fine not in excess of Three Hundred and
Noll 00 ($300.00) Dollars.
3) Third and subsequent non-compliance or violation which are of a continuing
nature a fine not in excess of Five Hundred and No/I 00 ($500.00) Dollars.
(d) Payment of Penalties: Fines shall be paid not later than thirty (30) days after notice of the
imposition or assessment of the penalties.
(e) Collection of Fines: Fines shall be treated as an assessment subject to the provisions for
the collection of assessments as set forth in Article V hereof
(f) Application of Penalties: All monies received from fines shall be allocated as directed by
the Board of Directors.
(g) Non exclusive Remedy: These fines shall not be construed to be exclusive, and shall
exist in addition to all other rights and remedies to which the Association may
otherwise be legally entitled; however, any penalty paid by the offending Owner shall
be deducted from or offset against any damages which the Association may otherwise
be entitled to recover by law from such Owner.
TimB4
(Virginia)

Posts:16360


04/13/2019 9:47 AM  
John,

This is a six year old thread.
RoyalP
(South Carolina)

Posts:770


04/13/2019 10:49 AM  
..... which YOU bumped .....

Posted By TimB4 on 03/30/2019 8:34 AM
Updating the link to the Zinone case referenced in the original post.

ZINONE v. LEE CROSSING HOMEOWNERS ASSOCIATION



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