We have been asked on numerous occasions recently to give guidance to our community association clients about disputes that arise with and between their members. Communities throughout Maryland, and across the country, grapple with these questions every day. Resolving disputes within a community association can be one of the most daunting tasks facing members of the Board of Directors or property managers. It can be a confusing process to the lay person and oftentimes is not as cut and dry as we legal practitioners would like. How a Board or property manager handles the first steps toward enforcement of a community's governing documents and dispute resolution can mean the difference between a functioning community and a dysfunctional one, between upholding and protecting the covenants, which in turn protect property values, and selective enforcement and losing the right to enforce. But what, exactly, do you do?
This article is intended to walk you, step by step, through the dispute resolution process. Although this process may vary somewhat depending upon your association's governing documents and the type of community you live in, there are some basic rules that should always be observed when your community finds itself faced with violations. First, it is important to note that a board of directors does not really have a choice other than to take action when it becomes aware that a homeowner is violating the governing documents of their community. The Board of Directors owes a fiduciary duty to the community. This means that the Board owes the highest standard of care imposed by law, the duty to exercise reasonable care and the duty of loyalty. Thus, when a Board is aware that a violation is occurring it must take action to protect the community by affirmatively addressing the violation. Even where the Board ultimately concludes that enforcement is not appropriate under the circumstances, its decision not to take enforcement action-and the reasons for that decision-must be clearly articulated by the Board. Inaction is not an option.
What constitutes a violation in your community cannot be set forth here. Conduct that violates one community's covenants may be permitted in a different community. You should familiarize yourself with the governing documents of your community. The governing documents include, in order of priority, the declaration, bylaws, rules and regulations and guidelines. Each of these documents plays a role in defining the responsibilities of the board of directors and the homeowners by establishing what can and cannot be done within your community. They typically also outline the process for obtaining the community's approval to make changes to your home and contain what are known as "use restrictions." Anything from parking to pet rules, to fence styles, to the definition of a nuisance can usually be found in the use restriction section of your documents. Where to find these use restrictions varies from community to community, but a rule of thumb is that, if you are a condominium, the use restrictions are usually found in your bylaws, while the use restrictions governing a homeowners association are usually set forth in its declaration. Once you are familiar with the requirements of your community, you will be better able to determine whether a violation is occurring within your community.
So, what should happen when you discover a violation? I like to think about dispute resolution as a three-step process; 1) investigation; 2) administration; and 3) litigation. Following each step in this process properly may gain the compliance of the violating homeowner that you seek before you end up in court. Voluntary compliance is the goal that every association should strive to attain it proceeds with the dispute resolution process. The one step that is frequently forgotten by neighbors is that a neighborly approach can help to resolve many problems without acrimony or cost. Litigation, on the other hand, is almost always costly and emotionally taxing on a community. It cannot always be avoided, but every association should know what to expect before and after your attorney gets involved.
One of the most important aspects of dispute resolution is investigation. Before a violation can be turned over to a manager for a violation letter, or turned over to the association's attorney for enforcement, the Board should gather evidence about the violation that is allegedly occurring. The first step is to determine whether there is actually a violation of the governing documents, rules and regulations or governing law. Far too often, our firm has had perceived violations turned over for enforcement, only to discover that there really was no violation at all, or that the community would have allowed the shed or fence if only an application for exterior modification had been submitted before it was constructed or erected.
If you're unsure about whether a violation exists, call your manager or attorney first. Ask questions about what can be done if the only thing missing is an application, or if there is a way to prevent someone from placing a dozen windmills on their front lawn before construction begins. Keeping communication lines open and asking the right questions can prevent many issues from becoming more complicated and difficult to resolve later on down the road.
What do you do to investigate? This is largely dependent upon how you receive the information. Some violations are obvious, like the guy on the corner who one day paints his house purple, or the shed that is put up under the veil of darkness when everyone knows that sheds are prohibited. Others can be more elusive, like a dog barking in a condominium unit that is disturbing another unit owner, or the operation of a family day care home in a community where family day care is prohibited.
The obvious violations are simple and need little in terms of investigation. The members of the board or architectural control committee should go to the site and make sure that the offending structure is there, or that the house is, in fact, purple. Pictures of the structure or the changes help immensely, but these are straightforward violations that the Board or management need do little else to verify. The more elusive violations demand much more in terms of investigation.
Take the case of the barking dog. The Board of Directors must determine if the barking is a violation of the nuisance provision, or a more specific pet policy that the community has established. In other words, does the noise associated with the dog's barking constitute a nuisance to other residents, or is the dog prohibited altogether, or both? If the dog is prohibited, the violation is simple, and the Board's investigation would consist of little other than verifying that the dog resides in the property. However, investigating a violation that arises from the prohibition of activities constituting a nuisance is more complicated. What does the Board need to determine if the barking really arises to the level of a nuisance, or is the amount of barking "reasonable" for a dog? The first thing we recommend is that the Board suggest to the affected unit owner that they keep a log of the dates and times that they hear the barking, the duration and at what volume. With this information in hand, the Board can determine if the barking is, in fact, creating a nuisance.
Investigation and gathering evidence before turning the matter over to a manager or attorney is crucial to the dispute resolution process. A board member or manager should gather this evidence and keep a working file open for all violations that are reported. A community member making a complaint should be required to do so in writing and sign it. Having a written, signed report not only documents the complaint, but it makes the homeowner responsible for what they are reporting. Any and all reports, correspondence and communications should be logged in this file. Doing so will make taking the next step much easier for a community.
You have gathered all of the evidence, you have pictures in hand and you're ready to take the next step. What is it? The next step in the process is to send a violation notice to the homeowner. This can be done by the property manager, a member of the board designated to perform this task or by the association's legal counsel. Typically, the manager will send at least the first violation notice to a homeowner. Sometimes, managers will send a first, second and final violation notice to the homeowner, often including a notice of a hearing in the final letter. This process and the necessity to send at least one violation notice prior to sending a notice of hearing is set forth in Section 11-113 of the Maryland Condominium Act (the "Act"), which is applicable to all Maryland condominiums, unless its governing documents state otherwise. Although homeowners associations are not governed by the Act, I recommend that, if the association does not have a formal procedure outlined in its own governing documents, it also follow the steps outlined in this Section of the Act because this law has been approved by the legislature, and, when reviewed by Maryland courts, it has been found to constitute adequate "due process" in the context of enforcement and dispute resolution.
What Section 11-113 of the Act requires is that a notice to cease and desist conduct or inaction constituting the violation be sent to the alleged violating homeowner. This notice must include a description of the alleged violation (e.g., existence of a shed prohibited by the declaration or bylaws), the steps the owner must take to abate the violation and a time period, not less than 10 days, during which the violation may be abated without the homeowner facing the imposition of a sanction or monetary fine. Once this notice is sent, the Board or manager should wait the 10 days and re-inspect or verify whether the violation has been abated or is continuing. If the violation has been abated, the process stops; but, if not, or if the violation is a repetitive one and occurs again within a 12-month period, the next step should be taken.
The next step in the administrative process is to send a notice of hearing to the alleged violator. It is vital that the notice of hearing contain certain information in order for it to afford the alleged violator with the appropriate due process. What has to be in a notice of hearing? A list can be found in Section 11-113 of the Act. It includes the following: 1) the nature of the alleged violation; 2) the time and place of the hearing, not less than 10 days from the giving of notice; 3) an invitation to attend the hearing and a statement that the alleged violator may make any statement, produce evidence and present and cross-examine witnesses; and, 4) the proposed sanction or monetary fine to be imposed by the Board (if it has the authority to do so in its documents). Each of the items listed above must be set forth in the notice of hearing in order for it to be effective.
Once this notice is sent and a hearing date is set, the board should take a few preparatory steps before holding the hearing. Because the hearing may be held in executive session, outside the presence of other residents of the community, unless they are witnesses, the board should take the opportunity just prior to the hearing to review the allegations and all records that have been created regarding the alleged violation. The board should make sure that each of its members understands the purpose of the hearing, to determine if a violation exists, and if such determination is made in the affirmative, what it may do to obtain compliance. If there is any question, the board or manager should contact its legal counsel prior to the hearing in order to establish what the board may do in terms of imposing sanctions or monetary fines if the homeowner is determined to be in violation of the governing documents. Many boards ask their attorneys to attend the hearings when they know that the homeowner will be represented by counsel. Where a homeowner is represented by an attorney who is aware that the community is also represented by counsel, s/he should not meet with the board without its attorney present. Likewise, the board is well advised to refrain from meeting with a homeowner's attorney without the community's attorney also being present.
If the board elects to proceed with a hearing without the community's attorney being present, it should consider asking the attorney to draft an introduction, to be read by the president of the board at the beginning of the hearing, in place of attending the attorney attending the hearing in person. These introductions restate much of the information contained in the notice of hearing, as outlined above. The purpose of such introduction is to set the tone of the hearing and let the homeowner know what his rights are and what is expected of him during the hearing. An example of such an introduction is as follows:
The Board of Directors has called this hearing in accordance with Article I, Section 1 of the Condominium's Bylaws and 11-113 of the Maryland Condominium Act. The Board has determined prior to this hearing that Homeowner, owner of the Unit located at 123 Main Street, is leasing her Unit in violation of Article X, Section 10 of the Condominium's Declaration. Leasing is prohibited within the Condominium. A reminder notice regarding the leasing of the Unit was sent to Homeowner on January 1, 2007. Homeowner was notified in that letter that she must cease leasing her Unit at the conclusion of the term of the lease, January 1, 2008. After that date, the Board was informed that Homeowner had not ceased the practice of leasing her Unit and a Notice to Cease and Desist was sent to her by the management agent on January 15, 2008. Having failed to comply with that Notice, the Association's management agent sent a Notice of a Hearing to Homeowner on February 1, 2008, via first class mail. A copy of the Notice shall be attached to the minutes of this hearing.
We have called this hearing in order to determine if a violation of Article X, Section 10 exists with regard to Homeowner's Unit and to allow Homeowner the opportunity to present evidence, present and cross-examine witnesses, and make statements. That being said, I shall turn the floor over to Homeowner for this purpose.
Having a prepared statement available, formatted to reference the applicable provisions of the governing documents and the circumstances of the alleged violation(s) can serve to put the board at ease and let the homeowner know what is expected of him and what he is supposed to do. If there are witnesses present from the community, or the board expects a lengthy presentation, the board may also include a limiting instruction, informing the witnesses that they will be afforded a certain amount of time to make statements -- 3 minutes each, for example. Because the hearing may be the only opportunity for the alleged violating homeowner to present their case in an informal setting, similar time restrictions should not be placed on the homeowner.
After the homeowner is afforded the opportunity to make statements, introduce evidence and present and cross-examine witnesses, the board should consider all of the information presented at the hearing outside of the presence of the homeowner. If some settlement offer has been made by the homeowner during the hearing, the board should be careful to respond by stating that they will take it under advisement and will discuss any offers in its executive session following the hearing. Once a determination has been made, the homeowner will be notified in writing, through a notice of outcome of hearing. Although not required by the Act, I always recommend that if the board has determined that the imposition of sanctions or a monetary fine is appropriate that the board give the homeowner another reasonable abatement period, usually 15 days, in which the homeowner may abate the violation. If the homeowner abates the violation, I recommend that the Board waive the sanction or fine imposed, since compliance is the ultimate goal of enforcement, not the collection of fines.
If a notice of outcome of hearing is sent, informing the violator that the Board has determined that a violation exists, the Board must follow-up on the violation after the reasonable abatement period has ended in order to determine if the violation is still in existence. Oftentimes, the violation will be abated by this stage, but if a homeowner has determined to dig in her heals, there may be only one option left....
The term litigation, as used here, can actually refer to two processes that the Board may employ for purposes of gaining compliance. If the board has the authority to levy fines upon a homeowner, it may usually add the fine to the assessment account and institute the process for securing a lien that includes the unpaid fines. As of 2014, a change in Maryland's laws prohibits foreclosure based upon a lien that includes fines, but the recorded lien may still protect the association if the owner attempts to refinance or transfer title to the property without paying the accrued fines. In the event of a bankruptcy, a lien would give the association secured creditor status, which means that the amounts would be less likely to be discharged.
The other option is the filing of a complaint in the Circuit Court, seeking an injunction directing the offending owner to comply with the governing documents, as well as other relief such as the payment of fines and attorneys' fees and costs. Due to the various circumstances of each case, the corresponding approaches that an attorney may take in litigation are too numerous to set forth here. However, if you are at the litigation stage, you are already talking to an attorney who can advise you of your options and express an opinion about how to proceed. Every case is fact-specific and may call for a slightly different approach.
Generally, when a complaint is filed, the association asks the court to order that the violation be abated and (if the documents or statute allow) that the association be awarded the attorney's fees and costs of bringing the action, which brings up a question that resounds throughout associations: How much will it really cost to get compliance? Unfortunately, that question is not easily answered. The first question is whether the association has a provision in its governing documents which allows it to recover such costs and fees. One of the first things I look for in a new client's documents is such a provision, and I strongly urge any association without such provisions to amend its documents - and fast. Without such a provision, the so-called "American Rule"1 applies, and the association may not recover attorney's fees or the costs associated with litigation. For condominiums this is not as crucial because Section 11-113 of the Act allows you to recover attorney's fees - although I like to add stronger language if it is not already present in the condominium's governing documents. I have emphasized "recover" above, because the association must pay the attorney's fees actually charged. The association may end up paying more than what it recovers if the Court deems some portion of what the association incurs as being more than what is reasonable.
Although the cost of litigation can range widely depending on the issues in the particular case and the degree to which the offending owner puts up a defense, it can be a very expensive process, especially if the other party files numerous motions or discovery requests. Still, a board must act affirmatively regarding the enforcement of its governing documents and may have little choice at this stage but to proceed in a given case. Your attorney should be able to talk to you openly and honestly about the wisdom of pursuing litigation, the likelihood of success, and the cost of proceeding. Your attorney may also have suggestions for handling the matter as economically as possible. I should note that in the vast majority of cases handled of this nature, we are awarded and recover the majority of the attorney's fees expended by the association when it has the necessary provisions in its governing documents. For context, the recovery of attorney's fees in this context is usually easier than what we deal with when attempting to recover such fees in District Court collections matters if you prevail because the issues are more complex and the judges in the Circuit Court are typically more likely to make such awards.
Again, every violation, every dispute, is unique and has different issues involved. The objective of this article is to give boards and managers general guidelines to follow. Because each case is different, when in doubt, have a discussion with the individuals you have in place to assist you with these matters. Good managers and community association attorneys are experienced in handling disputes and can guide an association through this process.
1The so-called "American Rule" states that attorney's fees may be awarded only when (1) parties to a contract have an agreement to that effect; or (2) there is a statute which allows the imposition of such fees. Although Maryland courts have held that an association's governing documents are contractual in nature, the governing documents must have an attorney's fees provision in order to recover attorney's fees pursuant to this principle of law.