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Sweeping changes in HOA laws aim for dispute resolution and transparency

November 4, 2015
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Did you heard about the homeowners association that threatened to sue a veteran for putting a flagpole in his yard? How about the HOA that sued homeowners who moved out of state and rented their property but didn’t follow the bylaws? Turns out the HOA in that case didn’t follow its own procedures and had to pay hefty damages.

Those two recent Indiana examples are among condo conflicts and HOA hostilities that often result in lawsuits and sometimes incredulous headlines. Lawyers have seen disputes arise over everything from where bikes can be stored to whether a condo owner could install hardwood floors.

“These are the things that come up from time to time,” said veteran Munster attorney Stephen B. Cohen, of Cohen Kelly Olson DeHaan & Richter LLC, who’s represented HOAs in Indiana and Illinois. Cohen said he likes the dispute-resolution features of House Enrolled Act 1286 that took effect in July. The law makes numerous changes in the administration of HOAs and how owners and their boards interact, among other things.

Cohen Cohen

“We’ve put together a host of written documents outlining the changes” in HEA 1286, said Gregory A. Chandler, an attorney at Eads Murray & Pugh P.C. in Indianapolis. He said the changes in the legislation are likely to apply to governing documents for all homeowners and HOAs in the state.

Before HOAs and members may square off in court, the law sets out specific procedures that must be met. A detailed grievance must be put in writing and the party on the receiving end may request a face-to-face meeting within 10 days. If afterward no agreement is reached, the law permits mediation or binding arbitration.

focus-condo-bars.gif“Probably the most notable change affecting homeowners associations and homeowners is the Legislature enacted a grievance procedure,” Chandler said. “The Legislature’s goal is to create a means where homeowner disputes can be resolved amicably without resorting to litigation.”

Chandler is uncertain many HOAs or homeowners will avail themselves of mediation or binding arbitration made available in HEA 1286 when disputes reach an impasse. “We represent probably 1,000 homeowners associations, and to this point I’ve not seen anyone request mediation or arbitration in that kind of dispute,” he said. The provision requires a party requesting mediation or arbitration pay for it.

“What I do expect to see a little more frequently is homeowners requesting a face-to-face meeting with the board of directors” when issues arise.

Burton Burton

That’s what bill author Rep. Woody Burton, R-Whiteland, said he intended. “Reasonable people, even unreasonable people, ought to be able to resolve these problems” short of going to court, he said.

Burton said it was also important to build more HOA accountability and transparency into the law. The legislation does that by requiring minutes of meetings be made available to members who request them. Also, HOAs that initiate communication with a member about another member now must provide the communication to the third person.

Bellamy Bellamy

“For the first time, in Indiana at least, it’s very clear the unit owner is entitled to full transparency of anything that goes on at a meeting of the board,” Cohen said.

Attorney Jeffrey M. Bellamy of Thrasher Buschmann & Voelkel P.C. in Indianapolis said the spirit of getting people to talk is helpful, but he’s concerned that recent tinkering with the HOA law isn’t addressing concerns of people who serve on HOAs. By and large, he said, they’re volunteers who have a thankless and difficult job and most often do it well.

Focus condo Changes in law box“It’s almost always a reaction to a personality rather than a problem,” Bellamy said of recent changes in statutes. Bigger issues facing HOAs are lack of member participation, difficulty collecting dues, and “zombie houses” that sometimes banks don’t want or ownership can’t be determined. “That’s a huge problem and the Legislature doesn’t pick that up as an issue affecting urban neighborhoods and suburban neighborhoods.”

Bellamy said the notice of violation provisions in the new law essentially put in statute what he and most other attorneys already do, but the provisions will be valuable in some cases.

“If a board’s just got their arms crossed, if they’re just backing away and not dealing with membership,” he said, the law engraves some prerequisites before the board can sue. A judge could dismiss a complaint if a member wasn’t notified of a violation or of his or her right to a meeting within 10 days’ notice of a violation.

Burton said he was motivated to introduce the bill after hearing stories about HOA board members hiring relatives to provide services at higher costs and complaints about misuse of HOA dues.

The new law also expands powers of the Office of the Indiana Attorney General first granted in 2011 to investigate allegations of fraud and misappropriation by HOAs. “The 2015 legislation was designed to fill in gaps in the prior legislation and make it easier for homeowners to obtain financial records from associations,” said AG’s office spokeswoman Molly Gillaspie. “The legislation also allows for additional penalties in cases of wrongdoing.”

HEA 1286 also prohibits requiring more than 75 percent approval from members to amend provisions in HOA governing documents. That’s something Cohen also likes, but he sees a potential problem in extending that requirement to mortgage-holders. “This is really going to be a quagmire,” he said, particularly when a mortgage may have been sold repeatedly on the secondary market. The law gives lenders 30 days to respond to proposed amendments, and a failure to reply within that time is assumed to be consent to the change.

Cohen worried this provision could have a chilling effect on the financing of Indiana condos and planned unit developments that will operate with homeowners associations. “Mortgagees want to be first in line on all matters,” he said. “They don’t like change of any kind.”

HOAs should make themselves comfortable with changes in the law, Cohen said.

“If a person represents an association or an unincorporated association, I think they should meet with their attorneys and go over the changes in the laws so the board of directors is familiar, and I think lenders’ attorneys should be very aware of them.”•

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