Lessons Learned and New Considerations John D. Richards Richards - PowerPoint PPT Presentation

Wrongful Liens in Community Associations: Lessons Learned and New Considerations John D. Richards – Richards Law Robert S. Rosing – Wrona DuBois, PLLC

A Wrongful Lien Story – How It Begins… • The Ranches at Eagle Mountain - A Sad Tale. • Developer’s excitement with a new concept. • Lots of Investors – Tens of Millions in Land. • First large scale master planned community in Utah (1998 earlier). • Visits other out-of-state HOAs. • Envisions thousands of homes (units/lots).

City Planning • Contacts City Council (township at the time). • Prepares and signs development agreement. – Master Association would do A, B, C… – Unique in this case: the Master HOA owned no common area – had a maintenance agreement with the town of Eagle Mountain for the HOA to fulfill. • The plan was in place and the plats were recorded. • The Master Developer was ready to sell off lots/parcels.

Selling Lots/Parcels • Hundreds of parcels were sold. • It was represented to the Builder/Buyers that there was a Master HOA Concept. • A drafted and unrecorded copy of the CC&Rs was circulated. • Knowledge of Master HOA was common to the parcel buyers (and ultimate home buyers). • The Master Developer had promised the city certain improvements such as park areas. • So, what does the Master Developer need?

Help MONEY!

Notices Recorded • The Master Developer recorded Notice of Existence of HOA after it had sold properties. • There was a notice that reminded buyers of assessment obligations. • Remember – these buyers are still builder/buyers. • What is missing? • What has gone wrong at this point?

Master Plan Commences • Sub-HOAs were created. • They, to builders, are paying assessments. • The Master HOA/Board organized and operated. • Lots start to sell to homebuyers. • Community starts to grow…

CC&Rs • 2004 CC&Rs for Master HOA were recorded. • At the time of recording, the Master Developer owned no property. • HOA Board President signed. • Recorded on advice of counsel. • Problem? What? • John to explain actual history.

Fast Forward Over 10 Years Later • A homeowner in a sub-association questions the 2004 CC&Rs. • The 2004 CC&Rs had been amended over time via a delegate system. • 3 or 4 other “Notices of Obligation” or “Notices of HOA” had been recorded on all properties by this time. • Question: What problem was exposed? How grave of a sin? • It was argued that the CC&Rs that were recorded were done so to give effect to purchaser’s expectations (when homeowners purchased, CC&Rs had been recorded). – Had they been recorded with proper authority?

A Second Wrongful Lien Story • Represent Association. • Association has unpaid Assessments. • You file a lien and send a demand letter. • The Association’s HOA Registration is not up to date. • You receive a demand under the Wrongful Lien Act.

Association Liens • All condominiums and homeowners have associations by statute. – 57-8a-302 – HOAs – 57-8-44 – Both of these statutes now stated, “Except as provided in…” • Also may have a contractual lien by virtue of the CC&Rs – but no one signs the CC&Rs.

57-8a-105. Registration with Department of Commerce. • a) During any period of noncompliance with the registration requirement described in Subsection (2) or the requirement for an updated registration described in Subsection (4): – (i) a lien may not arise under Section 57-8a-301; and – (ii) an association may not enforce an existing lien that arose under Section 57-8a-301. . . .

Repairing Non-Compliance Except as described in Subsection (5)(f), beginning on the date an association ends a period of noncompliance: • (i) a lien may arise under Section 57-8a-301 for any event that: – (A) occurred during the period of noncompliance; and – (B) would have given rise to a lien under Section 57-8a-301 had the association been in compliance with the registration requirements described in this section; and • (ii) an association may enforce a lien described in Subsection (5)(e) or a lien that existed before the period of noncompliance. • What about liens filed during period of Non-Compliance?

Civil Liability for Wrongful Liens • If the person in violation of Subsection (1) refuses to release or correct the wrongful lien within 10 days from the date of written request from a record interest holder of the real property delivered personally or mailed to the last-known address of the lien claimant, the person is liable to that record interest holder for $3,000 or for treble actual damages, whichever is greater, and for reasonable attorney fees and costs.

Potential Liability Even if Released • A person is liable to the record owner of real property for $10,000 or for treble actual damages, whichever is greater, and for reasonable attorney fees and costs, who records or causes to be recorded a wrongful lien in the office of the county recorder against the real property, knowing or having reason to know that the document : – (a) is a wrongful lien; – (b) is groundless; or – (c) contains a material misstatement or false claim.

HOA Registry and Wrongful Liens • Statute says “lien may not arise.” • Association should be aware of its own registration. • Fix-It provision has gap for lien filed during period of non- compliance. • Is Lien wrongful when filed?

Hutter v. Dig It, Inc., 2009 UT 69 • Dig- It filed a mechanic’s lien against Hutter, which was found to be unenforceable because Dig-It did not file a preliminary notice. • Utah Code 38-9a-101: The question was whether an unenforceable mechanic’s lien is a wrongful lien under the Utah Wrongful Lien Injunction Act. • The phrase “not expressly authorized by…statute” in the Wrongful Lien Act does not include statutorily created liens that ultimately prove unenforceable.

Bay Harbor Farm v. Sumsion, 2014 UT App 133 • Attorney’s Lien. • Attorney hired for multiple matters, including defense of worker’s comp claim for injuries sustained on the farm. • Attorney wasn’t paid – liened the farm. • Bay Harbor said work wasn’t related to the farm, so lien was wrongful. • Attorney shall have lien on property “that is the subject of or connected with work performed for the client.” 38 -2-7(2).

Bay Harbor Farm v. Sumsion, 2014 UT App 133 • The “attorney’s lien, which is expressly authorized by statute” and therefore “not wrongful.” • “This is true even if it ultimately proves unenforceable.” • However, Court states that you cannot simply state that the lien was authorized by statute. • Court may consider whether “lien claimant has a good -faith basis for claiming a statutory lien.” • Must have a plausible basis.

Total Restoration, Inc. v. Merritt, 2014 UT App 258 • Following a flood in their home, the Merritts hired Total Restoration to remove water damaged items and dry the premises. Total Restoration later filed a mechanic’s lien against the Merritt property after the Merritt’s failed to pay their bill. • Utah Code Ann. 38-1-3 states that a property is lienable if the mechanic did work to improve, repair, or increase the value of the property. • Total Restoration did not perform extensive repairs to the home. They only removed water-damage material, but did not repair the flood damage.

Total Restoration, Inc. v. Merritt, 2014 UT App 258 • The court held that a lien claimant cannot escape the reach of the Wrongful Lien Act simply by claiming that their lien is “expressly authorized by statute.” They instead need to prove that they have a good-faith basis for claiming a statutory lien.

Practical Advice • Legal construction may be as important as physical construction • New emphasis when telling Developers to not rush through • Some errors may not be fixable