Homeowners' Association Bill

III. Where there is litigation between an association and a homeowner, and thehomeowner prevails, the association shall pay attorney fees to a reasonable level.

1. Judicial Protection. Individual homeowners may sue associations to enforce statutory rights (under this model statute or otherwise) as well as their rights under governing documents, without being required to sue other homeowners; further, the association shall pay for any notice to homeowners that the court finds to be appropriate. Governing documents shall not limit judicial review or court enforcement; provided they may require ADR to the extent permitted by Section 102, The Right to Resolve Disputes without Litigation.

2. Burden of Proof. Unless otherwise provided by statute, a homeowner has the burden to prove each breach of duty by a preponderance of the evidence. Except for ultra vires actions, or actions otherwise exceeding an association’s or director’s authority, homeowners must prove a breach caused, or threatens to cause, injury either to the homeowner as an individual or to the interests of any part of the common-interest community.

3. Compliance Under Protest. Homeowner compliance with an association’s demand for action, or demand to cease action, including (but not limited to) any demand to pay assessments or attorney fees, does not waive homeowner rights to challenge such demand.

4. Protected Homeowner Rights to Attorney Fees. In any case brought by an association or homeowner to enforce governing documents or applicable law (under this model statute or otherwise), the homeowner shall be awarded reasonable attorney fees and costs to the extent that the homeowner prevails. Attorney fees shall reflect counsel’s reasonable hourly rate and time worked, and shall not be limited by the amount the homeowner actually paid, if any.

5. Limited Association Rights to Attorney Fees. In any case brought by an association or homeowner to enforce governing documents or applicable law (under this model statute or otherwise), if authorized by the declaration, the association shall be awarded reasonable attorney fees and costs to the extent that the association prevails; provided that the reasonable attorney fees may be reduced at the discretion of the court based on finding that the judicial review benefited the association or homeowners by clarifying governing documents or applicable law, or other equitable considerations. Attorney fees shall reflect counsel’s reasonable hourly rate and time worked, limited by the amount the association actually paid.

Discussion

In addition to providing a neutral forum, judicial review can bring important issues to public attention and develop precedent, both of which serve to improve laws. Even without a court ruling, judicial review can clarify governing documents or how the law applies to situations in common-interest communities. The model statute therefore secures homeowner rights to litigate. [72]

Some states have imposed burdensome limits on homeowner ability to sue, requiring either that a minimum number of homeowners join to sue, or that challengers sue all homeowners in the association. [73] The model statute rejects such limits on bringing claims, so all homeowners can defend their individual rights. [74]

However, nothing in the model statute precludes a court from determining that all homeowners should be given notice of a pending action, particularly if the court may be concerned that homeowners may not all have uniform interests. In such a case, the association (not homeowners) should pay for the notice, the form and content of which the court may specify.

The model statute recognizes that, like the association itself, homeowners may sue to

The case of Inwood North Homeowners’ Association, Inc. v. Harris illustrates problems arising from the lack of counsel for homeowners.[77]

Inwood presented the critical question of whether associations could foreclose against homeowners in Texas. The Texas Constitution provides strong limits on foreclosures. [78] In Inwood, after the association sued, the homeowners “never appeared” with a lawyer in court.[79] Even so, both the trial court and the court of appeals ruled to protect homeowners, holding that the Texas

Constitution prevented foreclosure.[80]

However, the association appealed to the Texas Supreme Court. That court reversed, and allowed the association to foreclose. Even though Inwood certainly presented difficult legal issues, the

supreme court did not appoint anyone to defend homeowner rights and, as dissenting justices noted, “[n]o one appeared before [that court] to assert the Constitutional protection.”[81] Thus, in an important case, no lawyer ever defended homeowner rights.

protect the interest of the community as a whole. As the Restatement § 6.13(2) recognizes, ultra vires action always causes harm to homeowners, and for other claims the model statute requires proof that the breach “caused, or threatens to cause, injury to the [homeowner] individually or to the interests of the common-interest community.”

[72] See also, e.g., UCIOA § 1-114(b) (“[a]ny right or obligation declared by [UCIOA] is enforceable by judicial proceeding”); Cal. Civ. Code 1354(a).

[73] See, e.g., Dahl v. Hartman, 14 S.W.3d 434 (Tex.App.--Houston [14th Dist.] 2000, pet. denied) (in some circumstances statute requires all homeowners be joined as parties), limited by Brooks v. Northglen Association, 141 S.W.3d 158, 163 (Tex. 2004); see also Ariz. Rev. Stat. 10-3304 (previously required 10 percent of homeowners to challenge action by association, recently amended).

[74] See also, e.g., Kesl, Inc. v. Racquet Club of Deer Creek II Condominium, Inc., 574 So.2d 251 (Fla. DCA 1991) (association can be sued as representative of unit owners).

The model statute also enables homeowners to comply with association demands while reserving the right to challenge the demand. This reduces the risks and allows homeowners to reflect and consult with counsel about whether to bring a challenge. [75]

Homeowners’ lack of ability to pay attorney fees, and their risk of being forced to pay the association’s fees, constitute a recurring problem addressed by the model statute. As litigation plays a prominent role, it remains essential to rebalance the rights to attorney fees. Insofar as associations have automatic (or close to automatic) rights to obtain attorney fees from homeowners, homeowners face substantial financial risk by contesting any issue. In effect, given the possibility of foreclosure, homeowners who litigate must “bet the house.” Again, this applies both to cases that a homeowner might bring and to cases brought by associations.

Associations face no comparable risks, because they pay legal bills by increasing assessments on homeowners--including the homeowners challenging the association, who thus fund their own opposition--or by paying the cost of counsel through the association’s insurance. Thus, the associations not only start with the dominant resources and experience, but the imbalance regarding the right to recover attorney fees prevents homeowners from protecting themselves and holding the association accountable.

The imbalance can provide excessive incentives for associations to proceed too rapidly to court -- particularly where association attorneys take cases on full contingency. Some states allow prevailing homeowners to obtain attorney fees. [76] However, such a provision does not fully rectify the imbalance of positions for homeowners and associations.

To ensure reasonable opportunities to defend against or otherwise challenge actions by associations, this model statute addresses the right to recover attorney fees separately for associations and homeowners. It protects homeowners without eliminating rights of associations to obtain fees when homeowners simply refuse to pay assessments or otherwise disregard clear governing documents.

[75] See Cal. Civ. Code 1366.3 (homeowner may invoke ADR for an assessment dispute by paying under protest); see also Cal. Civ. Code 1367.1(c).

[76] E.g., Cal. Civ. Code 1354(c); Fla. Stat. Ann. 720.305(1) (“prevailing party in any such litigation is entitled to recover reasonable attorney fees and costs)”; Nev. Rev. Stat. 116.3116 (7); see also UCIOA § 4-117 & comment 1 (permitting the court to award attorney fees to any prevailing party).

[77] 736 S.W.2d 632 (Tex. 1987).

[78] Tex. Const., art. XVI, § 50. See also, e.g., Fla. Const., art. X § 4

[79] 736 S.W.2d at 642 (Mauzy & Gonzales, dissenting).

[80] Id.

[81] Id.