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.

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
• bligations.
• 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).

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.

• Also may have a contractual lien by virtue of the CC&Rs – but no
• ne 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):

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:

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:

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