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Sunday, September 19, 2004

Indiana Law - Homeowners associations and deed restrictions

An interesting, and lengthy, editorial today in the Fort Wayne Journal Gazette on homeowner associations and restrictive covenants. A few quotes:

More municipalities are relying on developers to create homeowners associations, which include fees that can be in the high four-figure range annually. Southwood Park’s association fee is $5 per year. They’d like to raise it.

The fees are there to pay for the upkeep of common areas, such as snow removal and landscaping. In return, the covenants, conditions and restrictions, known as CC&Rs, which vary from subdivision to subdivision, establish guidelines to regulate, among other things, architectural standards. These private agreements are fine as long as they do not interfere with public safety and violate state and federal laws.

The problem that homeowners association opponents have is the draconian measures taken to assure compliance. The homeowners associations are, in effect, private governments, they say.

In the summer issue of Regulation, University of Maryland professor Robert H. Nelson writes that the “legally permissible actions and obligations of a private neighborhood association in many areas will be considerably wider than of a municipal government.”

An example is how covenants supersede municipal zoning regulations. If zoning ordinances reflect social policy, restrictive covenants are a contract between two private parties. City code may allow the construction of outbuildings, such as sheds, but a community association has a right to prevent one from being built.

In June the Indiana Supreme Court declined to hear a case involving a Fort Wayne man, a shed and the Wedgewood Community Association. Robert Nash was ordered to pay $28,000 in attorney’s fees to the association for building an 8- by-10-foot garden shed on his property, in violation of the covenant. The shed did not violate any city ordinance.

Nash’s lawyers argued that there was selective enforcement of the code. One of the board members was violating the same shed restriction. A lower court agreed, citing the “unclean hands” doctrine – the association acted in a disingenuous and unjustifiable manner. The building stayed, and Nash wouldn’t have to pay the association’s legal fees.

The appellate court reversed the decision, stating the “unclean hands” doctrine was erroneously used. The Wedgewood association is a not-for-profit corporation, not a homeowner.

“Alleged selective enforcement of restrictive covenants is clearly not a violation of the restrictive covenant forbidding outbuildings and may be remedied by the ballot box of the association officer elections,” the judges wrote.

Allen County government has run afoul of covenant restrictions. In 2000, a federal judge forced the county’s plan commission to pay $35,000 in attorney fees and costs after the court ruled the commission violated the constitutional rights of William and Judy Daniels. The plan commission removed a restrictive covenant in the Broadmoor Addition that would have allowed a shopping center to be built there. The Broadmoor covenant states: “No building other than a single-family dwelling and a private garage shall be built on any one lot.” The plan commission, acting under an Indiana statute, sought to vacate the covenant. In effect, the lower court ruled the state statute was unconstitutional.

The 7th Circuit Court of Appeals in Chicago upheld part of the ruling. The plan commission, the three-judge panel concluded, was wrong for vacating the covenant for private purpose, in this case the building of a shopping center. The court did not agree the state statute was unconstitutional. There are several scenarios, the court said, where vacating the covenant would be a rational act, as in the case of enhancing the health, safety and welfare of the community.

Mr. Nelson's article, "The Private Neighborhood," that is mentioned in the editorial, is available here, from the Cato Institute's publication, Regulation, Vol. 27, No. 2, Summer 2004.

For more on neighborhood/homeowner associations. "Your Neighbors May Rule Your Roost" was the headline of a NYT story quoted in a July 28, 2003 Indiana Law Blog entry on the power of neighborhood associations to foreclose without due process.

"Homeowners associations facing backlash: More states taking aim at restrictive covenants," was the headlne of an AP story quoted in the Indianapolis Star, featured in this July 13, 2003 ILB entry. A quote from the AP story:

Experts call this accelerating trend one of the most stunning transformations in how Americans live, rent and buy homes; an estimated 50 million people live in areas governed by homeowners associations. Especially prevalent in the Sunbelt, homeowners associations -- with corporate-style rules that limit traditional town hall democracy and keep closed financial records -- govern 80 percent of the nation's new housing and neighborhoods, said a trade group.
The Indiana decisions mentioned in the editorial. Wedgewood Community Association, Inc. v. Robert & Barbara Nash is the Indiana Court of Appeals decisions referred to in the Journal Gazette's editorial. Justice Rucker dissented to the Supreme Court's denial of transfer (denial of appeal) in a written, published dissent dated 6/17/04, to which Justice Dickson concurred, making it a 3-2 vote to deny transfer -- I cannot recall having seen another written transfer dissent. You may access it via this 6/17/04 ILB entry -- third item.

The Court of Appeals decision in Wedgewood, dated 1/21/03, is available here. The CA opinion on rehearing, dated 5/21/03, is available here.

[Update] Here is the 7th Circuit opinion in the case of William Daniels and Judy Daniels v. The Area Plan Commission of Allen County (9/11/02) It was written by Judge Manion, and is 42-pages long.

Posted by Marcia Oddi on September 19, 2004 04:09 PM
Posted to Indiana Law