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Real Estate & Property Law

: a View from the property line

Do's and Don'ts for Association Fining Systems

By William G. Gammon

I dusted off this article from June 2002, but the information is as timely as ever. Especially with the sagging economy, more homeowners now more than ever might be letting their maintenance accounts slip or the conditions of their properties slide (because we all know that upkeep costs money, something that's in short supply these days). When standard deed restriction enforcement fails to get the required response from the offending homeowner, then an Association can consider implementing a fining system to incentivize these homeowners to correct the violation or other misconduct.

Of course, whether or not an Association implements a fining system can be a touchy subject, but a fining system is sometimes needed for those times when homeowners? conduct violates the use restrictions or restrictive covenants within a community and standard demand-letter correspondence fails to elicit a positive response to cure the misconduct or other violation.

If your Association is considering implementing a fining system to enforce the restrictive covenants within your neighborhood, then there are six (6) key points to consider:

1. Make the fining system as broad as possible. The Association needs to be able to assess fines for a broad range of violative conduct, including actions that violate the Declaration, the By-Laws, and any rules and regulations set forth by the Association by and through its Board of Directors. You can certainly maintain a list of specific activities that constitute fines under the policy, so as to give the membership notice of same, but make sure that this list is inclusive rather than exclusive of any other non-specified, violative conduct.

2. Make the fining system a FAIR system. Make sure that your fining system has built into its mechanisms ?due process? ? notice to the offending homeowner as well as an opportunity to ?cure? the violative conduct before any fines accrue. Also include a procedure for allowing the homeowner to air his/her grievance or reasons for the offending conduct directly to the Board at the next regularly-scheduled Board of Directors meeting. If applicable, the homeowner can even bring its legal counsel if one is hired by the homeowner. Now due process and leniency has its limits: the notice and opportunity to cure should only be applicable for those ?first-time? offenders who don?t necessarily know that their conduct has run afoul of the deed restrictions.

3. Each occurrence of a violation equals a SEPARATE violation. This ?multiple? violation feature of the fining system helps to create a mounting fee accrual that can incentivize otherwise ?laissez-faire? or slow-acting homeowners that would ordinarily ignore the initial fine amount, which can be nominal in most cases. By multiplying the fine amount commensurate with the length of time or frequency by which the violation exists, this can be the necessary ?lever? to motivate the homeowner to correct the violation. One caveat: the Board needs to make sure that fine amounts don?t get out of hand; in other words, Courts are loathe to assess homeowners with outrageous fine amounts that operate more like a penalty than a fine. Make sure the fine is proportionate to the violation. For this reason, consider putting some kind of cap on the fine, if possible.

4. Avoid using the word ?penalty? in your fining system. As a general rule, Courts don?t like enforcing penalties because most legal claims provide their own economic or equitable remedy without assessing a monetary penalty. Instead, make sure that fines correspond to the severity of the violation.

5. Don't Skimp on the Notice. Make sure the fining system gives notice that the Association has the power to collect ALL expenses incurred in enforcing the fining policy and collecting the fine. Sometimes these costs escalate rapidly, including attorney?s fees and court costs, so make sure that the membership is put on notice of the Association?s ability to collect these sums.

6. Apply payments to fines before assessments. Typically, and unless the homeowner indicates otherwise on the payment instrument, the order of application of payment by a homeowner is: attorney?s fees and costs, late fees and interest, then to fines, special assessments, and regular assessments. With this hierarchy of payment, the homeowner has a greater incentive to pay off the debt.

*special thanks to the Community Association Management Insider, June 2002, from which excerpts of this article were originated.

Full post as published by a View from the property line on October 12, 2009 (boomark / email).

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