Property owners’ groups act on front burner

September 10, 2008

With fast-track legislation at the state Capitol intended to provide a quick fix for concerns in one Virginia community, and claims of racketeering going to trial in another, the Virginia Property Owners’ Association Act became a lightning rod for controversy and litigation this summer.

Sen. Jill H. Vogel, R-Warrenton, introduced emergency legislation to address issues underlying a lawsuit in Frederick County Circuit Court that threatens to yank the legal underpinnings from a huge Northern Virginia gated community.

Meanwhile, lawyers squared off in a federal courtroom in Charlottesville in a trial over assessment fees and alleged dirty dealing at a smaller development in Greene County.

The Frederick County and Greene County disputes both involve interpretation of the state law that governs the relationship between landowners and local property owners’ associations.

Enacted in 1989, the Virginia Property Owners’ Association Act gives qualifying community associations the power to collect assessments from land owners for maintenance of common areas and similar purposes. It requires prior notice to buyers that they are buying property subject to such assessments. The Act also imposes reporting and accounting requirements for the community associations.

It is estimated that Virginia has more than 9,000 property owners’ associations controlled by the Act.

The act was central to a lawsuit filed by some property owners at Lake Holiday, the gated community in Frederick County in Northwest Virginia. The disgruntled landowners objected to paying fees when they weren’t getting the same services as other owners, including water and sewer.

The plaintiffs asked the court for relief, including a declaration that Lake Holiday was not subject to a property owners’ association under the law. That demand was met with dismay by other landowners in the community. One community leader said that such a ruling would force the organization into bankruptcy, since it could no longer collect assessments on the 2,700 residential lots.

The problem, highlighted by the lawsuit, was inconsistent language in the deeds to those lots. The first properties were sold in 1971, the last in 2006, according to Vogel. The “declaration” language in those deeds is not all the same.

Vogel sought to rescue the threatened organization with a legislative fix. She argued that the deeds’ inconsistency should not be allowed to undermine the whole scheme of community property management, said Vogel. “They ought not to be able to come in and blow up the entire organization,” she said.

With a hearing approaching in the Lake Holiday case before Circuit Judge John R. Prosser, Vogel quickly drafted a bill and received unanimous consent to submit it during the General Assembly’s second special session on June 23. The legislation would apply the VPOA Act to communities developed in phases, as long as the phases are “part of a uniform and overall scheme of development.”

Senate Bill 6016 also would give courts jurisdiction to reform inconsistent declarations at the request of property owners’ associations.

Vogel said that she thinks all sides to the Lake Holiday dispute would agree that her legislation is “the right thing to do.” She disavowed any intent to try to influence the pending litigation. “There are lots of issues being litigated at Lake Holiday – let them go ahead. Those plaintiffs absolutely have the right to be heard,” she said.

“I hope to have a positive impact on Lake Holiday and other POAs where their underlying integrity is being threatened,” Vogel said. “It’s not meant to be a sweeping change. It’s a real modest legislative tweak,” she said.

The lawyer for the plaintiffs in the Lake Holiday lawsuit was not reassured. “The sweep of the proposed changes [is] stunning,” said Wayne Travell. The changes, he insisted, “are intended to affect the outcome of private litigation in Frederick County.”

Travell said that he told Vogel that “last-minute tinkering with the Act at the behest of a party to the lawsuit could have dire and unintended consequences.”

Vogel’s bill narrowly passed the Senate in June. After its consequences were questioned by some speakers at a hearing before the Virginia Housing Commission, however, the bill was left to languish for this year in the House General Laws Committee.

The Vogel legislation came on the heels of substantial amendments to the POA Act enacted by the General Assembly at its regular session. According to Pia Trigiani, who represents property owners’ associations, those changes required licensing of association managers and management firms and created a state office of ombudsman to help resolve disputes. The 2008 changes also addressed resale of property subject to POA covenants.

Trigiani said she is concerned about the rush to add new changes with the Vogel bill. “I think the bottom line is that this is pretty complicated and needs to be carefully reviewed,” she said.

The regular 2008 legislation took effect on July 1.

At press time, a hearing on key issues in the Lake Holiday court case was scheduled for late August in Winchester.

Federal trial

In Charlottesville, meanwhile, U.S. District Judge Norman K. Moon heard evidence in a community assessment dispute that has been on full boil for more than 20 years and resulted in two separate opinions from the Supreme Court of Virginia.

By contrast to the sprawling and upscale Lake Holiday development further north, Dogwood Valley is described as a rustic subdivision of 320 lots in the hills above the South River in Stanardsville. The Dogwood Valley Citizens Association experienced what the Lake Holiday organization feared – a court declaration that the group did not have standing under the Virginia law.

When the Su-preme Court of Virginia held in 2004 that the DVCA did not have authority to enforce special assessments, the association sought to remedy the situation by filing its articles of incorporation and bylaws in court. Nothing doing, said the Supreme Court when it revisited Dogwood Valley in 2008. Those documents are not “restrictive covenants that run with the land,” and therefore are insufficient to make the DVCA a “property owners’ association” under the law.

The adverse court rulings failed to dissuade the DVCA from sending improper bills, according to the plaintiffs in the federal Dogwood Valley case. Their lawsuit claims that the association kept on demanding assessments, sometimes labeled “road fees,” and sold property at auction to satisfy unpaid assessments. Moreover, association leaders allegedly would take advantage of those auctions to acquire additional land for themselves at bargain prices. According to the plaintiffs, the alleged shakedown constituted extortion and a pattern of racketeering in violation of the federal RICO statute.

After hearing evidence in June, Moon requested and received briefs from both sides in the Dogwood Valley dispute. His decision is pending.

Written by Peter Vieth  |  Filed Under Real Estate 

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