Wednesday, October 2, 2013

Recent Homeowners Association Case from Court of Appeals

The Mississippi Attorney General gave his seal of approval to the Rankin County Board of Supervisors two weeks ago for the “Reservoir Community District”.  As a result, the RCD (aka, the Overlay) went into effect yesterday, October 1, 2013.  Don’t expect big changes immediately, however.  Implementation will take time according to the Rankin County Office of Community Development. 

In the meantime, I noticed the case of Kephart v. Northbay Property Owners Ass’n, ___ So. 3d ___, 2013 WL 5313165 (Miss. Ct. App. Sept. 24, 2013), came down the wire.  This case – on a related note – offers guidance to homeowners being affected by actions of their neighborhood homeowners' associations, or homeowners' associations seeking to further limit use of property within the respective subdivision.

The facts, in a nutshell, are these:  Northbay is a subdivision in Madison County, close to the Reservoir.  When drafted, the Covenants for Northbay expressly allowed for homeowners to lease (rent) their homes to third parties.  Said Covenants also gave authority to the Board of Governors of the Homeowners Association (“HOA”) to make rules and regulations.  However, any major amendment to the Covenants could only be made by majority vote of the homeowners.  [The facts don’t tell you how many members there are on the Board of Governors, but I can assure you it’s much easier to get a resolution passed by a handful of folks, than 51% of all homeowners]

“Years” prior to August of 2010, the Board of Governors adopted a resolution prohibiting homeowners from renting their properties.  On October 27, 2011, the Kepharts, homeowners in Northbay, rented their home out. The Board of Governors filed suit to terminate the lease.  The trial court held in favor of the Board of Directors and directed the Kepharts to terminate the lease.  On appeal, the Court of Appeals reversed the trial court.

The appellate court recognized restrictive covenants are subject to strict construction in their application.  The Covenants for Northbay allowed for amendment solely through a vote of the majority of homeowners, not by rule or resolution by the Board of Governors of the HOA.  The Court of Appeals held the Board of Governors’ action was a de facto (and unauthorized) attempt to amend the Covenants.  The Board of Governors did not have the authority to enact a resolution contrary to the powers reserved to the homeowners in the Covenants.  As a result, the long-standing resolution was thrown out, and the Covenant allowing renting of property was affirmed. 

Here is the lesson: A reviewing court will likely err on the side of caution when deciding issues restricting one’s use of property.  HOA boards should strictly adhere to the mandates of the Covenants; anything outside their express authority will likely not stand.  Further, if HOA want to amend the covenants to make them more restrictive, be careful to dot all your “i”s and cross your “t”s.  I recommend you consult with a real estate attorney in your neighborhood to assist you.  Alternatively, if you, as a homeowner, feel you are being unlawfully restricted in the use of your property, do the same.


Anonymous said...

I am glad to see the Kephart's case being reported and excited to hear about their win! It's about damn time the HOA's be brought down a peg or two. This is a huge win for homeowners rights.

Anonymous said...

Yeah, shame on those pesky (elected) miscreants who volunteer their personal time to serve on a Board who's primary objective is the preservation of your property value.