Homeowners Can’t Withhold Fees in Protest

Owner dissatisfaction with the way a community association is performing or the conditions or quality of the community and its amenities can create significant problems for an association — but it doesn’t justify the withholding of assessments.

The Indiana Court of Appeals recently made clear that owners don’t have the option to simply stop paying their assessments when they’re unhappy with the association, even if their complaints are perfectly legitimate (Feather Trace Homeowners Ass’n, Inc. v. Luster). The principle holds true in other states, too.

How the Case Landed in Court

The homeowner in the case had lived in the community since 2002. The community’s governing documents required an annual assessment of $200.

In 2018, he refused to his pay his annual assessment because the association had stopped maintaining the public areas in the 52-residence community. The HOA sued him for the unpaid assessment, plus costs and attorney’s fees, but the trial court judge ruled in the owner’s favor.

The judge found that the HOA’s failures to maintain the property resulted in such a “radical change” in the community that the owner wasn’t required to pay the assessment until concerns were addressed. The judge noted dangerous conditions around the community’s pond, health and safety issues, and “dead fish everywhere.”

The HOA appealed. The Indiana Court of Appeals expressed sympathy for the owner’s situation and characterized the conditions of the neighborhood as “dramatic and disheartening.”

Nonetheless, it found that the trial court’s ruling would only exacerbate the underlying problems. “The appellate judges all agreed that owners have to pay assessments,” says David Jacuk, an attorney with Tanner Law Group in Indianapolis, who represented the association.

“If they had gone the other way, everyone in the community would have stopped paying their assessments, and the association would have gone bankrupt.”

Why Associations Need to Pay Attention

Although these circumstances might seem unusual, Jacuk cautions that they really aren’t. “A lot of owners come to court in collection actions and complain about how their neighborhoods are doing,” he says. “Or they don’t like the board, and they use that as an excuse for why they don’t pay.”

Jacuk acknowledges that it was unusual that the owner took it all the way to trial. “Usually, they reach some settlement instead,” he says.

This appears to be the second case in the state where a court has held that owners can’t refuse to pay their assessments. “The case is part of a growing trend in Indiana of appellate decisions upholding the covenants for community associations, whether for the delinquent assessments or the enforcement of covenants,” says Tom Murray, a partner with the Indianapolis firm of Eads Murray & Pugh, P.C.

Courts in other states have reached similar conclusions when it comes to owners withholding assessments. The California Court of Appeals, for example, has held that “a system that would

tolerate a [condominium] owner’s refusal to pay an assessment because the unit owner asserts a grievance … would threaten the financial integrity of the entire condominium operation.”

Some states have statutes in the same vein. Under the Michigan Condominium Act, for example, owners sued for nonpayment of assessments can’t defend themselves by asserting that the association hasn’t provided services or management. A Michigan court also has held that the Condominium Act doesn’t give owners the self-help remedy of withholding part or all of their assessed fees.

Bear in mind that owners have remedies other than withholding assessments to express their displeasure with how an association is run. As the Indiana Court of Appeals noted, an owner generally can:

• Mount a campaign to oust the current board members;
• Participate in board meetings,
• Strive to become a board member to influence the decision-making process;
• Seek an injunction against the HOA;
• Seek a receivership for the HOA; or
• Sue board members for breach of fiduciary duty.

To avoid such potentially unpleasant and costly outcomes, Jacuk suggests associations stay open to complaints when an owner misses assessment payments. “Try to take them seriously,” he says.