Opinion ID: 2629390
Heading Depth: 2
Heading Rank: 5

Heading: the validity of the 1996 assessment depends on the terms of the declaration and the nature of the improvements

Text: ¶ 40 Having determined that the HOA has authority to levy assessments on the Swan Creek property owners, we address whether Alicia Warne was required to pay the 1996 Assessment. Warne argues that the 1996 Assessment was invalid because it was, in reality, an attempt to resuscitate the 1986 Assessment that had been extinguished by the tax sale. We agree. ¶ 41 It is well-settled that liens on real property are extinguished by a tax sale. See A.C. Fin. v. Salt Lake County, 948 P.2d 771, 776 (Utah 1997); Hanson v. Burris, 86 Utah 424, 46 P.2d 400, 406 (1935), aff'd by Ingraham v. Hanson, 297 U.S. 378, 56 S.Ct. 511, 80 L.Ed. 728 (1936). A similar rule applies to foreclosure sales. See Restatement (Third) of Property § 6.5 cmt. 9 (2000). This is necessary in order to provide a means whereby a party with no interest in the property can pay delinquent taxes in exchange for clear title to the property. Buchanan v. Hansen, 820 P.2d 908, 909 (Utah 1991). We therefore conclude that the lien securing the 1989 Assessment was extinguished by the tax sale and that Alicia Warne had no obligation to pay the 1989 Assessment. ¶ 42 Although the tax sale extinguished the 1989 Assessment, it did not extinguish the HOA's authority to levy new assessments on property purchased at the sale. See Restatement (Third) of Property § 6.5 cmt. 9 (2000). We must therefore confront the thorny issue presented here whether an association may levy on property purchased at such a sale a new assessment for previously incurred obligations. While this is an issue of first impression in Utah, courts from other jurisdictions have addressed it. See, e.g., Kingsmill Vill. Condo. Ass'n v. Homebanc Fed. Sav. Bank, 204 Ga. App. 900, 420 S.E.2d 771 (1992). ¶ 43 In Kingsmill Village, a bank acquired a condominium at a foreclosure sale, and the court held that it was not solely responsible for an unpaid assessment levied on the property prior to the bank's assuming title. Id. at 773. The court reasoned that after the foreclosure sale, the unpaid assessment became part of the common expenses. Therefore, the court suggested that the association could require the bank to pay only a pro rata portion of the assessment. Id. Reasoning that the substance of the claim was a recoupment of past assessments, the court refused to allow [a] party [to] do indirectly what the law does not allow to be done directly. Id. at 773 (citation omitted); see also First Fed. Sav. Bank v. Eaglewood Court Condo. Ass'n, 186 Ga.App. 605, 367 S.E.2d 876, 877 (1988) (holding that mortgagee which foreclosed condominium unit was not liable for an unpaid assessment but rather a pro rata amount of the unpaid share according to statute); Lakes of the N. Ass'n v. TWIGA Ltd. P'ship, 241 Mich.App. 91, 614 N.W.2d 682, 687 (2000) (indicating that parties agree that a lien for past due assessments... does not survive a tax sale, but legislative intent was that covenants do subsist); Micheve, L.L.C. v. Wyndham Place at Freehold Condo. Ass'n, 370 N.J.Super. 524, 851 A.2d 743, 746-47 (Ct.App.Div.2004) (indicating that a condominium statute did not permit an association to collect back maintenance fees from buyer after sheriff's sale). ¶ 44 Many of these decisions are premised on state statutes that bear on the validity of reassessments following foreclosures. See id. But at the time the HOA filed this action, Utah had no such statute. We therefore decline to follow the rules adopted by these courts. Instead, we conclude that basic principles of contract law govern the validity of the 1996 Assessment. Specifically, we hold that the validity of the assessment against Alicia Warne turns upon the specific provisions of the Declaration establishing the homeowners association and conferring its assessment authority. We choose this approach because both Utah statutes and case law recognize that such associations are controlled by their governing documents, which in fact constitute a contract between the association and the property owners. [3] ¶ 45 Statutes in effect at the time Alicia Warne acquired the lots contemplated that she would be subject to the HOA's governing documents. For example, one statute provided that duly recorded documents impart notice to all persons of their contents. Utah Code Ann. § 57-3-102(1) (1986). Although not directly applicable, the Utah Condominium Ownership Act, Utah Code Ann. §§ 57-8-1 to -36 (1986), similarly provided that [e]ach unit owner shall comply strictly with the covenants, conditions, and restrictions as set forth in the declaration. Id. § 57-8-8. ¶ 46 Utah case law similarly recognizes the importance of an organization's governing documents. In fact, [i]t is well established precedent that the bylaws of a corporation, together with the articles of incorporation... constitute a contract between the member[s] and the corporation. Turner v. Hi-Country Homeowners Ass'n, 910 P.2d 1223, 1225 (Utah 1996) (internal quotation marks omitted); see also Workman v. Brighton Props., Inc., 1999 UT 30, ¶ 10, 976 P.2d 1209 (The binding nature of these article, bylaw, and covenant provisions is settled under Utah law.). This contractual authority is broad and requires landowners to pay a full assessment if the terms of the governing documents allow for such an assessment, even if the individual landowners do not benefit from it. Id. ¶ 14. ¶ 47 Because the Declaration governs the obligations of the lot owners, see Fairbourn Commercial, Inc. v. Am. Hous. Partners, Inc., 2004 UT 54, ¶ 10, 94 P.3d 292, we look to its terms in determining the validity of the 1996 Assessment. This is consistent with how our courts, as well as courts across the country, typically defer to the language of the governing documents when determining an association's right to levy assessments, reapportion unpaid assessments following tax or foreclosure sales, and collect attorney fees. See, e.g., Johannessen v. Canyon Rd. Towers Owners Ass'n, 2002 UT App 332, ¶¶ 19, 28, 57 P.3d 1119 (indicating that an agreement between unit owner and association to lower monthly assessment violated the Condominium Ownership Act and the declaration, which required consent of all unit owners); Citicorp Sav. v. Bhatti, 173 Ill.App.3d 170, 122 Ill.Dec. 926, 527 N.E.2d 424 (1988) (holding that the terms of a declaration rendered the mortgagee liable for an amount equal to unpaid common and special assessments); Lion Square Phase II & III Condo. Ass'n v. Hask, 700 P.2d 932 (Colo.Ct.App.1985) (indicating that a condominium declaration provided recovery of costs and attorney fees for action to foreclose liens and nonpayment of assessments). ¶ 48 In summary, because the HOA was a valid association operating pursuant to a duly recorded Declaration, those purchasing property in Swan Creek were contractually bound to its terms. When Alicia Warne acquired her lots, she bound herself to the terms of the Declaration. She is therefore obligated to pay the 1996 Assessment to the extent that it was authorized under the Declaration. ¶ 49 In granting summary judgment in favor of the HOA, the trial court ruled that the 1996 Assessment was levied pursuant to express authority provided [in the Declaration], and was made in accordance with [its] requirements. Alicia Warne challenges that conclusion, arguing that the Declaration neither authorized the HOA to impose assessments on selected lot owners nor empowered the HOA to revive assessments extinguished by tax or foreclosure sales. In so arguing, Warne points to the HOA's admission that the 1996 Assessment was not a new assessment. Rather, it was an admitted attempt to reimpose on selected lot owners the 1989 Assessment that had been extinguished by the tax sale. ¶ 50 Had the Declaration authorized selective imposition of assessments under circumstances such as those presented here, we would be constrained to uphold them. Such an approach would be consistent with the principle that the Declaration constitutes a contract between the HOA and its members and with the fact that a recorded Declaration imparts notice of its contractual terms to all who acquire property subject to it. In the absence of such explicit authorization, however, we must agree with Alicia Warne that the HOA lacks authority to revive assessments extinguished by tax sale. ¶ 51 We therefore turn to the terms of the Declaration. They support Alicia Warne's contention that assessments are to be uniform and that each property owner is responsible for only a proportionate share of expenses. Paragraph 17(d) of the Declaration, which outlines the powers of the association, states that the association has the power to assess and collect from every member of the association a uniform monthly charge per single-family residential lot within the subdivision  (emphasis added). Paragraph 9 of the Declaration states that [e]ach lot owner shall pay the management committee or association his allocated portion of the cash requirement deemed necessary . . . to manage and to meet the expenses incident to the running of the association and upkeep of the development (emphasis added). And paragraph 10 defines the cash requirement as the aggregate sum to be paid by all the owners then in existence. ¶ 52 Nothing in the Declaration suggests that the HOA may impose nonuniform assessments or levy assessments on only selected lot owners or that it may achieve that result by purporting to impose a new assessment on all lot owners and then relieving certain lot owners from responsibility for the assessment by crediting them for payments made toward prior assessments. Indeed, paragraph 17(d)(2) of the Declaration provides that every person acquiring a lot thereby is held to have agreed to pay the association all charges that the association shall make (emphasis added). It is significant that the Declaration uses the future tenseit does not provide that those acquiring lots are liable for prior assessments. This interpretation is consistent with paragraph 11 of the Declaration, which states that [e]ach monthly assessment and each special assessment shall be separate, distinct and personal to the owners of the lot against which the same is assessed. ¶ 53 We accordingly vacate the summary judgment entered in favor of the HOA and enter judgment in favor of Alicia Warne. Because this result may initially appear unfair to those lot owners who paid the assessment at issue, we note that the HOA could have prevented this result by foreclosing on its lien prior to the tax sale or by appearing at the tax sale and bidding on the lots. Moreover, Alicia Warne will not be entirely relieved from responsibility for the assessment because the HOA retains the authority to levy assessments for the common expenses of the association. Any revenue shortfall resulting from the unpaid assessments will presumably contribute to the common expenses of the association, and it remains within the authority of the HOA to impose a new assessment on all lots (including those owned by Alicia Warne) requiring lot owners to pay their pro rata share of those expenses.