A sanction by any other name would smell as sweet.
Yes, here at FLS you can get your condo law with a side of Shakespeare. And today we are talking about that most inflammatory of community association topics: the FINE. When an owner violates a provision of the governing documents, the Association may have several avenues of recourse. It can file for an injunction and litigate. It may be able to revoke certain privileges. It might even be able to involve county or state enforcement. But the most commonly used, most often mis-used, most controversial, most expedient, and perhaps most misunderstood remedy is the imposition of monetary fines. Like Romeo and Juliet, the association and the owner are inextricably linked to one another, and can “from ancient grudge to new mutiny” end up in “misadventured piteous overthrows.” Below are some guidelines and concepts for boards to keep in mind as they wade through the covenant enforcement process and consider when, where, and how to fine. Hopefully you can keep fining from becoming “such sweet sorrow.”
Fines – What are they Good For?
The word fine gets thrown around a lot, but what does it really mean? Going back up to the title of this post, a fine is a sanction imposed by the Association upon an owner for a violation of the governing documents. In fact, it might better be called a disincentive or a motivator. A fine is not a revenue-generating or money-making enterprise, and it is not a way to recover costs or damages or perceived loss of value. Those items listed must be independently recovered, and often proven in court.
Let me repeat this because it is the most important thing you can take away from this post: fines are not a money-making enterprise for the Association.
A fine is a motivational tool to gain compliance, to be used especially when the Association is enforcing a rule or correcting a violation that does not need or justify the time, cost, and hassle of full legal action. It is like a parking ticket. Do we toss people in jail for overstaying their meter? No. We ding them fifty bucks so that they don’t do it again.
Fines should be thought of the same way. An owner painted their fence the wrong color, or had their grill too close to the condo building, or failed to supply the required lease documentation, or even violated the parking policy. Want to hire an attorney and go to court over it? You probably shouldn’t! (at least not yet). But don’t “bite your thumb” at them either.
Instead, put fining on the table. Let them know what the penalty will be for this violation, and see if you can motivate them not to do it again.
We Have the (Fining) Power
First your association has to determine if it has the power to fine. This can be granted by state statute, or by the governing documents, or by a combination of both. Keep in mind that association documents can never grant authority that is expressly prohibited by state statute, and that the board cannot exercise a power not granted to it by one of the above methods.
Even then, there are nuances to be aware of: certain state statutes provide that the Association has certain powers unless otherwise provided in the governing documents, while other statutes can say that fining power exist if granted by the governing documents. When in doubt, a quick check with your attorney at the outset can often save a lot of time, money, and hassle.
Fine the Right Way
So you are a board of directors faced with a relatively minor violation, and you want to correct it using fines if necessary. How do you do it? To borrow from Romeo and Juliet again: “Wisely and slow; they stumble that run fast.”
First, nearly every statute governing community association violations has a provision saying: give the owner notice of the violation and a reasonable opportunity to cure the violation. Boards often hate this. The CC&Rs are very clear that you cannot put up a metal shed. Wood only. This guy put up a metal one. Fine him now.
And I empathize with them. It is frustrating to know that despite a clear violation of the rules, you have to wait for them to make it right. Does every single owner who moves in get to plead ignorance and receive his own personal notification of what the rules are? Do they literally get one mistake free?
Yes. They almost certainly do. So if you are a board who wants to impose fines quickly, then be sure you get that first notice out as soon as possible to let the owner know about their violation, and calendar the compliance date so that you are ready to move forward if necessary.
The Right to Be Heard
Once the violation continues beyond that compliance date, the Association may have the right to fine. When contemplating the fine, an association should look to its state statutes and its own governing documents to determine the procedure for fining. Some provide for an owner’s right to be heard upon request. Others state that a hearing must be held regardless of whether the owner shows up. In either case, the Board should be keeping in mind what we discussed above – that the purpose of this fine is not to sneak it onto the account and make some money. It is an incentive for the owner to bring his property into compliance. And keep in mind that if you do end up having to go to court to collect the fines, the judge will examine your process to determine if (a) it complied with the law, and (b) it gave the owner notice of your intent to fine.
Deciding the Fine Amount
The Maryland Condominium Act provides that the Association may “levy reasonable fines for violations” – my emphasis added. Because on perhaps no community association issue has more ink been spilled than the reasonableness of fines. How can you make a fine reasonable?
First, the Association should address this issue before they are reviewing a specific case. That’s right – put out a schedule of fines for violations. Most governing documents suggest or allow for this, and it is so important from an enforceability standpoint. Consider this case from Arizona, where the court said that because the association had the right to put out a schedule of fines, but did not do so, that their ability to fine was not yet valid:
Therefore, although the HOA had the authority under state statutes and the CC&Rs to promulgate a fine schedule for monetary penalties, there is no competent evidence in the record before us that it did so. Without competent evidence of a fee schedule timely promulgated demonstrating the fine amounts and the appropriateness of such amounts, monetary penalties are per se unreasonable.
Whoa. No fining policy, no fines! Now, most right-thinking community association attorneys (myself included) see this as an aberration – the court here overreached a bit, and this is not binding precedent on other courts throughout the country. Plus, the language in governing documents and state statutes can vary. But let it be known – if you have the right to promulgate a schedule of fines, doing so can be very beneficial to the enforceability of your fining efforts.
Beyond just publishing the fine schedule, though, boards would be well served to treat like situations in like fashions. Fine one owner who installs the wrong style of fence the same amount as another with a similar fence violation. To do otherwise suggests selective enforcement – or, as Shakespeare said, “Do not swear by the moon, for she changes constantly.” Instead, do the same thing every time – consistency suggests reasonableness.
Finally, review the effectiveness of the fines, and if they are not getting the job done, take the next step. Do not let the fines run for years against a property without any further action, or you may find them uncollectible. Those 0.00001% of HOA disputes that end up in the papers with five-figure fine amounts do so in part because the owner did not comply for a long period of time, and in part because the Association waited too long to take stronger action.
Do Not be Fortune’s Fool
In sum, there is a lot to learn from Shakespeare’s famed “starcrossed lovers.” Associations would do well to avoid leaping forward, acting dramatically and unthinkingly, and hastily rushing into action. Instead, they might succeed by being reasonable, determining their rights in advance, using the fines for their proper purpose, acting uniformly across similar violations, and following the rules for imposing fines. If they do, they might just avoid being described thusly:
“For never was a story of more woe than this of Juliet and her Romeo.”