Connecticut Supreme Court decision will be felt by nearly all homeowner associations

LimbergerThe effects of a recent Connecticut Supreme Court decision will be felt by nearly all homeowner associations in Connecticut. As of April 26, 2016, homeowner associations must notify their members if they intend to amend their standard foreclosure policies. Accordingly, all homeowner associations will have to follow a specified procedure if they want to foreclose on a particular unit.

The holding of Neighborhood Ass’n, Inc. v. Limberger, 321 Conn. 29 (2016) is narrow, and the Court only decided on the specific issue of whether a standard foreclosure policy is considered a “rule.” This ruling directly impacts associations by expanding their duty to notify tenants when they change their foreclosure policies. It is essential that associations understand the procedure for properly adopting a rule governing standard foreclosure policies, or conducting a vote to foreclose on a property.

This ruling may also be instructive for future disputes as to different types of policies. Despite the Court explicitly stating that they were not ruling on a “clear line of demarcation between rules and internal business operating procedures,” Limberger does provide some insight as to the Court’s thought process. The reasoning in this case should be considered when facing similar issues.

If you are concerned about this change in the law, or believe you might be impacted by this decision, contact O’Connell, Attmore & Morris, LLC for comprehensive legal advice.

Neighborhood Ass’n, Inc. v. Limberger Summary

On April 26, 2016 the Court issued its decision in Neighborhood Ass’n, Inc. v. Limberger, 321 Conn. 29 (2016). The ruling in this case is consequential for homeowner associations in that the justices made the decision that an association’s standard foreclosure policy is considered a “rule” under the Connecticut Common Interest Ownership Act (CIOA). This has implications for homeowner’s associations because they must follow a specified procedure for notifying their tenants of rule changes. If the association does not follow the procedure, then a foreclosure action may not be properly adjudicated.

Limberger arose out of an issue stemming from the association’s change in policy. In 2010, the association adopted a policy authorizing their attorney to initiate a foreclosure action within thirty days of a demand, if: (1) the homeowner failed to bring their balance to a zero, or set up an adequate payment plan; and, (2) the homeowner owed at least two months charges. In the following year, the association amended the policy to say that if there is a balance equal to two months, then the matter will be referred to the association’s counsel for foreclosure. Further, the board never notified any of its tenants of the change in policy.

The matter came to light when the association sued the homeowner for delinquent payments. The homeowner moved to dismiss the case because the association failed to vote to commence the action, in accordance with CIOA, and failed to abide by the guidelines concerning rule changes.

The Court first notes that General Statutes § 47-261b mandates that associations notify homeowners of their intention to change a rule, as well as following up on any subsequent action.

The Court then moves on to define what a rule is. Specifically, the Court cites to § 47-202(31), defining a rule as “a policy, guideline, restriction, procedure or regulation of an association, however denominated . . . which is not set forth in the declaration or bylaws and which governs the conduct of persons or the use or appearance of property.” The Court easily concluded that standard foreclosure policies fall within this definition, even going so far as to say that it is “abundantly clear” that the policy falls within this definition.

Further, the Court looks to other areas to emphasize its reasoning. First, the Court looks to the intent behind CIOA. They cite a state congressional committee study, in connection with a 2008 CIOA amendment, in order to “provide significant new rights to individual unit owners when dealing with the association’s elected board of directors” and to “enhance the association’s authority to address issues that arise in the daily like of the common interest community.” The congressional committee concluded that the new CIOA amendment would provide significant protections to homeowners facing foreclosure.

Second, the Court balanced various policy arguments. They noted the effect of this foreclosure policy directly impacts the daily financial life of a tenant, as well as the potential to lose their home. Further, they note that this ruling is not detrimental to associations. Specifically, there is “no impediment to a board’s timely and effective fulfillment of its responsibilities.”

As a result, the Court saw no choice but to find that this policy is a “rule.”