Over the last several years, the Indiana General Assembly has given considerable attention to the regulation of Homeowner’s Associations (“HOAs”). The 2013 session was no exception. Effective July 1, 2013, House Bill 1084 created new requirements for HOA recordkeeping and access. HOA’s must now keep certain records and make them available at the request of their Owner – Members. Those records are:

- The HOA’s financial records, including all contracts, invoices, bills, receipts, and bank records, of a homeowners association must be available for inspection by each member of the homeowners association upon written request. A written request for inspection must identify with reasonable particularity the information being requested. A member’s ability to inspect records under this section shall not be unreasonably denied or conditioned upon provision of an appropriate purpose for the request. This “appropriate purpose” basis for HOA records requests is a requirement under the Indiana Non-Profit Corporation act, which was the prior standard for HOA records requests. This is no longer the case under the new Act.

- Other communications are also excluded. An HOA is not required to make available to a member for inspection: (1) unexecuted contracts; (2) records regarding contract negotiations; (3) information regarding an individual member’s association account to a person who is not a named party on the account; (4) any other information that is prohibited from release under state or federal law; or (5) any records that were created more than two (2) years before the request. For instance, this may include information pertaining to debt collection records which may be regulated by the Federal Fair Debt Collection Practices Act.

These new regulation provide a new minimum level of access to an HOA’s records by its members. However, if an HOA’s own documents provide for greater records access to its members, these new regulations would not limit those existing standards or would prevent an HOA from increasing its access to records to its members. The bill also recognized the costs that can arise from keeping and producing these records that previously may not have been required to be available. An HOA may not charge a fee for the first hour required to search for a record in response to a request for records. After the first hour, however, an HOA may charge a search fee for any time that exceeds one (1) hour of up to $35.00 per hour, pro-rated for any partial hours over the first hour, for a total fee not to exceed $200.00.

HOA Board members and their managers should implement new practices to collect and catalogue the required records. For instance, this might include collecting and keeping communications not previously saved in the HOA’s records, such as e-mails between Board Members and / or the HOA’s management concerning a potential covenant enforcement matter, written third-party complaints to the HOA about a lot, or architectural approval request forms or written communications. An HOA may not have previously kept these items. These types of written communications would now need to be kept a minimum of two years. If an HOA does not presently keep a record of those communications, it should develop a method to do so. Board members should also be mindful that email communications between Board members about a lot, regardless if there is a dispute, would need to be catalogued and saved for the required two years. Therefore, copying management into all such communications to capture the records is advisable. Or, for self-management communities, designating a board-member, ideally the Board Secretary, to keep these records would be advisable.

These new standards, however, do not mean that oral communications, such as phone calls or face to face conversations about a lot need to be transcribed and made into a record. Likewise, these new requirements do not necessarily apply to matters not involving a particular lot or the financial records designated; for instance, a written communication between board members concerning where to deposit reserve funds, common property maintenance, or a governmental issue.

JEFFREY M. BELLAMY is a Partner with the Indianapolis law firm of Thrasher Buschmann & Voelkel, P.C., where he counsels clients in the areas of real estate, land use and litigation. He regularly represents homeowner’s association boards and their managers throughout central Indiana. He earned his B.S., M.A., and J.D. degrees from Indiana University. Mr. Bellamy is a member of Indianapolis Bar Association Land Use Law Executive Committee, a 2009 graduate of the Indianapolis Bar Association’s Leadership in Law Series and a 2013 Superlawyers “Rising Star” in the area of Real Estate and Litigation. Jeff can be reached by telephone at (317) 686-4773 or e-mail at bellamy@indiana-attorneys.com.

Eviction actions can be emotionally unpleasant for landlords and tenants. Even the most diligent landlords who have gone to great lengths to screen potential tenants will encounter times when an eviction is a necessary step. Evictions in Marion County, however, are unlike evictions in the other Indiana counties. As a result, Marion County evictions also can be financially unpleasant for landlords under certain circumstances, even when the evidence is clearly in the landlord’s favor.

The Marion County Small Claims Court system is divided into nine distinct townships. Generally speaking, most residential landlords bring eviction actions in one of these courts rather than in the Marion Superior Courts. The amount of damages sought by a landlord generally is less than $6,000, the statutory maximum amount recoverable, so it is quicker and cheaper to proceed in small claims court. Once an eviction action is filed in the township court where the leased property is located, the issues of possession and damages are typically bifurcated into two separate hearings.

The first hearing is limited to the issue of possession of the leased property. Generally, if a tenant is behind in his or her rent, the Court will award a landlord possession of the leased property, reflected in a court order. Often, the township constables will not permit execution on the possession order until at least one week after the Court awards possession and issues its “writ of restitution.” In those situations, a landlord will be required to contract with a moving company, storage facility, and a locksmith to remove the tenant’s personal belongings and to adequately secure the leased property. Although these costs may be reflected in a judgment after a damages hearing, they can be significant if the tenant has substantial personal property to remove and store.

After the Court awards possession, the Small Claims Court rules permit tenants to appeal the possession order before a decision has been made on the issue of damages. Some township courts will even directly inform the tenant of his or her ability to appeal the possession order. In other words, a landlord may have followed all appropriate procedures: hired an attorney to file an eviction; obtained an award of possession; hired a moving company for an eviction, only to have the tenant pay the appeal fee and cause the entire eviction matter to begin anew in the Marion Superior Courts. It is unclear if this result was the intention behind the rules governing Marion County Small Claims Court appeals.

Pursuant to Indiana’s appellate rules, a party possesses the automatic right to appeal a “final judgment.” A final judgment, according to Indiana’s appellate rules, generally will be a judgment that “disposes of all claims as to all parties.” In Marion County, however, appeals from the Marion County Small Claims courts do not go directly to the Indiana Court of Appeals, rather they are taken to the Marion Superior Courts and the case starts over (de novo). Marion County’s local rules permit any party to “appeal from the judgment of the Marion County Small Claims Court” without discussing whether a judgment must be final.

By not requiring that appeals be taken only from final judgments, the eviction process for landlords in Marion County can become rather tumultuous and costly compared to the burdens placed on a delinquent tenant. While unusual, if a case is appealed to the Marion Superior Courts, it can take months to obtain a pre-judgment order of possession and a writ of assistance to have a tenant forcibly removed. In the meantime, the tenant can remain in the leased property and continue to avoid paying rent. Despite these procedural obstacles and astronomical costs, a landlord generally must remain forthright in pursuing the eviction in order to regain possession of the leased property and begin searching for a viable stream of rental income. This perseverance is necessary even if the prospects of collecting a large monetary judgment from a nonpaying tenant are miniscule.

To avoid this scenario, it is important to consider informally agreeing with a tenant to a consent judgment on the issue of possession. Alternatively, it may be prudent to write into a lease specific waivers with regard to how a potential eviction matter may proceed in the Marion County courts. Still, those provisions may not be enforced by a given court.

Quite obviously it is essential to gather extensive information about tenants prior to agreeing to any lease. Furthermore, a landlord must be diligent in pursuing eviction upon the tenant’s initial breach of the covenant to pay rent. Unfortunately, the plans established in the Marion County Small Claims Task Force’s May 1, 2012 Report on the Marion County Smalls Claims Courts do nothing to help avoid this disproportionately burdensome effect on landlords. If anything, the plans make it more difficult and less efficient to reach informal resolution of possession issues with tenants. Hopefully, the Marion County Small Claims Task Force or other appropriate body will soon recognize the need for reform to the appeals process when there is clear evidence that a landlord is entitled to possession of his or her real estate.

For questions regarding this article or for additional information, please contact the author via email at donham@indiana-attorneys.com.

Each year, homeowners in subdivisions and condominiums throughout Indiana complain to their state legislators regarding real and perceived problems with their neighborhood associations.  Those elected officials respond each year by introducing a variety of legislation designed to solve the problems of their constituents.  This year was no different.  There were a number of legislative initiatives, some potentially catastrophic, that were introduced into the 2011 Session of the Indiana General Assembly. Fortunately only a few became law.  However, those bills will have an impact on the operation of homeowners associations in Indiana. This article will discuss the 2011 initiatives that became law.

House Enrolled Act Bill 1058

The Indiana Attorney General is granted certain authority in cases where non-profit corporations do not act within their guidelines or where government officials misspend public funds.  Current law exempts homeowners associations from this regulation.

House Enrolled Act 1058 allows the Indiana Attorney General to bring a legal action against an HOA board of directors or an individual director, if the Attorney General finds that :

(1) the association’s funds have been knowingly or intentionally misappropriated or diverted by a board member; or

(2) a board member has knowingly or intentionally used the board member’s position on the board to commit fraud or a criminal act against the association or the association’s members.

This legislation will not allow the Attorney General to become involved in assessment collection actions or in disputes regarding covenant enforcement or maintenance responsibilities.  However, in cases where one or more of the board members knowingly or intentionally misappropriate or divert funds or commit fraud or criminal acts, the Attorney General may step in.

Legislative committees heard testimony about instances where board members paid themselves exorbitant sums to perform work in the neighborhood; where board members appropriated significant sums of money for projects that benefited only themselves; and in one case where a board loaned significant sums of association money to a friend of the board members. These are the types of conduct where the Attorney General may become involved.

Under the Act, a Court could enjoin the improper conduct or could order a board member to make restitution; to be removed from the board and/or to reimburse the State for the reasonable costs of the attorney general’s investigation and prosecution of the violation.

This Act will not impact board members acting within the scope of the covenants and in the best interests of the neighborhood.  However, in those cases where the conduct of a board or a board member is clearly outside the scope of reasonable behavior, the Attorney General may become involved.

House Enrolled Act 1541

This act prohibits “transfer fee covenants”.  The use of Transfer Fee Covenants has not yet reached Indiana, but has become prevalent in some western states.  In those states, finance companies will enter agreements with developers where the finance company pays an up front  lump sum to the developer in exchange for a “transfer fee covenant” that will impose a transfer fee, usually in the 1% range, every time a residence in the neighborhood is sold, for the next 100 years. The finance company assumes it will make a profit over time on each sale.  The fee provides no benefit to the neighborhood or the Association.  Several states, now including Indiana, have outlawed this practice.

The Act has been written so that it does not prohibit standard charges by homeowners associations or their management companies, for processing the paperwork for transfers of homes within the subdivision.

Senate Enrolled Act 155

This legislation initially dealt with tax warrants, but was amended to impact the collection of homeowner’s association assessment liens.

Under current Indiana law, a homeowner’s association can file a lien against a property if the owner fails to pay his/her assessments.  The current law provides that the association cannot foreclose that lien until at least one year after it is recorded.  This Act shortens the time period from one year to ninety days.  The waiting period is waived if someone else files a foreclosure action against the property or if the property owner issues a written demand that the association bring suit sooner.  This legislation will help homeowners associations in collection cases. .  .

The catastrophe that did not pass.

Senate Bill 144 was introduced to address the problem of children and drivers who drown in neighborhood retention ponds.

Many neighborhoods in Indiana have retention ponds, that were mandated by government authorities to deal with drainage issues.  Unfortunately, there have been a number of instances where vehicles have been driven into these ponds and/or where children have wandered into the ponds causing injuries and death.  Senate Bill 144 would have allowed local government entities to construct whatever types of barriers they deemed appropriate to prevent vehicles from driving into the ponds and to “child proof:” the ponds.  No input from the residents in the neighborhood was required.  The bill also provided that when the construction was completed, the government authority could then assess some or all of the residents in the neighborhood, at the sole discretion of the government authority, to pay the costs of work.

While the cause is noble, the implementation of the bill could have been catastrophic. The ponds were installed by developers at the request of and with the approval of local governing authorities. The homeowners were never part of the equation. The bill however, put the entire economic burden on the homeowners.

The issue should be addressed, but the method and the cost of addressing the issue needs significant further study.  Look for future legislation.

The Indiana General Assembly has passed legislation affecting the way homeowners associations conduct their business in each of the last several sessions.  You should expect more of the same in future sessions.

The construction job is complete.  Your invoice has been submitted to the customer.  However, several weeks have passed since you submitted the invoice and you have not been paid.  On your last day at the job site, the architect (or foreman, general contractor, building manager, homeowner, etc.) told you that he was delighted with your work, asked you for business cards to submit to colleagues and friends, and promised that you would be paid “but it might take a few extra days.” When you were out with your spouse during the weekend, you were sure you saw your customer at the ballgame (or grocery, trade show, department store, movies, etc.) but he put his head down and walked the opposite direction.  That is when you realized that you have a problem – you are not going to get paid.  Of course, your fears are confirmed when your phone calls or emails to the customer go unreturned or are returned at times when you are sure not to be in the office.

Mechanic’s liens can be an effective way to lower your risk when it comes to bill collection.  However, Mechanic’s Liens are not foolproof. Indiana’s Mechanic’s Lien laws are technical.  If you make a mistake with the lien requirements, that lien could be invalid.  Also, you may have been talked out of filing your lien by a general contractor – “I’m not getting paid either, buddy.  Don’t make waves because we’re all in this together.  The next draw is due any day now.”  Depending on the project, you only have a limited time to file your mechanic’s lien.  When that time expires, so do your lien rights.  Also, ‘no-lien’ contracts are common. By agreement, your mechanic’s lien rights are waived; or more likely, the ‘no-lien’ status of the work was offered as a ‘take it or leave it’ option as part of the request-for-bid stage.   Regardless, you still have an unpaid invoice and possibly laborers and material providers that want to be paid.  A mechanic’s lien is certainly not the only mechanism to getting an invoice paid or to lowering your collection risks.  Failing to timely file a mechanic’s lien, being party to a no-lien contract, or filing a flawed lien that is found to be unenforceable is not the end – you have other options.

The place to begin with collection problems is at the very start of the relationship by making sure you are using a good written contract. A good written contract, when used appropriately, can head off problems with your customer before they begin.  Ambiguity between the parties’ understanding of the contracted work, especially when working with homeowners, is a major source of dissatisfaction with a finished job and a customer’s reluctance to pay an invoice.  With homeowners, the contract negotiation stage will be your first chance to begin the process of educating them about construction standards and practices that you may take for granted as understood when working for a general contractor or colleague in the trades.  Use this chance to begin setting fair and reasonable expectations.  Material samples and photos of previous work done help in this regard.  By defining clearly the terms agreed upon, including a detailed scope of work, estimated time of completion, change order procedures, job finish specifications, type, brand and quantities of materials to be used and payment terms, your reluctant customer will less likely be disappointed with the end product.  Make sure to give your customer a few days to review the contract before you begin work.  Courts are less likely to enforce a contract in your favor if it was signed without first giving your customer the chance to read carefully the document and possibly get third-party review.  While not a collection issue, have a qualified attorney review your contracts to make sure they comply with the Indiana Home Improvement Contract and Warranty Statutes.

During negotiation of the contract, you may lower your collection risk by requiring the customer to pay a deposit, pay draws, or pay material suppliers directly. Using one or a combination of all these options will not protect you completely if a customer defaults, but it will cushion your fall if a customer refuses to pay.  Paying a deposit at the start of the job provides funds so you do not have to pay out of your own pocket to start the project.  Should the job be several weeks in length, requiring periodic payment of draws further reduces your risk and shortens the time between job completion and your final invoice.  While a deposit and periodic draw arrangement would be ideal, some jobs can be completed before a draw would be due.  In those cases, consider proposing payment of a deposit and direct payments by the customer to material suppliers.  If you do not know your customer well, he may be reluctant to make a significant prepayment to you.  Therefore, payment to the third party material supplier may overcome the customer’s anxiety and limit your risk.  This would leave you only with labor and profit as outstanding debts.  Not an ideal situation, but certainly better than the alternative of having materials outstanding, too.

Keep this in mind when negotiating – proposing deposits, draws, or direct material payments can act as a test; you are hiring your potential customers just as much as they are hiring you.  If a customer balks at all of these payment proposals, insists you start the job as soon as possible, refuses to make any payment until the job is complete and shows little if any interest in the details of the contract, be concerned, be very concerned. This is a customer you may want to think twice about working with.

On insurance restoration jobs, an additional term you can negotiate into your contract is an assignment of insurance proceeds directly to you or joint payment drafts to you and the customer. Insurance claim settlement amounts often will be calculated based on your and your competitors’ quotes after being reviewed by an adjustor or in conjunction with an inspection by an adjustor.  To accomplish this, you will, of course, need an agreement with your customer.  You may make this type of payment arrangement a requirement of your providing a quote to do the work.  Make sure that the assignment or joint payment agreement is in writing.  An attorney can prepare a simple assignment of insurance proceeds or joint payments agreement for you to use as an attachment to your written contract.

Keep in mind, if you and your customer agree to a direct assignment of insurance proceeds, the insurance company’s payment will be less the customer’s deductible.  Make sure your customer understands that he may have to make an additional payment to cover the deductible.  Consider getting that amount in the form of a deposit directly from the customer before work starts.  If you and your customer agree to the joint payment of drafts, make sure that your customer understands that he cannot negotiate that insurance payment with his bank without your consent.  The same goes for the contractor; the customer’s signature will be needed to negotiate the insurance check with your bank.  While this is a less preferred method than simply having the insurance proceeds directly assigned to you, it creates a type of escrow situation where both parties have to be in agreement before the insurance proceeds can be released.

If you file a lien but it has a technical flaw that makes it unenforceable or if the filing deadline passes before you could file the lien, all is not lost.  You may want to consider litigation for a breach of contract action or “unjust enrichment.” The difference between a breach of contract action and unjust enrichment is very simple:  Breach of contract actions are based on written contracts.  Unjust enrichment claims can be raised when materials or labor were provided to a customer without a written contract and the parties dispute whether or not they had an understanding or agreement. Again, using a good written contract has more benefits than just those mentioned above.  You should look at every contract you sign with the perspective of “what if I had to go to Court to enforce this document.”  If you have a customer who refuses to pay you and your lien period has expired or you entered into a no-lien contract, then you will likely have to walk away from the debt or go to Court to have the contract enforced.

If you made the mistake of doing a project without a written contract and your customer refuses to acknowledge that you had an understanding to do the work, then you also may be able to seek recovery from a Court for unjust enrichment.  The legal theory of unjust enrichment is that it would unfair to allow one party to be benefited by the labor and materials of another at the expense of the party who did the work.   It would be careless to think that unjust enrichment makes using a good written contract unnecessary.  However, for those instances where a contract was not used or, for whatever reason, was not valid, unjust enrichment provides a remedy for when a customer decides not to pay.

Of all these methods reviewed, including mechanic’s liens, the best way to avoid an invoice dispute is to deliver the job on time with a high level of workmanship, keep communication open, and never miss an opportunity to educate your client about your products and services. While unfortunate, there is a very small portion of the population who are professional deadbeats.  It is best to avoid doing business with them.  However, many invoice disputes are related to misunderstandings that could have been avoided.  Reinforce reasonable expectations in your client and refer to the contract if there are questions about your responsibilities.  Make sure to always use written change orders for additional work. If you implement these methods you will reduce invoice disputes, increase your bottom line profits, and raise your reputation in the building community by having more satisfied customers.

Once again the Indiana General Assembly has shown an interest in legislation regulating homeowners associations. Since our firm maintains an active presence at the General Assembly, we are often called upon to assist on this legislation.  Several proposed bills could significantly impact neighborhoods and neighborhood associations. They include various bills that would (1) allow the Attorney General to pursue HOA boards for fraudulent conduct or misappropriation of funds; (2) allow local works boards to install mounds, barriers, fencing, and other structures to protect retention ponds from children and vehicles and then assess the cost against the home owners; and (3) change the timing and various aspects of imposing and collecting association assessments.

The following is a list of the pending bills:

House Bill 1058

Authorizes the Attorney General to bring an action against the board of directors of a homeowners association or individual members of a homeowners association, if the attorney general determines that the board or a director has committed a fraudulent or criminal act or has knowing and intentional misappropriated association funds. Originally, the Bill would have permitted the involuntary dissolution of an association if violations were severe, but after our firm provided guidance and input to the legislature, this provision was removed.

Senate Bill 104

This bill specifies that Barrett Law funding may be used to finance a mound, guardrail, barrier, or other structure necessary or useful to: (1) limit access by children to a retention pond; or (2) reduce the likelihood that a vehicle will enter a retention pond. The Bill provides that if such an improvement is constructed under the Barrett Law within a platted subdivision, the works board may assess all or part of the lots in that subdivision for the improvement.

Senate Bill 155

The original bill dealt with the foreclosure of tax liens by the Department of Revenue. The bill was amended to add a provision that specifies that a complaint to foreclose a homeowners association lien may not be filed earlier than 90 days after recording (current law is 1 year) , unless a person files a notice to foreclose the lien, or another person files an action to foreclose the property that is the subject of the lien.

House Bill 1514

This bill provides that a person who repairs, cleans up, or maintains a neighboring abandoned structure is entitled to a lien on the property, not to exceed the lesser of: (1) the fair market value of the work performed; or (2) $10,000. The bill establishes a procedure for creating, filing, and enforcing the lien and provides that the lien has priority over the lien of a lender and over later recorded liens.

House Bill 1541

This bill defines “transfer fee covenant” as a declaration or covenant that: (1) purports to affect an interest in real property in Indiana; and (2) requires the payment of a transfer fee to a specified person upon a subsequent transfer of the interest in real property. Provides that a transfer fee covenant recorded in Indiana after June 30, 2011: (1) does not run with the title of the real property interest purported to be affected; and (2) is not binding or enforceable against any subsequent owner, purchaser, or mortgagee of the real property interest. Provides that any lien purporting to secure the payment of a transfer fee under a transfer fee covenant recorded in Indiana after June 30, 2011, is void and unenforceable.

Senate Bill 466

This bill would allow tax sale certificate purchaser to enter onto abandoned property for which the purchaser owns a tax sale certificate to abate a nuisance or comply with unsafe building laws or certain ordinances. It requires a person who purchases property at a foreclosure sale to record the deed within 60 days. With respect to mortgaged real property that the mortgagor surrenders in writing to the court or to a mortgagee, provides that 30 days after the date on which the mortgagor surrenders real property the mortgagee is responsible for ensuring that the property does not violate local ordinances or nuisance, unsafe building, and vacant and abandoned structures statutes. Specifies that the mortgagee is personally liable for ensuring that the property complies with local ordinances or nuisance, unsafe building, and vacant and abandoned structures statutes, and provides that the mortgagee may be liable for additional civil penalties as determined by the appropriate local legislative body. Requires a mortgagee to whom property has been surrendered to record the mortgagee’s interest in the property not later than 60 days after receipt. The bill provides that a mortgagee has the authority to enter onto real property in order to carry out its responsibilities.

Bear in mind, these bills are currently pending before the Indiana General Assembly and may be amended, combined, or not passed.  At present, they are not the law of the State of Indiana.   If you have questions regarding the how state laws and legislation will impact your neighborhood, please contact Steve Buschmann at (317) 686-4773.

One of the most common problems with property tax payers is the simplest to solve: missing deadlines.  Below are some of the more important deadlines that are approaching.  They cannot be extended and missing a deadline cannot be appealed, so it is absolutely imperative that clients either file or appeal on their own in a timely manner or delegate that responsibility to our Firm.

1.       Marion County 2010 Assessments:  November 30, 2010 if the taxpayer has received a Form 11 Notice of Assessment; otherwise, within 45 days following the receipt of the first 2011 tax bill.  We are assuming that November 30 is the deadline for all of our existing appeals.

2.       Other Counties:  Typically, all counties surrounding Marion have already completed their appeals period, but if you are uncertain please call us or your local Assessor to be sure.

3.       2011 Assessments:  Appeal by May 10, 2011 unless an extraordinary circumstance forces the County Assessor to delay assessments.

4.       2011 Exemptions:  File Form 136 or it equivalent by May 15, 2011, whether or not you have appealed the 2011 assessment.  Commercial landlords with below-market leases to non-profit entities should consider filing an exemption to relieve the property tax from such tenants’ spaces.

5.       2012 Assessments:  This is a general reassessment of all real property in the State of Indiana.  Assessor representatives are inspecting all properties and adjusting all assessments, effective March 1, 2012.  To be ahead of the rush for what is expected to be another massive round of appeals, taxpayers should file on all properties as soon as possible, for instance, January 2, 2012.  It is not necessary to know your 2012 assessment to appeal it.

Because the State, and many Counties, are finally becoming current in their valuations, assessments, and tax billing, taxpayers are finding that in some years, for instance 2010 in Marion County, they had three tax bills to pay.  That is hopefully behind most of us and we can look forward to having only two tax bills each year.  Nevertheless, as the Counties find that the tax caps become more and more burdensome, they will need to drive tax rates up to the caps and then find other sources of revenue, such as increasing assessments, cancelling exemptions that had been granted for decades on properties that were only marginally qualified for exemption, asking for special bond issues through referenda, increasing local option income taxes, and so forth.  So, the adoption of caps on tax rates has only moved the battle ground from tax rates to other locations such as assessments and exemptions.

At present, there is no telling what the 2012 general reassessment holds for taxpayers.  Suffice to say that, at least in Marion County, there were many properties that had significant differences between market value-in-use and the assessment imposed by the Assessor prior to settling their assessment appeals.  Those who failed to appeal are thus going to be paying part of the tax that was formerly imposed on those who successfully appealed.  As mentioned above, our normal recommendation to commercial clients is to appeal every parcel every year.  That is the only way to be assured that your assessments are fair.  In Marion County, the appeal window is still open.

If you have any questions or need assistance with an appeal or exemption filing, please call or email Phil Thrasher at your convenience.

Beginning July 1, 2010, Homeowners Associations will be subject to new rules governing the display of political signs.  While most covenants prohibit signs, this law provides a standard to match that prohibition with freedom of speech.

Generally the law allows an Owner to display political signs on the grounds of property owned by that person or in the window of the person’s home, during the period from 30 days before an election until 5 days after the election.  The law does allow an Association to adopt rules to restrict the number and size of such political signs.

This law does not authorize the display of political signs on the Association’s common area.  The law specifically authorizes the Association to remove a sign that violates the rules provided in the statute or reasonably adopted by the  Board.

In a condominium or a zero lot-line townhome community, this law will allow Owners to display signs in their windows, but, absent board approval, it will not allow signs to be placed in the lawns, which are common area.  In a single family home community, the law will allow signs to be placed on the Owners lawn.

If the Board adopts rules governing such signs, the rules must be distributed to the Owners.  The rules may limit the number, but the law implies that more than one sign should be permitted.  The rule may limit size, but the law requires that the rule allow signs at least as large as assigns commonly displayed during election campaigns (the same size as a typical for sale sized signs)

If you have any questions, or if we can be of help drafting your rules, please contact Steve Buschmann at buschmann@indiana-attorneys.com

Provisions of a new law governing homeowners associations should not be plowed to the side like last winter’s snowfall. Builders and developers (and occasionally their counsel) can at times discount the importance of their HOA governing documents by recycling forms drafted 20 years ago or using documents obtained from colleagues or competitors that were not even drafted with them in mind.

Not now. On July 1, 2009, a new law went into effect changing how homeowner’s associations (HOAs) operate. Signed into law on May 13, 2009, the new provisions of House Bill 1071 will require all homeowner’s association documents to be written and enforced in compliance with the new law. This will impact residential developments that have not yet incorporated or otherwise adopted governing documents by July 1, 2009, and all new associations created thereafter.

While many changes only apply to newly created associations, an existing association may elect to be covered by the new provisions by amending its governing documents. Other changes, though, will apply to all associations regardless of when created.

Application of the New Law:

The first step to understanding these changes is to understand how the new law is applied. While the July 1, 2009, date is relevant, the act covers any organized entity, incorporated or not, that governs or otherwise manages individually owned residential dwellings. Thus, the act would cover a single family residential development and condominiums, too. However, where the statute provides that the new law’s application is distinctly linked to the subdivision of property, those provisions do apply to condominiums. The reason for this is that Indiana’s planning and zoning statutes specifically provide that condominiums are not subdivisions and cannot be governed by local subdivision control ordinances. Therefore, when dealing with a condominium development regime read the statute carefully to determine if certain provisions are based upon the subdivision of property or not; this will help to determine if those provisions apply to condominiums.

Provisions that Apply to Lien Assessments for All Subdivided Associations:

In 2007, a bill was passed by the General Assembly that curtailed an association’s ability to enforce its lien rights for collection of delinquent assessments. While not fully restoring the potency of an association’s ability to collect delinquent assessments, the new Act makes several improvements that make lien enforcement viable.

The prior law caused HOA liens to expire after one year, thereby forcing associations to either lose their secured claims against the real estate liened or to initiate foreclosure litigation sooner than preferred. The new bill creates some balance by prohibiting an HOA from foreclosing its lien within the first year of being filed, but allows the lien to remain in force for five years rather than expire after one year. The prior law required an HOA to foreclose on its lien within 30 days of being notified by the property owner to do so; the HOA now has one year from the date of that notice to initiate foreclosure. The language of the lien statute is applicable to subdivided land; therefore, it would not alter the lien provisions contained in the condominium statute.

Finally, the new law requires an HOA’s board of directors or other governing body to address an item of business at a regularly scheduled meeting, or a special meeting if one is not scheduled, if the Board is petitioned by at least 10 percent of the members of the association. This provision duplicates requirements of the Indiana Non-Profit Corporation Act of 1981, but now also applies to organized, but unincorporated, associations.

Provisions Applying to Governance of Associations Formed After July 1, 2009:

Several provisions of the new law relating to the operation of associations only apply to new associations formed after July 1, 2009, or existing associations that elect to opt into the law. Opting in requires a majority vote of the members of the association, unless amending the HOA’s existing bylaws require a greater than majority vote. It is unclear from the language of the law if an existing association that opts in retains the ability to opt out later. As a result, an existing association should tread cautiously down the path of opting into the new law. These provisions, except for a contract approval provision, are not linked to the subdivision of land and therefore would include condominiums as well as subdivided developments.

A new association is required to maintain a current roster of all members of the HOA, including the members’ mailing addresses, legal description of a members’ property and e-mail addresses or fax numbers of its members. E-mail addresses and fax numbers may be kept only with the consent of the member.

This roster must be made available to any member upon request and can be used only for association-related business. However, maintaining member privacy once the roster is distributed is not discussed in the statute.

The law requires an HOA to prepare an annual budget to be approved by a quorum of the members. Either the proposed budget or a notice that the proposed budget is available must be sent to the members. In the absence of a quorum, an association’s board of directors may approve an interim budget not to exceed 110 percent of the last approved budget, but, only if the association’s governing document permit such an interim budget.

If the governing documents do not permit an increased interim budget, then the last approved budget can be used as an interim budget until a quorum approves a budget. Further, if a proposed budget results in a change in member assessments, that change must be specifically noted in the budget notice.

Regarding entering new contracts or special assessments for projects, an association is not permitted to enter into any contract, regardless of the budget process, that increases a member’s assessments by more than $500 per year without first holding two meetings regarding the contract. Also, the contract must be approved by at least two-thirds of the members of the association, regardless of the quorum provisions contained in the governing documents.

Likewise, an association may not borrow more than $5,000 or 10 percent of the last approved budget, whichever is greater, unless the debt is approved by a majority of the members. However, this section links the voting rights for such an approval to subdivided property giving each lot or unit one vote. This would not alter condominium voting procedures, as some condominium arrangements do not provide for ‘one unit = one vote’ but set voting, assessments and other rights and responsibilities based on the size of the living unit at issue, thus giving proportionate rights to the owners based on the size of their condominiums. Other than this particular voting provision, condominiums formed after July 1, 2009, would need to conform to all the other new provisions noted.

An association may not suspend the voting rights of any members for non-payment of assessments unless the governing documents provide for such suspension and the member’s assessments are delinquent for more than six months. This provision does not prohibit denying a member access to common amenities, such as association-owned pools or parks, if a member’s assessments are delinquent.

Finally, the act states that “the governing documents must include grievance resolution procedures that apply to all members of the homeowner’s association and the board.” No further guidance is given to what an acceptable grievance resolution procedure is and in what context such a procedure must be employed. By contrast, the General Assembly used the term “grievance resolution procedure” rather than the more legally meaningful “alternative dispute resolution,” which would encompass the realm of mediation and arbitration.

Given the vagueness of the language and until further clarified by either the General Assembly or a court, a grievance resolution procedure could be crafted that simply gives an owner the opportunity to petition the association’s board of directors on an issue or complaint without going so far as to engage the special meeting provisions required upon a 10 percent member petition, referenced above.

Penalties for Non-Compliance:

The new act does not contain any stated penalties for non-compliance. As such, the likely results of non-compliance would be to make the relevant portion – or possibly an entire set – of governing documents unenforceable in Court. A well-drafted set of governing documents should contemplate “saving” the remainder of the document with a savings clause if one provision is faulty, but if poorly prepared, an entire set of documents could be disregarded by a Court due to an error.

Further, if an HOA refuses to comply with certain sections of the act – such as holding special meetings or entering contracts without proper approval if it is required – then those contracts could be declared invalid, an injunction could be entered or a member may be able to bring a civil tort action against the association seeking various remedies, such as general damages, punitive damages or attorneys’ fees.

HB 1071 is the first law that seeks to specifically govern the operation of homeowner’s associations (HOAs). Compliance with it should not be overlooked. As counsel to a builder or developer, you should urge clients to review thoroughly their governing documents and make required changes. Property management clients or builder clients also managing their developments until turned over to the owners must be notified of operational changes on assessment collections, budgeting, covenant enforcement and borrowing, among other things. Take the time to educate your developer or property manager clients on how to comply with this new law and help them avoid becoming a test case on the penalties for non-compliance.

On November 1, 2009, the City of Indianapolis’s new Office of Code Enforcement started its plan review process for Class 1 structures. The term “Class 1 structure” references the Indiana Building Code. Class 1 structures are typically commercial, industrial and multi-family structures, not single or two-family structures. Under this new review process, any new Class 1 structure must undergo a thorough pre-permit review procedure with the Office of Code Enforcement. Prior to November 1, 2009, Class 1 structures in Indianapolis only needed to receive a Design Release from the State of Indiana before submitting a permit application with the City. Under this process, plan review was conducted on a permit-by-permit basis with design changes being suggested after the construction started. The new pre-permit review will be done before any local permits are issued. One of the purposes of the new process is to view large structures as a whole, rather than in a piecemeal fashion permit by permit. The Office of Code Enforcement believes this will catch more building design flaws earlier in the building process, thus enhancing building safety and saving time for plan revisions early on, rather than when individual permits are requested.

The new pre-permit review requires that plans be submitted to the Office of Code Enforcement before building permits will be issued. These plans must include:

Ø A numbered index furnished on the cover of the plans,

Ø The area and scope of work of the project, including the project address,

Ø Scaled site plans, foundation or basement plans, and detailed floor plans,

Ø Exterior wall elevations with wall sections and details,

Ø Floor and roof details,

Ø Electrical, Mechanical, and Plumbing plans,

Ø Fire detection, alarm, and fire-extinguishing plans, and,

Ø A material specification manual.

As you might surmise, this new process can add time to a project timeline if not properly planned for. Also, a city cannot issue building permits on a project until a Design Release is issued by the State. However, the Office of Code Enforcement can begin its review process before the State issues its Release. This may be an attractive option for a commercial builder as the City estimates the initial plan review process could take between 15 and 20 business days.

What does the new pre-permit review process mean for new commercial and multi-family projects? Here are just some of the practical considerations builders will be adjusting to under this new process:

Ø No matter how it is presented as a time-saver, or as a method to decrease construction insurance rates, this process will take an important construction resource; TIME. Three to four weeks of delay in a pre-permit review can alter project delivery schedules, contractor scheduling, financing, and every other facet of a project. If a new project is to start in July and the new pre-permit review process is not factored in, the real start date is in August, which is maybe not a big deal. However, if a project is to start in October, then this new process can push a project into November, and in Indiana, weather then becomes a factor.

Ø Costs will increase: the new permit process imposes a new filing fee of several hundred to a few thousand dollars depending on the project. These fees should be planned for, but should not be deal-killers. What is implicit with the process is now your design professionals and counsel on a project will be splitting time between the State Emergency Management Agency – the department that governs the State Design Release process – and the Office of Code Enforcement for the pre-permit review. And, if changes are made by one agency, those changes need to be communicated to the other. A State Design Release petition must have a licensed engineer or architect’s certification on it, so any such changes cost not only time, but also money in the form of professional fees. You should fully expect your soft cost budget to increase under this new process.

Ø This new process will not apply to new single family residential development, renovation or rehabilitation of existing structures, or for any other structures that do not qualify under the State’s residential building code, such as equipment storage buildings.

The real impacts, both positive and negative, of the new pre-permit review process will not be known for some time. Increased building safety and the potential for improved insurance ratings are certainly good things, but there will be ‘growing pains’ for this brand new process that will undoubtedly yield unexpected hold-ups in permits and higher invoices from design professionals who deal with these problems. As such, the best legal and practical advice that can be given is “plan accordingly.” Increased costs and delays are bound to occur – the better your project planning at the outset of a project, the more likely you will be to either avoid or absorb these problems during the permit approval process.

Several years ago, hardly anyone had heard of limited liability companies (“LLC”). Now businesses operate as LLCs in all states, and the press and media have nothing but good things to say about them. Is all the hype justified? Much of it is, especially where the business involves the ownership of real estate. Limited liability companies offer an unprecedented combination of corporate-like liability protection and partnership pass-through taxation. In addition, if anonymity is a goal, you can achieve this by naming the LLC whatever name you desire so long as it is followed by the words “limited liability company” or a variation or abbreviation of these words.

Unlike limited partnerships, limited liability company “members” don’t have to limit their participation in the firm’s management to protect their personal assets from the firm’s creditors. Yet they can qualify for true partnership taxation.

LLCs also have a number of distinct advantages over S corporations for many businesses. They are not restricted to a single class of stock as S corporations are, so LLC members have a greater ability to allocate gains, losses, deductions, and credits. Also, there are no limits on the number or kind of shareholders, giving LLCs greater access to capital. In addition, LLCs have certain tax advantages over S corporations when it comes to the ownership of real estate.

All of this makes LLCs the entity of choice for holding real estate for start-up ventures. However, should established investments be transferred into an LLC? The answer is maybe. If the real estate is presently held in the name of one or more individuals, the property could and probably should be transferred and held in an LLC so as to achieve the liability protections to which the owners of LLCs are availed. In the case of multiple individual owners, holding property in an LLC will also provide for centralized management of the real estate, avoiding disputes that occasionally arise between individuals holding real estate as tenants-in-common. The transfer of real estate by an individual into an LLC generally will not result in a taxable event for income tax purposes.

Similarly, if the real estate is presently owned by a general partnership, the general partnership can usually be converted to an LLC, thus achieving liability protection, without causing a taxable event for income tax purposes. In fact, the conversion of a general partnership to an LLC can typically be accomplished without even changing your federal identification number because both entities are treated as partnerships under the tax code. There are very few circumstances today in which a general partnership is the entity of choice for real estate investments or for other types of businesses.

If the real estate is presently owned by an established corporation and the real estate has appreciated since it was purchased, the tax cost of converting to an LLC is probably prohibitive because distributing the real estate from the corporation will result in a taxable event.

In summary, most start-up real estate ventures should typically be organized as LLCs, and existing ventures should at least consider converting to an LLC.