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.

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.

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.

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