Issue

When association documents require funds from owners to be applied in a certain order, can a unit owner alter how the funds are applied by writing in the memo portion of a check that it is for the monthly assessment only?  The Answer, at least in this Ohio case, is “No.”

Facts

The association documents required payments to be credited in the following order: 1) interest; 2) late fees; 3) attorney fees and costs of collection; and 4) monthly assessments and fines.  However, an owner in the case of Waterford Pointe Condominium Association v. Reserve Domiciles, Ltd., 2019 Ohio 691, who was late at times in paying its monthly assessments wrote on its checks:  “Tendered for maintenance fee (Month, Year) only, not for any other purpose…”

Once the owner became late, considering all checks contained this language, the association returned the checks. Although the association’s attorney “repeatedly sent letters encouraging [the unit owner] to bring the account current,” that did not take place.  When the debt grew to more than $6,500 the association filed a foreclosure complaint.  The owner answered denying the allegation and counterclaimed for “for breach of contract, slander of title, fraud, and violation of the contract clauses in the United States and Ohio constitutions.”

Trial Court

The trial court ruled in favor of the association and the owner appealed.

Appeal Court

The Court of Appeals affirmed the trial court ruling that the association did not have to accept the checks with the restrictive language.  It found that an association’s declaration and bylaws are a contract with the owners and that all owners must comply with it.  It then held that under the facts of this case the owner “cannot prevail on its arguments that [the association] did not have a valid lien against its property” and the right to foreclose.  The Court commented on the owners failure to “take the appropriate measures to cure its delinquency” by presumably paying the debt while it was small and not adding the restrictive language.  The owner also argued that it should prevail because the parties “had entered into a course of dealing when [the association] accepted the checks with the restrictive language” for years.  The Court disagreed with this argument finding that a “party cannot prevail on a course of dealing theory when there is no evidence demonstrating that the parties intended to alter the terms of their legal relationship.” Accordingly, the Court of Appeals affirmed the decision of the trial court.

Lessons

1. Follow your documents. So if an owner sends you a check that is contrary to your association documents, return it. DO NOT cash it. This especially applies to checks marked “Payment in Full.”
2. Arguing that something should be allowed because it has been done in some fashion for years, where it is contrary to the association documents, is not a sustainable position; and
3. Give owners an opportunity to cure their defaults before suing, so that the equities of the situation weigh in favor or your association. Kindness is always a good thing, but kindness does not require a board to allow owners or residents to abuse the association, the other owners or the board.