Summary

An entity that ultimately bought the prior interests of the declarant learned the hard and expensive way that not perfectly following the documents can be very costly.

The Facts

Property owners brought action against declarant and their associations seeking a declaratory judgment that declarant was not a proper successor declarant and requiring the alleged declarant to pay assessments they otherwise would have been exempt from paying.  The property owners claimed that the defendant had not validly obtained declarant rights and therefore had wrongfully claimed the unilateral right to appoint the directors of the homeowners’ associations.  The property owners also claimed that they did not owe the assessments because: the right to levy assessments was vested in the associations’ boards of directors; the boards were never duly elected or were otherwise illegally constituted; and in the absence of properly constituted boards, the associations lacked authority to impose the assessments and record the liens at issue.  At the heart of the issue was a foreclosure on a couple of loans against the original declarant followed by a number of subsequent transfers of the declarant rights and the property.  Both parties moved for summary judgment.

Trial Court

The trial court found that the “unambiguous language contained in the Deeds … demonstrate as a matter of law, that all rights that were pledged as collateral were assigned to the purchaser at the foreclosure sale through the foreclosure deeds.  Accordingly, Ridge Road, LLC, acquired the Declarant’s rights through these written instruments and had the power and authority to subsequently transfer the Declarant’s rights to [the bank] who then transferred these Declarant’s rights to [the Defendant].”  As a result of this finding the trial court also ordered the property owners to pay the Defendant’s mediation expenses of about $1,700.  The property owners appealed.

Court of Appeals

Reversed and remanded the decision of the trial court finding:

1. The Declaration language was not strictly followed as part of the assignment of the Declarant rights and therefore the Defendant is NOT a successor declarant;
2. There were two to three different specific issues that were not followed; and
3. Declarations are contracts that the court “must enforce … unambiguous contracts as written.”

Lessons Learned

1. If you’re not perfectly following your documents, you are subjecting yourself to the risk that a disgruntled unit owner will file suit and win;
2. If you’re not perfectly following your documents, because they don’t make economic sense, amend them; and
3. If you think close is good enough, then be prepared to pay if a court disagrees.

Chisolm v. Danforth, LLC, 2019 WL 5558644 (Georgia) decided October 29, 2019.