HOA Refusal to Release Invalid Lien Constituted Slander of Homeowners’ Title for Which HOA is Liable

Indiana Appellate Court decision (June 11, 2011).

This case involves husband and wife homeowners (“Homeowners”) who sued their HOA for damages based on claims that the HOA slandered the title to their property by improperly recording a lien due to an alleged violation of the HOA’s governing documents.. Homeowners’ property is located within a common interest community where the CC&Rs contain provisions which specify certain requirements for the leasing of properties within the community. Homeowners entered into a lease of their property with a third party without complying with certain of the requirements contained in the governing documents.

After becoming aware of these violations, the HOA sent notice to Homeowners informing them that a hearing to address the violations would be held by the HOA on a date that was 7 days after the date of the notice. Upon learning of the scheduled hearing, Homeowners notified the HOA that they were unable to make necessary arrangements to attend on the hearing on the scheduled date and requested permission to appear by telephone, but that request was denied. The HOA conducted the hearing without Homeowners being present but did not make a decision. Instead the HOA requested that Homeowners submit their evidence supporting their position to the HOA in writing. After receiving information from Homeowners that was deemed by the HOA to be inadequate, the HOA imposed a $250.00 on Homeowners for the violation. After the $250.00 was not paid by Homeowners, the HOA recorded a lien in the amount of $2,525.00 against Homeowners’ property.

Homeowners filed the initial lawsuit against the HOA to obtain damages and a release of the lien on their property. The HOA responded by seeking orders for the enforcement and foreclosure of the lien against Homeowners’ property. The trial court found the $250.00 sanction invalid because the HOA did not follow procedures required by the HOA’s governing documents in ordering the sanction (insufficient notice of the hearing and failure to preserve minutes), ordered a release of the lien due to its invalidity, and dismissed Homeowners’ claims for slander of title as “moot” because of the lien release. On appeal, the HOA contended that it “substantially complied” with requirements relative to the imposition of the sanction by providing 7 days advance notice of the hearing as opposed to the required 10 days notice and therefore should be relieved of further responsibility.

The appellate court ruled that the HOA should not have imposed the sanction without following the process required by the governing documents (providing 10 days notice of the hearing re the alleged violation). Because the required process was not followed, the sanction was invalid and that invalidity was called to the attention of the HOA by Homeowners’ attorney. Notwithstanding same, the HOA refused to release the lien, and that refusal demonstrated malice on the part of the HOA. The appellate court further found that said malice resulted in pecuniary loss to the Homeowners because the invalid lien prevented the Homeowners from marketing their property and they had to retain and pay an attorney to deal with the matter. Thus, having maliciously placed a lien on the Homeowners’ property which caused pecuniary loss, the HOA committed slander of title and the Homeowners were entitled to summary judgment in their favor. The appellate court remanded the case back to the trial court for a determination of the amount of damages and attorney fees that the Homeowners were entitled to.

See case decision: Bixeman_v._Hunter’s_Run_Home