Relating to Real Estate

Diane Steele stopped making payments to her homeowners association (HOA) because she claimed that several increases in annual assessments were not authorized by the two-thirds majority required by the HOA declaration. The HOA sued her unsuccessfully in the District Court for Montgomery County, but the HOA prevailed on its appeal to the Circuit Court. The Court of Appeals granted a petition for certiorari, skipping over the Court of Special Appeals, and affirmed the award to the HOA of $1,257.60 plus attorney’s fees of $4,200. Steele v. Diamond Farm Homes Corp., 464 Md. 364 (2019).

The Court of Appeals held that the action taken by the HOA to increase dues when there were not votes from two-thirds of the members to do so was an ultra vires act, an action beyond the authority of the HOA. Therefore, pursuant to Corporations and Associations Article §1-403, to challenge this action, Steel was required to bring an action in a proceeding to enjoin the HOA. Because Steele did not bring a derivative action, the Court of Appeals held that Steele could not use the ultra vires statute as a defense in this case.

The Court of Appeals also found that Steele was barred by the doctrine of equitable estoppel from challenging the assessment increase, because she, and the rest of the HOA, received the benefit of the higher payments, which enabled the HOA to provide services and maintain the community at a higher level.

Finally, the Court of Appeals affirmed the circuit court’s award of $4,200 in attorney’s fees to the HOA. The Court of Appeals noted that attorney’s fees must be reasonable and that Maryland Rule 2‑703(f)(3) sets forth 12 factors to be considered to determine whether fees are reasonable. The HOA had requested attorney’s fees of $26,589.13, but the circuit court noted that this amount was 18½ times the amount at issue in the case, and it ruled that the upper level of attorney’s fees would be no more than three times the amount in controversy.

Judge Robert N. McDonald, who was joined by Judge Sally D. Adkins, concurred in the majority’s opinion. The concurrence agreed only with the portion of the majority’s decision as it related to equitable estoppel. Judge McDonald disagreed on the application of ultra vires in this context. The concurrence pointed out that HOAs clearly have the power to raise assessments, so doing that, even without the requisite number of votes, is not an ultra vires act.

For questions, contact Edward J. Levin.

Ed Levin
410-576-1900 • elevin@gfrlaw.com