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The Docket is a monthly TitleNews Online feature provided by ALTA’s Title Counsel Committee, which reviews significant court rulings and other legal developments, and explains the relevance to the title insurance industry.
September 8, 2022
Michael R. O’Donnell, Michael P. Crowley and Kevin Hakansson, all of the law firm Riker, Danzig, Scherer, Hyland & Perretti LLP, provided today’s review of a decision by the Utah Supreme Court that denied the appeal of a group of landowners who sought to invalidate restrictive covenants imposed on them by a homeowners’ association. O’Donnell can be reached at modonnell@riker.com, Crowley can be reached at mcrowley@riker.com and Hakansson can be reached at khakansson@riker.com.
Citation: Wdis v. Hi-Country Estates Homeowners Ass’n, 2022 UT 17 (Utah 2022)
Facts: Hi-Country Estates Homeowners Association (HOA) was established in 1973 and maintained a development encompassing approximately 2,000 acres of land subject to certain restrictive covenants. A group of landowners and the HOA had litigated for years over the claims that the HOA did not provide the necessary infrastructure for development. In 2015, the landowners obtained the HOA’s governing documents and discovered that they were signed and recorded by the developer Charles Lewton, who owned only eight of the 2,000 acres (0.4%) he sought to include within the boundaries of the HOA, and lacked the signature of any other property owner. The landowners sued the HOA to quiet title to their properties. In their summary judgment motion, they argued the restrictive covenants were void ab initio and therefore incapable of ratification because they were signed only by Lewton. They based their argument on public policy reflected in such authority as the Wrongful Lien Act (WLA), the statute of frauds and Utah case law, including Ockey v. Lehmer, 2008 UT 37, 189 P.3d 51 (Utah 2008). This case directs courts to examine (1) whether the law has already declared the type of contract at issue to be “absolutely void as against public policy” and (2) whether such contract harms the general public. The trial court disagreed with the landowners that the WLA and the statute of frauds evinced a clear public policy against the covenants and found that the covenants potentially harmed only the property owners within the HOA's purported jurisdiction and not the public. The case was set for trial when the Utah Supreme Court agreed to an interlocutory appeal in which the principal issue was whether the restrictive covenants should be considered void ab initio or voidable as it was not executed by all property owners in the HOA’s boundaries.
Holding: The Utah Supreme Court agreed with the lower court and upheld denial of the summary judgment motion, finding public policy supported that the unauthorized conveyance of a property interest was merely voidable, not void. First, the court held that the WLA, which defines a wrongful lien as “any document that purports to create . . . [an] encumbrance on an owner’s interest in certain real property” if it is not expressly authorized by statute, authorized by a court, or “signed by . . . the owner of the real property” and directs courts to declare wrongful liens “void ab initio,” did not intend to include restrictive covenants in HOA documents, and thus did not establish public policy as to the restrictive covenants at issue. In doing so, it found “a ‘lien’ is generally understood to be a ‘legal right or interest that a creditor has in another’s property, lasting until a debt that it secures satisfied.’ This comports more closely with the narrow ‘claim or liability’ definition of ‘encumbrance’ than it does with the broader ‘property right’ definition.” Second, the court held that the statute of frauds did not express a clear public policy that “conveyances and encumbrances that are not signed by the owner are unlawful and absolutely void” as argued by the landowners, holding that the purpose of the statute of frauds was merely evidentiary, and that the facts that the statute of frauds contains many exceptions weighed against the argument that the statute of frauds could declare restrictive covenants “completely void.” Third, the court distinguished prior case law cited by the landowners where the Utah Supreme court found that if the plaintiffs had wanted the land to be under the restrictive covenants, “they should have had [the owner] sign the document.” See, e.g., Gunnell v. Hurst Lumber Co., 30 Utah 2d 209 (1973). The court noted that in Gunnell, it did not declare that a contract not signed by all property owners was “unlawful” and “absolutely void,” and thus held that Gunnell and its progeny suggest that the restrictive covenants were voidable, but not void. In so doing, the court rejected the landowners’ argument that the restrictive covenants harmed the public because they “call into question the fundamentals upon which land ownership is based,” holding that “generally speaking, we cannot see how permitting landowners to ratify restrictive covenants violates their right to control their land.” As such, the court upheld the denial of summary judgment, holding that “restrictive covenants that are recorded without the signature of the affected landowner are voidable, not absolutely void, and they are therefore ratifiable.”
Importance to the title industry: This case is significant in that, first, it provides valuable guidance on the interpretation of the term “lien” when a state’s wrongful lien statutes are being examined for their meaning and intent and ensuring that the statutes are not unnecessarily expanded to cover every encumbrance on a property. Second, it allows the covenants in an HOA’s documents to be upheld or not based intent, equity and subsequent actions when not all property owners signed onto the initial declaration and avoid an overly formalistic determination that the governing document is void ab initio.
