Liability of Informal Homeowners Association in Michigan

Author: LegalEase Solutions 

Question Presented: 

May an informal homeowner association/club made up of homeowners, having no bylaws, no formal membership, no formal dues, and no assets, be held liable by a homeowner for damages sustained by a change in grading of the homeowner’s land?

Short Answer: 

No.  An informal homeowner association is not a legal entity separate from its members, and thus cannot be sued in its own capacity.  Moreover, an informal homeowner association which lacks formal membership and regulatory powers and oversight responsibilities, cannot be held responsible for damages caused by a homeowner’s actions.

Discussion: 

1. The club/association is not a separate entity apart from the individuals who make it up 

Generally speaking, an association is a collection of persons who have united or joined together for some special purpose or business.  See M.L.P. 2d ASSOCIATIONS AND CLUBS §§11-12.  The term “association” is used to indicate a collection of persons who have united or joined together for some special purpose or business; as the term is commonly used, an association may be defined as a body of persons acting together, without a charter, but upon the methods and forms used by incorporated bodies, for the prosecution of some common enterprise.  Id.

MCL § 600.731 defines the law with regard to general personal jurisdiction over partnership associations or unincorporated voluntary associations.  Sec. 731 reads as follows:

Thee existence of any of the following relationships between a partnership association or unincorporated voluntary association and the state shall constitute a sufficient basis of jurisdiction to enable the courts of record of this state to exercise general personal jurisdiction over the partnership association or unincorporated voluntary association and to enable such courts to render personal judgments against the partnership association or unincorporated voluntary association.

(1) Formation under the laws of this state.

(2) Consent, to the extent authorized by the consent and subject to the limitations provided in section 745.

(3) The carrying on of a continuous and systematic part of its general business within the State

In the case at hand, the unincorporated homeowner association is an informal association with no bylaws, no formal membership, and no membership dues.  It cannot be said that the homeowners association was formed under the laws of Michigan, as it does not avail itself of either the protections or benefits of Michigan corporate law.  Additionally, as the informal association has no formal membership or structure, it cannot be deemed to have consented to courts’ personal jurisdiction.  Finally, the informal association does not carry out any continuous or systematic business within the state of Michigan—the objective of the informal association is merely to socialize, welcome new neighbors, and provide upkeep for a neighborhood park.

The Revised Judicature Act and the Michigan Court Rules permit an unincorporated association to be sued in its own name only if the association has a distinguishing name, which is not the case with our informal association.  MCL 650.2051 and MCR read:

A partnership, partnership association, or unincorporated voluntary association having a distinguishing name may sue or be sued in its partnership or association name, in the names of any of its members designated as such, or both.

Moreover an unincorporated association is distinguishable from an incorporated association or corporation, and is treated differently by the courts.  In People v. Budzan, 295 Mich. 547 (1940) Defendant was unable to obtain a license permitting the sale of beer at a picnic for the members of the association. Without a license, the association purchased beer and dispensed it at the picnic without charge only to members who displayed their membership cards. The sheriff appeared at the picnic and arrested defendant, charging him with selling and dispensing beer without a license. The circuit court quashed the information against defendant on the ground that there was no evidence that defendant violated Mich. Comp. Laws § 9209-47 (Supp. 1940). On appeal by the People, the court affirmed the circuit court’s ruling. The Court held that an unincorporated association is not a “person” unless expressly declared such by statute  Id. at 550.  The Court reasoned that had the association been a corporation, title to the beer would have vested in the corporation, and any dispensing of the same would require a license.  Id.  However, since the association was unincorporated, title to the beer vested in the members, and no license was required. Id. at 551.

In Whipple v. Parker, 29 Mich. 369 (1914), the Court was presented with the question of whether an unincorporated association could acquire a piece of property.  The Court reasoned that it is not necessary for an association to be incorporated to acquire property, but that the property could be owned by the members of the unincorporated association as join tenants or joint owners. Id. at 19-20.  Thus the property so acquired by the unincorporated association did not belong to the association in its own capacity separate from its members, but rather the property was owned by each member of the association as joint owners. Id.

Compare Cody Park Ass’n v. Royal Oak School Dist., 116 Mich. App. 103 (1982) where the Court discussed the applicability of Mich. Gen. Ct. R. 201.2 (1963) which states that every action must be prosecuted in the name of the real party in interest. MCR 201.3(3) also states that a partnership, partnership association or any unincorporated voluntary association having a distinguishing name may sue or be sued in its partnership or association name, or in the names of any of its members designated as such or both. The Court held that a trial court did not err in ruling that an unincorporated voluntary association of property owners had standing and capacity to bring suit to force a school district to comply with local zoning ordinances which might have restricted the use and location of bus and vehicle maintenance and storage activities.  Id. at 110.  The court explained that the court rule requiring an action to be prosecuted in the name of the “real party in interest” was meant to protect a defendant from being repeatedly harassed by a multiplicity of suits for the same cause of action, but so long as the defendant’s rights are fully protected in the litigation  by a final and conclusive adjudication of the rights in controversy that may be pleaded in bar to any further suit instituted by any other party, he cannot complain for he is not harmed.  Id.

In the above case the association had a distinguishing name and therefore could maintain an action.

Michigan courts have also held that corporations cannot exist except by force of express law.  Schuetzen Bund v. Agitations Verein 44 Mich. 313, 315 (1880).  In this case, the Court found that a society of people organized to oppose the enforcement of a state statute was not a valid corporation which could file suit against a debtor.  Id.

2.       The club/association  is not a formal homeowners association, and as such, had no control over the adjacent homeowner and does not have any regulatory power or oversight of the building of homes or use of property

In Julie H. Stuart v. Amarjit S. Chawnwy, 454 Mich. 200 (1997) the Supreme Court of Michigan considered the status of an informal homeowner’s association.  In this case, the appellant new owners bought land subject to restrictive covenants, including a covenant requiring a pre-construction aesthetic review of plans by a  homeowner committee.  The new owners, mistakenly believing that they had such approval, began construction and the appellee neighbors sought an injunction claiming no such approval was obtained.  The neighbors then brought an action claiming that the new owners’ plans had not been approved as required by the covenants and violated the rules concerning “harmonious” development. The trial court ruled against the neighbors, who appealed.  Id. at 207-208. The appeals court reversed and granted the injunction, from which the new owners appealed. Id.

The Supreme Court reversed and reinstated the trial court order. Id. at 210.

The Supreme Court held that there was no breach of the restrictive covenant by the appellants because there was no properly constituted architectural control committee. Id. at 211.  The Court noted that it was undisputed that from the time the restriction agreement was recorded in 1967 to the beginning of the construction of appellant’s home in 1991, no architectural committee had been convened to consider proposed construction in the neighborhood.  Id.  Additionally, all twelve lots in the neighborhood had been improved by 1974 without any approval of the committee.  Id.  Moreover the Court noted that new development projects at all times proceeded without approval of a homeowner’s group.  Id.

CONCLUSION 

In conclusion, since the informal homeowner association does not have a formal structure, is unincorporated, has no formal membership or dues or distinguishable name and carries out no continuous and systematic business, as contemplated under MCL 600.731, it may not be subject to the personal jurisdiction of the courts.  Since the informal association  has no legal existence it  is not a separate entity apart from the individuals who make it up, and as such cannot be sued for damages sustained by an adjacent homeowner. A line of decisions as stated above clearly establishes the principles enunciated under MCL 600.731 and lay down the law that a voluntary informal association cannot be  treated as a separate legal entity, and cannot sue or be sued save under certain exceptional circumstances.

Furthermore, since the informal homeowner association does not have any regulatory power or oversight over the building of homes or use of property, and as such, had no control over the adjacent homeowner, it is not a homeowner association as contemplated in the original deed to the property and cannot be held liable for the actions of the   homeowners.  The Supreme Court case of Julie H. Stuart, supra, held in a case with facts similar to ours, that a homeowner cannot be held liable for not obtaining approval of a homeowner committee if such committee does not exist in reality.  Similarly a homeowner association cannot be held liable for failing to do its job, when the association has no power to regulate homeowners.