Daily Development for
Tuesday, January 14, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

HOMEOWNER'S ASSOCIATION; TRUSTS; ESTOPPEL: Homeowner's association does not acquire equitable title to recreational facilities despite frequent promises to buyers by developer sales agents that developer would convey the facilities to the association upon completion of the development project.

In re Fairfield Pagosa, Inc. (Pagosa Lakes Property Owner's Association v. Fairfield Pagosa, Inc.) 97 F.3d 247 (8th Cir. 1996).

This case involves a 26,000 acre planned community with extensive recreational facilities. The developer had gone bankrupt, and the community's "umbrella" homes association argued that it had an equitable interest in the recreational facilities based upon promissory estoppel and constructive trust. Over a six year period early in the sales promotion, developer's agents, pursuant to instruction from the sales manager, has promised the purchasers that the recreational facilities would be conveyed to the homeowner's association when the project was built out. A number of the HUD Property Reports filed in connection with sales of the property repeated that promise (although some did not.) The Association alleged, and the court did not dispute, that the "build out" had been completed as part of the bankruptcy resolution.

The Declaration of Restrictions provided that the Developer "may" transfer the recreation facilities to the homeowners, but did not require transfer.

The court rejected both a promissory estoppel theory and a constructive trust theory advanced by the association, because the Declaration, of which buyers had constructive notice, provided that conveyance of the facilities to the Association was the developer's option. Further, the court relied upon sales documents that provided that there had been no representations by any agent of seller that modified the terms of the written sales agreement. Finally, the written conveyances to the owners did not transfer any future interest in the recreational improvements.

Comment: Normally, the editor is content with judicial constructions of agreements which compel the parties to live with their express written statement of the deal. But in a huge residential complex, where all the forms are written by and for the developer, and it is well known that buyers are given no choice as to language of the documents and scant opportunity to review them, at the very least every preference ought to be indulged in favor of the buyers' position. Here there were written documents that were part of the closing documents (the HUD reports) that supported the admitted deliberate verbal statements of numerous sales representatives that the developer was bound to deliver over the recreational facilities upon build out.

As build out was far away in the future at the time the first homes were sold, there was no particular reason for unsophisticated home buyers to expect that their own deeds would contain any specific language embodying this promise, especially when the conveyance was to be to the Association, and not to individual homeowners.

The language in the Declaration, similarly, could be construed as permitting the Developer to carry out the stipulated transaction, but not as reserving an option to the Developer not to do so.

The notion that one of the nation's highest courts should deal so cavalierly with the legitimate vested expectations of homeowners, induced by knowing and deliberate marketing representations by developer's agents, is repulsive to this editor. Where have these judges been, that they believe that the terms of a recreational community sales program should be based upon ambiguous language in the depths of the documents, rather than the calculated and admitted statements of the sales personnel? (Sorry to be so nasty - bad hair day.)

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