Month: August 2022

The how and why of “boss” HOA presidents

This commentary is a follow up on my review of Kelly G. Richardsons’ article (Dictatorial HOA presidents and silent directors are at risk).

With all due respect to Richardson, his discussion of the role of HOA “boss” presidents and silent boards of directors makes no references to the causes of this common defect in the management of HOAs, or the more relevant, in ruling a community.  As an important CAI (Community Associations) lawyer advising and educating BODs on how to rule a community, we should expect not only answers but solutions as well.  His article does neither.

Richardson does  inform his readers about the makeup of good presidents: “Good HOA presidents understand the boundaries . . . . Good presidents are key . . . .”  He closes with the advice, “So, keep the good ones!”  He fails to address the legal structure of an adhesion contract and the CC&Rs that grant the BOD broad powers and authority. As such, the legal structure would not stand up to constitutional judicial scrutiny if the HOA were an arm of the state and not a private, contractual arrangement.

The legal structure prevents active, meaningful, democratic participation by members in board  elections and in amendments to the governing documents as found with public government. For example, members cannot file a petition, equivalent to a public domain initiative, requiring the BOD to hold a vote of the members on an issue, removing the absolute power to do as it pleases when contrary to the will of the  majority. The members would be able to contest the BOD’s position. Ihe absence of constitutional protections promotes the formation of power cliques that function as authoritarian governments. And so, we have “boss” presidents and silent boards of directors.

As a good lawyer, Richardson would probably say that this is the law, this is the way it is, and if you don’t like it change the laws. And who helped create and shape these pro-HOA laws?   For example, CAI has been involved since the beginning in 1964 in creating those Uniform Common Interest Ownership Acts (known as UCIOA) and adopted  with some modifications by a handful of states.

It’s up to YOU, as it has always been.

“It does not  help the sheep to blame the wolf. The sheep must not fall into the clutches of the wolf “ (Mahama Gandhi, fighting the imperialist British Empire).

Dictatorial HOA presidents and silent directors are at risk

This post is based on the article, HOA Homefront: Presidents are board members not bosses that acknowledges a serious and common problem with most HOA governance.  By Kelly G. Richardson | Kelly@Rodllp.Com. August 26, 2022.[1] 

* * * *

The HOA president’s role is often misunderstood and can result in a very serious board dysfunction. It can as well cause stress and risk for the president. First, it is critical to understand that the role and power of the HOA president are dramatically different than that of a for-profit corporate president.

In a for-profit corporation, the day-to-day running of the business is typically the responsibility of the president, the “boss” so to speak.”  However, in most HOAs the day-to-day execution of board decisions is executed by the association’s professional manager. “The HOA’s boss is not the president but is [] the HOA board.”

 The president has just one vote on the board, and that vote is no more valuable than any other director. Directors should take heed that those “who always automatically defer to the president are not fulfilling their responsibility to the association.”  Furthermore, corporation law holds any director  as implicitly agreeing if he does not post a dissenting opinion, which unfortunately, the governing documents are silent and do not provide an explicit right to file dissenting opinions.

By taking the “boss” role, a president is often outside his authority and disrespects the board that is the actual authority. Such a president could also be acting without corporate authority and exposed to personal liability for corporate commitments made without board approval.

Note 1. Kelly G. Richardson, Esq. is a Fellow of the College of Community Association Lawyers and Partner of Richardson Ober LLP, a California law firm known for community association expertise.

________

Homeowners do not have HOA ‘eminent domain’ protection

You all know about public domain eminent domain protection: the government cannot take your property for public use – public benefit — without fair market compensation, which you can negotiate and take to court if necessary. Acquiring your property is a “taking.” 

According to the courts,  it is not well known that the government’s denial of a natural use of your property is considered an informal taking, and compensation must be paid. I am surprised to learn that almost any personal property owned by the homeowner can be subject to a taking by the government. (Investopedia).

As an HOA member you do not have an equivalent HOA government taking protection whereby you are compensated for any takings or modifications demanded by the HOA. While HOA government takings per se are rare except for foreclosure rights, the HOA does demand that the homeowner replace or remove approved  landscaping trees or shrubbery, additions like sheds, playsets,  repaint the exterior, etc. At the homeowner’s expense!

I’ve found many times that corrective action is delayed until after completion of the approved homeowner improvements, and the HOA demands that it be torn down by the homeowner. Grossly unjust and unfair: it’s the incompetence of the HOA failing to act within a reasonable time while construction begins.

However, it’s understandable and acceptable if the governing documents specify, for example, that exteriors just be repainted every 15 years, or roofs inspected for necessary repairs every 20 years or so, etc.

The argument used by the HOA generally falls into keeping with the image  of the properties and maintain property values, for the benefit of the members, the HOA ‘public.’  As it stands, the owner/ member has no right to demand compensation and is another instance of constitutional protections lost in HOA-Land.

AZ court holds HOA in a representative role on behalf of the members

If your HOA was involved in a legal action and won  a substantial award, who would get the money? Who should get the money? The HOA is a legal person; its members do not have title or stock; they just have a beneficial interest. (With Condos members own a specified interest and ownership in the condominium assets, as stated in their deed,  in addition to their own unit).

Foothills Reserve[1], an HOA,  is a “first impression” for me as judges would say, having not come across the issues presented in the case before. There are two aspects in this case that warrant discussion that have not been presented in the media. It involves an eminent domain taking of property that the HOA claimed diminished the value of the HOA properties, and the court’s reasoning as to who gets to keep the award money.

Eminent Domain and property values

The State of Arizona acquired Foothills property for a major highway interchange and Foothills received $6.5 million compensation as required under the law. But the HOA

“claimed damages [of] alleged diminished value of their homes as a result of factors such as noise, pollution, loss of view, and unsightliness as a result of the South Mountain Freeway., i.e., proximity damages.”

The Court added to the eminent domain’s paid  compensation an additional $12 million depending upon the outcome of the State’s appeal with respect to the “proximity damages” claim. (The brief was filed but at this time I have not been able to obtain a copy). The claim is based on ARS 12-1134(A)

“If the existing rights to use, divide, sell or possess private real property are reduced by the enactment or applicability of any land use law . . . and such action reduces the fair market value of the property the owner is entitled to just compensation from this state or the political subdivision of this state that enacted the land use law.”

Court awarded damages

With respect to the treatment and handling of the award monies, the Court gave very specific orders to the HOA and to the HOA’s attorney who was to be the escrow company for the distribution of the $6.5, and if successful the additional $12.5. It held that “the HOA represented [the owners] solely in a representative capacity,” and was ordered to send the award money to its attorney’s “State Bar Trust Account.”  Furthermore,

“Because many of the homes within the Foothills Reserve subdivision have been sold and may be sold pending appeal, this Judgment does not prevent the Court from taking action to” (i) approve a plan for reasonable notice to the 589 Owners (as some of their whereabouts may not be known). Plaintiff [Arizona] will not participate in these actions”

In short, the Court said that the HOA, “pursuant to the provisions of the Covenants, Conditions, Restrictions and Easements governing the Foothills Reserve subdivision,” was required to act in accordance with the CC&Rs — and as I interpret the statement — in the best interest of the members who have beneficial interests in the HOA corporation.

The Court reaffirms, in my view,  that the HOA exists for the benefit of its members and not for the board of directors to do as they please.

Note [1]. Arizona v. Foothills Reserve, CV-2017-010359, Maricopa Superior Court (March 4, 2022).

Finally, a valid HOA non-CAI survey

Check out the Rocket Mortgage survey here.

“57% Of HOA Residents Don’t Like Having An HOA“

“Key Takeaways

  • Fewer than half (47%) of HOA residents surveyed believe their neighborhood is better with an HOA.
  • Fewer than 2 in 3 (64%) HOA residents surveyed feel their HOA honestly handles its finances.
  • One in 10 HOA residents surveyed is considering selling their home for HOA-related reasons.”