Author: HOAGOV

Over some 10  years, I have witnessed many actions by attorneys, in particular those representing homeowners associations (HOAs), that violate E.R. 1.2(d) and comments (10) and (11), 1.13, 3.1, 3.3 and 4.1.  Numerous State Bar complaints have been filed against them, including one of mine, all of which ended with a finding of no violation.  This is incredible!  Statistically, a percentage other than zero would be expected from the population of events and lawyers.  It seems that the State Bar actually believes that these “officers of the court” are incapable of any wrongdoing!

Rather than let it rest on anecdotal statements, I decided to research the Arizona State Bar records in order to get a better handle on what a Complainant can expect when he files a complaint.  In order to understand the statistics, a brief explanation of the process is in order.

While the complaint process is explained on the AZ State Bar web page under Attorney Discipline,  in short, it’s a two-stage process: State Bar (SB) handling and Supreme Court (SC) handling.  Both organizations conduct a preliminary review and then decide to investigate or not.  As part of the State Bar procedures, it may refer the matter to the Supreme Court disciplinary unit for “formal complaints”, which may result in charges against the attorney  The complainant, the homeowner for example, files a written complaint, may respond to the attorney’s defense, and may be called as a witness by the  Supreme Court legal action against the attorney, but he is essentially a “non-player” although he is the true “plaintiff.”  The “establishment” essentially takes over and runs the show, and is the Plaintiff in the legal action, not the public complainant.  In other words, lawyers prosecute other lawyers in the name of the people.

The data that I obtained from both the State Bar and Supreme Court  web pages was complex and confusing, covering 2005 –  2009.  I made three presentations:  one taking the  SC data on selected ethics ruled that I observed to be very good candidates for complaints against HOA attorneys (E.R. 1.2(d), 1.13, 3.1, 3.3, 4.1); the other from SB data regarding the results of complaints at various stages in the processing the complaints; and a pie chart to show the “bottom line” expectation  that a complaint would result in a sanction or court charge against an attorney, not just an HOA attorney. See statistics.

In summary, 26.9% of the 283 SC cases pertained to these ethics rules.  Of these violations, 44% were 3.3 violations (candor or lying to the court, presumably brought by the judge), and only 2.6% were 1.13 violations (representing an organization as client and actions upon discovering wrongdoing by the client).  Filing a meritorious claim (doing some “look into” the validity of the complaint before acting), 3.1, amounted to 21.1%; and truthfulness to others (honest statements to homeowner, for example), 4.1, amounted to 27.6% of these selected violations.

Over the 4 year period of  2005 – 2008 (see chart), 8,274 written complaints were received by the Bar (48% of combined telephone and written complaints), which served as the basis of the SB recordkeeping.  Total sanctions, both SC and SB, came to 15.7% (9.3% for SC and 6.4% for SB).  The Bar dismissed 35.5%, and SC dismissed 22.1% of the written complaints.  Some 19% were “unaccounted”, being handled in some other arena, pending, or “in process”.

It would seem therefore, based on the above, that some 25% of  the ethics complaints against HOA attorneys should have resulted in the attorney being  charged by the Supreme Court.  And that, on a broader basis, some 15% of the complaints against an HOA attorney should have resulted in some sanction, either by the State Bar or the Supreme Court, considering violations of all the ethics rules.  (It is interesting to note that homeowners, mostly Pro Ses, won 42% of their cases against HOA attorneys at the AZ Off. of Administrative Hearings).

Help the State Bar out, when you file a complaint first research the ethical rules in the Code of Professional Conduct, Supreme Court Rule 42, and then cite them in your complaint.

In my recent Commentary on homeowner associations  foreclosures, Eliminate your mortgage through HOA foreclosure, further research revealed from very surprising information.

In the July 2004 foreclosure, the homeowner obtained title to his home some six months later after paying the HOA some $8,000. He received a quitclaim deed — take the property as is. A few months after that, June 2005, the original owner sells the property to buyers who sign a $144,000 deed with another mortgage company. Recall that the original 2000 mortgage was for some $96,200, understanding that, unlike today, that period was one of rapidly escalating home prices. Very interesting, indeed!  Still, no information on the status of the original mortgage company loan, but I must assume a title search revealed this existing mortgage. Curiously, there is a second note, signed at the same time with the same bank, for $36,100. That’s a total of $180,100. Why two notes, again?

In the September 2009 foreclosure, I’m told by a homeowner attending the HOA meeting that the board is aware of the $160,000 mortgage, and told the members that they would never do this again. The board was planning to sell the unit. (As of this writing, 2 months later, the unit is not up for sale). Now, this HOA is facing some very serious legal issues, for the board and its attorneys, and for the members. The immediate question on my mind is for what reason did the board buy this unit?

The first reality in attempting to sell the unit is the fact that a buyer would get a title report, which would disclose the existing mortgage that he would have to payoff. That means the HOA can only get any excess beyond this mortgage. In other words, the HOA is back in the same position as having bought at the auction: payoff the $160,000 mortgage. A search of for sale units in the HOA revealed prices of about $169,500 for similar units. It doesn’t appear that the HOA would come out ahead in this transaction. Of course, it could always quitclaim the deed to some buyer for $16,000, and that includes the original owner. Is this foreclosure going the route of the 2004 foreclosure? We shall see.

So, what did the HOA accomplish? A lot of potential liability for the members since it will eventually need to pay the mortgage. That’s what!  And, in today’s market it can easily get stuck with the property.  I’m curious as to just what was the role of the HOA attorneys who constantly tell they board that reliance on expert advice will absolve them from personal liability? Someone care to explain?

As a note, the Dept. of Justice (DOJ) has requested information on this 2009 foreclosure since the mortgage company had filed for bankruptcy.

I would like to first give a little background about me and my objectives.  Yes, I’ve opposed the CAI attorneys and have criticized homeowner associations CC&Rs.  My reasons have always been because they are not really supportive of your individual rights and freedoms, and do not protect your rights under the law and Constitution.  You have unknowingly surrendered these rights, and the courts have permitted this surrender, as a result of the broadly worded covenants in your CC&Rs that have not been fully explained to homeowners.

The Ekmark and Carpenter law firms (Arizona) are members of a national lobbying organization opposed to Constitutional protections for homeowners (as recorded in its filing with the NJ Appellate Court): Community Associations Institute (CAI).  CAI has its own personal agenda — to vigorously defend the HOA concept against all attempts to restore the rights lost when you took possession of your TCA deed. The HOA attorney works for the HOA corporation and not for the members of the HOA. 

This is very analogous to the business management vs. employee relationship, but that the “employees”, you the homeowners, do not have your own representation.  The board must obey the CC&Rs first and foremost, and are constantly being told to simply enforce, enforce and enforce by the HOA attorneys.  Enforcement and litigation put $$$ in the pockets of the attorneys! 

Your CC&Rs, your “constitution”, unlike the US Constitution, does not require the board to be just, compassionate, or truly promote your general welfare that would establish a truly healthy and vibrant community.

As an example of this conflict of interest by the TCA attorneys, the proposed amendments regarding voting rights were written back in 2007 while at the same time your board, and the HOA attorneys, fought against such a result in the courts.  Why? What was the purpose, except to gain income for the attorneys?  It was a completely vengeful action that was not conducted in good faith by your board, and a legal action recommended by the attorneys who now say these amendments are for your good. 

In particular, why on earth was Sec. 17.09 proposed?  Why was this very serious grab for public government powers buried under “among other things” in the announcement of changes? For what purpose?  It is a unilateral, self-anointed, unconstitutional declaration that Terravita CA has assumed county and state police powers to enforce the law and public ordinances.  It is irrelevant that the proposed covenant deals  only with Terravita properties.  (It implies that a homeowner can be doubly penalized — once by the state and once by TCA).  It is an unwarranted usurpation of state powers and is illegal!  It is, once again, a false assertion by the CAI member, HOA attorneys that any private agreement supersedes the US Constitution.

And the HOA attorneys advising your board know better!  The only reason that this 17.09 has been proposed is to advance the interests of the CAI national lobbying trade group, who seek increased power and control over HOAs (and we know who really controls the HOA boards), and not for the benefit of you, the homeowners.   Ask yourselves, What legal actions would TCA be subjected to if this amendment is accepted?

Ask your selves, What next?  This sec. 17.09 puts TCA on the slippery slope to becoming indeed another level of local government competing with public government as an independent and equal party, but without the required delegation of such status by the Legislature.   What’s next?  Establishing TCA jails for violators since the county jails are already overcrowded?   And once adopted, the burden, a huge burden, is placed squarely on the membership to correct!

Beware TCA members, and HOA members all over!  Is this the direction you want your HOA to take?

The question of statutory and consensual liens that permit HOAs to foreclose on a homeowner for debts, often less than 10% of the home value,  has always been very disturbing to me. I view it as legalized extortion that constitutes a cruel and unusual punishment as a result of the excessive and draconian loss of all the homeowner’s equity.  Especially since the HOA has not advanced any hard cash as do the banks and mortgage companies, where foreclosure can reasonably be accepted as a valid mechanism to protect of the lender.  The HOA is more in the position of a municipality where a resident has failed to pay his taxes, but who has certain alternatives to an immediate wipe-out of his home.

I also view this foreclosure right as discriminatory against homeowners who have paid their mortgage and assessments for many, many years, and who have built up substantial equity. This high equity value makes it more feasible that an HOA foreclosure would indeed return cash to the HOA.  Since the HOA lien is inferior to the mortgage, it can only hope to collect if there is cash in excess of the mortgage that gets paid off first.  And, if there is substantial debt, the HOA does not dare use foreclosure in order to collect delinquent assessments, because it would have to pay off the mortgage or assume the mortgage at the sheriff’s sale.  Even the astute HOA attorneys from CAI have belatedly admitted that this is how the procedure works.  Unless, of course, there’s no need to pay the mortgage company.

So, it came as quite as a surprise when I became aware of an incident where an HOA was able to acquire a condo unit this past September 2009 for as little as $15,000 in the nice town of Fountain Hills, AZ.  (See Maricopa Superior Court,  CV2007-021000).  Leaving aside the question as to why an HOA would acquire real property in its own name, I was intrigued by the most likely condition that the HOA somehow got around an outstanding mortgage.  I could not believe that an HOA would assume or payoff an existing mortgage.  Of course, I realized the small possibility that there was no outstanding mortgage.  My research of the county clerk’s public records showed a $160,000 mortgage dating back only to 2005, and that the mortgage company loan was “extinguished” by the HOA foreclosure. The lender, for some reason, did not bid at the sheriff’s sale and the HOA took possession for the debt owed it, amounting to some $15,000.  Not a bad deal!  Not good for the mortgage company, however.

How could this happen, I pondered.  Did the lender not care anymore?  Perhaps I missed a satisfaction of loan — that the loan was paid off prior to the sheriff’s sale?  No, I couldn’t find any such release, and the homeowner was in and out of trustee sales for the past 2 years, indicating that he had no funds to pay the mortgage off.  However, I did find a release of a prior loan just one month prior to the recording of the second loan of $160,000.  Why didn’t the HOA attorneys uncover this new mortgage that I uncovered within a few hours?  Further puzzling was the fact that the attorney had filed a lis pendens (notice of an impending action affecting the unit) in 2007 that recognized two smaller $8,000 loans, both of which were paid off prior to the sale, but missed the whooping $160,000 mortgage.  How could that be?  My conclusion was that the mortgage company was not notified of the HOA foreclosure.  Or, did I miss something?

I was quite disturbed by this finding since the HOA attorneys of record were well known CAI member attorneys from the Ekmark & Ekmark law firm.  Further disturbing was the fact that these same attorneys were involved in the 2004 HOA foreclosure that had come to my attention where, once again, the HOA seemed to get around an outstanding mortgage. (See Maricopa Superior Court, CV2003-00394).  In this earlier instance, a $96,000 mortgage was not addressed (the deed digits ending in “033”), but a smaller mortgage, made the same day by the same mortgage company, in the lesser amount of some $8,000, was addressed (the deed digits ending in “034”).  The mortgage company had acknowledged to the court that it had assigned this particular mortgage to another company, but had not recorded it, and declared that it had no interest in the foreclosure property.  But, there was no mention of the larger mortgage deed, “033”, in the “no interest” statement to the court, nor was there any “no interest” or satisfaction statement from the assigned mortgage company for the smaller mortgage.  Yet, the court granted the sheriff’s sale and the HOA acquired the property for some $8,000 — there was no mortgage company bid at the sheriff’s sale.  Did I miss something again?

It follows from the above that it is possible for a homeowner to escape his mortgage debt by allowing the HOA to foreclose on his home. He is then in a position to make some deal to reoccupy or re-purchase the home from the HOA for an amount owed the HOA, plus, perhaps, some little “extra”.  Or, the HOA could sell it a nice profit.  Not a bad deal at all!

Caution:  Both court foreclosure orders state:

 The Court reserves jurisdiction to hear, decide and determine any claim for post-judgment attorney’s fees and costs and any other matters that may properly come before the Court.