Author: HOAGOV

SUMMARY OF TENTATIVE RECOMMENDATION
State Assistance to Common Interest Developments
September 2004

Community associations are run by volunteer directors who may have little or no prior experience in managing real property, operating a nonprofit corporation, complying with the law governing common interest developments, and interpreting and enforcing restrictions and rules imposed by a common interest development’s governing documents. Mistakes and misunderstandings are inevitable and may lead to serious, costly, and divisive problems.

The principal remedy for a violation of common interest development law is private litigation. Litigation is not an ideal remedy where the disputants are neighbors who must maintain ongoing relationships. The adversarial nature of litigation can disrupt these relationships, creating animosity that degrades the quality of life within the community and makes future disputes more likely to arise. Litigation imposes costs on a common interest development community as a whole – costs that must be paid by all members through increased assessments. Many homeowners cannot afford to bring a lawsuit and are effectively denied the benefit of laws designed for their protection.

The proposed law would create the Common Interest Development Bureau within the Department of Consumer Affairs. The bureau would educate common interest development homeowners and board members as to their rights and obligations under the law, provide informal assistance in resolving disputes, and as a last resort, enforce the law governing common interest developments.

NJ Senator Shirley Turner sponsored a bill to revise NJ’s Condo Act, S2016 (2004).

It can be found at S2016

Section 2 reads, in part:

e. The very nature of a homeowners’ association is to provide governance over and maintenance of the real property of a common interest community that is owned in common by all of the residents. New Jersey statutes require these associations to be formed by the developer, but have not provided the necessary detail to guide these special corporations in carrying out their duties once the control of the community has shifted to the owners. Homeowners’ association governing boards have relied on corporation law to fill in many of the gaps that the “Condominium Act,” or other statutes, do not address. Corporation law, however, is geared towards businesses or charitable organizations. Homeowners’ associations are technically not either; they are, in fact, the functional equivalent of neighborhood governments. Accountability measures are needed to ensure that such quasi-governmental entities are operating democratically and guided by principles of fairness that benefit all of the owner-members of these communities.

The proponents for the need to foreclose on a homeowner for failing to make his assessment payments have argued that there is a compelling government interest in preventing the failure of the planned community as a result of the widespread or prolonged failure of homeowners to make their assessment payments. However, there is no constitutional right for a planned community to receive homeowner assessments, just a questionable contractual right supported in many states by statute.

First, the inclusion of this provision in the CC&Rs, or by state law, is only to punish delinquent members, and the punishment is excessive. The US Supreme Court has ruled that excessive punishment with respect to the amount of punitive damages awarded by the courts is a violation of the Due Process clause of the 14th Amendment.

• Second, while the argument that the state has a compelling reason to protect private contractual arrangements, in general, by means of judicial enforcement is valid, the argument that the state may use the “club of foreclosure” as the means to enforce the CC&R contractual agreement to pay assessments lacks merit.

Suppose that a charitable pledge agreement contained a right to foreclose on the contributor’s home if he fails to pay the pledged amount, either in full or by means of a partial payment arrangement. And it was irrevocable for 20 – 30 years. What would be the outcome? Obviously, no one would make any pledges under these circumstances. Yet, because of the contractual arrangement, these charitable organizations could enlist the courts to enforce the agreement on the basis that they provide a sorely needed benefit to the state or community as a whole.

We ask, What damages would be suffered by the charity? What remedy, if any, would the charity be entitled to receive? The $100,000 plus home for a $100 pledge? For a $1,000 pledge? Can the charity argue that this pledge is vitally necessary for it to achieve its charitable objective, for the benefit of the community, as set forth in its budgeted activities? Is the charity entitled to the right to foreclose?

No, this remedy won’t fly. But when it comes to such outrageous CC&R provisions and statutes, they are accepted and viewed as a fundamental right of the HOA. A right that is needed, as implied by these arguments, if the HOA is not to fail. No, this argument is also without merit.

Let’s stop protecting Homeowner Asssociations and start protecting the fundamental rights of homeowners — due process and the equal application and protection of the laws.

I’m coming closer to the realization that the “battle” has been, and will continue to be, centered on the decay and erosion of private property rights versus the communal objective to maintain property values in homeowners associations. The above reflects public policy and the decision that maintaining property values outweighs your private property rights.

The industry lobbyists have succeeded in convincing the public that planned communities are the only way to go and that the undemocratic, corporate form of HOA governance is necessary to achieve that goal. They are right, because HOAs would not be able to get away with their present actions if they came under the municipal government laws! This has been said by others more qualified that I — McKenzie, Dilger, Barton & Silverman, to name a few. Any genuine democratic governance with its protections of homeowner rights would not allow for arbitrary and capricious decisions of HOA boards or for the circumvention of constitutional protections that trespass on those values that made America great.

“Communal” is the correct term – for the greater glory of the state, or community in our case. And with the equivalent of “state laws” that promote property values over our unalienable rights and freedoms, comes the inclusion of the neighborhood “thought police” enforcers who report back to the communal government about the rotten or nonconforming attitudes of homeowners, who are then subjected to scorn, ridicule and harassment by the HOA government press – the letters from the president and the association newsletters.

I wrote a few months ago about the myth of private property rights in an HOA. They have been emasculated by those nonnegotiable restrictive covenants to become almost meaningless. Today, and upheld many times in the courts under covenants running with the land, written by short-term profit seeking developers, the communal interest rises above your unalienable rights.

The public must take a good look at the meaning of private property rights. When the courts, through their rulings, make it clear that the homeowner just about surrenders most of those cherished rights that permit the classification of “private property”. Prof. Askin, of the Rutgers University Constitutional Law Clinic, in his appeal of the Twin Rivers (NJ) HOA decision, argues against this view that holds common law over constitutional law,

“Twin Rivers must be recognized as a constitutional actor under the state Constitution required to accommodate the rights of its residents/members to exercise the fundamental prerogatives of citizenship in the operation and governance of the community. Twin Rivers homeowners do not waive their constitutional rights by signing contracts containing non-negotiable deed restrictions. This argument [that homeowners voluntarily waived their constitutional rights] ignores the doctrine of ‘constitutional conditions’, which forbids a constitutional actor such as Twin Rivers from conditioning a right to own property on a waiver of constitutional rights.”

There can be peace in the valley. Planned communities with their private “ordinances” and private amenities for “members only” can exist within the framework of special taxing districts. These districts can easily come into existence by reclassifying, in furtherance of legitimate government ends, existing associations and holding them to be municipal entities under the existing state laws. As we proudly proclaim ourselves to be a nation of laws, all communities will now be subject to the same laws of the land and these private ”constitutions” will be eliminated.