Opinion – Page 109 – HOA Constitutional Government

What HOA issues are appropriate for federal intervention?

In my comment (see PVTGOV comment) to Evan McKenzie’s post in his Privatopia Papers blog, Las Vegas HOA corruption probe continues, (February 26, 2013) I supported McKenzie’s opinion that congressional hearings on HOAs was in order. In North Carolina and Nevada several homeowner rights advocates felt the same and Norm McCullough contacted Nevada Congressman Joe Heck, who responded on April 22 with,

I can certainly understand and appreciate your frustrations. Since HOAs are governed by local or state law rather than federal, it would be best to contact your state assemblyman or state senator and local county officials with your comments.

Please be assured that I will keep your comments in mind should this issue be brought to the attention of the House of Representatives for legislative action.

A careful reading of the first paragraph above leads to the obvious: “Not my problem. See your legislators” (my words). However, he extends hope for homeowners in the second paragraph above, “If HOA issues get here, I’ll remember what you wrote” (my words). Congratulations to Norm.

Well, just what are federal issues aside from constitutional issues that abound with HOAs? Let’s take a look at some other recognizable federal laws or “acts”. There’s the Americans With Disabilities Act, Fair Debt Collections Practices Act, Truth in Lending, Truth in Advertising, Right to Work, etc. all of which deal with practices within an industry that cross state lines. These are the nationwide practices that need the broad reach of the federal government. And all the above resulted from abuse against the consumer by the respective industry. With HOAs, we have very strong legitimate arguments pertaining to constitutional violations that amount to state actions in all states.

If advocates wish to be effective at the national level, they must rise above HOA operational concerns and address issues of national import. They must be able to understand and deal with these fundamental issues of democratic governance.

And they must accept the fact that since 1973 CAI has been the aggressive protagonist for the HOA legal scheme or structure that is offensive to our principles of democratic government.

North Carolina: second battleground for people’s rights in HOAs

North Carolina is proud that it was the first state to vote for independence from Great Britain (Halifax Resolves, 1775). Today, some 238 years later, another battle for independence from oppressive government has commenced in the NC General Assembly. This time, it is the people subjected to authoritarian, oppressive private HOA governments who seek equal justice with regard to safeguarding their homes against HOA foreclosure. This time, it is the citizens of North Carolina who seek a redress of their grievances against the NC General Assembly that has supported, and continues to support, special laws for special groups.

In every stage of these oppressions we have petitioned for redress in the most humble terms; our repeated petitions have only been answered by repeated injury. (Decl. of Indep.).

Today, the NC assembly has two HOA bills before it, HB 175 and HB 331: one seeks to impose harsher terms for HOA foreclosure rights, HB 331, and the other seeks to remove the unconscionable right of HOAs to foreclose, HB 175. While NC currently allows unconscionable nonjudicial foreclosure, HB 331 would now put the HOA in the same position of a Trustee holding a deed of trust with the “power of sale,” which amounts to an auction sale without having to go to court. This amounts to putting the HOA in the same position not only as the mortgage holder, but as the trustee as well.

The bill further proscribes new foreclosure procedures that supersede the general NC foreclosure statutes, just for HOA foreclosures. There is nothing in the detailed procedures contained in 4 pages of the bill that addresses any procedures for the homeowner to contest the amount of debt being foreclosed by the HOA. What does the simple phrase, as used in the bill, “if not contested” mean?

On the other side of the battle-line, HB 175 does away with special foreclosure rights just for HOAs. And rightfully so! The right to foreclose has been argued on the basis of the need to collect assessments – read HOA “taxes” — so the HOA can survive. Well, this argument could apply to any nonprofit that seeks to foreclose in order to survive. But, there are no such laws protecting these nonprofits from failure, is there? And these nonprofit, charitable, and educational corporations can argue that they provide a public service, while the HOA provides services to a private group of people, only its members.

Other arguments against HOA foreclosure rights include:

The HOA has not advanced any hard funds like a bank, yet it is treated as a public entity with the right to foreclose on the nonpayment of “taxes.” But, the Assembly does not feel the need for checks and balances on the HOA board for this grant of special powers.
The US Supreme Court has held that punitive damages, which the foreclosure essentially amounts to, in excess of 10 times the actual damages, violated the 8^th amendment’s prohibition on the infliction of cruel and unusual punishments. For example: Foreclosing on a $2,000 debt, of which $500 is the actual assessment debt, on a home valued at $140,000 amounts to a whopping 70 times the debt.
Foreclosure discriminates and is essential an intimidation and punitive measure that is effective only on certain members and not others – only those who have paid their mortgage over the years so that the HOA can collect funds in excess of the existing mortgage. Is it fair for the good people who have paid and paid not only their mortgage but their HOA dues over the years to lose their home? I think not! But, on the other hand we hear their self-righteous chant that it’s “unfair for others to pay for deadbeats” who are behind in their assessments. There seems to be a huge disconnect here.

I cannot entirely blame the members for this attitude, because they have been deceived. They have never been told the facts about the possible adverse financial conditions that could lead to holding them legally obligated for the debts of others. HOA membership is like buying into a small, privately held business that has limited ability to exit or to raise additional funds if needed. Also, the HOA is similar to a partnership where each member is jointly and severally obligated for the debts of the HOA.

If some members cannot meet their “fair share,” any deficiency will be made up from those who can afford to pay. These additional funds, like now being needed by many HOAs, can only come from existing members, which can be imposed upon them through the courts.

Also, I cannot reconcile this obsession by members against letting the deadbeats get away with not paying their HOA debts that often amount to less than $2,000, but who say nothing when their HOA spends $5,000 – $100,000 in attorney fees pursuing trivial lawsuits against minor and questionable violations of rules. We see these cases in the media quite frequently. Something is wrong with the attitudes of members in HOAs, definitely wrong! The attitude of the HOA members themselves is discriminatory and unconscionable.

Which direction will the General Assembly take? For the people by ending the unconscionable and discriminatory HOA rights to foreclose, or for the defective HOA legal structure that denies homeowner protections?

Arizona bill tells HOAs that they do not control public streets

[Please note that a previous post on this bill, SB 1278, was posted in error, referring to restrictions on mandating HOAs in new subdivisions. An Arizona bill, SB 2292, that would have made this a law has been stalled in the Legislature and will die there.]

Arizona Session Law Ch. 103 (2013), SB 1278, reaffirms local municipality control of public streets within an HOA. It is a groundbreaking bill because it relegates HOA private governments to a rightful secondary status and subject to public government laws. In a disgraceful rejection of the Constitution, courts see no problem with upholding the common law Restatement of Property (Servitudes) as controlling over Constitutional and contract law.

It’s a simply worded bill:

Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 33, chapter 16, article 1, Arizona Revised Statutes, is amended by adding section 33-1818, to read:

33-1818. Community authority over public roadways: Applicability

A. NOTWITHSTANDING ANY PROVISION IN THE COMMUNITY DOCUMENTS, AFTER THE PERIOD OF DECLARANT CONTROL, AN ASSOCIATION HAS NO AUTHORITY OVER AND SHALL NOT REGULATE ANY ROADWAY FOR WHICH THE OWNERSHIP HAS BEEN DEDICATED TO OR IS OTHERWISE HELD BY A GOVERNMENTAL ENTITY.

B. THIS SECTION APPLIES ONLY TO THOSE PLANNED COMMUNITIES FOR WHICH THE DECLARATION IS RECORDED AFTER DECEMBER 31, 2014.

While homeowners must wait until 2015, this bill is a giant step forward to curtail the unconsitutional reach of private regimes where homeowners are outside the protections of the US and Arizona Constitutions. It speaks to putting a clamp on The New America of HOA-Land. The bill took 5 years of dedicated effort by HOA champion and State Senator Nancy Barto before it became law.

HOAs had raised feeble arguments that could and still can be easily addressed by seeking ordinance variances. The HOAs and their hired-hand venders have refused to avail themselves of this avenue of redress, which is available to all citizens. No, this 4 year long battle was a battle for power and control. Which form of government controls your public streets, the municipality of the HOA regime?

NC adds another bill to protect homeowners from HOA abuse

Another bill to reign in HOAs and their hired-hand mercenaries was introduced in the NC Assembly, HB 871. An agency is sought to regulate, including rule-making authority, to license property managers with restrictions prohibiting the giving legal or financial advice, and from controlling reserve and operating funds of the HOA. Furthermore, a fidelity bond will be required of all property managers.

Very importantly is the intent of the legislature to protect homeowners. HB 871 reads (emphasis added),

The General Assembly further finds that managing a community association by collecting and handling assessments and other funds and managing property of the community association are deemed to be real estate transactions. If a community association is not properly managed the improper management can adversely affect the real estate through foreclosure of the community association member’s property or bankruptcy of the community association. Improper management may also affect the rights of the community association members as consumers and property owners. It is the purpose and intent of this Article to protect the public from persons unqualified to provide community association management and from unprofessional conduct by persons regulated pursuant to this Article.

As more and more state legislatures awaken from their long slumber and remove their rose-colored glasses, the extent of the wrongful, unethical, and immoral acts of HOA property managers, as well as HOA attorneys involved in collusion, is becoming apparent. I congratulate those state legislatures for joining the Enlightenment Movement, and bringing a just and fair governance of subdivisions currently unaccountable to the state for their actions.

The HOA industry has failed to regulate itself. The hired-hand property manager and attorney associations, who claim to be of professional status, have failed to regulate the conduct of their members. Therefore, it is only rightful for state legisaltures to step in and protect its citizens from the abuse by powerful factions.

See The HOA Enlightenment Movement continues to spread: just legislation for homeowners

The HOA Enlightenment Movement continues to spread: just legislation for homeowners

A review of new legislation being considered in many state legislatures clearly shows a growing trend toward justice and fair play for homeowners. Substantive HOA reform bills can be found in Arizona, Colorado, Florida, North Carolina and Texas to name those are known to me.

Arizona.

SB 2292 seeks to end mandatory HOAs for new subdivisions.

SB 1278 reasserts local municipality control of public streets in HOAs.

Colorado. HB 1276 seeks to restrict HOA foreclosures by setting forth strict procedures for HOAs to follow if they seek to foreclose on a homeowner that include restrictions on the sue of collection agencies, the adoption of a formal payment plan, notice to delinquent homeowners stating the exact amounts owed, and the procedures to resolve issue before any action can be taken..

Florida.

SB580 places restrictions on management firms.

SB 596 creates a powerful, bona fide state agency to regulate HOAs and that can make rules, to investigate complaints and to seek penalties and restitution in civil court.

North Carolina. HB 175 is another foreclosure reform bill that prohibits assessment foreclosure, but allows HOAs to obtain court judgments for the assessments owed. It requires a notice of a claim of lien to be served on the homeowner before any action can be taken.

Texas. HB 3803 seeks state oversight by allowing the attorney general investigation of financial wrong-doing by the HOA, with penalties.

Much, much more legislation dealing with substantive HOA reforms is needed. This legislation would deal with fair and just due process procedures in HOA disputes, foreclosure reforms, clean elections procedures, meaningful enforcement against HOA violators, and ending the “consent to agree” misrepresentation in the sale of a home in a HOA.

For more information . . .

the age of HOA enlightenment is coming?

And the HOA Enlightenment Movement grows . . .

Court decisions: HOA Enlightenment Movement vs. the Dark Ages