HOA Constitutional Government

HOAs vs. local government — which “laws” control?

In the Aug. 6, 2010 Carpenter Hazlewood (CAI attorneys, AZ) e-newsletter post, “Deed Restrictions versus City and County Ordinances: Which One Controls,” attorney Nkita Patel wrote,

“In sum, if there is a conflict between the association’s CC&Rs and a city or county ordinance, the more restrictive provision will govern.”

The underlying rationale is that the homeowner, upon taking possession of his deed, has agreed to every surrender of his rights. And people can agree to the surrender of their rights. But, under what circimstances and conditions? Under servitude law of covenants, the homeowner need not read nor sign his explict consent to the surrender of his rights. But, this justification, by itself, is a violation of not only contract law, but of constitutional law and the owner’s due process rights. Even The Restatement of Servitudes, §3.1, holds that an unconstitutional covenant is invalid. What say you, Ms. Patel?

Furthermore, what say you if the covenant simply says, ineffect, “No parking on the streets or driveway?” Here, regarding public streets, the ordinance says, “No parking 8:00PM to 6:00AM.” Which is more restrictive? Which “political law” controls?

And, finally, the “usual advice” statements are offered, where only partial answers are provided — those favoring the HOA and NOT explaining how the law would apply as to circumstances favorable to the homeowner. Carpenter Hazlewood has never addresed the issue of guest parking and the wrongful holding a member in violation of the CC&Rs in an egregious violation of the law, good faith treatment of members, and a just and fair governance.

What say you, Ms. Patel, about the HOA’s actions in these circumstances? Please see Wigwam Creek North HOA v. Fuchs, CC: 2010- 49644, Estrella Justice Court, where such an event and wrongful HOA act took place, apparently with HOA attorney approval.

HOA resident applicant questionnaire

I received an email the other day asking for my expert opinion on a proposed application questionnaire for HOA renters. I replied by asking if the questionnaire would apply to buyers, also, to which the emailer responded, Yes. Here are the areas of concern as to what should be asked of applicants:

1) Requiring a stated income level (i.e., $30,000, $50,000, $70,000 and so on):

2) Requiring last two year’s tax returns:

3) Please comment on credit score section (Page 1, #3):

4) Please comment on 30-day completion time:

5) Please comment on personal interview by board of directors:

6) Please comment on statement concerning “board’s decision will be final and no reason will be given (i.e., denial).” This statement is immediately above signature line on Page 4:

I responded with:

Adopting such an approach would befit an exclusive community — for those few good men, and women. It would probably reduce the desirability for the general public, but may attract the few. It would also hurt sales by existing owners. I believe the promoters of planned communities going back to the gitgo knew that HOAs were not for everybody, but they were interested in the mass merchandising of HOAs to everyone.

Financial status was already checked by the mortgage insurers, so it buys the HOA very little in any greater protection. Maybe in regard to getting some assets from the unethical, in my onion, foreclosure auctions.

However, it will allow a people to people discussion to get a better “feel” for one another. But, then again, only half the story would be told, since there does exist this unspoken alliance of “No Negatives About HOAs.” For example, would the board be willing to say to prospective members, “You understand that your home will be collateral for the survival of the HOA?”

It would be interesting to know how this approach plays out.

AZ R.E. dept ignores HOA laws in its policy of “No Negatives About HOAs”

Today, Arizona has a new crop of laws becoming effective, aside from SB 1070, two of which affect HOAs and property sales. One would think that the AZ Dept of RE (ADRE) would mention these new laws. Although pertaining to HOAs, which ADRE does not regulate, they affect the sale of real property. Real estate agents are required to know real estate law, contract law, agency law, and the Commissioner’s Rules, which are part of the licensing test and are included in its biannual continuing education classes.

Playing its part in the unspoken alliance of “No Negatives About HOAs“, ADRE released the following document: Law Book Addendum 2010 Statute Changes – Click here. It makes no mention of the only two HOA bills with changes to ARS 33-442, which pertains to real property sales and transfer “fees” imposed by HOAs. HOA attorneys have suggested that the HOA get the seller to include payment by the buyer it the sales contract. But, according to ADRE, no need to be concerned here.

The Addendum also does not mention the changes to ARS 33-1808 and 33-1261 pertaining to “for sale sales” signs. Not a concern of agents either, it appears. (It’s not like ADRE is not aware of the bills, having supported them.).

Under the Commissioners Rules (AZ Administrative Code, Title 4, Chapter 28 (ADRE), Article 11, Professional Conduct, excerpted here (emphasis added),

R4-28-1101. Duties to Client (legally, the guy who pays; the other party is the “customer”)

A. A licensee owes a fiduciary duty to the client and shall protect and promote the client’s interests. The licensee shall also deal fairly with all other parties to a transaction.

B. A licensee participating in a real estate transaction shall disclose in writing to all other parties any information the licensee possesses that materially or adversely affects the consideration to be paid by any party to the transaction, including:

3. Any material defect existing in the property being transferred;

H. The services that a salesperson or broker provides to a client or a customer shall conform to the standards of practice and competence recognized in the professional community for the specific real estate discipline in which the salesperson or broker engages . . . .

I. A salesperson or broker shall exercise reasonable care in ensuring that the salesperson or broker obtains information material to a client’s interests and relevant to the contemplated transaction and accurately communicates the information to the client. A salesperson or broker is not required to have expertise in subject areas other than those required to obtain the salesperson’s or broker’s license. A salesperson or broker shall take reasonable steps to assist a client in confirming the accuracy of information relevant to the transaction.

A strict reading of the above evokes a “caveat emptor” policy by ADRE, and “material” only pertains to the physical, and not to all of the real property interests affected by the sale of the real property. Yet, in its PR statement to consumers, “Information for Consumers” page, ADRE assures the consumer in its (emphasis added),

We want to protect consumers from being harmed in real estate transactions. You will find a wealth of information on this website that will help you be a smarter real estate consumer. You will also find information about what to do if something goes wrong in your transaction. Remember, we are always willing to help.

If you need to speak with an ADRE staff person, phone the ADRE Consumer Assistance Team at 602.771.7730

PS. Earlier this year, the last time that I wrote ADRE about this, and to the new Commissioner, I was told that ADRE doesn’t regulate HOAs. No mention of its failure under the above Rule. I guess HOA laws affecting sales does not concern ADRE, and has adopted the “see no evil hear no evil, speak no evil” stance.

awarding HOA attorney fees and public policy

This Maryland Court of Appeals (equivalent to other states’ supreme court) case[i] discuses the topic of awarding reasonable HOA attorney fees, public policy, and when exorbitant fees may be awarded. “In each case, the Associations won affidavit judgments against the Residents in ‘largely uncontested’ proceedings. The Associations also sought attorneys’ fees from the Residents in those courts, calculated according to the ‘lodestar method.'” (Emphasis added). Note the HOA’s arguments to justify their attorney’s fees.

First, the generally accepted method to determine attorney fees is known as the Lodestar Method as set forth by the US Supreme Court:

(1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the skill requisite to perform the legal service properly; (4) the preclusion of other employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the “undesirability” of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases.

Second, there is the underlying premise, presumption, of “fee-shifting” that holds, as stated by the Court (emphasis added),

[T]hat the lodestar method of calculating attorneys’ fees was generally appropriate in the context of fee-shifting statutes. This holding is justified by the public policy underlying most statutes that allow for fee-shifting. Fee-shifting provisions frequently apply in “complex civil rights litigation involving numerous challenges to institutional practices or conditions.”

A court’s application of the lodestar method in these cases “is designed to reward counsel for undertaking socially beneficial litigation in cases where the expected relief has a small enough monetary value that [other methods] would provide inadequate compensation.

However, the Court saw it as inappropriate, stating (emphasis added),

The policy considerations mentioned above do not apply here because these cases do not involve a fee-shifting statute . . . . It is by contract, not because of public policy, that the Residents are obligated to pay attorneys’ fees to the Associations.

But, the HOA responded with (emphasis added),

[These cases] are sufficiently related to advancing the public interest to justify use of the lodestar method in determining reasonable attorneys’ fees. [And] that “[h]olding delinquent owners accountable for paying their share of association assessments supports social benefits that extend far beyond the association itself.” . . . [H]omeowners associations provide public services such as street maintenance and security, thus relieving local governments of those obligations.

The Court’s rebuttal said,

We are unpersuaded [sic] that any tangential benefit the Associations may provide to local government or to the public is sufficient to justify use of the lodestar method in awarding the fees for their attorneys. . . . The fact remains that this litigation arises from disputes between private parties over breaches of contract.

Our rejection of the lodestar approach does not mean that the time spent by the lawyers and a reasonable hourly rate should not be an important component of a court’s analysis.

Courts should use the factors set forth in Rule 1.5 [MD Rules of Professional Conduct on reasonable attorney fees] as the foundation for analysis of what constitutes a reasonable fee when the court awards fees based on a contract entered by the parties authorizing an award of fees

Rule 1.5 does not carry with it the notion that the importance of the right vindicated will justify an expenditure of attorney time that is hugely disproportionate to the dollar amount at issue in the case.

Trial courts are not bound by the monetary amounts in such contracts [that state an amount for the attorney fee] , however, and need not cleave to the contracts at all if they improperly influence the fee award.

[i] Monmouth Meadows HOA v. Hamilton, Nos. 43, (Md, July 27, 2010). (Three consolidated cases decided in this decision.) See Leagle.com http://www.leagle.com/unsecure/page.htm?shortname=inmdco20100727254.

HOA attorney doesn’t recommend Roberts Rules — let the boards do as they please

In the July 23, 2010 issue of “the word” for HOA boards (CAI Carpenter Hazlewood’s enewsletter), CHDW’s Sahl correctly states the silence of the AZ statutes on the issue of corporation rules of order. And, in true pro-HOA support — after all they represent that separate and distinct class of owners, the directors and officers — say the board can do as it pleases. Absent is any recommendation for a sound and “good faith” functioning of the HOA by recommeding that, as a very good idea, the HOA does adopt Roberts Rules of Order.

But, why should they when the board has the broad powers granted by the adhesion CC&Rs and state laws? Why confine and restrict its right to do as it pleases, under these very broad grants of freedom to act, by using Roberts? No, no, no! “Rules” is for the owner-members, those other guys, and not for the hired-hand managers, directors, or officers. Roberts Rules, repeatedly revised, is the 134-year accepted standard for conducting board meetings by corporations, especially nonprofit corporations.

Please understand that the Board does not function for the benefit of the “people”, the homeowner-members, as does public government, but to enforce the CC&Rs first and foremost. Such enforcement to maintain property values is for the mutual benefit of the homeowner-members to the exclsuion of all other rights, freedoms, and privileges and immunities still available to those not living in HOAs.

This surrender by homeowners of their privileges and immunities, which all Americans are to enjoy, must be fully understood. It is not diviluged to the public at large under the unspoken alliance of “no negatives about HOAs.”

For more info, see Does CAI act in good faith for the benefit of the people in HOAs?

Confederate Texas and HOA governments: de facto, unlawful governments