Contemporaneous critique of the 1964 FHA-ULI homeowners association model

In 1967, just three years after the ULI publication of The Homes Association Handbook, Technical Bulletin #50 [for an anlaysis of this bulletin, see n.1]  (which I have repeatedly designated as the “HOA bible”), a Univ. of Calif. Public Affairs Report criticized the concept or model of a homes association [n. 2], as HOAs were called back then.  The value in looking back is that after the passage of many years there has been the inescapable slow, but steady, erosion of the values and attitudes that once were. Looking back, we can see more clearly what was gained, and what was lost.
 
First, here’s a quote from what the editors of the 1994 book, Common Interest Communities (see n. 2, containing a reprint of the article) wrote:
 
“Scott raised doubts about the increasing use of mandatory homeowners’ associations . . . [they] weakened citizens’ connection with their local government; their exclusivity encouraged economic and racial segregation, thus weakening the fabric of American society; and the central role of the developer and the requirement of property ownership  . . . weakened local democracy.”
 
Scott is concerned with the privatization of government by profit seeking developers who bypasses local government.
 
“Basic criticisms of the FHA-ULI homes association policy are . . . . the assignment of open space, parks . . . bypasses local government [who are] custodians of such property. . . . Any significant inclusion of multiple dwellings appears to be discouraged by FHA policies, and lower-income brackets [renters, perhaps] are viewed as a likely source of special problems.  Policies of exclusiveness [sic] are only thinly veiled as efforts to  ‘maintain high standards’, or ‘insure property values’, or provide a ‘private community.’ [Note the inclusion of the mortgage entity].
 “The automatic homes association and its binding covenant would be designed and established by the developer [sic] before a single house had been sold — that is why they are called ‘automatic.’  Yet anything so important as the life of a community as control of . . . shared facilities is sufficiently affected with public interest to justify a strong public role . . . when the community-to-be is without residents.
 
For the protection of its own interests, FHA-ULI urge the developer to retain control [sic] of each homes association [and] to exercise a strong benevolent paternalism [like a grandfatherly autocratic government] in determining the composition of the association’s leadership and influencing its policies.  Surely alternative methods can be found for a more publicly responsible stewardship . . . . The 1964 ULI report [The Homes Association Handbook] recognizes some real difficulties in making these ‘private governments’ [sic] work effectively and responsibly.
 
“The legitimate desire for maximum financial stability and security of the housing developments — viewed as investments —  [read as developer and FHA investments] appears to be given overriding importance that it may obscure other equally important goals [like democratic governance and remaining subject to the Constitution].” 
 
In this 1967 article, Scott concludes with, “Associations are not the final answer.  We should not be satisfied —  as FHA and the Urban Land Institute appear to have been — with the assumption that home association provides a final answer.”
 
 
We should ask ourselves what has happened over the past 43 years since this 1967 report.   Why weren’t corrective measures taken by state legislatures to recognize HOAs as indeed de facto governments, and that they must be made equivalent to a public entity?  To what extent did the creation of the Community Associations Institute (CAI) in 1973, just 6 years after this the publication of this report, have on future developments?   Many of us who are interested in the facts can see how CAI influenced legislatures as they re-constituted themselves as a national lobbying organization in 1992 to oppose the voices of reform.
 
 
 
Notes
1.  The Foundations of Homeowners Associations and the New America, “Part I, The Mass Merchandising of Planned Communities”, George K. Staropoli, 2006. 
 
2.  “The homes association: Will ‘private government’ serve the public interest?”, Stanley Scott, Public Affairs Report, Bulletin of the Institute of the Governmental Studies, Univ of Calif., Berkely, Vol. 8, No. 1 (1967).  Reprinted in Common interest communities: Private governments and the public interest, Stephen E. Barton and Carol Silverman. eds, Institute of Governmental Studies Press, Berkeley, CA, 1994.

HOA debt collection practices

Let me say right at the start that my non-lawyer research into homeowner association lawyers as debt collectors was very productive. The attention of attorney generals, the courts, and state legislatures needs to be directed to fully investigate this area, because the existing laws, designed to protect consumers from abuse, fall quite short when it comes to HOAs with their laissez-faire and free-wheeling acts not accountable to the state. And that includes their adhesion “contracts” favoring the HOA. The consumer members of the associations need heightened protections.

HOA member debts have been declared consumer debts under FDCPA (Fair Debts Collection Practices Act), and attorneys who regularly collect debts are debt collectors. Generally, however, the HOA is not seen as a debt collector. While state laws may exempt attorneys as debt collectors, but not, as Arizona statutes state, “when engaged in the regular course of their respective businesses” — that’s when practicing law not when collecting debts as many lawyers clearly state on their dunning letters and websites. CAI attorney Maxwell was acting clearly as a debt collector in the 1999 Arizona Caron v. Maxwell case, but the HOA was not so acting.

So, what can and cannot debt collectors do? First, it appears they can add attorney fees if the law or member-HOA agreement allows it. And they generally say so, but to the HOA not to the attorney! Is it legal for an attorney to say that the debtor owes the attorney the money, directly, or that continued disputing of the debt will result in increased attorney fees? I wonder. How does the attorney really know that the debt is correct? It seems from my experience, many attorneys just take the word of the HOA or its management firm that the debt owed is valid, and that the amount is correct. I have seen claims where the HOA or it management firm rejects checks without offering any justifiable reason. Or that the board will not talk to the debtor, sending him to the attorney, and the attorney says to the debtor, “You are not my client go away” Or the attorney is not compliant with the debtors questions for info, yet keeps tacking on attorney fees.

What does the law have to say about debt collector conduct? Let’s look at some of the Arizona statutes and Arizona Administrative Code governing Collection Agencies, as a representative example (emphasis added),

R20-4-1518: A collection agency’s records shall document each client’s account in writing. The records for an account shall include either a written agreement between the client creditor and the collection agency, or a written direction from the creditor to the collection agency concerning a specific debt placed for collection. . . . The records for an account shall separately state: . . . 2. The terms or rate of compensation paid to the collection agency . . . .

R20-4-1521. A collection agency shall give copies of its evidence of the debt to the debtor or the debtor’s attorney on request. After providing the evidence, but before continuing its collection efforts against the debtor, the collection agency shall investigate any claim by the debtor or the debtor’s attorney that: 1. The debtor has been misidentified, 2. The debt has been paid, 3. The debt has been discharged in bankruptcy, or 4. Based on any other reasonable claim, the debt is not owed.

Under the statutes, ARS 32-1001 et seq., the agency must provide the debtor, upon request, with copies of any document relevant to the debt or its collection. The debtor also has the right of access to the collection agency’s books and records regarding the debtor or the debt. The collection agency has a duty to investigate debt disputes if the debtor has a reasonable claim that s/he does not owe the debt.

What is particularly disturbing is the attorney’s activity for collection of fines as a reslut of a violation of HOA rules or documents, when the attorney well knows that the member is not given his day in court to contest the alleged violation. As we know, including the attorney, all the HOA is obligated to do is, “upon an opportunity to be heard.” Period! While the attorney is acting in the capacity of a debt collector and is obligated under R20-4-1521, he still is an attorney, and has the the further duty under the Rules of Professional Conduct and Rule 11(a) of the Civil Procedure to conduct a reasonable investigation into the alleged violation.

The relationship between the HOA/management firm and the attorney-debt collector must be subject to proper investigation by the appropriate authorities, the attorney general, finance department who regulates collection agencies, or the legislature, and necessary corrective actions taken.

Ethical obligations of attorneys to HOA members

James Hazlewood, a partner in Carpenter Hazlewood, in his gratuitous instructions on how  to institute homeowner association transfer fee charges  (CH enewsletter, Oct. 23, 2009, “Resale Amendment”), justifies the imposition of an HOA transfer fee by claiming that it applies equally to all members who happen to sell. He fails to recognize that the transfer fee does not apply equally to all members.  This concern is important since the transfer fee does NOT  apply equally to all members within the annual or special assessment period, but only to those who happen to sell that year.  Simply put, those who sell in any year are assessed more that other members who did not.  Is this a valid reason to create this separate class of members?  
 
 
Further disturbing in Hazlewood’s enewsletter is his gratuitous advice that goes beyond a lawyer’s neutral stance of providing legal advice to clients, but amounts to advice one would receive from a management consultant on how to raise money.  Hazlewood advises the board 1) to make the fee an assessment, making it a lien, and the escrow company must collect the payment or the house won’t sell, 2) that the seller can put into contract that the buyer must pay the fee, failing to mention that the buyer can always walk and there goes the sale, and 3) that although this transfer fee would require a CC&R amendment, not to worry since the homeowners are all for it. 
 
 
This advice amounts to, in my opinion, unconscionable legal and ethical advice.  First, it seems to have the smell of extortion by the HOA:  the homeowner will pay because he has been put under duress, otherwise he will suffer the financial consequences of not selling.  Second, the validity of the transfer fee rests on a vote of a separate class of members who benefit from the imposition of the fee on the other class, which will not benefit from this fee and who are no longer in the HOA.  Third, it can be seen as restriction by a private group on the free transfer of real property between the seller and a third-party buyer.  How would you like it if the HOA, to raise funds as a result of its incompetence,  decides to charge an entrance fee, a toll, on all visitors, but not the owners?  Can be done.  All legal mechanisms are in place, just a vote of your neighbors is needed.  The courts have repeatedly upheld almost any amendment that simply adheres to the CC&Rs amendment procedures.
With regard to the gratis advice given by Hazlewood to the public above, and not exclusively to clients, David D. Dodge wrote about the ethical obligations of attorneys (E.R. 1.13, to clients,  and E.R. 4.1, truthfulness to others) to the members of their client organizations.  This should be a bold red flag when it comes to clients with members in a mandatory association with compulsory dues — HOAs with broad powers equivalent to governments.  In the June 2005 Arizona Attorney, “Derivative Liabilities a Danger”, a State Bar monthly for lawyers, Dodge cautioned lawyers:

“What appears to be happening is that courts are finding more direct paths to holding lawyers liable to the people whom their fiduciary–clients injure when those lawyers have substantially assisted the breach of the duty violated.” 

He continues with,

“What should concern us is the apparent expansion of classes of non-clients to whom a lawyer can be liable, even in situations in which the client is not acting as a fiduciary.”

Dodge further warns the lawyers that under E.R. 1.6, “they can no longer hide behind the claim of confidential information.  He informs the lawyers that,

“Lawyers are now permitted to disclose facts that will prevent or rectify harm done by their clients to others while using the lawyer’s services”.

Read the Dodge article at Fiduciary.

HOA secession is not bad, advises CAI attorney

HOA attorney Scott Carpenter, a long-time Arizona CAI member, lobbyist and Chair of its Legislative Action Committee, states on his new blog that these are his personal views, yet the blog contains his firm’s imprimatur, “Carpenter, Hazlewood, Delgado & Wood blog”, and Carpenter still remains the CAI LAC chair.    Can a public figure make such a declaration and in all honesty expect the people to believe it?   That would be like a member of a campaign staff claiming to make personal comments, so the candidate can disclaim any responsibility as to shared beliefs.  Must we now ask CHDW and CAI whether or not they agree?  “Could you clarify any differences of view?”
 
Last year, Arizona Rep. Nancy Barto attempted to get her bill that public roads belong to the public, and are not under the control of a private HOA regime, into law.  This session, she re-introduced this very important bill, HB 2153, that has constitutional ramifications: can we allow secessionist private HOA governments, not subject to the 14th Amendment restrictions and protections of individual rights, to control public streets and set the equivalent of municipal ordinances?
 
Attorney Carpenter seems to thinks so.  Not being able to find applicable justification under the law, he must find a reason under “an extension of law” and resort to philosophical beliefs, beliefs amounting to serious political and social changes, that a privatization of government functions, not services, is not bad.  He writes in “Authority over the Roads”, “There is no philosophical reason or justification for why the ability of a planned community to exert “authority” over an area “dedicated to a governmental entity” is bad after the developer is done but is acceptable before.”   Don’t be confused by the concern for the developer’s role.  Carpenter is just mucking up the issue.
 
The answer to his concern about developer privileges is a resounding, Yes, it is an undemocratic grant of special privileges and immunities to the developer!  But, that’s not the real issue.  The real issue is that there are fundamental philosophical reasons against this granting of government powers, and Carpenter’s implied “innocence” of constitutional law is disgraceful!  
 
 
He then makes a carefully crafted statement, posing it as a conditional statement, but in reality is a false statement of fact: “If a planned community has a contract with a governmental entity that provides for the planned community to maintain landscaping on government property, why should that agreement be voided?  Why is that bad?”   He well knows that the legislature has not delegated authority or has permitted a grant of a franchise to HOAs. 
 
In his argument, he bypasses the issue of the constitutionality of a statute that delegates legislative powers to a private entity. Article II,Declaration of Rights, Section 13, Equal Privileges and Immunities, of the Arizona Constitution is quite clear on the matter: “No law shall be enacted granting to any citizen, class of citizens, or corporation other than municipal, privileges or immunities which, upon the same terms, shall not equally belong to all citizens or corporations.”
  
HB 2153 puts a small stop, but nevertheless an important stop, to the unconstitutional encroachment of the Arizona Constitution by these private governments, who, by the very nature of not being subject to the 14th Amendment, have seceded from the Union.
 

HOA court decisions, dicta, and activist judges

What I have discovered from my reading of hundreds of court decisions and cases on homeowner associations, from the ALJ, the trial and appellate courts, and the state and US supreme courts, is that all is not what you read in your textbooks.  In numerous instances, citations are made and taken out of context to evoke alternate interpretations; the misuse of dicta, that is simply an opinion of the judge and not material to the decision in the issue at hand, and presented as though it was, itself, the issue that was before and decided by the court; and the numerous decisions that place constitutional law secondary to equitable servitude law by, what essential are, activist judges.  These discoveries are particularly disturbing when related to homeowner association issues where 1) the body of law is not very deep, yet biased to protect the HOA, and 2) HOAs are a sui generis, a unique legal entity, not at all similar to the typical nonprofit with its ease of entry and exit.
 
With the above understanding, many HOA attorneys cite dicta as arguments for their position, which are unlike the case in most other circumstances where dicta are the result of long established doctrines and are usually correct.  That is, when a judge says so-and-so is his position or opinion as part of his reasons for his decision, and without citing case law, he is basing his opinion on long established doctrine that has been upheld over many years, after at least one court bona fide decision was handed own on the issue, or dicta.  You can say, alternatively, that his opinion is a statement of “well established doctrine and principles of law.”  But, that is not always the case with homeowners associations. 
 
For example, several court decisions have upheld the doctrine that the CC&Rs and governing documents are equivalent to contracts and will be treated as such.  So we have court after court citing, or attorneys citing, cases were this opinion was given by the judge in a decision on some other issue before the court, but never really addressed and a decision made by a court.  Of course, the basis or rational for such treatment can be challenged in court to obtain a court rendered opinion. In  Arizona Biltmore Estates, Divisio ,and Sunburst Farms (each citing the next earlier case) the court simply stated: “The deed restrictions in this case constitute a covenant running with the land [equitable servitudes law] and form a contract between the subdivision’s property owners as a whole and the individual lot owners.”  This opinion served as the basis for interpreting the CC&Rs in order for the court to decide the varying issues actually before the court. The question of a bona fide contract was not the issue before these courts, and was not decided by the court.
 
Pursuing this misuse of dicta in the courts, I asked Arizona attorney Scott Carpenter, a CAI member, a simply question on his new blog:  “Would you please provide the case law on voluntary purchases? Thank You.”  This was in response to his statement under “2010 Legislative Review” that, “The Arizona Revised Statutes, as well as case law, support the proposition that purchasing a home in a restricted community is a voluntary act and that the purchase binds the owners to the contract – the CC&Rs or restrictive covenants.”  Arizona law says no such thing in regard to voluntary acts.  If indeed it were so, then was there a need for a statutory lien to enforce HOA foreclosure rights , a supposedly a consensual lien?  A search of the eight cases provided in reply by Mr. Carpenter revealed that three did not involve HOAs (one going back to 1931), and four of the remaining five said no such thing about voluntary acts under a search for the words  “voluntary”, “agreement”, or “consent.  (The fifth HOA case, Heritage, was not searched).  
 
And, the miss-understanding of dicta is not confined to attorneys alone.  The Texas Supreme Court in Inwood v. Harris (1987) held that covenants running with the land — servitudes law — are superior to the Texas Constitution.  At the other end of the spectrum, an Arizona superior court judge, in an appeal of an administrative law judge’s decision, elevated a dictum to the level of decided law and material to the issue in her case. The superior court judge, a trial court judge, held that the cited  case’s dictum that an agency had been given regulatory functions was a material requirement for her ruling that a statute was an unconstitutional delegation for the adjudication of HOA disputes by an agency. (See Troon Village v. DFBLS (2008), aka “Waugaman“; the Carpenter law firm brought the appeal).   Yet, the test criteria used in the cited case did not require “delegated proper regulatory powers” as one of its criteria for the validity of the statute.  The judge simply included and miss-applied the opinion in the cited case, as if it were decided law material to the issue at hand.
 
This important legal doctrine of voluntary purchase has not been tested in the courts, and neither has the question of HOAs as bona fide governments regardless of the fact that they are chartered under corporation law rather than under municipality law.