AZ court holds HOA in a representative role on behalf of the members

If your HOA was involved in a legal action and won  a substantial award, who would get the money? Who should get the money? The HOA is a legal person; its members do not have title or stock; they just have a beneficial interest. (With Condos members own a specified interest and ownership in the condominium assets, as stated in their deed,  in addition to their own unit).

Foothills Reserve[1], an HOA,  is a “first impression” for me as judges would say, having not come across the issues presented in the case before. There are two aspects in this case that warrant discussion that have not been presented in the media. It involves an eminent domain taking of property that the HOA claimed diminished the value of the HOA properties, and the court’s reasoning as to who gets to keep the award money.

Eminent Domain and property values

The State of Arizona acquired Foothills property for a major highway interchange and Foothills received $6.5 million compensation as required under the law. But the HOA

“claimed damages [of] alleged diminished value of their homes as a result of factors such as noise, pollution, loss of view, and unsightliness as a result of the South Mountain Freeway., i.e., proximity damages.”

The Court added to the eminent domain’s paid  compensation an additional $12 million depending upon the outcome of the State’s appeal with respect to the “proximity damages” claim. (The brief was filed but at this time I have not been able to obtain a copy). The claim is based on ARS 12-1134(A)

“If the existing rights to use, divide, sell or possess private real property are reduced by the enactment or applicability of any land use law . . . and such action reduces the fair market value of the property the owner is entitled to just compensation from this state or the political subdivision of this state that enacted the land use law.”

Court awarded damages

With respect to the treatment and handling of the award monies, the Court gave very specific orders to the HOA and to the HOA’s attorney who was to be the escrow company for the distribution of the $6.5, and if successful the additional $12.5. It held that “the HOA represented [the owners] solely in a representative capacity,” and was ordered to send the award money to its attorney’s “State Bar Trust Account.”  Furthermore,

“Because many of the homes within the Foothills Reserve subdivision have been sold and may be sold pending appeal, this Judgment does not prevent the Court from taking action to” (i) approve a plan for reasonable notice to the 589 Owners (as some of their whereabouts may not be known). Plaintiff [Arizona] will not participate in these actions”

In short, the Court said that the HOA, “pursuant to the provisions of the Covenants, Conditions, Restrictions and Easements governing the Foothills Reserve subdivision,” was required to act in accordance with the CC&Rs — and as I interpret the statement — in the best interest of the members who have beneficial interests in the HOA corporation.

The Court reaffirms, in my view,  that the HOA exists for the benefit of its members and not for the board of directors to do as they please.

Note [1]. Arizona v. Foothills Reserve, CV-2017-010359, Maricopa Superior Court (March 4, 2022).

Finally, a valid HOA non-CAI survey

Check out the Rocket Mortgage survey here.

“57% Of HOA Residents Don’t Like Having An HOA“

“Key Takeaways

  • Fewer than half (47%) of HOA residents surveyed believe their neighborhood is better with an HOA.
  • Fewer than 2 in 3 (64%) HOA residents surveyed feel their HOA honestly handles its finances.
  • One in 10 HOA residents surveyed is considering selling their home for HOA-related reasons.”

State supreme court cases favor member rights and freedoms over HOA

I would like to thank Deborah Goonan on her post[1] covering two especially important state supreme court HOA cases, and her excellent reporting and analysis of the issues. My review and comments follow.

WDIS, LLC v. Hi-Country Estates Homeowners Ass’n, Phase II, 2022 UT 17 (Utah 2022)

Raised in this landmark case, but not directly addressed, is the constitutional validity of the CC&Rs that contain implicit waivers and surrenders of fundamental rights and freedoms that are available to and protect all Americans under the Constitution. At issue, as stated by the Utah SC in WDIS,

“More relevant to this case, future owners of parcels or homes within the jurisdiction of any HOA are not required to formally sign onto the restrictive covenants when they are first created. Instead, consumers (be they buyers, heirs, or lenders) are merely entitled to a take-it-or-leave-it option to accept ownership of the property, subject to whatever covenants and restrictions are on file in County records. By taking possession of the property, an owner is presumed to have accepted the restrictions as valid and enforceable.”

The “Landowners” raised the especially prominent issue of freedom of contract, raising the charge of CC&Rs as an unconstitutional contract. The Utah Supreme Court concluded:

“The protective covenants at issue were not contractual” because “they did not involve two parties agreeing to perform acts in relation to each other. We conclude that applying the presumption is appropriate.”

“The freedom to contract is implicated because the question we are resolving is whether parties “of full age and competent understanding” are free either to accept or reject those covenants later on. And there are other reasons, beyond the freedom of contract, to apply the presumption.”  

* * * *

Belmont Ass’n v. Farwig,  No. 214A21, 2022 NCSC 64 (N.C. 2022)

First, with respect to outwardly friendly HOA member legislation let me point out what we see here,  the bill/law usually contains an offsetting exception or exclusion that renders the homeowner benefits questionable or negates them under practical application. Obviously, anybody seeing solar panels on roofs know that they will be seen by the public. How can a court ignore that?

Also, watch out for Rules that cannot be supported by the CC&Rs and are invalid as the SC pointed out regarding an ARC rule. HOAs cannot add restrictions or conditions not specified or prohibited by the CC&Rs without a CC&Rs amendment.

Second, as I’ve repeatedly stated, state legislatures favor the HOA over member rights and constitutional protections. Thank God there are some courts who do seek justice like the NC  Supreme Court in this case that saw, in plain English, the subterfuge of “friendly” HOA member law.

Read the full post here:

  1.  HOA Lawsuits: Property owner challenges to HOA boards (Part 2) – Independent American Communities, Deborah Goonan, Aug. 5, 2022.

Did HOA-Land contribute to the national disregard for democratic America?

“For they have sown the wind, and they shall reap the whirlwind”  (Hosea 8:7)

In my 2020 Rogue Presidents post [1] I warned:

“I’ve come to the conclusion that the HOA social and political dynamics are identical as we have witnessed on the broad national scale. I am not sure as to what came first, the chicken or the egg? To what extend has the HOA independent principality mentality and legal scheme contributed to the national scene? Or are the HOA dynamics just a reflection of the broader culture in America today?”

I am not a psychologist or sociologist but a student all my life of leadership in government, corporate, and military. Based on the events over the past 2 years —and showing no signs of abating  for the next 2 years — regarding the staunch, cult follower support of Donald Trump by Republicans at the federal and state levels, I must lean toward a national, cultural change in America. It has led to a rejection of the Constitution and all its principles and values that truly made America great.

America today is no better that the banana republics and totalitarian governments that hypocritical politicians  openly criticize. The guiding rule for politicians that was “to avoid the appearance of impropriety” has become outright lying to the face of the public, redefining the traditional meaning of words, as George Orwell portrayed in his book 1984, to advance the political views of the cultists as necessary for America’s survival.

To a lessor extent, but functioning in parallel with  the national malaise, are the private government HOAs. With the members exhibiting the same cultist conduct that the HOA president and board can do no wrong.

Further reading:

  1. Rogue presidents: Trump and HOAs  (Nov. 2020).
  2. Countrywide political culture cause of HOA reform failures (Feb. 2021).

CA bill AB 1410 –  a step backwards for HOA homeowner rights

In 2018, California Civil Code §4515 was a major step in restoring fundamental protections for free speech by members with respect to HOA governing issues.

“(a) It is the intent of the Legislature to ensure that members and residents of common interest developments have the ability to exercise their rights under law to peacefully assemble and freely communicate with one another and with others with respect to common interest development living or for social, political, or educational purposes.”

AND JUSTICE FOR ALL

Now, AB 1410 seeks to restrict these rights under the guise, it seems, that the HOA website is private and therefore it can adopt restrictive rules legally. In a typical “what you see is not what you get” maneuver, the bill would grant the HOA the power to moderate message content in strict opposition to legal holdings — that content based free speech is protected and any editing must be unbiased.

The bill sections start with §4515,

“(b)  The governing documents, including bylaws and operating line 4 rules, shall not prohibit a member or resident of a common interest line 5 development from doing any of the following:”

But watch out, what is granted is now removed under (b)(6) subparagraphs (B) and (C), and especially (D). In a “flip-flop,” designed in my view to confuse the average homeowner, it then informs the homeowner that he is still protected because the HOA must follow the rules it is attempting to circumvent. (pp. 93-94).

What’s the point? To make  it difficult for homeowners to understand the legislation and their rights all well knowing that those in power will only cite the pro-HOA points and omit the pro-homeowner protections.

GOTCHA AGAIN! Don’t fall for it!

This attempt by Rep. Rodriquez feels like an anti-slapp move if it were in the courts — an action to stifle free speech. Marjorie Murray presents 2 instances of where an anti-slapp motion can and should be used against the HOA. Contact Murray (info@calhomelaw.org) for more information.

Center for California HOA Law opposes the bill and urges Californians to contact their representatives and Judiciary Chair by phone. The committee will hear this bill this week.