HOA Constitutional Government

[letter to IJ President Chip Mellor]

June 21, 2005

Dear Mr. Mellor,

I read you article in the June 2005 issue of Liberty &Law and found your explanation of what I have observed, that there’s no difference between the goals of liberal and conservatives, quite informative. However, I had hoped that you would have offered your views on which persuasion would most likely do the most to turn this state of affairs around.

On a similar topic, for years I’ve tried to get IJ to come to the rescue of homeowners in homeowners associations who face a taking in a little more round about way, but a taking with government support no less. HOAs are permitted to deprive a homeowner of his liberty and property rights under the much same reasoning of eminent domain: increased property taxes produce increased revenues, and who cares about minority rights. They serve the private interests of developers and the members of the national lobbying group, Community Associations Institute, that finally is dropping the “homeowner association” category, and rightfully so since its a business trade group claiming to have consumer members.

As to the immediate reaction of, “Homeowners voluntarily and with informed consent signed a contact,” or that “by buying they made their economically informed decision without duress”, any Law 101 student can easily drive trucks through the holes in these defenses.

I wait patiently to see the day that IJ undertakes a crusade very analogous to your eminent domain activities, to protect the fundamental rights of homeowners in homeowners associations.

George K. Staropoli

The complete article can be viewed at: Rights

State supreme courts have court rules or procedures that must be followed for due process protections and the fair and just treatment of the litigators. One such important provision of the Rules of Civil Procedure, R11(b) in the federal rules and R11(a) in Arizona for example, pertains to the statements made by the attorney in the court papers that the attorney signs. It says, in part, from the Arizona rule:

“The signature of an attorney or party constitutes a certificate . . . that to the best of the signer’s knowledge, information and belief formed after reasonable inquiry it [the complaint] is well grounded in fact and is warranted by existing law . . . and that it is not interposed for any improper purpose, such as to harass . . . or needlessly increase the cost of litigation.”

From an article in the Arizona Bar’s June 2005 Arizona Attorney magazine, former Chair of the Disciplinary Commission of the Arizona Supreme Court, David Dodge, cautioned attorneys about being held liable for breach of fiduciary duties to the beneficiaries in a fiduciary relationship. For HOA related matters, it means that the HOA attorney may be held liable for aiding and abetting a breach of fiduciary duties by the HOA board.

For more information, read the paper on Derivative Fiduciary Actions.

A little while ago I asked, “Did they [the Founding Fathers] intend to permit private contractual governments that do not explicitly subject themselves to the US Constitution [and amendments, including the 14th Amendment], as they required of the 13 colonies?”

One answer that I found says:

“We are a nation not of `city-states’ but of States.” So said the US Court of Appeals, 630 F.2d, at 717, cited in COMMUNITY COMMUNICATIONS CO., v. BOULDER, 455 U.S. 40 (1982)

Case Background:
“Home Rule” chartered Boulder, CO argues that it’s not subject to federal laws, in particular, the Sherman Anti-trust Act. The USSC said that yes indeed they were. There are issues of authority and powers of municipal corporations, raising the question of regulation and control of privately chartered HOA corporations.

Case Summary:
The powers and rights under the US Constitution that may be granted to state subdivisions is subject to the US Constitution. Our federal system recognizes only the US and the state governments and not any state political subdivision. Municipal corporations (“munis”) are subject to their charters and express authority granted under their charter from the state. Home rule charters grant many powers to the muni, even taking on state legislative powers for their local territory.

Issues relating to private government of planned communities

If these laws restrict de jure governments with their express grants of authority by the state, what rights and restrictions apply to private contractual governments? It cannot logically be NO ACCOUNTABILITY. This is the reason why we see so many state laws that mimic the provisions of the HOA CC&Rs: To legitimatize, under statute, the acts under these private contracts that grant governmental powers to these de facto governments.

A number of important excerpts a provided below. Please read them. Our concern, by analogy, is the constitutionality of these acts by private HOA governments.

Excerpts from Community v. Boulder

These precedents were construed as holding that the Parker exemption reflects the federalism principle that we are a Nation of States, a principle that makes no accommodation for sovereign subdivisions of States.

As this Court stated long ago, all sovereign authority “within the geographical limits of the United States” resides either with

“the Government of the United States, or [with] the States of the Union. There exist within the broad domain of sovereignty but these two. There may be cities, counties, and other organized bodies with limited legislative functions, but they are all derived from, or exist in, subordination to one or the other of these.” United States v. Kagama, 118 U.S. 375, 379 (1886).

Respondent city of Boulder is organized as a “home rule” municipality under the Constitution of the State of Colorado. The city is thus entitled to exercise “the full right of self-government in both local and municipal matters,” and with respect to such matters the City Charter and ordinances supersede the laws of the State.

A little while ago I asked, “Did they [the Founding Fathers] intend to permit private contractual governments that do not explicitly subject themselves to the US Constitution [and amendments, including the 14th Amendment], as they required of the 13 colonies?”

One answer that I found says:

“We are a nation not of `city-states’ but of States.” So said the US Court of Appeals, 630 F.2d, at 717, cited in COMMUNITY COMMUNICATIONS CO., v. BOULDER, 455 U.S. 40 (1982)

Case Background:
“Home Rule” chartered Boulder, CO argues that it’s not subject to federal laws, in particular, the Sherman Anti-trust Act. The USSC said that yes indeed they were. There are issues of authority and powers of municipal corporations, raising the question of regulation and control of privately chartered HOA corporations.

Case Summary:
The powers and rights under the US Constitution that may be granted to state subdivisions is subject to the US Constitution. Our federal system recognizes only the US and the state governments and not any state political subdivision. Municipal corporations (“munis”) are subject to their charters and express authority granted under their charter from the state. Home rule charters grant many powers to the muni, even taking on state legislative powers for their local territory.

Issues relating to private government of planned communities

If these laws restrict de jure governments with their express grants of authority by the state, what rights and restrictions apply to private contractual governments? It cannot logically be NO ACCOUNTABILITY. This is the reason why we see so many state laws that mimic the provisions of the HOA CC&Rs: To legitimatize, under statute, the acts under these private contracts that grant governmental powers to these de facto governments.

A number of important excerpts a provided below. Please read them. Our concern, by analogy, is the constitutionality of these acts by private HOA governments.

Excerpts from Community v. Boulder

These precedents were construed as holding that the Parker exemption reflects the federalism principle that we are a Nation of States, a principle that makes no accommodation for sovereign subdivisions of States.

As this Court stated long ago, all sovereign authority “within the geographical limits of the United States” resides either with

“the Government of the United States, or [with] the States of the Union. There exist within the broad domain of sovereignty but these two. There may be cities, counties, and other organized bodies with limited legislative functions, but they are all derived from, or exist in, subordination to one or the other of these.” United States v. Kagama, 118 U.S. 375, 379 (1886).

Respondent city of Boulder is organized as a “home rule” municipality under the Constitution of the State of Colorado. The city is thus entitled to exercise “the full right of self-government in both local and municipal matters,” and with respect to such matters the City Charter and ordinances supersede the laws of the State.

It goes without saying that property values will increase with an HOA. Since there are restrictions on what must be done and what cannot be done to your property, and since there is a duly elected board that is charged with seeing that the restrictions are complied with, property values just have to rise.

That’s my paraphrasing of the view promoted by the real estate special interests over the years to justify to the policy makers and home buyers why HOAs are a benefit to everyone. This view also argues that these benefits outweigh any concern for fundamental rights, liberties and freedoms of the homeowners under the law. “Just follow the money.”

Now, a study of some HOAs in Virginia reveals a different picture. Rather than shouting a broad, generalized, unsupported statement, researchers Laura Langbein and Kim Spotswood-Bright asked if the assessment fees paid to maintain property values actually did that. Are homeowners geting a benefit from their payment of assessments? In short, the answer is NO: property values show a negative affect — loss in value — as fees and services are increased.

The study was the result of the broader, public policy question relating to the efficiency of privatized governments as compared to public government. This approach looks at the costs of any additional benefits from services provided to the community by the HOA to determine if the benefits outweigh the costs. That is, as a result of the regulation and control by either the management company or by the HOA board. These types of studies are studies in economics, in the broad application of governmental approaches to the public in general — to the masses of people — and, contrary to the US Constitution, do not consider principles of democratic government and the affect on individual liberties in the attempt to achieve governmental goals. As the results show, the HOA scheme even fails to produce automatic and pervasive benefits for all planned communities.

See Laura Langbein and Kim Spotswood-Bright, Accountability and Private Governments, Regulation, Spring 2005 (Cato Institute 2005). Regulation.