Tag: beneficial interest

The loss of American spirituality: a lesson for HOA leadership

Institutionalized religions have failed the people, focusing on bible interpretations and ritual; government has failed the people, adopting “God is dead” public policy. What has become of the Golden Rule? “In everything, do to others what you would have them do to you.” (Matthew 7:12).

“When someone has been given much, much will be required in return; and when someone has been entrusted with much, even more will be required.” (Luke 12:47-48).

The Gospel of Wealth (1889), Andrew Carnegie,* a lesson for HOA leadership and boards of directors.

“This then, is held to be the duty of the man of wealth: To set an example of modest, unostentatious living, shunning display or extravagance . . . to consider all surplus revenues which come to him the man of wealth thus becoming the mere trustee and agent for his poorer brethren . . . which, in his judgment, is best calculated to produce the most beneficial results for the community . . . doing for them better than they would or could do for themselves.”

It is easily demonstrated that the HOA legal scheme has not created a better community or a better America.

* Andrew Carnegie was an American industrialist and philanthropist. Carnegie led the expansion of the American steel industry in the late 19th century and became one of the richest Americans in history. He became a leading philanthropist in the United States. His 1889 article proclaiming “The Gospel of Wealth” called on the rich to use their wealth to improve society, expressed support for progressive taxation and an estate tax, and stimulated a wave of philanthropy.

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).