Tag: CAI

Are there vibrant, competent, harmonious HOAs?

Community Associations Institute (CAI), is a national trade organization that claims it is dedicated to fostering vibrant, competent, harmonious community associations. I am well aware of HOAs that do not have any signs of abuse or rogue boards, and the members seem not to have any serious complaints.  The ‘happiness’ level is high.  In my view this can occur on a case by case basis where the board can be described as a benevolent dictatorship governing the HOA with reason and common sense.

However, this condition would also require a certain caliber of members who fully understand that they did not buy a residential home, but a home in a resort with the reasonable expectation of resort amenities and rules. As long as the board is benevolent and non-intrusive, the members are quite content with the conduct of their private government.

But, this is a special case where the HOA legal structure is not really needed, yet has been adopted for convenience. For example, time share resorts also have a homeowners association and the resort category of HOAs can be seen as “full year” timeshares. (The other categories are retirement HOAs with their expected rules and regulations — where active adult communities are more of a resort HOA — and residential HOAs with unreasonable expectations of authority).

The criteria for determining whether the HOA is a residential or resort HOA would depend on the eyes of the beholder, the homebuyer.  And that would depend, in part, on the advertising, catalogues, brochures, and statements by the developer, the HOA and the real estate agent as to the nature of the subdivision. Subdivisions are not classified in this manner except for saying they may have amenities.

I am also well aware of the many resort type HOAs that are not benevolent dictatorships.

In my long 14 years as a homeowner rights advocate (please see http://pvtgov.org/pvtgov/bio-hoa.pdf) I do not believe CAI has contributed to solving the 40 years of HOA problems, and thereby helping to create “vibrant, competent, harmonious community associations.”

Will the real CAI standup: its contradictory beliefs, pronouncements and goals

With respect to my Commentary, Misrepresentation: CAI comes with unclean hands, this paper contains quotes by CAI leaders, state chapter leaders and CAI attorneys – in 20% of the states – made to the public in general in its advertising and communications, to state legislatures, and to the courts in its amicus briefs. All in support of my arguments of misrepresentation.

They are often contradictory as suited to the purpose at hand; or rejecting principles of democratic government and the US Constitution; or declaring, like fascist principles, that the objectives of the HOA (state) come first and individual freedoms are subservient to the HOA.  And, as is true of fascism, the HOA serves the trade group ‘stakeholder’ entities (corporations) while giving the illusion of democracy because the members can vote.

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Looking at the history of CAI we discover that CAI was formed in 1973 by ULI and FHA to deal with the HOA legal scheme as found in the HOA “bible,” The Homes Association Handbook (1964). Its mission, then, was to educate HOA managers and directors. Some 20 years later in 1992 CAI became a business trade group to deal with criticisms of HOAs by political scientists in various research journals and books.

We can conclude that, over the 40 some years of CAI’s existence and the continuing legal issues with HOAs, that 1) the HOA legal scheme is fundamentally flawed and beyond repair like the Articles of Confederation, and/or 2) a concern that CAI’s educational materials and instruction are also flawed and are contributing factors in the continuing existence of 40 years of HOA problems.

Furthermore, CAI is a business trade organization, a tax exempt 501(c)6 nonprofit serving its members to better serve the public, not an educational 501(c)3 nonprofit.  CAI does not inform subscribers or viewers of this fact.  A business trade group does not educate the consumers of its members’ services, which would constitute a conflict of interest and a violation of its tax exempt status.

Read the entire Commentary with a list of evidence that includes incidents/events from 20% of the states here . . .

HOA attorney seeks homeowner arrest for not attending attorney fee meeting

In this instance, how does the court, in its obligation to do justice, determine if there has been dishonesty or grossly negligent behavior without an opportunity for the homeowner to examine the HOA’s affidavit?  Here, both judges protected the HOA as incapable of doing any evil, sua sponte (on its own).

Essentially, in my view, failing to allow the homeowner to question the signed affidavit of an HOA manager is not conducive to homeowner justice.  The liberal interpretation of the business judgment rule taken here is that, as I’ve indicated elsewhere, the board can do no wrong because average people become angels when they become an HOA board member.[1]

In order to understand the events in this situation leading to the request for the arrest of the homeowner for failing to attend a meeting, you need to understand the background of the case.  It’s lengthy, but needs to be read through.

Case History

The Arizona ALJ (Brian Brendan Tully) at OAH granted summary judgment (October 2012) for Terravita in regard to a request for minutes to an alleged executive meeting.[2] The order further states that the judge “concludes that . . . there are no issues contained in the Petition that require an evidentiary hearing.”  However, without an evidentiary hearing, where the homeowner could contest the allegation that it was indeed an executive meeting, the judge essentially took the word of the HOA’s attorney, the CAI member, Curtis Ekmark. In his discussion, the judge once again assumes the validity of Ekmark’s assertion that it was indeed an executive meeting, and argues that the homeowner did not show he had a legal right to executive minutes.

In Arizona, the court operates on a notice basis, that is, just give sufficient information that the complaint is valid, and then present your detailed evidence before the court.  That was not allowed in this case.

Homeowner filed superior court appeal[3] contesting the ALJ’s decision as “contrary to law, an abuse of discretion, arbitrary and capricious.”  

6. Administrative Law Judge Brian Brendan Tully’s October 4, 2012 Decision in 12F -H 12120 14-BFS, based exclusively upon certain “statements, claims and contentions (sic)” made by Respondent, Terravita Community Association, Inc., in its pleadings, denied Petitioner (Plaintiff) a hearing which would have brought forward the facts of the contested matter based upon evidence, witnesses’ sworn testimony and argument upon the merits of the matter’s facts and the planned community statutes relevant to those facts, instead, Tully vacated the matter from the calendar of the Office of Administrative Hearings.

 The homeowner further argued

 Plaintiff [homeowner] will timely request this Court hold an evidentiary hearing that will adduce evidence, present sworn witness testimony and offer argument in furtherance of the Court reversing the decision in 12F-H1212014-BFS and the agency’s action based upon the Court’s reviewing the administrative record (no hearing/no transcript) and evidence to be presented at an evidentiary hearing denied Petitioner at the OAH

Terravita’s relevant Answer was a reliance on the business judgment rule, which states that the court will defer the judgment of a corporation’s board as they know more than the judge.  In its reply to a request for an evidentiary hearing, Ekmark says homeowner must show the evidence that was already rejected by the ALJ as irrelevant.  (Remember the issue was a declaration that the meeting was an executive meeting and the ALJ didn’t want to hear anymore).   Ekmark concludes with, “Mr. Brown [homeowner] has had ample opportunities to present facts contrary to the Association’s position; yet, he has completely failed to do so.”  Did he???

Brown’s reply, beyond a criticism of Ekmark’s arguments about new evidence and failure to show evidence, got to the obvious legal question of the faithful acceptance of a statement without the right to a hearing on the validity of the statement:

[T]he presentation of evidence is necessary to the Court’s findings of fact and conclusions of law in furtherance of a just decision to include, but not limited to, the veracity of the affiant’s affidavit, an affidavit prepared under the supervision of  the Defendant-Appellee’s attorney, submitted with the Defendant-Appellee’s Answer (Pollock, a credentialed community manager, PCAM, CAAM, attended the March 27, 2012 meetings [Executive Session and Regular Meeting] of the board of directors and knew, or should have known, the “e-session” violated the planned community statutes).

However, the superior court appeal found no error and upheld the ALJ’s summary judgment decision.  “TCA has provided to this Court authorities and arguments in support of its position. This Court concludes the authorities and arguments provided by TCA are well-taken, and this Court adopts those authorities and arguments in support of its decision.”  (Judge McClennen of 11-22-2013). The judge apparently, like the ALJ, ignored the homeowner’s allegations.

Under R  Civ. P. 43(a), an affidavit is a written statement by a witness in lieu of the witness appearing in court in person. The opposing party must stipulate to the acceptance of an affidavit to be accepted by the court as evidence.  Rules of Evidence, Rule 609, allows for the impeachment of a witness. This did not allowed to occur here.

An appeal was filed by Brown on 7-14-2014, CA-CV14-0455, Div.1.

Arrest Warrant

Apparently, the HOA attorney firm of Ekmark & Ekmark wants their fees paid as per the court ruling. On August 8, 2014 it filed several documents with Judge McClennen for contempt of court for failing to submit to a subpoena to attend a debtor’s meeting (to discover how the attorney would collect its fees), and the arrest of Mr. Brown for contempt.  All over a question of the legitimacy of an executive board meeting.

According to the homeowner, who apparently did get access the Terravita’s financials and moneys spent on attorney fees for this litigation, the attorney fees amounted to $57,344.10.  Of course, the HOA has no cause for alarm since it won the case and does not have to pay this amount.  But, if it loses in the appellate court, what then?  HOA litigation is a gamble in favor of the HOA, and joy to the attorneys cause they get paid win or lose.

BTW, Judge McClennen washed his hands of jurisdiction on August 11, 2014 after receiving the filings from Ekmark.  “This Court no longer has jurisdiction and will take no further action in this matter.”

References

[1] Business judgment rule misinterpretation. In my commentary on the business judgment rule, Illinois appellate court awards punitive damages for reckless indifference by condo, I quoted the court’s reminder about what this rule means:

 “The rule protects directors who have been careful and diligent in performing their duties from being subjected to liability for honest mistakes of judgment. . . . [But where there is] evidence of bad faith, fraud, illegality, or gross overreaching, courts are . . . at liberty to interfere with the exercise of business judgment by corporate directors.”

 [2] Brown v. Terravita, No. 12F-H1212014-BFS, Administrative Law Judge Decision, Office of Administrative Hearings, October 4, 2012.

[3] Brown v. Terravita, LC2012-000699, Maricopa County.

The failure of the HOA to protect against obsolescence

Tyler P. Berding, CAI and the Foundation for Community Association Research (CAI affiliate) member, has come to realize that HOAs will become obsolete for a variety of reasons and property values will plunge. His “exit strategy,” as stated in his article, is unclear.  He writes (my emphasis),

The challenge is . . . formulating an appropriate exit strategy that will protect the individual’s investment when the inevitable occurs. At present, no appropriate strategy for preserving individual interests in the face of an obsolete community exists. It should be a legislative priority to find one.

The individual owner is trapped in this cycle. He cannot ‘opt out’ of the system. His only choice is to vote for increased assessments or not, or to sell. If he sells, his successor will be given the same choices. If the community fails, the owner’s interest will be lost. There is no present means by which an owner can salvage his separate interest in a failed community.

To better understand HOA obsolescence, think of your car. You bought it and it depreciates or becomes obsolescent over time.  Most people cannot buy a new car until the sell their old one, or trade it in; but, there are no “home dealers” to make home selling a relatively quick and easy process like car buying. As your home grows old, like the HOA’s common areas, repairs and maintenance demands continuously pop up.  Your property value drops – forget about the HOA’s common areas – your home value drops.  The obsolescence of the common areas does not help your home value. In a non-HOA subdivision, the county pays for the neighborhood maintenance.

Berding does not address what I call your home’s architectural obsolescence; that is, the layout, floor plan, or design of your home, which may no longer be fashionable as people’s tastes change. What the HOA can try to do, which would be a value of HOA living, is to mandate special assessments for repairs and maintenance.  It can do it simply by amending the CC&Rs since there is no protection in the HOA constitution against ex post facto amendments as in the US Constitution.  But, then again, was this part of “the deal” when you bought your home?

What if a homeowner has the cash to remodel his home to make it ‘fashionable’?  Would he get ACC approval? Fat chance!  Would the HOA revise its character of the community and allow homeowners to remodel and create more fashionable homes?  I mean, doesn’t that help maintain property values?  Fat chance!

But wait Berding, what about government intervention to preserve the HOA as quoted above?   What do you think that legislative priority will be, as the state faces a multitude of HOA communities becoming blighted areas?  My guess is that a law will be made mandating the payment of special assessments into reserve accounts to prevent HOAs from becoming obsolete.  Don’t think so?  Have you heard of Obama Care?

In this lengthy article Berding rambles and introduces aspects but fails to tie them all together, like, “It [the HOA] is more than a quasi-governmental agency” and “It is a multidimensional mix of principles” (referring to special or sui generis laws).   Is Berding saying below that the homeowners alone are responsible for the financial condition of the HOA, and individual rights get in the way (my emphasis)?  You know, you’re on your own. Judge for yourself.

In America, individual self-determination usually prevails, and that basic truth illuminates the fundamental flaw in the common interest development concept. In CID living, the success of the group is wholly dependent on the voluntary contribution of capital by each owner.

A community association in trouble cannot simply close the doors and walk away. The ‘village’ [note the reference to public governance terminology] has to pay the utilities, remove the garbage, and maintain the buildings if the owners are to have shelter. This cannot be effectively done without a consensus of the owners, because without owner approval, the association cannot raise sufficient funds to operate.

And in the absence of a consensus?  We know about consensus and member involvement in HOA matters, don’t we?  It seems obvious that the state must intervene, right?

Berding does make the important point that is essential for a healthy community – it’s up to the members to “do right.”   However, the mass merchandising of the HOA concept has worked against members pitching in to maintain property values, because that’s the HOA’s job, that’s why they bought into an HOA – them, not us.  Faulty indeed, but if the financial aspects of a close corporation where financing must come from the limited membership were disclosed, including the joint and severable liability of the members, who would buy an HOA home?  The home would lose all its traditional humanizing, family aspects and become just another dehumanizing material asset.

There’s much more to Berding’s article, which unfortunately gets bogged down in too much irrelevant detail.

 

See, Tyler P. Berding,  “The Uncertain Future of Common Interest Developments,” August 10, 2014.

When do majority CC&R amendments trample minority rights?

 

The generally accepted legal doctrine upheld by the courts in many states is that any CC&Rs amendment validly passed by the amendment procedures in the CC&Rs is binding on non-consenting homeowners.  This doctrine ignores the content and relevancy of the amendment to the intent and purposes of the drafters, the developer.

The questionable word game involved in this issue deals with the meaning and use of ‘modify’ or ‘change’ as compared to ‘new.’  Does your CC&RS say modify or change, or does it also include the words add or new?  Some courts make no distinction and thereby unconstitutionally modify the CC&Rs contract by depriving non-consenting homeowners of their property rights that they believed they possessed at the time of purchase.

(In general, the dictionaries define ‘modify’ as a change, and ‘change’ to mean ‘to make different,’ but excluding any reference to ‘new.’)

With this presumption in favor of the HOA, these courts fail to determine if this is what the unsuspecting home buyer understands, and that he has been given appropriate notice. Is he aware that ‘change’ also means ‘new’ or ‘add’?  Simply said, we are dealing the ex post facto CC&Rs amendments that deprive a homeowner of his rights without his consent and without any compensation.

In the April 2014, the Washington State Supreme Court opinion in Wilkinson v. Chiwawa,[i] said, wait a minute with respect to rentals.  ‘Change’ or ‘modify’ does not mean ‘add’ or ‘new.’  It held that,

While Chiwawa homeowners knew that existing restrictive covenants could be changed by majority vote so long as the changes were consistent with the general plan, they did not buy into the creation of new restrictions unrelated to existing ones. . . . When the governing covenants authorize a majority of homeowners to create new restrictions unrelated to existing ones, majority rule prevails “provided that such power is exercised in a reasonable manner consistent with the general plan of the development.”

This rule protects the reasonable, settled expectation of landowners by giving them the power to block “`new covenants which have no relation to existing ones'” and deprive them of their property rights.

The Association could not adopt the restriction without unanimous consent. This is the contract into which the parties bought and the expectation that we must uphold.

One of the most notorious examples of this type of amendment occurred in OSCA[ii] where mobile homeowners were forced to pay dues for a country club, owned by the developer and not owned by the HOA, and open to the public on a fee basis.  It helped increase the value of the HOA, was the justification for the amendment.

What does your CC&Rs say?  Watch for those CAI attorney rewrites that sneak these words into your CC&Rs without proper notice, as for example, Arizona requires.

And remember, who writes these state laws?   The  HOA stakeholders that do not include the homeowners!

References

[i] Wilkinson v. Chiwawa, Wn.  No.86870-1, p. 6,7 (April 17, 2014). The issue was an amendment that prohibited short-term rentals when the CC&Rs were silent on duration.  Was it a new covenant or a modification to the one that simple said renting was allowed.

[ii] OSCA Development v. Blehm, No. E320843 (Cal. App. Dist. 4 1999).