Tag: CC&Rs

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.

Would the HOA legal scheme collapse under a democratic form of government?

The HOA legal scheme as a nonprofit form of government chartered under corporation laws cannot be held in the same light as a democratic public government chartered under municipal corporation laws.

We use the term HOA quite loosely as I have in many of my posts.  However, the HOA is 1) the legal governing body of a 2) planned unit development or condominium, which is a real estate ‘package’ of amenities, landscaping, etc.  It is a de facto – it exists and functions – government, but unrecognized by the state as is Cuba.

Can we get rid of the ‘package’?  I don’t think so for reasons that I’ve stated  — too big.  Can we get rid of the oppressive authoritarian governing body known as the ‘association,’ home or property owners associations, etc.? Definitely yes!  Or can we?

Questions for study and thought!  

 1.    Will the ‘package’ collapse if we remove the oppressive authoritarian governing body and substitute a more democratic regime?

2.    Why didn’t the promoters of the current HOA scheme (in their seminal publication, The Homes Association Handbook) present the HOA as a municipal corporation rather than a nonprofit corporation?

In regard to question 2, is it because the promoters knew that the HOA would be subject to the Constitution and restricted by state laws?

A hint is given, even in the Handbook, with the discussion of ‘free riders’ and the need for mandatory membership and compulsory dues.  (A ‘free rider’ is one who benefits from the efforts and money of others as in the case of unions, as would be the case with voluntary HOA memberships.)  The other hint is how does one maintain property values, that huge appeal to the masses, without strict enforcement of many specific rules and regulations? If people were free to do as they please, what is the value of the HOA?

Apparently, local ordinances did not satisfy the promoters of the HOA scheme because they were too broad and didn’t represent the membership, but somehow top-down, take-it–or-leave-it CC&Rs do.  And to be sure, make it an adhesion contract that favors the HOA and prevents the practical and effective voice of the people. Apparently our system of government failed to satisfy the promoters, and their need for a better form of government was sought – one better suited to the goals of the promoters.  A fascist form of government (or if that offends you, a corporate oligarchy where the objective of the state is to satisfy not the people, but the government) did the trick quite well.

The answers will illuminate the fundamental problem with HOA reform and the resistance to substantive reforms.

 

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).

IL Supreme Court holds HOAs “are a creature of statute,” and not contractual

Last month the IL Supreme Court opinion in Spanish Court[1] reversed the right of an owner to withhold assessments in view of the HOA’s failure to fix and maintain.[2] In its argument, frequently making use of pro-HOA activist and CAI CCAL attorney in Florida, Gary Poliakoff, the Court stated,

 

Although contract principles have sometimes been applied to the relationship between a condominium association and its unit owners based on the condominium’s declaration, bylaws, and rules and regulations . . . the relationship is largely a creature of statute, defined by the provisions of the Condominium Act. . . . Although these duties may also be reflected in the condominium declaration and bylaws, as they are in this case, they are imposed by statute and exist independent of the association’s governing documents. Accordingly, a unit owner’s obligation to pay assessments is not akin to a tenant’s purely contractual obligation to pay rent, which may be excused or nullified because the other party failed to perform. ¶ 21.

So much for the sanctity of the CC&Rs contract! The Court, guided not only by Poliakoff, but by a CAI amicus curiae brief,[3] rolls with the punches and chooses when and when not to uphold the contractual nature of the governing documents.

The Court avoided dealing with the equitable aspects of withholding assessments just like withholding rent, rejecting the favorable appellate decision that held,

[T]he obligation to pay assessments, and the obligation to repair and maintain the common elements, as mutually exchanged promises, and concluded that under principles of contract law, a material breach of the repair obligation could warrant nonpayment of assessments. ¶ 7.

Adding fuel to the fire, the Illinois Supreme Court followed the CAI propaganda that the HOA’s survival depends on assessments being paid immediately and without question.

This section [of the IL condo act] was adopted to provide a constitutionally permissible, quick method for collection of assessment arrearages. . . . The necessity of a “quick method” for collection of past due assessments, unencumbered by extraneous matters, is manifest when we consider the manner in which condominium associations operate . . . . the condominium form of property ownership only works if each unit owner faithfully pays his or her share of the common expenses. When a unit owner defaults in the payment of his or her assessments, the resulting forcible entry and detainer action is thus brought “for the benefit of all the other unit owners.” ¶¶ 29 -30.

Permitting a unit owner’s duty to pay assessments to be nullified would thus threaten the financial stability of condominium associations throughout this state. . . . For the same reason that taxpayers may not lawfully decline to pay lawfully assessed taxes because of some grievance or claim against the taxing governmental unit, a condominium unit owner may not decline to pay lawful assessments. Trustees of the Prince Condominium Trust v. Prosser, 592 N.E.2d 1301.” ¶ 32.

 

Here we have the alleged dicta [non-supported court opinions], and becoming part of the Illinois public policy, that the survival of the HOA/condo is first and foremost. The HOA rises to the same level as a public entity, with the questionable governing documents now having contractual validity and court support to deny homeowner rights, freedoms, privileges and immunities.

 

Welcome to the New America of HOA-Land.

References

 

[1] http://www.state.il.us/court/Opinions/SupremeCourt/2014/115342.pdf.

[2] See appellate decision Court decisions: HOA Enlightenment Movement vs. the Dark Ages.

[3] “Spanish Court Condominium Association II vs. Carlson (Illinois),” CAI Amicus Curiae Activity 2013.

HOA Common Sense, No. 9: HOA governments in fact

HOA Governments in fact, No. 9

I believe all HOAs should be required to have a sign at the main entrances to the subdivision that clearly states: “You are now leaving the American Zone.”[1]

De facto governments.

Is the HOA a mini or quasi government?  Is it a state actor? Or is it just another business with special privileges?  I believe we all can agree that the status of HOAs is that they are de facto – they exist — governments, not recognized by the state under municipality statutes just as Cuba is a de facto government not recognized by the US. 

What is the uniquely defining attribute of a government that distinguishes it from a business or non-profit charity?  Understand that all the functions that the CAI lawyers claim to make the HOA a business can also be used to claim that businesses are governments. Think about it.  Yes, they share the same functions – taxes/assessments, fines/penalties, courts/hearings, ordinance/rules and regs, etc. But the basic criterion is that “modern states are territorial, their governing body exercise control over the persons and things within their frontiers.[2]  This alone singles distinguishes a government from a business or charity.

Black’s Law[3] attempts to clarify what is commonly accepted as a political government: A government is “The principles and rules determining how a state is regulated.”  A nation is “a community of people inhabiting a defined territory and organized under an independent government; a sovereign political state.” And politics is “The science of the organization and administration of the state.” The general understanding uses the terms ‘people,’ ‘territory’, ‘regulation,’ and ‘state/nation’. 

Now, I know the above may be confusing, but the skilled HOA attorneys will do their parsing and word game analysis (depends on what the meaning of ‘is,’ is) of these definitions seeking to create reasonable doubt as to what the people know to mean as “government.”  You know, such as the argumentative asinine statement that, is the owner of a football stadium that regulates the people in the stadium a government?  

I prefer the simpler, down to earth answer given by Justice Stewart regarding what is pornography,

“I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description [hard-core pornography]; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it . . . .”[4]

It is interesting to note that David Wolfe, a founder of CAI back in 1973, had the following to say in 1978 when CAI debated the status of HOAs as a government.

One legal opinion offered in support of construing CAs [HOAs] as a government noted that the Supreme Court had required constitutional procedures in a ‘company town’ and with ‘political parties’; from this view CA actions were ‘public’ in a constitutional sense. . . . Wolfe concluded that a new definition of a CA as a government was needed to bring about Lewis Mumford’s vision of a democracy.[5]

And long ago in 1994 Prof. McKenzie wrote, “HOAs currently engage in many activities that would be prohibited if they were viewed by the courts as the equivalent of local governments.[6]

The defective legal scheme

Please understand that all substantive (as opposed to changes to laws affecting HOA operating methods and procedures) reform legislation is an attempt to restore your rights, freedoms, privileges and immunities as citizens.  They were taken away by the HOA biased laws that granted the HOA power to deny or did not prohibit the HOA from denying your constitutional rights.  Yet, even the most independent local control over people found in a state’s home rule statutes requires allegiance to the US and state constitutions.[7]  Why do HOAs get special laws?  Why are they exempt from the Constitution?  It doesn’t add up!

You may ask, What for?  The answer is obvious: for the survival and acceptance of a defective legal scheme that seeks to impose authoritarian governments on unsuspecting people. If boards and officers are to be held accountable, who would volunteer?  Well, why not pay them a salary so accountability can be demanded?  WHAT!!!  If they are going to be paid and held accountable, then members have a right to demand qualified board members and not any ole body who would like to be on the board.

Wait!  Wait! I can see readers recoiling in horror.  “The horror . . . the horror . . .” (from the movie Apocalypse Now!).   So, boards are generally not paid and are volunteers, without any special training.  At least the legislature and city councils have tradition and long established rules and procedures with staff to assist the law makers, but HOAs are “on the fly” – on the job,  decide as you go.  No wonder we have all these problems with capable governance.  And the volunteers and the special interests lament, “but we are volunteers helping to make a better community. You can’t hold us responsible and accountable. We need a free reign.”  Yeah!  Right!  Free to create havoc!

All because the mass merchandising of the HOA concept could not be sold under such conditions that demanded prudent accountability.

And, the concept could not fly without mandatory members and compulsory dues.  The founders of the HOA scheme who wrote the HOA “bible” in 1964 well knew this. And in order for the HOA to legally bind subsequent home owners the founders had to resort to servitudes running with the land, or equitable servitudes/covenants.[8]  

But, the equitable servitudes doctrine brought a host of ills detrimental to the US Constitution and the Bill of Rights, which very disappointedly the courts have held superior to the supreme law of the land.[9]  They have allowed for the establishment of the New America of HOA-Land with communities governed by de facto authoritarian, private government regimes known as HOAs.

HOA member Declaration of US and State citizenship

All that is needed to have HOAs rejoin the Union is for state legislatures to pass a bill that states:

Notwithstanding anything to the contrary in the governing documents, or other laws to the contrary,

Wherefore, the members of the association, having not waived or surrendered their rights, freedoms, privileges and immunities as citizens of the United States under Section 1 of the Fourteenth Amendment, and as citizens of the state within which they reside, the CC&Rs or Declaration for any planned community, condominium association or homeowners association shall state, or be amended to comply, that, “The association hereby waives and surrenders any rights or claims it may have under law and herewith unconditionally and irrevocably agrees 1) to be bound by the US and State Constitutions, and laws of the State within which it is located as if it were a subdivision of the state and a local public government entity, and 2) that constitutional law shall prevail as the supreme law of the land including over conflicting laws and legal doctrines of equitable servitudes.

PS.  I apologize for the intrusion by WordPress to have added underlines to certain words.

References

[1] As contained on the On The Commons website, Shu Bartholomew, Producer and Host (http://onthecommons.us).

[2] “State”, Black’s Law Dictionary, 7th Ed.

[3] Id.

[4] Jacobellis v. Ohio, 378 US 184 (1964).

[5] Quoted in Community Associations: The Emergence and Acceptance of a Quiet Innovation in Housing, Donald R. Stabile (Greenwood Press, 2000), pp. 164 -167. Lewis Mumford was a 1920s utopian community promoter.

[6] Evan McKenzie, Privatopia: Homeowners Associations and the Rise of Residential Private Governments, Yale Univ. Press, 1994.

[7] A legislature’s grant of autonomy for local government to act without legislative approval on acceptance of certain terms (Blacks’ Law Dictionary, 7th Ed.); “as long as they obey the state and federal constitutions” (Home Rule, Wikipedia (http://tinyurl.com/nyqpd2a).

[8] The Homes Association Handbook, Urban Land Institute Technical Bulletin #50 (1964); See my analysis at Analysis of The Homes Association Handbook.

[9] Most notable are: Inwood v. Harris, 736 S.W.2d 632 (Tex. 1987) (Texas Constitution overridden by covenants running with the land); Villa de Las Palmas v. Terifaj, 90 P.3d 1223 (CAL. 2004) (amended restrictions are binding on all in violation of ex post facto prohibition doctrine); Committee for a Better Twin Rivers v. Twin Rivers, 929 A.2d 1060 (NJ 2007) (fundamental rights denied and business judgment rule is sufficient protection of homeowner rights).