Tag: constitutional law

NC foreclosure bill SB 312 dies silently

I had sought for a representative example of emails to the legislators  and copies of proposed testimony before the hearing committees that I would review and add constitutionality challenges. Having received none from the advocacy group, I found the following event an excellent case to demonstrate the need to apply constitutional law.

A 2023 NC bill taking strong stand on HOA foreclosure rights. It was a bill containing above and beyond restrictions and actions on filing liens for failures to pay assessment.  It was read and sent to the rules committee in March without being assigned to any hearing committee, as is SOP. As I explained in “Understanding the Legislative structure,” the Rules Committee is controlled by the majority party leaders and can hold a bill from being heard, which it appears has happened.

My review and analysis rests solely on the following. The bill had good intentions but lacked any real support or concern from the bill sponsor.  It simply deleted all references in the NC General Statutes granting the HOA rights to foreclose on” dead beats.” I am not aware of any social media or news media coverage of this important bill.

In general, my recommendations on preparing and supporting favorable legislation are presented in Legislative proposals and legal memoranda, but here I apply those recommendations to this bill.

First, in a highly controversial bill as we have here, the sponsor should have included an Intent section that provides the rationale for the need for the bill to be made law. Even if not passed, the Intent section becomes part of the legislative record otherwise silence reigns.*  A host of legal authority failed to be presented to the NC General Assembly that, among other violations, raised constitutional issues of violations of the 8th Amendment against cruel and unusual punishment.

Of particular authority – persuasive authority in the courts – that carries strong weight is found in the Minnesota decision: Supreme Court finds taking excess foreclosure funds unconstitutional. 

“She brought ‘claims under the Takings Clause of the Fifth Amendment and the Excessive Fines Clause of the Eighth Amendment.’ . . . Because we find that Tyler has plausibly alleged a taking under the Fifth Amendment [eminent domain] . . . we need not decide whether she has also alleged an excessive fine under the Eighth Amendment.”

For a discussion of foreclosure injustice, see HOA Common Sense, No. 8: Draconian punishment and intimidation. Also see the 2019 SC bill analysis, Substantive SC HOA reform bill – end foreclosure.

 “The Eighth Amendment’s Excessive Fines Clause is an incorporated protection applicable to the States under the Fourteenth Amendment’s Due Process Clause. . . .  The Fourteenth Amendment’s Due Process Clause incorporates and renders applicable to the States Bill of Rights protections “fun­damental to our scheme of ordered liberty.”

Now is the time for all good advocates . . .

The NC legislature is still in session and bills are carried over to the following year in NC’s biannual sessions.  With a strong outcry from NC citizens and advocates the Rules Committee can place this bill back into play by assigning a hearing committee and allowing for a vote; if not too late this session then next year. (See Understanding the Legislative structure).  Support by the Sponsor, Senator Kandie Smith, is a strong endorsement.

The ball is in the NC advocate’s court.

Judicial Scrutiny standards judge claims of constitutionality

Claims regarding the constitutionality of laws are subject to judicial review. Generally speaking, and simplifying matters considerably, courts use three different standards to adjudicate constitutional claims: (1) rational basis review; (2) intermediate scrutiny; (3) and strict scrutiny. The “standard of scrutiny” applied to a particular claim is of critical legal importance and usually determines whether the claim will succeed.  

The first standard — rational basis review — is the most forgiving.  Under rational basis review, a litigant challenging a law on constitutional grounds “bear[s] the burden of proving that it does not bear a rational relation to any conceivably legitimate governmental purpose—even a hypothetical one.”  With vanishingly few exceptions, nearly all laws satisfy this standard.

The second standard, known as “intermediate scrutiny,” raises the stakes considerably.   Under this . . .  a law “must serve important governmental objectives, and . . . the discriminatory means employed must be substantially related to the achievement of those objectives.”  

The third standard of review, which is the most rigorous, is “strict scrutiny.”  Under strict scrutiny, “the government must prove that the challenged law is both narrowly tailored and the least-restrictive means available to further a compelling governmental interest.”  Strict scrutiny applies in areas such as racial and religious discrimination, and it also applies to many claims involving free speech.

# # # #

I have yet to see any valid government justification in support of the HOA legal scheme that deprives citizens of their constitutional and fundamental rights. Some have argued that it eases the state/county’s financial burden as a legitimate government interest. However, the HOA scheme must be reviewed under strict scrutiny as it damages the members’ rights and freedoms. Furthermore, the claim that the member agreed to the Declaration and surrendered and waived his rights has come under criticism as an invalid surrender in the courts.

Source: Constitutional Standards of Scrutiny (link: Supreme Court of Tennessee Blog)

Advocate files AZ supreme court amicus brief fighting unjust laws

We must make the injustice visible.

We must provoke until they respond and change the laws.

(Mahatma Gandhi)

An AZ supreme court amicus brief was filed by Jonathan Dessaules on behalf of the Arizona Homeowners Coalition in CAO v. Dorsey (CA-CV 21-0275) (Waiting for the Court’s decision).  Dessaules argues that the statute in question, ARS 33-1228, conflicts with the Arizona Constitution, Article 2, Section 17, and “a statute cannot circumvent or modify constitutional requirements”.

The intricate legality and constitutionality of private entities—the HOA — taking of another party’s property rights – a homeowners — is discussed in detail.  I frequently quote the brief to ensure accuracy in my review.

ARS 33-1228 “allows condominium associations to force the sale of a nonconsenting owner’s property for someone else’s private use” and is the justification for investors to shut down the HOA. However, “When a state statute conflicts with Arizona’s Constitution, the constitution must prevail.” Furthermore, it is argued that “The legislature may not enact a statute which is in conflict with a provision of the Arizona Constitution.” Consequently, the Legislature lacked the authority to enact 33-1228.

(Stay with it!) The brief goes on to say that ARS 12-1131 provides that “eminent domain may be exercised only if the use of eminent domain is authorized by this state, whether by statute or otherwise, and for a public use as defined in this article.” Public use does not allow for “forcing the sale of a holdout owner’s property to be used by the investor who owners a majority of the other units within the condominium.”

The HOA, Dorsey, counterclaimed that it wasn’t a sovereign and § 1231 doesn’t apply to private organizations, ignoring § 12-1111 that permits individuals the right of eminent domain takings. Consequently, again, it is argued that 12-1228 is invalid.

An additional powerful argument is raised that the Declaration is an adhesion contract. “A declaration is generally a ‘standardized form offered to consumers on essentially a take it or leave it basis.’” And to my long awaited legality, the brief states that “Without the contract even being presented to the purchaser for their signature,” the contract is imposed on the buyer.

Again, we see the  doctrine of “reasonable expectations” as applied to adhesion contracts. “Contracts of adhesion will not be enforced unless they are conscionable and within the reasonable expectations of the parties.” Dessaules maintains that including unconstitutional  statutes in the Condo Act is “substantively unconscionable.” Furthermore, as I have argued many times, “a waiver of a constitutional right is not within reasonable expectations of the parties.”

This is a solid amicus brief by an advocate fighting for HOA reforms to protect members’ rights and privileges.  It does not pretend to accept unjust laws.

* * * *

I would like to thank Dennis Legere, Arizona Homeowners Coalition,  for hiring attorney Jonathan Dessaules to file this important, to the point, excellent amicus brief.

CAI is worried about homeowner reasonable expectations

I am confused by two CAI Arizona supreme court briefs in defense of the HOA in CAO v. Dorsey;[i] one by Scott Carpenter and the other by Krupnik,  a former Carpenter attorney and, along with Scott, a member of the CAI attorney’s group, the College of Community Associations Lawyers (CCAL).  In my view dealing with CAI over 23 years in several states, it reflects the awareness by CAI of the potential loss of its dominance over HOA boards and state legislatures.

The CAI Krupnick brief

In Krupnick’s brief, she argues that condos are a creature of state law otherwise they could not exist. We all know that state HOA laws and Acts favor the HOA against member rights.

“Sui generis presents a view of HOAs as private government principalities supported by your state legislature and is used to justify special laws for a special organization, the HOA. But the condominium is a unique form of real property ownership and . . . are created and governed by specific statutory schemes that deal with ownership, administration, transfer, and termination of commonly held property interests. More fundamentally, it is that statutory scheme, not the common law, that frames the issues in this controversy”[ii]

Does that make them state actors —  arms of the state?[iii] Existing constitutional law is inadequate to support this model of local governance [sui generis] and so, in violation of US and state constitutions,  we see all those HOA/PUD/condo “Acts” in almost every state.  These Acts constitute a parallel supreme law of the land with sharp contrasts to the US Constitution.

Krupnik stresses state laws control and “reasonable expectations”[iv] is not involved. “the amendment to A.R.S. § 33-1228 . . . does not significantly impinge on the parties’ reasonable expectations.” Her argument is that it would create problems for the administration of the HOA to have so many grandfathered clauses as the governing documents are amended from time-to-time. Gee, for over 247 years we have lived with the protection of grandfathered clauses in the public domain. What’s the problem?  The fear mongered survival of the HOA and CAI’s member income stream, that’s what!!

In my early days a CAI member emailed me saying: “What are you doing, George? We have a good thing going here.”

The CAI Carpenter brief

I focus on an important aspect of this brief.

Carpenter follows Krupnick’s argument on the need for uniformity, citing a precedent which held that “majority and minority owners alike were subject to a uniform set of rules which were consistent with the parties’ collective expectations at the time of contract.” Adding, “If left unchecked, the Opinion will very quickly leave Arizona community associations struggling to discern which versions of the state’s robust statutory  schemes apply to which owners in their communities.”

Carpenter raises a valid question, one that I concluded with in my commentary on CAO, should the HOA need to ask each owner if he agrees to be bound by  state law? And also asked for agreement to reasonably expected future amendments to forced sale in a takeover scenario. How can one agree to something ill defined?   This is a question to mislead the focus of the lawsuit.  Carpenter ignores contract law that requires a bona fide meeting of the minds and an  understanding of the explicit terms, and any assertion to be bound by iffy amendments in the future is without validity.

Obviously, contract law implicitly raises the question of surprises and a true meeting of the minds. No putting one past the other party in a violation of good faith. We know that there is wide misrepresentation in the selling process!

“By focusing on the amorphous concept of an owners’ reasonable expectations at the time they took title subject to an association’s declaration, the Court of Appeals has ignored an important reality: the statutes which apply to owners and associations must be applied uniformly, unless they contradict a pre-existing express term of the contractual covenants.”

He is arguing that ex post facto HOA amendments are valid, and the constitutional protections  do not apply to private contracts. After all, according to CAI HOAs are sui generis and have their own “constitution” outside the US Constitution. Carpenter makes the anguished plea — my interpretation –

“By creating an untenable and unworkable rule which deeply burdens associations and the owners who comprise them, the Court of Appeals’ Opinion will make it nearly impossible for any future association to effectively terminate their condominium.”

Poor baby! It’s a cost of doing business under the HOA legal scheme, but CAI wants more favorable treatment.  It’s an HOA defect because of the limited number of payees to support the HOA —  the members who are severally and jointly responsible for the viability of the HOA. (If Pete can’t pay, we’ll get it from Joe or Mary who can pay).  Is that a reasonable expectation of members?? I don’t think that have any idea of their financial obligations.

Please note that five other amicus briefs were filed in favor of the homeowner, CAO, including one by the Cato Institute and one by Arizona’s Goldwater Institute.  Only CAI opposed the appellate decision.

Notes

[i] CAO v. Dorsey, CA-CV 21-0275 (Ariz. App. Div.1, 2022).

[ii] Why aren’t HOAs held as state actors based on USSC criteria? (2019).

[iii] Id. The US Supreme Court has held state laws  that are “supportive”, “cooperating,” “encouraging,” and “entwined” in both public policy . . . and in the “management and control” of the HOA create state actors.

[iv] See HOA constitutional “takings” and reasonable amendments.

HOA constitutional “takings” and reasonable amendments

Awaiting an Arizona Supreme Court decision is a case involving a fairly common event in which investors buy up a majority of the condo units and vote to dissolve the condo. The owners are then subject to a forced sale against their will. In Cao v. Dorsey[1] investors owned 90 of 96 units but a homeowner challenged this forced sale under constitutional grounds.[2]  I address one constitutional issue here.

With respect to the governing AZ statute on these “takeovers,” the Court  held,

[We] hold that the statute [ARS 33-1228] is constitutional when applied to condominium owners who bought a condominium unit subject to terms that incorporate the statute. We also hold, however, that if there have been substantive post-purchase changes to the statute, the version of the statute in place at the time of purchase controls.

The statute allows for amendments to the CC&Rs, as commonly stated in the CC&Rs, based simply on the vote of the required approval percentage of owner votes, which the investor controls. The plaintiff argued that  the statute “is an unconstitutional taking of private property.” The Court clarified the law,

“Generally, ‘[t]aking one person’s property for another person’s private use is plainly Prohibited’. . . . Without an exception to the general rule, A.R.S. § 33-1228 is unconstitutional on its face.”

The meaning of “takings” refers to the constitutional prohibition of eminent domain takings of property interests when the property owner contests to the taking by the government. My argument criticizing the HOA’s right to take personal property with no compensation to the objecting owner can be found in HOA principalities where there’s no ex post facto or eminent domain protections (2009) and  Homeowners do not have HOA ‘eminent domain’ protection (2022).

A discussion followed as to what version of the law applied as it was amended after the plaintiff’s purchase.  Getting to the heart of the matter, the Court stated,

“[W]e will not ‘allow substantial, unforeseen, and unlimited amendments’ to the Declaration, as that ‘would alter the nature of the covenants to which the homeowners originally agreed.’ . . . We ‘will not subject a minority of landowners to unlimited and unexpected restrictions on the use of their land merely because the covenant agreement permitted a majority to make changes to existing covenants.’”

In short, no surprises and no adding new elements to the Declaration – CC&Rs without member approval. Future amendments, however, “cannot be ‘entirely new and different in character, otherwise they would exceed the reasonable expectations of the owners.’”  Furthermore, statutory amendments do not apply when, 

“the statutory amendments did not merely refine the statutes, correct errors, or fill in gaps, but substantively altered owners’ property rights beyond the “owners’ expectations of the scope of the covenants. . . . And substantive amendments to the Condominium Act cannot later be incorporated into the agreement without renewed consent.”

The Court vacated the trial court decision in favor of the HOA and sent the case back to the superior court based on its holdings. The decision has been appealed to the Supreme Court and we are waiting for its opinion.

What does this case mean?  What is all the hullabaloo about?  How important is a favorable supreme court decision? TEMENDOUSLY IMPORTANT! That’s why CAI is not only the HOA’s attorney but has also filed an amicus brief.  The holding of homeowner reasonable expectations regarding amendments opens the door to further challenges as to just what is reasonable in today’s HOA land agreements.  The opposition can say, “well, it is common that a development can be expected to be bought out, and therefore the holding is mute, not applicable anymore.”

The broader issue for advocates is to apply reasonable expectations to misrepresentations in the selling process that is intentionally designed to hide not only takings by the HOA but violations of the equal protection of the law. In the case of CAI, has its conduct over the years amounted to a coercive monopoly to keep control over the HOA-Land? How about the real estate agents and department looking the other way and concealing the facts?

It’s up to the homeowners and advocates to pursue these challenges that will open the doors to HOA reforms of substance.

Notes

[1]  CAO v. Dorsey, CA-CV 21-0275 (Ariz. App. Div.1, 2022). I would like to thank Dennis Legere, Arizona Homeowners Coalition,  for bringing this case to my attention and for providing me with the court filings. He has filed an AZ supreme court amicus brief  with attorney Jonathan Dessaules.

[2] This is the first of several planned reviews and case memoranda addressing the appellate court decision. To follow will be  reviews of the amicus briefs by AZ Homeowners Coalition,  The Goldwater Institute for the homeowner), and CAI (for the HOA), and the eventual supreme court decision.