Tag: law

HOA limitations: conscripting people who cannot run an HOA

Highlights of the The Urban Institute Forum, June 30, 2011, Private Community Associations: Boon or Bane for Local Governance?

Sadly, Robert Nelson’s pro-HOA opening statement was filled with the myths, misconceptions and half-truths that perpetuate the laissez-faire attitude from government. Legislatures that have failed to reign in these undemocratic private, second political system of government known as HOAs. He is part of what I term the legal-academic aristocrats. McKenzie’s response rejected what he called Nelson’s theoretical, alternate form of government, saying that, “If you actually look at the reality of the way these [HOAs] . . . function, they do not fit these assumptions at all.”

McKenzie said that, for example, this “volunteerism” simply doesn’t happen, since, as it appears that,as all the “common people” know, the agreements are created by the developer’s attorneys and handed down. There is no give and take in creating this form of individualized local government, so often touted as town hall government at work in HOAs. McKenzie described these declarations as “boiler plate”, and mentioned seeing covenants relating to elevators when there were none in the subdivision.

“People are “conscripted” into these associations if you buy the lot”, he further added. They are then told “that they consented to the agreement, but that’s a legal fiction.” “And realtors don’t even tell them anything about it.” In reality, he continued, “the people really don’t control their association, the dead hand of the developer does” since changing the CC&Rs is difficult to do. [With respect to the past attempt at Arizona legislation to allow 1/3 of the members to change the CC&Rs for everyone does not address the problem of ex post facto contracts].

Addressing the contractual legal scheme, McKenzie stated that, “This [HOA legal scheme] is a model . . . that trickled down from the top of the income distribution . . . . It is probably a form of governance that would work reasonably well if practiced by 1% of the population.” The wealthy and reasonably affluent with money “who can hire lawyers and who came in with their eyes open and knew what they were getting into.” In other words, a specialized, utopian, perhaps cult community for the wealthy. As I’ve written many times, McKenzie said the mass merchandising [my words] was driven not by the people demanding HOAs, but by the developers and municipalities that are increasingly mandating only HOA regimes for new developments. There is no free market system at work, no freedom of choice.

As this mass marketing proceeds, “you begin to conscript people into this mass housing who cannot run it.” In particular in today’s climate, the failure to establish adequate capital reserves to offset decreased income. Well, isn’t that also a failure of the national HOA educational organization that “certifies” HOA managers for the past 40 years?

“The idea of private government is fine,” according to McKenzie, “for people who can afford to operate it. Imposing this on people, which we have done, who cannot run it, who don’t know how to run meetings, who won’t go to board meetings at all . . . . What we are seeing is professional people, managers and lawyers actually running the associations.” You know, the “hired hands.” “The priority on foreclosure is driven by the professionals. It is not driven by what’s best for the community.”

“The owners are not loyal to their association. They put up flagpoles because they don’t think they are legitimate.”

The policy makers and public interest ‘influencers” should pay attention to the realties before them, and cease their dogmatic, unworkable ideology. This Forum is a good start.

Alleged waiver of rights in HOAs are invalid

I congratulate California Senate Majority Leader Ellen M. Corbett for sponsoring SB 561. This bill asserts California’s rightful authority to impose and restore law and order over this second form of political local governments known as HOAs. This is still America, a land under the rule of law. The disintegration and fragmentation of government and society must be stopped before anarchy reigns, right here in America.

 

The law firm of Swedelson & Gottlieb (S & G) argues on its Blog that they know of no one losing their home just because they waiver their rights to have their payments applied first to assessment reduction rather than to collection costs. There are good, equitable and just reasons for paying down the debt first: paying the costs first prolongs the collection agency income stream, not the HOA’s, as the amount of debt goes on forever and may never decrease. Under these circumstances, like “being under water” in today’s housing market, why pay at all?

 

HOAs are required to apply payments to debt reduction, just like your credit card companies. With a straight face S & G states, “We are aware of no homeowners who have ever lost their homes in an association’s foreclosure simply because of unpaid fees and costs of collection.” So, I guess all is well and right with this use of the payment waiver.

 

This attitude, used by other proponents favoring the survival of the HOA and their incomes streams, portrays all members of an HOA as being so enamored with their HOA that they place their well being and financial conditions in the hands of the HOA board. They are portrayed as being true believers seeing no wrong with the HOA, much as one sees with many religious cults. They are portrayed as openly and eagerly waiving their rights in favor of the HOA no matter how disastrous to them. How insulting to all Americans: your obligation to the “state”, the HOA, is to make timely payments, and any rights, freedoms, privileges or immunities are notwithstanding.

 

In its argument for payment plans, created by the HOA’s agent, but “the board dictates the terms of the agreement,” S & G seems to contradict its argument that the “pay costs first” is for the benefit of the HOA, not the collection agency (emphasis added).

 

There is good reason for this– boards know from experience that many homeowners pay the assessment portion of the payment plan agreement but do not pay the costs of collection, knowing full well that the association cannot foreclose for costs of collection only.

 

Say what? The debtors will pay their assessments to the HOA, making the effort for the benefit of the HOA, not the collection agency? Why would a board give up its first claim to $$$ for the benefit of the collection agency? That doesn’t make sense at all, does it? Why are HOA boards allowing their right to first $$$ go to a “hired-hand” vendor, in violation of their duties to the HOA? Why?

 

It makes sense if the whole purpose of S & G’s position is not to benefit the HOA but its own pocketbook. Furthermore, S& G continues to whine about the debt owed to them that the HOA cannot pay since all the money is going to the HOA first. Boo hoo! I guess they know all about “You can’t get blood from a turnip.”

 

Isn’t that a business decision all businesses face? The loss against the cost of collecting? What about contingency collection agency arrangements? Don’t let S & G slip past this point! If they are so good, the HOA should insist on this type of an arrangement rather than the punitive arrangement now commonly used.

 

And when all else fails, we hear the familiar mantra, “But really, is it fair for the paying/current homeowners to have to subsidize delinquent homeowners?” Well, you see, that “contract S & G says binds all homeowners may not be fair to some homeowners, but that’s what the legal structure of an HOA imposes on members. Is it fair not to tell home buyers about this, and about some other waivers and surrenders of rights unbeknownst to them? Take a look at “The Truth in HOAs Disclosure Agreement” for some eye-openers.

 

Cleverly, S & G avoids the question of a violation of public policy, which as stated in the Restatement (3rd) of Property:Servitudes, Sec. 3.1, makes any covenant invalid. The argument against SB 561 is simply: How dare the California Legislature prohibit a homeowner, exercising his write to contract, without any duress, from surrendering his right to the ethical and fair procedure of debt reduction before costs. How dare the legislature!

Philippine HOA “Magna Carta” law not based on servitudes

Running through the first few pages of this 20-page PDF on what we would call an HOA Act, but called a “Magna Carta” for HOAs in the Philippines. “SECTION 1. Title. – This Act shall be known as the “Magna Carta for Homeowners and Homeowners’ Associations”. It is a combined social welfare land, reform act and local citizen governance by means of non-profit entities  that allow multiple HOAs within a subdivision.

There is no equitable servitudes law for covenants running with the land that make a mockery of US claims to be the best democratic country in the world. There is no private agreements to replace the Constitution, and allowing the Justices and judges to treat as if it were just another piece of paper.

Most decisions are made by simple majority vote, and members “shall have the following duties (a) to pay membership fees, dues and special assessments; (b) to attend meetings of the association.” It appears that the Filipino law contains most of the same operating provisions as found in the US version. However, audited statements must be posted annually and filed with the national government agency overseeing HOAs (Sec. 17(c)).

Now, how about this requirement of one unified government rather than independent principalities as in the US”

SEC. 19. Relationship with National Government Agencies. – The associations shall complement, support and strengthen the efforts of the national government agencies in providing vital services to their members and help implement the national government policies and programs.
Associations are encouraged to actively cooperate with national government agencies in the furtherance of their common goals and activities for the benefit of the residents of the subdivisions and its environs.
National government agencies shall consult the associations where proposed rules, projects and/or programs may affect their welfare.

Interesting reading for the American legal-academic aristocrats seeking to become Philosopher-Kings, and announce what is good for the American people.

ADRE: Licensed AZ R.E. agents can do as they please in HOAs — Not My Job

In its internet PR statement to consumers, “Information for Consumers” page, the Arizona real estate department, ADRE, assures the consumer that (emphasis added),

We want to protect consumers from being harmed in real estate transactions. You will find a wealth of information on this website that will help you be a smarter real estate consumer. You will also find information about what to do if something goes wrong in your transaction. Remember, we are always willing to help.

If you need to speak with an ADRE staff person, phone the ADRE Consumer Assistance Team at 602.771.7730.

(AZ R.E. dept ignores HOA laws in its policy of “No Negatives About HOAs” (July 2010)).

In May 2011, when asked for the third time over 7 years why ADRE doesn’t enforce this rule (R4-28-1101) when it comes to HOA transactions, its typical answer dealt with their non-regulation of HOAs, and, in this recent reply (emphasis added),

However the Department has to be advised, typically by way of official complaint, that there is an apparent abuse of the laws occurring. At that time, the Department would investigate and proceed from there. Without knowledge of a perceived violation occurring, the investigation cannot begin.

What we have here is a failure to act, a failure of government authorities to make their allegations about consumer protection — in effect their propaganda that deceives the people — a reality.

(Do not buy an HOA controlled home in Arizona — you are on your own!)

 

Please understand, as I’ve pointed out in earlier writings, there are no exemptions for HOA properties in the real estate statutes or Commissioner’s Rules (also law) pertaining to licensed property managers. So, I wondered what ADRE’s answer would be if indeed a complaint was filed against an ADRE licensed property manager who happened to manager an HOA. Fortunately, I was able to uncover a copy of an ADRE response to this question, dating back to March 2010, signed by a Senior Investigator:

The Department reviewed your complaint against THE XXXX COMPANY and its employed real estate licensees and found it involves a matter where the Department has no jurisdiction. Management of homeowner associations and regulation of CC&R’s are not regulated by the Arizona Department of Real Estate. There is currently no state agency that regulates homeowner associations. This situation is civil in nature and requires mediation or litigation. Your best course of action is to seek counsel and resolve your issues through the appropriate court.

When it comes to policing its licensed agents to protect consumer home buyers, ADRE jumps on the bandwagon, “NOT MY JOB.” The issue is not the type of property, but the actions of its licensed agents with respect to their obligations and duties as a licensed real estate agent.  And that’s where ADRE has its powers and authority to act. The unspoken alliance comes out quite strongly here with ADRE’s hands-off policy.

 

Ladies and gentlemen, you are already living in the NEW AMERICA OF HOA-LAND. Just accept it. You will soon learn to adjust.

Where is the justice? AZ court gives HOA a “do over”

In Pinnacle v. Derailed (CA_CV 10-0604, Ariz. App. Div. 1, May 31, 2011) , the HOA objected to a sculpture because the homeowner didn’t get ACC approval. As we’ve seen many times before, the homeowner replies, “Show me where I must get to ACC approval when the governing documents are silent on the issue?”

The HOA attorney, CAI member and “defender of the faithful,” Scott Carpenter, made the following arguments, among others,

The [HOA] letter asserted without elucidation that the “governing documents prohibit this type of sculpture.” (Emphasis added.) Derailed responded that if the sculpture constituted a violation, many other violations were visible on neighboring properties and declined to remove the sculpture. . . . counsel cited Article 1, § 15 of the CC&Rs, which requires Committee approval of “all landscaping plans.”

The trial court, having reviewed the definitions of “landscaping, and in the absence of a “redefinition” of landscaping in the governing documents, held that sculptures are not part of the meaning of landscaping. The court, siding with the homeowner, wrote

the governing documents did not either require Derailed to seek approval for a sculpture or prohibit a sculpture. The court also found that the sculpture was neither “landscaping” nor a “structure or dwelling” and that the Association had not argued that it was an unsightly object.

The appellate court refused to “read tea leaves” and divine meanings not set forth in the governing documents, “we also “should not give a covenant a broader than intended application.” Carpenter then tried to argue that a sculpture was a structure, and that it failed to meet architectural designs. Both rejected. But, Carpenter failed to argue that the sculpture was unsightly, perhaps, if true, would have been a grounds to not allow the sculpture. “The Association did not characterize the sculpture as “an unsightly object.”

However, the court became activist and wanted a “do over” as it felt some issues weren’t considered by the trial court and it wanted the court to consider them.. A “do over”, a second “grab at the apple.” On legal “technicalities”, once again, the appellate argued that Derailed failed to object to Carpenter’s raising the issue of “unsightly” and claiming that Carpenter had “waived” this argument. Consequently, the issue of “unsightly” can be considered by the appellate court. In other words, Derailed did not argue that it was not an issue before the trial court and cannot now be considered at the appellate level. (I can’t count the number of times I mentioned that the homeowner must respond to all charges and claims made by the HOA, otherwise it might come back and bite them in the ass, like now.)

It should be noted that when the court asked at oral argument “which provision of the governing documents authorized regulation of sculptures”, Carpenter “cited Article 1, § 15 of the CC&Rs” and made no reference to Rule 2.28 of the ACC that pertained to “unsightly object.”What happened to“we also should not give a covenant a broader than intended application?” I guess the denial of the motion for reconsideration amounted to a bona fide trial court argument. And the court wanted an answer to the “unsightly object” issue that was not brought before the trial court,but apparently brought before the appellate court.

It seems that the court has leaned backwards to compensate for the failure of the HOA to specifically raise the question of “unsightly” at the trial level. How many times have I wondered what if these judges really sought to do justice and interjected themselves on behalf of the homeowner and said, in effect, “Hey boy, ya’ didn’t raise this valid and potentially winning issue of … So I’m sending it back to the trial court. Got my drift?”

As an aside, In March 2010 I spoke with the owner and, anticipating the HOA’s defense, I asked about the sculpture, “Was it acceptable”? He replied that it was the work of a known sculptor. I wonder how the trial court would decide? How much would it cost the HOA for Carpenter to pursue this uphill fight on “unsightly objects”?

As a second thoughtdid the court issue a memorandum and a restriction on the case being published and made a precedent? Generally, this occurs when the court feels no new opinions were made to serve to guide future cases.