Tag: law

What the HOA laws say and don’t say, and unjust narrow readings

 

The unjust HOA statutes on the books in almost all states were written with the help and guidance of the national pro-HOA lobbying organization known as Community Associations Institute – CAI. Many of these laws, in addition to a narrow reading for questionable Rule 11(a) litigation,  use phraseology leading the reader to believe that HOAs are fair, just and democratic governments. But, when the uniformed read and apply them, like in the case of many HOA managers and boards, they adopt an unjust strict and narrow, “black and white” reading of the words.   

A few examples, as commonly found in both the CC&Rs and statutes, are: 1) with respect to violations alleged by the HOA before it may fine a member, “after an opportunity to be heard”; and 2) with respect to homeowner access to HOA corporation records, “privileged communication” or “attorney – client privilege,” and “contemplated” or “pending” litigation. The attorneys well know the legal concepts behind these terms and how they are unjustly used by the unknowing to the detriment of the homeowner.

First, with respect to HOA violation hearings, a narrow reading of the law simply says that the HOA hold a meeting to allow the member to speak before it finds him guilty of violations. It does not have to meet the legal doctrine of due process protections of a hearing by an independent tribunal where the accused can confront the evidence and witnesses, and may bring witnesses and present his evidence. The law neither requires any adherence to minimal hearing procedures for a fair trial, such as mediation rules, or the rules as set forth in the state’s APA laws regarding hearings before administrative law judges (ALJ). The law and the CC&Rs don’t require them to! But the HOA defenders offer these covenants as just procedures.

 Second, “attorney – client” privilege or “privileged” communications is another “half-truth” misapplied by the unknowing to prevent access to legitimate corporate records, such as detailed financials; contracts, including management firm and attorney contracts; monies paid to the HOA attorney in pursuit of litigation, etc. Privilege is raised not by the attorney, or at the attorney’s insistence, but by the board.

The meaning of “privileged attorney communications” is well established legal doctrine pertaining to attorney work product – the notes, communications pertaining to strategy and tactics in regard to litigation. It is well established that attorney-client privilege does not apply to corporate records.  But the uninformed use it to refuse the homeowner’s legal request, which leaves the homeowner to indeed consider litigation to obtain what is legally valid.

And when is “pending litigation” a fact? Wouldn’t one think that it would require that the HOA was informed by a reliable person, like an attoreny, that if so-and-so doesn’t occur he will sue? Or, is it simply that the board raises this in any context where it refuses to provide the business documents by saying, “I think the homeowner is going to sue”, or “Let’s sue him”?  That is pure and simple “abuse of process.”

Why would a board refuse to proved HOA business records? Wouldn’t that be an indication that they have something to hide? Isn’t that a violation of the board’s duty to the HOA nonprofit corporation to act 1) in good faith , 2) as a prudent person would in similar circumstances (as if it had to spend its own money), and 3) for the benefit of the HOA? And not to protect their activities.

 Apparently the board is unaware, or hasn’t been properly informed by its attorney, that “A director is not acting in good faith if the director has knowledge concerning the matter in question that makes reliance [on competent legal advice] unwarranted.” Like, maybe, the allegations of a violation are false and contrived, or the “facts” are not true, or that “Mr. X is lying. (The quote is taken from an Arizona statute, but the point is that his good faith reliance cannot be claimed as a defense when the director had other knowledge.)

One would think that the HOA attorneys, especially those “illustrious” members of CAI’s College of Community Associations Lawyers, would know all this. And that these CAI lawyer – lobbyists would be at the forefront of HOA reform legislation to correct these injustices. Doesn’t CAI promote the message (see its web site) that they are “Building Better Communities” and “dedicated to fostering vibrant, competent, harmonious community associations.” Yet, they work against these simple reforms. How can CAI make such statements and not work to create a just and legitimate form of community government?

Narrow interpretations of HOA law and Rule 11(a): CAI game plan?

 In order to understand CAI’s adversarial position to homeowner reforms and its activities to promote litigation challenges, we need to look into its activities and not its lofty pronouncements. As you know, Rule 11(a) requires that the attorney perform a reasonable inquiry into the genuine issues of law or fact of the HOA allegations before undertaking any law suit. (See HOA attorney failure to inquire into merits of a complaint — R Civ P. 11(a)). We can get a good idea of CAI’s motivations for pursuing litigation from its activities with respect to HOA reform laws.

In spite of strenuous opposition by advocates, the sponsor, Arizona Rep. Montenegro, pursued this bill, HB 2441, to the very last floor vote before it was soundly defeated. (See CAI soundly thrashed by Arizona Senate). His support for this disgraceful bill can only stem from 1) that he is true believer in the New America of HOA-Lands, or 2) that he succumbed to the heavy influence of the national trade organization, CAI.

Advocates had attempted to inform Montenegro and the legislators of CAI’s real intent, which was not the betterment of the community or the state of Arizona, but its own self-interests – control of the HOA landscape.  As further evidence of this opposition to the intent of the law, the former CAI chapter president and lobbyist, Scott Carpenter of Carpenter Hazlewood, released examples of what could be seen as “how HOAs can get around the law.”

In my comment to New Arizona laws for 2011 session — thanks to the legislators, I critique Carpenter’s “reasonable rules” that HOAs may impose on the recording of HOA meetings, the new HB 2445 law. One is a 24-hour prior written notice to the board, which can easily “disappear” at its convenience. Also, among is “reasonableness” are that all recordings must be on tripods and must use batteries – seems contradictory with respect to its stated concerns about safety issues. And that the HOA has a right to obtain a copy of the recording – at a reasonable cost. H’mmm, maybe the feel paranoid and that its own recordings won’t capture everything? Or is he just putting up obstacles “to make life difficult?”

Again, a CAI attorney, Carolyn Goldschmidt, takes up another controversial issue with respect to applicability of Title 10 statutes for nonprofit corporations and Title 33 statutes on HOAs and condos. (By the way, the resurrected statutes for ALJ adjudication of HOA disputes, SB 1148, does not permit the ALJ to decide issues outside of Title 33). Basically, does ARS 10-3708 or ARS 33-1812 control the holding of HOA elections and meetings? In an attempt to avoid the HOA statutes with respect to meetings and elections, Goldschmidt narrowly argues that an election without a meeting is valid under Title 10. Yet Title 33 contains strict requirements for meetings and elections – notice, ballot, agenda and quorums.

The HOA held an election that was not part of the meeting, as it claims, and the subsequent meeting just counted the votes but took no action. Say what? Isn’t a “certification” or a counting of election results at an annual meeting an “action”? And, as Goldschmidt well knows as she had participated in several OAH complaints, this dispute would not fall under the Office of Administrative Hearings jurisdiction by an ALJ. (And neither would the other very important common laws found in Chapters 6 and 3 of the Restatement (Third) of Property: Servitudes).

It is these actions in the real world and not the pontifications by CAI and it seminars, conferences, articles, columns or interviews that reflect what CAI is all about. That reflect CAI attorney pursuits of litigation, advertising and advising loopholes in the laws using narrow interpretations of the law, which can be highly questionable under Rule 11(a). And it is not about principles of democratic government within the New America of HOA-Lands or making for a better America or community, its about power over the HOA second form of political government. And attorney fees.

If charged with violating Rule 11(a), and so judged, can the HOA file against the attorney for its attorney fees?

New Arizona laws for 2011 session — thanks to the legislators

 
HOA laws for the 2011 session:
 
 The 7 new  laws, out of 22 bills introduced, affect due process protections for homeowners that levels the “litigation playing field”;   homeowner meeting rights, including the right to record board meetings, as a check on abusive boards and attorneys; new restrictions on transfer fees;  free speech rights to fly flags and political signs; and restrictions on fees for leasing signs.
 
They are:  HB 2245, HB 2609, HB 2717, SB 1148, SB 1149, SB 1326,  and SB 1540.  All homeowner friendly, and as many would say, making for a better community and a better Arizona. 
 
This Arizona session has been the largest pro-homeowner crop of HOA reforms in my 11 years of advocacy. 
 
And it also included a sharp rebuff to CAI in its desperate attempt to retain influence over HOA boards through lobbying our legislators.  HB 2441, the minority control / no court appeals  bill – failed.  Now, they alone, are setting out to put the spin on these new laws by offering seminars and classes. 
 
The public has no alternative to this pro-HOA special interrests propaganda since the news media remains firm in its policy of No Negatives About HOAs.  It would be impossible for the media to explain the new laws without reference to the abuses and lack of homeowner protections in HOA regimes.
 
Thanks to the tenacity of several outspoken Arizona advocates, the laws become effective on July 20th.

Can CC&Rs be personalized for each homeowner? YES!

An interesting case was just decided by the Mississippi appellate court that addressed personalized, individual homeowner variations to the CC&Rs. In Long Meadow HOA v. Harlandthe court upheld individualized deeds that modified the subdivision’s CC&Rs that permitted a church to be built within the HOA. Unfortunately, it’s too late for all of us currently living in an HOA regime.

Leaving aside the questions of a contract by constructive notice that permits the surrender of your rights and freedoms as bona fide, and that covenants contrary to public policy are null and void, the adhesion contact nature of the CC&Rs can be pierced. It can be modified by a true exchange, a bargaining, a give and take as is required for a valid. legally binding contract.

From the court records, the persons who owned and sold the lots in the development wrote individualized CC&Rs for each buyer, which were apparently contained or referenced in the individual deed to the property. The court record shows that the owner/declarant “included a protective covenant in the deed that specified . . . .“ The record is silent on the existence or recording of a “all for one and one for all” subdivision CC&Rs as we know exist almost everywhere. Apparently such “one for all” is not necessary.

In fact, the Harlands wrote a contingency clause in their purchase contract to protect them in the event they were not permitted to build a church, with a return of their $5,000 escrow payment. (Understand that there are 3 legal documents as part of your purchase: the purchase contract itself, the deed with its standard wording, “subject to CC&Rs,” and the CC&Rs themselves).

Problem is, the lobbyist HOA attorneys tell the developer NO, don’t do it! And the real estate department, and the realtor associations, say nothing to inform the average home buyer, the consumer public, that he can negotiate the purchase contract.

I am sure that this decision will be challenged, especially in other states. It would turn HOA-Land upside down.

HOA attorney failure to inquire into merits of a complaint — R Civ P. 11(a)

  

I’ve mentioned several times that there are many instances where the HOA attorney could easily be seen as a co-conspirator against the homeowner.  I cited civil court rule R 11(a) – found in all states – that says,

 

“that to the best of the signer‟s knowledge, information, and belief formed after reasonable inquiry [the document] is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; and that it is not interposed for any improper purpose.”

 

In other words, the filing a suit to collect attorney fees, win or lose.  Problem is that the HOA winds up paying when the homeowner does standup in court and demands evidence and facts.  But, in any case, the attorney gets the $$$.

 

While this case does not involve unsubstantiated violations by the HOA, or unreasonable interpretations of the governing documents or statutes, it well illustrates a very important defense argument.  In this Arizona case, CAI HOA attorney Maxwell contested HOA’s second position to the first mortgage lender’s lien, arguing that the statute applied  to first mortgages in time only.  Of course, there was the usual demand for attorney fees  since the HOA lost.  I guess that includes fees for the appeal, too.  

The court found as to the good faith of the filing attorney that,

 

“The good faith component of Rule 11 is not based on whether an attorney subjectively pursues claims in good faith, but instead is judged on an objective standard of what a professional, competent attorney would do in similar circumstances . . . . The trial court determined sanctions were appropriate because there was “no statutory basis or any extension of statute that would lead counsel to presume that Plaintiff had priority over a first deed of trust filed by the Bank[s].”

 

The appellate court said it quite pointedly: “As discussed above, the language in § 33-1807 is clear and unambiguous. Yet, both here and below, VJA bases its arguments on an interpretation of the statute that is contrary to its plain language.”

 

Don’t be afraid to remind your attorney about this Rule 11(a)  — they are usually hesitant to attack their fellow attorneys as they may be next so charged. 

Villa de Jardins Assn v. Flagstar Bank, CA-CV 2010-0177, (Ariz. App. Div. 2, Apr. 22, 2011).