Tag: law

Comments on CAI opposition to FHFA ban on HOA transfer fees – Notice 2010-N-11

Community Associations Institute, CAI, distributed its Oct 10, 2010 release in opposition to HOA transfer fee ban by the Feds — disguised as a generic appeal for the desperate need for property transfer fees to help mismanaged HOAs.    That’s “mismanaged” and mis-educated by the national educator of HOA boards, homeowners, government and everybody else — CAI.

It’s surface argument, designed to create fears in the minds of unknowing readers, is that the transfer fee gives HOAs much needed income, and the ban will take away what is a right of the private business HOA. The proposed Fed regulation would ban mortgage lenders from dealing with property sales subject to transfer fees.  Implied is that the HOA, like public government, must not be allowed to fail.

Here are a number of questionable statements from the national educator, controlled by lawyers.

1.  For HOAs to comply with the ban on fees in order to get mortgage lenders, CAI claims that the CC&Rs would need to be modified by the “standard” 2/3 vote, a near impossibility.  Well, not so. Most HOAs just take this on as a board decision, defending themselves by declaring that the CC&Rs allow the board may charges fees.  Period.  And if the CC&Rs were modified to include the new transfer fees, what’s the problem?  What say you, CAI?

2.  That these fees have been helped to fund reserve accounts is another CAI claim.  I say, What reserves?  I say, What “reserves for bad debts” standard AICPA procedures has been taught by CAI and used by HOAs to protect against income shortfalls?  None!  (See Using Bad Debt Accounting in HOA Budgets).  So, poorly managed HOAs by boards with defective and incomplete education resort to “socking it to them,” the sellers who will receive no consideration for the fee,. It goes to the HOA and the seller receives no benefit, except for the “payoff” to be able to sell his home.  Furthermore., some HOAs have been advised to stick it to the buyer by placing this payment as one that the buyer must pay into the sales agreement.  WOW!!  Where does the HOA get the nerve to impose on third-parties a cost of buying into the HOA, when there is no contract beyond buyer and the HOA?

3.  And CAI offers the “carrot” to existing homeowners, as if they are not subject to the fee.  CAI states that it will help “financially strapped community associations keep monthly assessments low.”

4.  With this release, CAI continues to promote the New America of HOA-Lands with its authoritarian, undemocratic private governance operating outside Constitutional protections for homeowners.  See Understanding the New America of HOA-Land.

5.  CAI should be investigated for a pattern of activity that supports subversive local governments that deny constitutional protections, sold under questionable methods —  the lack of informed consent and information about life in HOAs.

Ref:  

Notice of Proposed Guidance on Private Transfer Fee Covenants (75 FR 49932) 

Notice 2010-N-11 10/15/2010

Understanding the New America of HOA-Land

I assembled several of my publications into this eBook format (5.5 x 8.5 PDF) to present a comprehensive view of the substantive issues relating to the HOA – planned community legal scheme.  The first 3 booklets represent 16 pages, and the “American Political Government” booklet  is a more detailed presentation of some 45 pages.

The cover reads:

“What you need to know about the political and social effects of HOAs on the American way of life.”

“Accepting authoritarian government over democratic government.”

Table of Contents

1. HOAs as an established institution

2. Proposal for muni-zation of HOAs

3. Is there an ideal HOA “constitution”?

4. American political governments

5. George K. Staropoli

Supplemental ebook material (not included):The Foundations of Homeowners Associations and the New  America.

 

Other publications and information can be found at the Citizens for Constitutional Government web site, http://pvtgov.org.

court examines consent and surrender of rights in HOA CC&Rs

 This HOA arbitration clause case discusses those important legal issues ignored by  state legislatures and the courts over the years —  those pertaining to the homeowner’s consent to agree, his surrender of his rights by the  mere acceptance of a deed, and raises the question of misrepresentation by the participants in the Unspoken Alliance.  The Court in Pinnacle[1] reiterated that consent may occur by implication, but does not concern itself with the “full knowledge” and misrepresentation of that implied consent.  While the Court dealt with the matter before it, the arbitration clause, the application of its reasoning can be extended to the broader issues of a valid contract under its application of contract law requirements.

 For example, one aspect is the holding that the buyer has agreed to the CC&Rs if he has opportunity to examine the CC&Rs, at or shortly after closing and accepting the deed, but declines to do so.   This legal doctrine presumes that “all things being equal”, but they are not with regard to misrepresentation by the developer and the real estate agent, and the silence on the part of the consumer protection agencies.  These agencies have failed to put forth warnings to buyer to the effect:  There are surprises and covenants that you may feel are oppressive, which may affect your rights, freedoms, privileges and immunities to which you are entitled under state laws and the Constitution.

 The Court stated the facts of the Pinnacle CC&Rs .

 “In selling the condominiums Pinnacle used a standard purchase and sale agreement that recited on the first page that the buyer agrees to comply with the CC&R’s by accepting a grant deed to the condominium. . . . any dispute in any manner other than as provided in [the CC&R’s]. Buyer and Seller acknowledge that by agreeing to resolve all disputes as provided in [the CC&R’s], they are giving up their respective rights to have such disputes tried before a jury. WE HAVE READ AND UNDERSTOOD THE FOREGOING AND AGREE TO COMPLY . . . “

 In spite of the above, the Court found the clause unconscionable.  Borrowing from Villa Milano[2], the court quoted (emphasis added), “A developer should not be permitted to accomplish through the CC&R’s what it could not accomplish through a purchase contract.”   (Please note that in a broader sense I have argued that HOAs by virtue of a written covenants running with the land — CC&Rs — cannot be allowed to circumvent the US Constitution.)  The court held,

 “We examine this question under general contract formation principles. . . .Essential components of a contract include parties capable of contracting and the consent of the parties to the contract. . . . Although the arbitration provision states that by accepting a deed for any portion of the association property, the Association agreed to give up its right to a jury trial and have any construction dispute decided by arbitration, the Association had no choice but to accept the property that Pinnacle deeded to it.

 “We agree with Villa Milano insofar as it holds that CC&R’s can reasonably be ‘construed as a contract’ and provide a means for analyzing a controversy arising under the CC&R’s when the issue involved is the operation or governance of the association or the relationships between owners and between owners and the association. . . .”

Please read the following very carefully.  “Does not comport” should be read as:  insufficient to pass judicial review for the surrender of such an important Constitutional right.

 “Treating CC&R’s as a contract such that they are sufficient to waive the right to trial by jury does not comport with the importance of the right waived. CC&R’s are notoriously lengthy, are adhesive in nature, are written by developers perhaps years before many owners buy, and often, as here with regard to the waiver of trial by jury, cannot be modified by the association. Further, the document is not signed by the parties. . . . The general principles discussed in Treo[3] regarding the need for free and voluntary consent before a party can be deprived of its constitutional right to a jury trial are equally applicable to arbitration.”

 The Court then addressed the issue of unconscionable adhesion contracts. 

 “Procedural unconscionability focuses on oppression or surprise.  “Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice,” while “surprise involves the extent to which the supposedly agreed-upon terms are hidden in a prolix printed form drafted by the party seeking to enforce them. . . . In assessing substantive unconscionability, the paramount consideration is mutuality.

 “The provision in the purchase and sale agreements did not mention arbitration, nor did it explain to purchasers the type of disputes for which they have agreed to waive their constitutional right to a jury. To discover this information, purchasers needed to read the CC&R’s. . . . However, for the terms of another document to be incorporated by reference into a contract, the reference must be clear and specific, and the terms of the incorporated document must be known or easily available to the contracting parties.”  [The CC&Rs are incorporated by the statement that the deed is subject to CC&Rs, but most do not contain the explicit legal  statement, “and are incorporated herein”].

And specifically in regard to binding homeowners by means of constructive notice,

 “Assuming the CC&R’s had been recorded before the sale of the first condominium, we cannot conclude that recording a document qualifies as making the document readily or easily obtainable. It is unreasonable to assume that buyers eager to complete their purchase of a condominium will stop the process and travel to the county recorder’s office to locate a copy of the CC&R’s. Thus, there is a high degree of surprise because purchasers have no means of ascertaining . . . . Oppression also exists because the jury waiver provision in the purchase and sale agreements and the arbitration provision in the CC&R’s were part of preprinted materials presented on a take-it-or-leave-it basis to purchasers without any negotiation. . . . Accordingly, the existence of surprise and oppression reveals a high degree of procedural unconscionability.”

One would think that all those CAI lawyer-members of its College of Community Association Lawyer, and all those legal-academic aristocrats who write journals, attend seminars and conferences, and offer their person opinions in the Restatement Third, Property: Servitudes on what the law is would know better.  The Restatement was supposed to summarize the general holdings of the courts, and not the opinions of the legal-academic aristocrats, as to the common law of servitudes (covenants running with the land). 

 For example, § 3.1, comment h, states: “in the event of a conflict between servitudes law and the law applicable to the association form, servitudes law should control”;  and § 6.13, comment a, states: “The question whether a servitude unreasonably burdens a fundamental constitutional right is determined as a matter of property law, and not constitutional law”. These statements reflect an excess of zeal and an abuse of the duties as editors/contributors to the Restatement.  It is not to difficult to conclude that this Restatement serves to advance the interests of the legal-academic aristocrats.

These efforts have permitted HOAs to become institutionalized over the years, which translates into an acceptance without question of the rights and powers of the HOA.  The principles applied in this case on arbitration clauses must be extended to the very nature and legal foundation of the HOA scheme.

 

Notes

 1. Pinnacle Museum Tower HOA v. Pinnacle Market Dev., D055422, Cal. App. Dist. 4 (July 30, 2010).

 2. Villa Milano Homeowners Assn. v. Il Davorge, 84 Cal.App.4th (2000).

 3. Treo @ Kettner Homeowners Ass’n v. Superior Court, 166 Cal.App.4th 1055 (2008).

What were the intentions of the “original parties” to the CC&Rs?

I found this HOA case revealing of the misguided attitude, that mindset that HOAs are unquestionably solidly “legit.”  The NC appeals court cited Wise, 357 N.C. 396, 584 S.E.2d 731 (citations omitted, emphasis added) :

“As a general rule, ‘[r]estrictive covenants are valid so long as they do not impair the enjoyment of the estate and are not contrary to the public interest.’ (describing freedom of contract generally). Restrictive covenants are legitimate tools of developers so long as they are clearly and narrowly drawn. The original parties to a restrictive covenant may structure the covenants, and any corresponding enforcement mechanism, in virtually any fashion they see fit. (‘an owner of land in fee has a right to sell his land subject to any restrictions he may see fit to impose’). A court will generally enforce such covenants `to the same extent that it would lend judicial sanction to any other valid contractual relationship.’ As with any contract, when interpreting a restrictive covenant, ‘the fundamental rule is that the intention of the parties governs'”.

Id. at 400-01, Wise, 584 S.E.2d at 735-36.

Therefore, under the common law, developers and lot purchasers were free to create almost any permutation of homeowners association the parties desired. Not only could the restrictive covenants themselves be structured as the parties saw fit, a homeowners association enforcing those covenants could conceivably have a wide variety of enforcement tools at its disposal.

What is missing here is an answer to the question: Who were the “original parties”?  What were their intentions?  Well, it seems quite obvious that the original parties are none other than the declarant and his “stand-in” employees and  not at all any of the subsequent homeowners.  I mean,  what am I missing here?   It gets back to the obvious Contract Law 101 requirement of a meeting of the minds.  How can an oppressive, adhesion contract be viewed by our lofty courts as to the intents of the “original parties”, and then bind the poor homeowner who is not required by law to even read it to be bound under servitudes (covenant) law.

And let’s not get into the judicial scrutiny requirements that all  “contracts” must pass to bind the surrender of one’s rights, privileges, immunities and freedoms under state laws and the Constitution.  I mean, isn’t this still America?

See Bodine v. Harris Village POA, No. COA09-1458, (N.C. App., September 7, 2010). (http://www.leagle.com/unsecure/page.htm?shortname=inncco20100907514).

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

Today, Arizona has a new crop of laws becoming effective, aside from SB 1070, two of which affect HOAs and property sales.  One would think that the AZ Dept of RE (ADRE) would mention these new laws. Although pertaining to HOAs, which ADRE does not regulate, they affect the sale of real property.  Real estate agents are required to know real estate law, contract law, agency law, and the Commissioner’s Rules, which are part of the licensing test and are included in its biannual continuing education classes.

Playing its part in the unspoken alliance of “No Negatives About HOAs“, ADRE released the following document:  Law Book Addendum 2010 Statute Changes –  Click here.   It makes no mention of the only two HOA bills with changes to ARS 33-442, which pertains to real property sales and transfer “fees” imposed by HOAs.  HOA attorneys have suggested that the HOA get the seller to include payment by the buyer it the sales contract.  But, according to ADRE, no need to be concerned here.

The Addendum also does not mention the changes to ARS 33-1808 and 33-1261 pertaining to “for sale sales” signs.  Not a concern of agents either, it appears. (It’s not like ADRE is not aware of the bills, having supported them.).

Under the Commissioners Rules (AZ Administrative Code, Title 4, Chapter 28 (ADRE), Article 11, Professional Conduct, excerpted here (emphasis added),

R4-28-1101. Duties to Client (legally, the guy who pays; the other party is the “customer”)

A. A licensee owes a fiduciary duty to the client and shall protect and promote the client’s interests. The licensee shall also deal fairly with all other parties to a transaction.

B. A licensee participating in a real estate transaction shall disclose in writing to all other parties any information the licensee possesses that materially or adversely affects the consideration to be paid by any party to the transaction, including:

3. Any material defect existing in the property being transferred;

H. The services that a salesperson or broker provides to a client or a customer shall conform to the standards of practice and competence recognized in the professional community for the specific real estate discipline in which the salesperson or broker engages . . . .

I. A salesperson or broker shall exercise reasonable care in ensuring that the salesperson or broker obtains information material to a client’s interests and relevant to the contemplated transaction and accurately communicates the information to the client. A salesperson or broker is not required to have expertise in subject areas other than those required to obtain the salesperson’s or broker’s license. A salesperson or broker shall take reasonable steps to assist a client in confirming the accuracy of information relevant to the transaction.

A strict reading of the above evokes a “caveat emptor” policy by ADRE, and “material” only pertains to the physical, and not to all of the real property interests affected by the sale of the real property.  Yet, in its PR statement to consumers, “Information for Consumers” page, ADRE assures the consumer in its (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

PS.  Earlier this year, the last time that I wrote ADRE about this, and to the new Commissioner, I was told that ADRE doesn’t regulate HOAs.  No mention of its failure under the above Rule.  I guess HOA laws affecting sales does not concern ADRE, and has adopted the “see no evil hear no evil, speak no evil” stance.