Tag: legislature

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.

The HOA legal scheme is ab initio unconstitutional

TO:     Legislative leaders in every state

The HOA legal scheme based on the Homes association Handbook is ab initio unconstitutional

In March 2006 I wrote Christopher Durso, editor of the Community Associations Institute’s (CAI) monthly house organ, Common Ground, asking four questions in regard to the constitutionality of HOA’s  (CID, POA, planned unit development, etc.) legal scheme.  My concern was that CC&Rs are a devise for de facto HOA governments to escape constitutional government as presented in  the 1964 “bible” that brought forth the legal scheme, The Homes Association Handbook. 

Replacing democratic local governments with authoritarian private governments:  Is this good public policy? 

“Public policy today rejects constitutional government for HOAs allowing them to operate outside the law of the land. The policy makers have failed to understand that the HOA CC&Rs have crossed over the line between purely property restrictions to establishing unregulated and authoritarian private governments.”

Here are the four questions:

 1. Is it proper for the state to create, permit, encourage, support or defend a form of local government of a community of people, whether that form of government is established as a municipal corporation or as a private organization that is not compatible with our American system of government?

2. Is it proper for the state to permit the existence of private quasi-governments with contractual “constitutions” that regulate and control the behavior of citizens without the same due process and equal protection clauses of the 14th Amendment; that do not conform to the state’s municipal charter or incorporation requirements; or do not provide for the same compliance with the state’s Constitution, statutes or administrative code as required by public local government entities?

3. When did “whatever the people privately contract” dominate the protections of the US Constitution? The New Jersey Appeals Court didn’t think so (CBTR v. Twin Rivers, 2006). Does “constructive notice,” the “nailing to the wall,” the medieval method of notice, measure to the requisite level of notice and informed consent to permit the loss of Constitutional protections?

4. Please state what, if any, are the government’s interests in supporting HOAs that deny the people their constitutional rights?

Please respond  to these fundamental questions of HOA constitutionality.

Law review on CC&Rs constitutionality – part 1

While the title of the Ken Stahl Pepperdine Law Review article[1] addresses the “validity of private deed restrictions” (CC&Rs) and “an unconstitutional taking” (eminent domain) with respect to affordable housing, Stahl’s investigation covers many of the HOA constitutionality concerns that I’ve raised over the years. He warns about legislative “overrides” – statutes that impinge on CC&Rs – and the balance of governmental powers between the state/county and private, contractual governments.

While the article is focused on California’s dealing with its affordable housing crisis, my annotations are questions focusing on the constitutionality of the  HOA CC&Rs. The article covers a lot of ground – 55 pages of legalese — and so I will make several commentaries or, in this case, research memoranda. Starting at the beginning, the Abstract and Introduction materials, Professor Stahl speaks to:

  • California legislature invalidating CC&Rs. We  are aware of statutes regulating what HOAs can and cannot do on things like “pets, clotheslines,  signs and flags” but the legislature is going a bit further in regard to local zoning, home rule statutes, and “overriding” many covenants in the interest of affordable housing. 
  • “The doctrine of “home rule” that places some outer limits on the ability of state legislatures to preempt local regulatory power.”
  • Home rule statutes exist in all states that allow a high degree of community independence from state/legislative interference on local matters.  The HOA scheme avoided these statutes that would provide all the current benefits but subject the HOA to the Constitution – HOA could not hide behind “not us, we are private” nonsense.
  • This overriding is facing concerns of the state “taking” of property rights that HOA members agreed to under a private contract. This invokes eminent domain concerns of just compensation as I have raised with respect to the questionable HOA contract’s taking of a member’s property rights.
  • All fifty states have detailed legislation regarding the governance and management of HOAs, including voting rules, budgeting, disclosure, and so forth, and a few states authorize state agencies to regulate HOAs.
  • “HOAs are ubiquitous, vastly outnumbering local governments, and they act essentially as little municipalities, taxing residents through mandatory assessments and regulating land use with detailed restrictions, called “covenants, conditions, and restrictions” (CCRs), that often mirror local land use regulations. Indeed, CCRs are typically far more restrictive than local land use regulations in many respects.”  There you have it, almost like McKenzie’s words in his 1994 Privatopia [2].
  • The question of quasi-government HOAs is expressed  as “the HOA is “simply a convenient mechanism to enforce those rights.”  Recall my charge that “HOAs are a devise to circumvent the Constitution.” The rights in context above refer to “the extension of the property rights” imposed by the CC&Rs.
  • “In contrast to the local government, which is considered a public body within the quasi-federal structure of state government, the HOA is generally considered a private entity, an extension of the property rights of homeowners.”
  • The author is concerned about the aggressive nature of the California legislature in regulating and controlling HOAs, far beyond their previous involvements. They deal with “what HOAs are really about: the ability to strictly control the character of the community by excluding undesirable uses of property within the community.
  • The controversial issue of consent to be governed or agreed to be bound does not escape Stahl’s view. “Homeowners are presumed to voluntarily subject themselves to CCRs when they choose to purchase property.” He makes the strong point that public policy  “causes courts to treat them as formally private, in contrast to the coercive nature of land use regulations enacted by public municipalities.”  This is a reference to the balance of power between the  state and supposedly freely agreed to expression of homeowners, the CC&Rs.
  • The mantra of CAI and legislators – You agreed to be bound! I witnessed an AZ legislator condemn a homeowner speaker that he was trying to get out of a contract that the speaker discovered was bad and he wasn’t going to be a part of it. A deal is a deal!
  • The author believes that the newer  legislative overrides will be constitutionally challenged,  arguing “ that overrides are likely to be upheld against constitutional challenges except in very unusual circumstances.”  In other words, Stahl seems to be saying that advocates can look to favorable legislation regarding due process and the equal protection of the laws for homeowners. He has already made favorable arguments in his journal article that simply need to be focused on justice and homeowner rights than just affordable housing.

I plan  at least  2 additional commentaries concerning this article following its structure: the role of equitable servitudes (covenants) and CC&Rs, and  constitutional concerns.

Acknowledgement

I would like to thank Barbara Lorraine-Johnston  for bringing this law review article discussing many of the constitutional issues that I have repeatedly argued and commented on over the years.  The importance of advocates bringing events, court cases, statutes, papers, articles, and law journal publications cannot be overstated. I can only comment on what comes to my attention.

For additional information, visit my comments, some 1,314 since 2004, can be found at HOA Constitutional Government.  Become a Subscriber to receive automatic updates.

NOTES

[1] “The Power of State Legislatures to Invalidate Private Deed Restrictions: Is It an Unconstitutional Taking?” (pepperdine.edu). (50 Pepp. L. Rev. 579 (2023)). Kenneth Stahl is a Professor of Law and the director of the Environmental, Land Use, and Real Estate Law program at Chapman University Fowler School of Law.

[2] Evan McKenzie, Privatopia: Homeowners Associations  and the Rise of Residential Private Government (1994) and Beyond Privatopia (2012)).

Legislative proposals and research memoranda

Many homeowners have become alienated from the political process both within the HOA — board of directors, president, community managers (CAM), and the HOA attorney; and  within state government – the legislature, judiciary, and elected officials.  The news media has failed to tell the truth and to ask the hard questions, as they commonly proclaim to their audiences, with respect to the HOA legal scheme, questions of constitutionality, and misrepresentation in the selling process; thereby giving a false message and spreading misinformation in support of the special interests.

They feel that their voice doesn’t matter and that the special interests control the policy decisions affecting their lives.   VCL-HOA assures that homeowner influence is brought to bear on the decisions made by politicians and state legislatures and agencies, including on the HOA political community as  well.The Valley Citizens League – Homeowners Association Research is a national, member-based  community organization performing research on HOA problems and issues through a study process, rather than by opinion polls, surveys or focus groups.

Important information: View full document, VCL-HOA, Sample case analysis, Sample legislative memo

Disclaimer

The information contained in this written or electronic communication, and our associated web sites and blog, is provided as a service to the Internet community, and does not constitute legal advice. We try to provide quality information, but we make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained in or linked to this web site and its associated sites. As legal advice must be tailored to the specific circumstances of each case, and laws are constantly changing, nothing provided herein should be used as a substitute for the advice of competent counsel. No person associated with AHLIS or Citizens for Constitutional Local Government, Inc. is an attorney nor is employed by an attorney.

HOA advocate credentials are lacking

Should the FEDS get involved in HOA-Land abuse even though HOAs are controlled by state laws?  It would need to come under the approach that state laws are so varied that uniform laws must be adopted, and not by ULC that is steeped in the past and promotes more bad laws. This “what state are you in and that’s the law” has been a general argument for federal law and is a reason for federal intervention in the courts.

With all due respect for the hard work of several reform social media groups, getting the attention of state legislatures and DOJ/FBI depends upon the credentials of advocates. Can they make arguments at the level where the courts and lawyers will stand up and take notice? This is a longtime failure of HOA reform efforts even though they have obtained important reforms here and there over the years.

These reforms, for the most part, are rooted in “operational” reforms that affect the laws now on “the books” —  the overwhelming bad laws dealing with day-to-day operations and functions of the HOA. This reform legislation is needed to bring  a fair and just treatment under the constraints of the HOA legal scheme until reforms of substance are adopted.

Allow me to explain with an example.  There are many “good” laws that are designed to protect the homeowner and his rights, and put restrictions on the HOA. They may even have strong enforcement provisions with criminal violations.  Great? On the surface yes because enforcement is still the task not of the state, but the homeowner who has to bring such charges. The state – district/county attorneys and attorney generals — are not obligated to act. BUT, by definition, a crime is an act harmful to the state beyond one person. “Crime is “the intentional act usually deemed socially harmful or dangerous . . . prohibited and punishable by law.”

This “not my job,” hands-off posture constitutes an error of omission by the state that, under the obligations of the Constitution.

“We the People of the United States, in Order to . . . establish Justice, insure domestic Tranquility . . .  promote the general Welfare . . ..”

Stay with me.  What is necessary is to rewrite the CC&Rs that is based on The Homes Association Handbook, as the Founding Fathers did when they threw out the Articles of Confederation for the US Constitution.  There has been and is little support for this approach, which I believe is the result of a lack of understanding and a fear that their HOA would be abolished —  a very successful fear mongering by CAI. And that includes a fear of CAI.

Over the years I filed an IRS tax-exempt complaint against CAI for having the customers of its members also a member of the business trade group in violation of its tax-exempt status. In 2005 CAI had to drop HOAs pe se from membership. Earlier this year I filed a 40-page complaint with the antitrust division of DOJ arguing that CAI was a monopoly, and has acted to thwart competition and the free entry into the HOA education market. 

Recently I asked for support of my appeal to the Federalist Society  to encourage and promote dialogue on the constitutionality of and loss of citizen rights in an HOA. The Society’s mission is educational for lawyers and student lawyers, and has a national  program of local law school chapters to debate issues. (Notable attorneys and government officials attend these meetings. My grandson had the opportunity to meet the Governor.)  I argued that new lawyers sally forth lacking the truth about HOA-Land serving to perpetuate the unjust laws.

HOA reformers and groups must present themselves as knowledgeable advocates, united nationally, who understand the law and the judicial process.  Reformers need to be able to stand up before CAI, the courts, and state legislators and win!  As I posted elsewhere, I am still waiting for an answer to my 2006 challenge to debate the CAI “elite” lawyers who are members of CAI’s CCAL.

As the renowned international management consultant Peter F. Drucker made clear, “A mission statement has to be operational; otherwise, it’s just good intentions.“