Tag: punitive damages

HOA foreclosure: an unconstitutional punishment

Writing on the Hindman-Sanchez blog (Colorado) in 2011, attorney Sanchez asks, “Is Foreclosure the Right Option?”  She offers 3 options: 1) just lien the property and wait, 2) get a money judgment on the debt owed and garnish money source, and 3) foreclose. Sanchez answers that option 1 is not quick; option 2 will not work if there is no cash available; so that leaves option 3, foreclose on the house.

However, working on behalf of the HOA and its supposed survival concerns, Sanchez fails to address the practical matter of 1) not enough equity in the home to for the HOA to collect its debt after the mortgage is paid off, or assumed, and 2) the moral and ethical question of a discriminatory, unethical, and inequitable option that amounts to a cruel and unusual punishment. It affects only those who have paid their mortgage and assessments obligations over many years. 

And remember, the HOA has not advanced any hard cash as a bank or lender to warrant a special foreclosure law, but is functioning as a state entity collecting on the failure to pay taxes.  Nor has it performed any services to warrant special treatment under a mechanics lien analogy.  Its services have been performed on behalf of the fictional but legal and separate person, the HOA.

From a broader aspect on the nature of the “contract” between the homeowner and the HOA, the homeowner was not told that buying into the HOA corporation is like buying into a closely held business that has limited marketability (ease of selling out, which amounts to selling his home), and whose source of additional funds is very, very limited – increased assessments, special assessments, and obtaining a bank loan if possible.  That’s the bargain the homeowner made when he bought his home.  That is the hidden downside of HOA corporations kept hidden by the HOA, the developer, the real estate agent and the consumer protection agency, if any. 

The use of foreclosure focuses the members’ attention to the other guy and not on the nature of the contract.  It is an irrational attempt by an HOA attorney to “get blood from a turnip,” which after all, is just what one would expect when dealing with “deadbeats.”  It serves to intimidate and punish homeowners by taking away the homeowner’s home, leaving him nothing. 

Sanchez ignores the reality of the present economic situation, which she admits to. She speaks, however, of foreclosure as a “necessary tool” to punish and to intimidate.

While associations have other options available, foreclosure is a powerful and necessary tool in the association’s collection efforts arsenal. People take notice when there [sic] property is being foreclosed. Foreclosure may motivate those who have not been making assessments to bring their account current. More often than not once a delinquent homeowner gets notice of a pending foreclosure on their property, they make some type of payment arrangement or refinance.

If HOA covenants and statutes that allow the HOA to take a member’s home or money based on an HOA fine was held to be an unconstitutional punishment or penalty[i], so must foreclosure statutes be held as an unconstitutional preemption of government power.  The argument that foreclosure is just a legal collection method and not a punishment falsely states reality.

(Loura Sanchez and Hindman are Colorado attorney members of CAI  and members of its College of Community Associations Lawyers (CCAL)). 

[i]In  Unit Owners Association v. Gilman, 292 S.E.2d 378 (1982), the Virginia Supreme Court heldthat a fine was  “A pecuniary punishment imposed by lawful tribunal upon person convicted of crime or misdemeanor. A pecuniary penalty. It may include a forfeiture . . .” and that “The imposition of a fine is a governmental power. The sovereign cannot be preempted of this power, and the power cannot be delegated or exercised other than in accordance with the provisions of the Constitutions of the United States and of Virginia. Neither can a fine be imposed disguised as an assessment.”  

tort suit against HOA brings homeowners $3.9 million in awards

Here are the tort suits that  can be brought against almost any rogue or knowledgeable Board that intentionally ignores the laws. Note there’s only one complaint for a breach of contract. Keep them this in mind!

The decision in a jury trial of a suit against a condo in Hawaii brought,

“The jury found the condominium association’s board of directors, and its employees and agents violated state condominium laws. They were also found to be engaged in a variety of illegal acts including racketeering, civil conspiracy, gross negligence, malicious prosecution, breach of contract, and both negligent and intentional infliction of emotional distress.”

Jury awards $3.87 million in Molokai condo dispute

AZ SB 1468 – holding HOA boards personally liable for going to court

SB 1468 is one of three bills that will put into place strong and effective penalties against HOA boards who use the threat of law suits to intimidate and punish homeowners into keeping their mouths shut. This bill will hold directors personally liable for the HOA’s attorneys fees if they lose in court.

This long needed enforcement of HOA laws against the boards, rather than just the members, comes about as a result of the HOA industry failing to police itself and to oppose intentional and rogue HOA violators. HOA lobbyists pay lip service to the ”5%” bad boards, but oppose any meaningful attempt to reign them in, a gross failure to act as a good corporate citizenship. Well, it’s time to pay the piper! HOAs “have gotten away with murder” against widows, retirees, single parents, minorities, and those who do not have the money or stamina to buck the HOA. Many of which are simply having the board to just comply with the law and governing documents.

Not only are the boards themselves directly at fault, they are also guilty of abdicating their duties and responsibilities under the law and governing documents to their hired hands, the attorneys and management firms. They are negligent in allowing their agents to act without accountability and without proper oversight and restrictions. The HOA attorneys make money win or lose by going to court. The HOA attorneys often step across the line and collude with the president and wayward boards to violate the laws and governing documents under the excuse of “in defense of my client.” They violate Arizona R. Civ. P. 11(a) (federal rule 11(b)) that requires,

The signature of an attorney or party constitutes a certificate . . . that to the best of the signer’s knowledge, information and belief formed after reasonable inquiry it [the complaint] is well grounded in fact and is warranted by existing law . . . and that it is not interposed for any improper purpose, such as to harass . . . or needlessly increase the cost of litigation.

and Supreme Court Rules of Professional Conduct, 1.2(d), counseling client to break the law, and  1.13(b), Organization as Client, with respect to knowledge of client breaking the law.

Former Arizona Supreme Court Disciplinary Commission Chair, David D. Dodge, wrote about attorney “overzealousness” in the June 2005 edition of Arizona Attorney. (See my Commentary, HOA attorney fiduciary duty to homeowners).

The pro-HOA forces will immediately cry, “NO one will want to become a board member and the HOA will fail.” Well, I got news. Not too many members are rushing to become board members today, anyway. This bill requires the legislators to not only make a just and proper approval of the SB 1468, but to take a proper and just ethical and moral stand against authoritarian, undemocratic private governments that abuse the citizens of Arizona. Violations of the laws and our principles of democratic government cannot be allowed to continue! There are existing legal mechanisms today — just as there are mechanisms for HOAs to obtain public street variances, but HOAs prefer their independent principality status rather than be part of the greater community — that will maintain the perceived planned community benefits while holding the HOA government subject to the 14th Amendment as required of all government entities. (See A proposal for the “Muni-zation” of HOAs; Stop developers from granting private government charters).

Homeowners in HOAs have been waiting a long, long time for effective enforcement against HOA violators. Passing SB 1468 would be a very good start!

PS. The other bills are HB 2445 and SB 1240.

SB 1468 changes to the law

Notwithstanding any provision in the condominium documents, if a unit owner incurs attorney fees in a court action between the condominium or the board and the unit owner regarding enforcement of the condominium documents and the unit owner substantially prevails in the action, the following apply:

1. The members of the board of directors who voted on the record to support the court action against the unit owner are personally liable to the association for attorney fees and costs incurred by the association in the action.

2. If there is no record of who voted to support the court action against the unit owner, all of the members of the board of directors are personally liable to the association for attorney fees and costs incurred by the association in the action.

Courts finally realizing the gross injustice of HOA foreclosures

The gross injustice of HOA foreclosures is slowly being realized by the courts. In Brooks, the Tennessee appellate court heard an appeal on a non-judicial foreclosure whereby the HOA sold, and bought, a “free and clear” home valued in excess of $321,740 for just $12,828, of which about half, $6,734, were attorney fees.

That’s more than 25 times the “damages” to the HOA, and more than the 10 times limit set by the US Supreme Court for punitive damages. See State Farm v. Campbell, 538 U.S. 408 (2003). And, the Rivertown HOA failed to acknowledge that the homeowner had paid part of this amount before the foreclosure.

The court held, emphasis added,

In addition to finding that the foreclosure sale price shocked the conscience of the court, the trial court determined that various irregularities in Rivertown’s bookkeeping justified setting aside the sale. In its January 27 order, the trial court found that it was “unclear as to what amount would have brought Plaintiff to a zero balance on assessments[.]”

Brooks v. Rivertown on Island, No. W2011-003260COA-R3-CV (Tenn. App., Dec. 6, 2011).

Call for HOA action: “Occupy Wall Street” vs. Occupy the Legislature

“Occupy Wall Street”! What a way to get attention! How about an “Occupy the Legislature” demonstration against unjust and unfair HOA foreclosures with their intimidation, threats, and cruel and unusual punishment? In every state — especially Florida, Nevada, Arizona, Texas and California.

The pro-HOA supporters’ reason for the need for foreclosure rights can be found in the defective HOA legal scheme that is similar to a partnership. In partnerships there are a limited number of financial supporters, the owners, who are jointly and severally responsible for all the HOA debts — those with the money pay for those without the money. A legality. And like a privately held small business, the financial base is relatively small and limited to the homeowners who have very little practical means to escape their obligations by leaving the HOA.

Those who feel that foreclosure is needed need to ask themselves, Does the means justify the end? An “I don’t care” response is unacceptable, and legitimizes the authoritarian HOA government. Foreclosure is a special law for a special group that violates state constitutions — the equal protection of the laws, special laws for private organizations, and “color of law” constitutional violations. No state has declared its intent or purpose for the statutes – they wouldn’t dare – that justifies a legitimate government interest that can withstand judicial review of the statute. And that review is a strict review that looks to a necessary and compelling reason to deprive citizens of their rights.

And remember, there is that huge cloud hanging over the genuine and freely given, after full knowledge of all the material facts, consent to the CC&Rs. CC&Rs, a real estate doctrine based on equitable servitudes and not constitutional law, do not legally require an explicit signature or explicit surrender or waiver of constitutional rights, or for a bona fide consent to be governed by the de facto HOA political government.

Homeowners must let go of their irrational fears that the HOA would be shut down. They must stop their blind adherence to the CAI chant of “no government intervention” that really is a belief that HOA governments, unaccountable to the Constitution and state governments, are far better than public government with its police powers to protect citizens from abuse by other citizens.

An Occupy the Legislature movement is a grass roots, ground level action. It must come from local homeowners organized under local leadership, behind a fixed purpose. And right now, “Stop HOA foreclosures” is a very appropriate mission.

See HOA foreclosures:  will the real CAI stand up