Tag: Tennessee

HOA foreclosures and unclean hands

I’ve come across a few cases involving the markedly low HOA auction price as compared to the market value of the home. Previously, I compared this situation to the US Supreme Court’s finding that punitive awards more than 10 times the damages violates the 8th Amendment and constitutes cruel and unusual punishment. (See State Farm v. Campbell, 538 U.S. 408 (2003)). But other decisions pertaining directly to foreclosures, which did not address the 8th Amendment, are also to be considered.

In the 1984 Tennessee Supreme Court non-HOA case, Holt v. Citizens Central Bank (688 S.W.2d 414), the court reversed long standing doctrine regarding foreclosure sales.  The view that “a price of ten percent of the fair market value would probably shock the conscience of any court” and “that inadequacy of consideration so great as to shock the conscience of the court, standing alone, was sufficient to warrant voiding the sale” was thrown out.  In place, the court held, along with decisions in Texas and North Carolina, that

If a foreclosure sale is legally held, conducted and consummated, there must be some evidence of irregularity, misconduct, fraud, or unfairness on the part of the trustee or the mortgagee that caused or contributed to an inadequate price, for a court of equity to set aside the sale.

The question for homeowners in foreclosure is whether or not the HOA comes with unclean hands[i]?  Are there elements of “irregularity, misconduct, fraud, or unfairness” on the part of the HOA?

In the Tennessee 2011 appellate case, Brooks v. Rivertown (No. W2011-00326-COA-R3-CV memorandum decision[ii]), the court upheld the denial of an HOA foreclosure because the HOA could not specify an exact amount owed. It upheld the Holt decision since it found irregularities in the HOA’s bookkeeping; and the HOA also failed to follow its required 30-day notice in non-judicial foreclosure, amounting to unclean hands.

For those in foreclosure, you need to ask for an accounting by the HOA, which must show your legitimate challenges to the HOA’s recordkeeping, like I paid but the HOA ignored me, etc.

Notes

[i] “The principle that a party cannot seek equitable relief or assert an equitable defense if that party has violated an equitable principle, such as good faith.” Black’s Law Dictionary, 7th Ed.

[ii] A memorandum decision means that no new law was made, and that just old law was applied.  Consequentially, there is no reason for binding precedent status.

Why should taxpayers pay private entity HOA assessments? It ain’t fair!

Good golly Miss Molly, what are we gonna do?  What are we gonna do?  If state governments refuse to pay assessments on HOA property it owns by foreclosure, how is the HOA to survive?  The “stakeholders”, which does not mean the owners but all those vendors who feed off the HOA income streams, are aghast! How are we gonna make a living?  How are we gonna make a living?  Good golly Miss Molly!

A Tennessee bill is proposing an exception to its laws to exempt the state from having to pay HOA assessments on properties that it took over by foreclosure. “But state lawmakers are considering a bill that hands those foreclosure charges to the rest of the homeowners’ association instead of the municipality. What it does is increase the cost to the homeowner.” (TN bill would pass foreclosure fees to neighborhoods). 

Um, what happened to the battle cry in favor of HOA foreclosure, “It ain’t fair for others to pay for deadbeat homeowners?”  Why should taxpayers not living in the private contractual HOA governed community, with its private amenities, pay for deadbeat HOAs?  It ain’t fair! 

As with any business enterprise, when times are good all defects are masked and hidden from daily concerns.  Policies, procedures, rules and regulations, and the legal structure and purpose of the entity can escape serious concern.  The world is good.  HOWEVER, when things start falling apart, like the financial quagmire facing HOAs, the poorly formed and drafted organizations functioning under faulty premises and legal structure start falling apart.  And this is what is happening to defective HOA legal concept.

I cannot count the number of times state legislators told homeowners that they had agreed to a contract and now that it is working against them they want the legislature change that contract. NO, was the position of the legislator.  Well, the nature of the CC&Rs contract is defective as it imposes a financial liability on the members much like a partnership with its joint and severable liability on all the partners. Also, the member liability is much like buying stock in a small closely-held business with limited ability to raise additional funds except from the members themselves.  It’s all part of the “deal.”  Didn’t the national pro-HOA lobbying organization explain that to you?

Or, were you just told that the HOA was a great way to preserve property values?

And let’s not forget that state legislatures have granted the HOA “special dispensation” in terms of special laws for a special entity – no oversight and very little HOA accountability.  They have played their part in creating the HOA financial quagmire.  Instead of a city or two going bankrupt, the state has set the stage for hundreds of communities governed by HOAs to go bankrupt. 

For the state to pay assessments would be like throwing good money after bad money.

HOA principalities: To bee or not to bee one government under the Constitution

As a result of a conflict over bees and whether local ordinances or HOA CC&Rs governing beekeeping prevail, the Tennessee Attorney General is being asked his opinion on HOAs as public entities.  Rep. Glen Casada has sought a clarification from Tennessee Attorney General Robert Cooper “for an opinion on whether or not the HOA is considered a political subdivision of the state.”  (The AG was appointed by the TN Supreme Court, and is an officer of the court and not the Executive branch).

How shall the AG decide?   Take a very narrow view and simply declare that the HOA is a nonprofit corporation under corporation laws and not a municipal corporation; therefore it not a state entity. If so, how does he address the fact that “if it looks like a duck, quacks like a duck, and walks like a duck, it is a duck?”  “A rose by any other name is a rose.”  A tax by any other name, assessments, is a tax.  A law by any other name, regulations or covenants, is a law.  In fact, British municipal law equates the term law with by-law. “3. British . an ordinance of a municipality or community.”

Let us assume that the AG takes a firm stand and enters into the foray.   The safest approach is to turn to the ancient public functions test of 1946 with respect to a company town and free speech. His decision would deny that the HOA is a public entity, probably, since the HOA doesn’t meet the public functions test. 

This view has always disturbed me when I examine the state’s municipality laws on incorporation of towns and villages. They ain’t got no such tests, yet they are declared public entities if they declare their allegiance to the Constitution and are approved by the state.   I guess it’s OK to use double standards when it comes to HOA governments. 

Are there any other criteria that bear on whether or not an entity is a public entity, or that it is a state actor acting as if it were indeed a state entity?  The law is rather extensive on state actors and state action. In today’s environment with the attitude of “no government interference,” applying state actor designations to HOAs will be a difficult task since it would extend the reaches of “big government.”  But, when dogma prevails over facts we must fight for “truth, justice and the American way.”

US Supreme Court holding in TN state actor case

The US Supreme Court has set several criteria for state actions and state actors, among them: a “close nexus,” a “symbiotic” relationship, “state’s exercise of coercive power”, “entwined with governmental policies”, and “significant encouragement, either overt or covert.”  They are discussed, in of all cases, in Brentwood v. Tennessee Secondary Schools, 531 U.S. 288 (2001).

I hope Attorney General Cooper will uphold the US and Tennessee constitutions, knowing full well that even homeowners living in HOAs are US citizens and citizens of the State of Tennessee, with full rights, privileges and immunities.

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).

Unrecognized, de facto government: the State of Frankland should have written CC&Rs

 
And you thought that unrecognized de facto goverments, like HOAs regimes, were a figment of my imagination.

The State of Franklin was set up in 1784 out of the westerly portion of the colonial state of North Carolina. Shortly after the War of Independence the original colonies were asked to pay for the war efforts and create a country with a sound financial policy. Since the taxing the population was difficult and cash was in short supply North Carolina ceded the western portion of the state to the federal coffers. Before the Congress could accept the offer North Carolina withdrew the offer. The citizens of the region decided that federal rule in the meantime was probably a good idea since North Carolina as a state had given this remote region little support in its fight with the Indians or protection from criminal refugees. They saw other benefits as an independent state in terms of taxation, representation and an understanding attitude toward local problems. Representatives of the North Carolina counties of Sullivan, Washington, Greene, and Davidson accepted the offer of cessation to federal territory. The state of Franklin existed for only four years to finally merge with the new state of Tennessee. 

http://www.next1000.com/family/GRUBB/sullivan.tenn.html

Attempt at statehood
  
The State of Franklin, known also as the Free Republic of Franklin or the State of Frankland (the latter being the name submitted to the Continental Congress when it considered the territory’s application for statehood[1]), was an autonomous United States territory created in 1784On May 16, 1785, a delegation submitted a petition for statehood to the Continental Congress. Seven states voted to admit what would have been the 14th federal state under the proposed name Frankland. The number of states voting in favor of statehood, however, fell short of the two-thirds majority required to admit a territory to statehood under the Articles of Confederation. Late the following month, the government again convened to address their options and to replace the vacancy at Speaker of the House, which had been held by the late William Cage. Addressing the vacancy, Joseph Hardin was elected to the Speaker of the House position. Then, in an attempt to curry favor for their cause, delegation leaders changed the proposed name to “Franklin” (after Benjamin Franklin), and even initiated a correspondence with the patriot to sway him to support their cause. Franklin politely refused, writing:

I am sensible of the honor which your Excellencey and your council do me, but being in Europe when your State was formed I am too little acquainted with the circumstances to be able to offer you anything just now that may be of importance, since everything material that regards your welfare will doubtless have occurred to yourselves. …I will endeavor to inform myself more perfectly of your affairs by inquiry and searching the records of Congress and if anything should occur to me that I think may be useful to you, you shall hear from me thereupon.[4] —Franklin’s letter to Governor John Sevier, 1787

Independent Republic

After the failed statehood attempt, the now de facto independent republic was ‘officially’ re-named Franklin.

 Up to this point, the government had been assembling at Jonesborough, mere blocks from the competing (although idle) North Carolina seat of government. Because of this, Greeneville was declared the new capital. The first legislature to meet there did so in December, 1785. At Greeneville, they finally adopted a permanent constitution, known as the “Holston Constitution”,[5] a decree which was modeled on that of North Carolina with few changes.

The new legislature made treaties with the Indian tribes in the area, opened courts, incorporated and annexed five new counties (see map below), and fixed taxes and officers’ salaries.[6] Barter was the economic system de jure, with anything in common use among the people allowed in payment to settle debts, including federal or foreign money, corn, tobacco, apple brandy, and skins (Sevier himself was often paid in deer hides). Citizens were granted a two-year reprieve on paying taxes, but this lack of currency and economic infrastructure slowed development and created confusion.

The year 1786 was the beginning of the end of the small state. Franklin was placed in a precarious position by not having been admitted to the United States. Because it shunned North Carolina’s claims of sovereignty over it, Franklin did not have the benefit of either the national army or the North Carolina militia. North Carolina offered to waive all back taxes if Franklin would reunite with its government. When this offer was rejected, North Carolina moved in troops under the leadership of Col. John Tipton and re-established its own government in the region. The two rival administrations competed side by side for many months. Loyalties were divided among local residents.

http://en.wikipedia.org/wiki/State_of_Franklin