HOA bankruptcy and member liabilities

This Foxwood Hills HOA (SC)  bankruptcy event is every important for all to understand what’s going on.  I am offering my views based on the article and my knowledge of the bankruptcy procedure, which I have some familiarity.  The article also shows first-hand the liability attached to your HOA membership that comes under the heading of “joint and several liability” (J&S), mentioned several times in my materials.

Basically, the phrase applies to all members of a sued party in  a lawsuit whereby the total monetary damages can be collected from any one or all the members of the party. It’s like  a partnership where the debt can be collected from the partners who can pay to pay for all total debt when others cannot make the payment. 

Here, as I read the article,  we have the HOA unable to collect assessments from its members to cover its budgeted expenses, and so decided to apply a J&S policy and “tax” only the members who have not abandoned  or disowned their property — those who could pay. The plaintiff, Busbee, filed suit and said this isn’t right. Foxwood didn’t amend its CC&Rs to permit such unequal treatment of its members. There is no covenant for the HOA to do this.  In HOA-Land it would require a court order or member approval – yeah, right!

A bankruptcy is usually filed because revenues are less than monetary payouts and the prospect is dim in making the finances balance.  Under Chapter 11, as Foxwood filed, it submits a plan to make payments on its debt and is obviously a give and take negotiations between the creditors and Foxwood as the debtor. Detailed financials are submitted including who are the creditors and what money is owed the HOA, which is essentially the assessments not being paid by the members.

Here, as I see it, the HOA filed bankruptcy in anticipation of the outstanding lawsuit which could require not the payments from the members, but for Foxwood to pay back the alleged excessive dues collected by Foxwood.  The decision by the bankruptcy court rests on the outcome of the lawsuit as it needs a precise and legal statement of Foxwood’s financial status.

See restoring HOA Constitution Plan FAQ

The existing legal structure and state laws need to be dramatically altered to remove 40-plus years of problems. His long-term plan is to apply organizational development (OD) principles and methodology to correct this long standing affront to the US Constitution.

Go here to learn more about the Plan to restore constitutional protections. http://starman.com/mgmt

A lesson in professional conduct for HOA attorneys

While there are many anecdotal claims of attorneys for HOAs acting unprofessionally and unethically, there are sufficient instances documenting such conduct.  I have encountered and witnessed some myself. Few have been charged to my knowledge. 

The most common, in my experience,  is a violation of civil court procedure where the attorney churns the account, seeks many continuances, and raises dubious claims based on the extension of commonly accepted legal doctrine and terminology.  Fortunately, I am not an attorney and need not concern myself with extending “professional courtesies” to my opponents.

The questionable conduct I am addressing can be found in federal rules and in various state 1) supreme court Rules of Professional Conduct, usually under Rule 42, E. R. 1.13, Organization as a Client, and 2) under Rules of Civil Procedure, Rule 11(b), Signing pleadings . . . Representations to the Court.

Rule 11(b) states (emphasis added), in short,

“By signing a pleading . . . the attorney or party certifies that to the best of the person’s knowledge, information, and belief formed after reasonable inquiry:

“[I]t is not being presented for any improper purpose . . . or needlessly increase the cost of litigation . . . and other legal contentions are warranted by existing law or by a nonfrivolous argument . . .  the factual contentions have evidentiary support  . . . the denials of factual contentions are warranted on the evidence.”

Rule E.R. 1.13 states (emphasis added), in short,

“(a) A lawyer employed or retained by an organization [HOA] represents the organization acting through its duly authorized constituents [the BOD].

“(b) If a lawyer for an organization knows that an officer, employee or other person associated with the organization is engaged in action. . . that is a violation of a legal obligation to the organization [directors duties for example], or a violation of law . . . the lawyer shall refer the matter to higher authority in the organization.”

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I am quite pleased with the opinion by the Arizona Appellate Court in Arizona Biltmore Hotels Condo Assn v. Conlon (CACV 18-0709, June 23, 2020). This involved case of over 10 years, multiple parties, and 3 lawsuits dealt with a conflict of interest by the association’s president. He also owned several properties (a dual role conflict) subject to claims of who would get parking lot rental income.

My point of interest lies in the Court’s inclusion of a statement by the attorney for the association president in  the 2013 lawsuit and used as evidence in the current case.  Here we find a highly regarded law firm standing by its obligations under professional conduct and certification to the court, as above.

The president hired Cheifetz, Iannitelli & Marcolini, CIM,  (now Iannitelli Marconi) on behalf of the association.   “CIM soon raised concerns about the merits of the Association’s lawsuit and shared those concerns in a letter to [the president]” who did not pass the concerns to the board.   As required, if CIM believed that there were serious concerns, it brought their concerns to the board a year later.

Now removed as president and still a director and still owner of the TCG firm in conflict, the Courted quoted CIM’s position in this president gone wrong case.

“CIM became frustrated with [the president/director] strategy and told him:

“Our duty is not to [TCG], it is to our client, the Villas Association, and the [condominium] community as a whole. As a member of the Board you have fiduciary duties. Given these fiduciary duties, we are at a complete loss to understand upon what basis you deem it appropriate to intentionally seek to sabotage the Board’s efforts to attempt to resolve the pending lawsuit with . . . . ”

The 2013 Court found the director guilty. It held “that [he] both breached his fiduciary duties and negligently misrepresented facts to the Association . . . controlled the information and did not make full and necessary disclosures.”

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FYI — The “Cheifetz” above is none other than Steve Cheifetz, former CIM manager now retired, with whom I’ve had the pleasure of knowing and exchanging views on HOA law and cases.  He worked closely with Jonathan Dessaules, another outstanding Arizona attorney taking on homeowner cases.

Lost HOA Constitution webinar complete videos

This post allows access to 3 webinar videos on Restoring the Constitution to HOA-Land. The quality improves as I go on — it’s the content, the material, that’s important to learn and understand.

For best viewing press the ‘expand’ icon (lower right) for full screen viewing. Place cursor over video to select menu.

HOAs are not a club; they are legally binding agreements

HOAs are not a club.  They are legally binding adhesion agreements in favor of the HOA government, the BOD, and seriously detrimental to homeowner property interests and member fundamental rights.   Members are at risk because the private “contractual” CC&Rs have been held superior to the US Constitution by the courts.  The facts are there in the public records and state HOA statutes known as “Acts.”

It is in the best interest of the members not to obediently agree to all the BOD says they should, but to get educated and discover the truth for themselves. If they can handle the truth. Discover for yourselves.

My seminal book, The HOA-Land Nation Within America  describes the collection of HOAs throughout America as “HOA-Land.” It identifies HOA-Land as a nation within America based on its culture, beliefs, values, and commonality of contractual CC&Rs acting as its constitution.

My sequel to HOA-Land Nation, A Plan Toward Restructuring the HOA Model of Governance, another seminal work,  presents the case for the restructuring of the HOA model of governance. It seeks to bring the private government HOA into compliance with and subject to the Constitution as required of all local governments.

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For important information, please see HOA board education in constitutionality