The HOA legal concept: the defects become exposed

In the recent Carpenter Hazelwood Oct. 30, 2009 eNewsletter,   these self-anointed CAI “elite” attorneys of the College of Community Associations Lawyers (CCAL) argue for more and more legal enforcement against those “nonperforming” homeowners.  This time its “raise those  assessments” to preserve the HOA as promoted, regardless of economic conditions and the realities of addressing the resultant problems.  Earlier it was enforce, enforce, enforce and foreclose on those delinquent homeowners. 
Are these lawyers true believers in the stated mission of CAI as a national organization dedicated to fostering vibrant, competent, harmonious community associations”?  Or, are these practitioner-lawyers merely seeking to protect their income streams by means of adversarial enforcement, and by fostering division and hostility?  CAI continues with, For more than 30 years, CAI has been the leader in providing education and resources to the volunteer homeowners who govern community associations and the professionals who support them.”

In sharp contrast to the above “dedication”, Carpenter Hazelwood argue,

Boards also have to operate in the business sphere. In the legal sphere (where lawyers are most comfortable), raising assessments is fairly black and white.

… The problem is many boards and managers either fail to understand the concept or they fail to consistently raise the ceiling so that assessments can be raised when needed…. The rationale appears to be that homeowners are struggling, so the corporate association should struggle alongside them. That becomes the political reason during these times, based on apparent sensitivity for the human condition. They are ignoring the business reality of having foreclosures and bad debt than needs to be offset.
It is the same view that some legislators have about raising taxes even though it is necessary. They cannot do it because of fear they will look bad to the voters. However, directors have the luxury of being unpaid volunteers. They do not have to campaign or have funds to run for office. Assessment raises should always be fair game for boards, even in this economic environment, or even particularly in this environment. Boards can raise assessments if they think long-term rather than short-term.

This advice is a short sighted, after the damage has been done approach to governing a community, and a denial of the above stated effort “to fostering vibrant, competent, harmonious community associations”.  Where was CAI with respect to educating HOA boards about “contingencies for bad debts”, a standard AICPA approach to prudently dealing with fluctuating and variable revenues from volunteers, or with declining city tax revenues, or with HOA member dues?   A proven technique that should have long ago been quickly employed in expectation of rapidly falling assessments as a  result of current economic conditions. 
No, all these lawyers, not businessmen, can see is raising assessments dramatically by means of unrestricted special assessments.  This detrimental and harmful approach will only accelerate the financial problems of the HOA since these dramatically increased assessments will only produce more foreclosures. And more legal fees for them when the HOA can ill afford to pay.  (If the HOA cannot collect payment on its attorney fees from the homeowner, the HOA is still responsible for payment to its attorney.)
As an example of seemingly misplaced loyalties, why is this HOA board pursuing a deficiency judgment against a homeowner who’s home will be foreclosed, and who has a “short sale” listed at $299,900, or some $99,000 “underwater” as its debt is $396,000?  The HOA debt amounts to a mere $2,285.84, as filed by Carpenter Hazelwood.  (See Maricopa County, AZ Notice of Trustee Sale: $396,000, July 9, 2009, recordation number 20090631656). 
This action, apparently approved by the HOA board, is astonishing!  Just earlier this year, not only Carpenter Hazelwood but Ekmark & Ekmark (another CCAL member) wrote about the almost zero expectancy of the HOA receiving any money from foreclosure

Under state law, an association’s assessment lien is extinguished when a first position lender (first mortgage) sells property pursuant to the terms of the recorded deed of trust, also known as a trustee’s sale. Therefore, the new owner, usually the first lender in this economy, takes the property free and clear of any junior liens, including an association’s assessment lien.  (Carpenter Hazelwood, eNewsletter Sept. 25, 2009).
“Both the Planned Community Act and the Condominium Act state that a lien for assessments is inferior to any first mortgage or first deed of trust recorded against the property, despite what the association’s declaration may provide. Once the first deed of trust is foreclosed, the association’s lien is wiped out and the new owner (whether a bank or an individual) takes title with a zero assessment lien balance.” (Ekmark & Ekmark, Homeowners Association Tip of the Week, Oct. 24, 2009).

What’s the point????   Who will pay for the attorney fees??  Is this the act of a prudent board in these difficult times?  Or, is this a conflict of loyalties by the attorneys, with acquiescence by an irresponsible HOA board?  Is this “fostering vibrant, competent, harmonious community associations”? 
Homeowners in HOAs beware.  You can be next.  The “deal” made when you bought your HOA controlled home favors the survival of the HOA, first and foremost, and not the advertised vibrant community with protected property values.  No, the HOA is a communal society and very much like a partnership where all the members are collectively responsible, under law, for the obligations of the HOA.  Those who can pay will pay, and those who can’t pay are “covered” by those who can.  Raising assessments is an option to maintain the same level or services.  The other option is, like municipal counterparts, services and perceived property values just have to suffer until favorable economic conditions return. It is a short-sighted option to foreclose the HOA out of business, or to tax the HOA out of business by raising assessments.
Published in: on November 2, 2009 at 10:47 am  Comments (2)  

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2 CommentsLeave a comment

  1. Well said, George. Mandatory HOA “homeowners” need more help from knowledgeable people like you!

  2. […] The choice bt HOA boards of the “cruel and unusual punishment” discrminatory foreclosure right and  unjust transfer fees, coupled with the “free income” gravy money found in a policy to fine, fine, fine is dispicable.  It is a preying upon the weak and disadvantaged.  My comments.     “You provided very important info on failure to heed CPA advice on bad debts, and choosing to foreclose instead.  HOA boards are derelict in their duties to act prudently.  Foreclousre is unjust and discriminatory against those with high equity.  And foreclosure is a cruel and unusual punishment for the HOA that has not advanced any hardcash like a bank.”   In general, see my Commentary links below.   California ECHO and HOA bankruptcy alternative   The HOA legal concept: the defects become exposed. […]

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