James Hazlewood, a partner in Carpenter Hazlewood, in his gratuitous instructions on how to institute homeowner association transfer fee charges (CH enewsletter, Oct. 23, 2009, “Resale Amendment”), justifies the imposition of an HOA transfer fee by claiming that it applies equally to all members who happen to sell. He fails to recognize that the transfer fee does not apply equally to all members. This concern is important since the transfer fee does NOT apply equally to all members within the annual or special assessment period, but only to those who happen to sell that year. Simply put, those who sell in any year are assessed more that other members who did not. Is this a valid reason to create this separate class of members?
Further disturbing in Hazlewood’s enewsletter is his gratuitous advice that goes beyond a lawyer’s neutral stance of providing legal advice to clients, but amounts to advice one would receive from a management consultant on how to raise money. Hazlewood advises the board 1) to make the fee an assessment, making it a lien, and the escrow company must collect the payment or the house won’t sell, 2) that the seller can put into contract that the buyer must pay the fee, failing to mention that the buyer can always walk and there goes the sale, and 3) that although this transfer fee would require a CC&R amendment, not to worry since the homeowners are all for it.
This advice amounts to, in my opinion, unconscionable legal and ethical advice. First, it seems to have the smell of extortion by the HOA: the homeowner will pay because he has been put under duress, otherwise he will suffer the financial consequences of not selling. Second, the validity of the transfer fee rests on a vote of a separate class of members who benefit from the imposition of the fee on the other class, which will not benefit from this fee and who are no longer in the HOA. Third, it can be seen as restriction by a private group on the free transfer of real property between the seller and a third-party buyer. How would you like it if the HOA, to raise funds as a result of its incompetence, decides to charge an entrance fee, a toll, on all visitors, but not the owners? Can be done. All legal mechanisms are in place, just a vote of your neighbors is needed. The courts have repeatedly upheld almost any amendment that simply adheres to the CC&Rs amendment procedures.
With regard to the gratis advice given by Hazlewood to the public above, and not exclusively to clients, David D. Dodge wrote about the ethical obligations of attorneys (E.R. 1.13, to clients, and E.R. 4.1, truthfulness to others) to the members of their client organizations. This should be a bold red flag when it comes to clients with members in a mandatory association with compulsory dues — HOAs with broad powers equivalent to governments. In the June 2005 Arizona Attorney, “Derivative Liabilities a Danger”, a State Bar monthly for lawyers, Dodge cautioned lawyers:
“What appears to be happening is that courts are finding more direct paths to holding lawyers liable to the people whom their fiduciary–clients injure when those lawyers have substantially assisted the breach of the duty violated.”
He continues with,
“What should concern us is the apparent expansion of classes of non-clients to whom a lawyer can be liable, even in situations in which the client is not acting as a fiduciary.”
Dodge further warns the lawyers that under E.R. 1.6, “they can no longer hide behind the claim of confidential information. He informs the lawyers that,
“Lawyers are now permitted to disclose facts that will prevent or rectify harm done by their clients to others while using the lawyer’s services”.
Read the Dodge article at Fiduciary.