HOAs in the punishment business

I have argued that the HOA is in the punishment and intimidation business, especially with respect to foreclosure “damages”  and fines under failed due process procedures —  the kangaroo courts.  Here’s a recent NJ case that addresses penalties as a punishment.  In this instance, the HOA had a covenant that granted it the right to access a flat 20% charge as liquidated damages rather than attempting to determine just what were the actual damages incurred by the HOA.

Let me clarify.  When seeking damages, the damaged party must submit to the court the actual damages it incurred.  For example, what are the damages to the HOA if your grass height violated the arbitrary rule for well kept lawns?  Or you painted an unapproved house color?  Anybody?  Well, that gets down to simply attorney fees and court costs of which the HOA sees nada.  That’s why there are no actual damages to the HOA itself submitted by the HOA.  So, are these actions by the HOA really a punishment rather than a recovering  of damages inflicted on it by the homeowner?  Hell yes!

The NJ opinion contained,

As we have previously noted, the 20% payment was not “interest.” It constituted a liquidated damages provision established in the By-laws of the Association in lieu of an assessment of counsel fees in instances in which legal action on the Association’s behalf was required.

A clause is a liquidated damages provision if the actual damages from a breach are difficult to measure and the stipulated amount of damages is “a reasonable forecast of the provable injury resulting from [the] breach.  Such clauses are deemed “presumptively reasonable” and therefore enforceable, and “the party challenging [a stipulated damages provision] should bear the burden of proving its unreasonableness.”  Because the harm is necessarily incapable of accurate estimate, “`reasonableness’ emerges as the standard for deciding the validity of stipulated damages clauses.  The amount fixed is unreasonable if it serves not as a pre-estimate of probable actual damages, but rather as punishment,” grossly disproportionate to the actual harm sustained.

We are certain that if counsel submitted an accounting of the time required to prepare for and conduct the two-day trial held in this matter, the resultant counsel fees would have been substantially higher. However, as the result of the By-laws, the Association has waived the right to that higher award.

Mazdabrook Commons HOA v. Khan, No. A-6106-08T3, (N.J. App.,  Sep. 1, 2010).

That about says it all when a $200,000 home is lost for a $2,000 fine, plus $3,000 in attorney fees.  The homeowner loses everything after building up his equity over 10 -30 years.  This ratio of 40 times the $5,000 is far in excess of the 10 times standard set by the US Supreme Court for punitive damages in product liability cases.  And yet, the HOA had not been damaged as it had not lost a penny of its own! 

It’s called punishment, pure and simple!  How else can an authoritarian regime like an HOA obtain obedience and acceptance of its rules and regulations (“laws”)?

Note that the attorney has no say in the matter, because unlike its erroneous attitude — you owe me $nnn in fees  — in all those dunning letters, it is not a party in the issue, but just a hired hand of the HOA.  So, why are HOAs being so nice to attorneys?  They undoubtedly agree with the attorney that how else can they coerce compliance except through  punishment?  And if lawyers refuse employment because the fees are so low, no coercion.

And, while we are at it,  doesn’t a flat fee of even 20% sound nice?   The above $2,000 foreclosure amount would cost only an extra $400 and not $3,000 to the attorney.  Now that sounds like a leveling of the playing field without HOA attorney fee churning — we need to make a living — obstructing  justice.

Published in: on September 2, 2010 at 7:34 am  Comments (3)  
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3 CommentsLeave a comment

  1. My POA, English Turn, New Orleans, just got an award of $180,600.00 against us – for the ‘damages’ of a brick floor border it claimed it did not approve (absolutely identical to 2 on the same street incidentally)….and for a therapeutic portable jacuzzi ….that was tucked into a nook formed by 2 protruding sides of our home, on our enormous property, and not visible except from our own dining room window….they had to provide an aerial photo in court.

    Punishment? Gee, you think?!

  2. Thank you, George, for posting this – it makes sense and probably happens very often!

  3. Think about how much room for corruption there is here too. If I’m in the business of regularly handing gobs of free money to an attorney, do you suppose that he will find a way to thank me? If I like that back scratching well enough, you can bet I will be out in the neighborhood checking lawn heights with a ruler every chance I get.

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