State ‘captive agencies’ control HOA-Land

The RA-CAI-RE Triangle, Part 4[1]

Please note that while the following discusses Arizona’s AAR and ADRE, regulatory capture[2] is evident in other states with agencies having regulatory obligations with respect to HOAs, such as Florida’s DBPR, and California and Nevada’s ombudsman agencies.

Part 3 (Understanding the HOA disclosure game) addressed the heavy influence, in Arizona, of AAR on ADRE where home sale transaction documents were prepared by AAR, without ADRE approval, review, or standards. And that includes documents specific to HOA home sales.

I found this particularly disturbing since buying an HOA controlled home encounters far more legal, financial and social consequences than just buying a home outside HOA-Land[3].

None of these material consequences are disclosed to a potential buyer as required by law.[4]  Example: If 95% of HOA members truly love their HOA, why then isn’t a consent agreement provided for them to sign?  Why aren’t buyers provided with an approval form explicitly agreeing to accept, waive or surrender these consequences, as disclosed in Truth In HOAs Disclosure Agreement?  The differences between HOA-Land and the public arena is stark, and unknowing buyers have a reasonable expectation that the laws of the land apply to them and their CC&Rs “contract.”  They don’t, because they are never told this!

An example of HOA-Land “laws” and public law that the buyer has allegedly agreed to, with full knowledge, deals with one of the most prevalent HOA abuses – access to HOA records. Compare AZ Public Records statutes (Title 39, 39-101 et seq.) that contains financial and personal penalties for violators with the disclosure requirements of ARS 33-1260 and 33-1803.

Furthermore, AAR’s hand shows again in the purchase contract. The CC&Rs are given short treatment and are NOT made part of or incorporated herein to the purchase contract.  A summary of these grave consequences that a prudent buyer would like to know can be found in HOA Common Sense: rejecting private government.[5] The buyer must not only sign the purchase contract, but he must initial all the 10 pages.  In sharp contrast, the CC&Rs are not required to be initialed or even signed.

The AAR documents simply say, in effect, that there are CC&Rs that you should read, and they must be provided to you by either the seller or the HOA.  Not disclosed to the buyer is the fact that a statement similar to “subject to covenants, conditions and restrictions. It is the deed that binds the buyer to the CC&Rs, once bought, without an explicit signoff or consent to be bound.  Not material enough to be disclosed??

In the February 2002 edition of the ADRE Bulletin, then Commissioner Jerry Holt had this to say about HOA disclosure (emphasis added):

Repeated attempts to pass legislation giving one state agency or another the responsibility for regulating HOAs have failed. . . . Is this a material fact that should be disclosed to a prospective buyer? You bet it is. Are licensees making this disclosure? Probably very few are. Disclose this fact to all potential buyers when the property falls within the jurisdiction.”

It appears that Holt’s advice has not been adopted or enforced under Commissioner’s Rules, R4-28-1101.  ARS 32-2107 grants the following authority:

  1. The commissioner shall adopt rules, in accord with this chapter, as the commissioner deems necessary to carry out this chapter.

  2. The commissioner may approve standardized legal forms for use in the sale or lease of real estate for the purpose of recognizing compliance of the forms with this chapter and the rules adopted pursuant to this chapter.

It appears that AAR is running the show and that ADRE is a “captured agency.”

Captured agency refers to a government agency unduly influenced by economic interest groups directly affected by its decisions. It shapes its regulations and policies primarily to benefit its favored client groups at the expense of less organized and often less influential groups rather than design them in accordance with some broader or more inclusive conception of the public interest. Usually, a captured government agency is accused of unfairly favoring the private interests that it regulates.[6]

ADRE and the Real Estate Advisory Board should take a good, hard look at their mission statement “to protect the interests of the general public” and not those of private entities:  CAI, AACM, and AAR.  AAR and ADRE must take a long hard look at the statement and acts of CAI and ask themselves, are they consistent with protecting the consumer and public in general, or are they consistent with advancing CAI’s own personal agenda?[7]

 

References

[1] I use the following notation in this series.  “RA” is the collection of the national and state chartered Realtor associations.  “CAI” is the Community Associations Institute.  “RE” is the collection of state real estate departments.  Specific organizations will be identified as such: “NAR” is the National Assn of Relators; “AAR” is the Arizona Assn of Realtors; “ADRE’ is the Arizona real estate department.

[2] “Regulatory capture is a form of government failure that occurs when a regulatory agency, created to act in the public interest, instead advances the commercial or political concerns of special interest groups that dominate the industry or sector it is charged with regulating. When regulatory capture occurs, the interests of firms or political groups are prioritized over the interests of the public, leading to a net loss to society as a whole. Government agencies suffering regulatory capture are called “captured agencies.” See “Regulatory Capture,” Wikipedia.

[3] Defining HOA-LAND: what it is.

[4] See Part 3 of this series, Understanding the HOA disclosure game.

[5] The six broad areas of concern are: Consent to be governed, No. 4, Democratic elections, No. 5, Fair and just hearings, No. 6, HOA Boards can do no wrong, No. 7, Draconian punishment and intimidation, No. 8, HOA Governments in fact, No. 9

[6]Captured Agency Law and Definition,” USLegal.com.

[7] Supra n. 4, last paragraph and note 5.

 

Published in: on October 6, 2017 at 6:42 pm  Comments (7)  

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  1. While attending Scottsdale’s neighborhood college (which is mostly for board members), I have come to the conclusion that most of these CAI instructors just want to teach the board members how to screw their fellow homeowners. Clint Goodman, CAI legislation committee member, is typical of that philosphy. We all need to watch out for him so that he doesn’t make it worse for homeowners in HOA. He is devious and his lecture left me wondering about how much worse things will get for homeowners in HOA with people like him at the helm of CAI. This was his first and I hope last time to teach in Scottsdale. I made sure the class organizer from the city knows of his disbarment complaints and all the bad reviews on various blogs. Keep an eye out for this guy and watch any bills that he works on. He will do anything to make a buck so sure he will dream up more bad legislation to but homeowners in a bind.

    • I know how you feel. Stay cool! I’m preparing a Commentary on CAI’s attempt to provide mediation services for HOAs. I met Goodman in 2008 when he first came on the scene and argued before the legislature in favor of homeowner reforms. A year later he apparently was “turned” by CAI, a big disappointment.

      Come to think of it, I should change my nomenclature from Commentaries to Advisories.

      • CAI has been pushing “alternative dispute resolution” in Pennsylvania and neighboring states, too, George. And they want to mediate “disputes” over things like owner requests for official association records. But the homeowner should not be expected to mediate for the right to access association records! It is their legal right to examine records upon request. What is there to debate or compromise?

      • Yep! Please stay tuned for next Advisory on, CAI mediation would be like CAI amicus briefs — for the HOA.

  2. Thanks for a wonderful and informative series. FYI–this link doesn’t seem to be working “Truth In HOAs Disclosure Agreement” –wanted to read it.

    • Thanks. Fixed.

      To be released shortly — I need to take a break — is my version of a regulatory agency, not ADRE, drafted in 2015 prior to ADRE’s involvement, with the help of another advocate. We called it, The Department of Homeowners Association, a new agency devoted to HOAs. See http://pvtgov.org/pvtgov/downloads/model%20hoa%20regulatory%20bill.pdf. I wanted to avoid the influence of the powerful special interests, if possible.

  3. Excellent observations. George, why is it that full transparency from the HOA “Board” and HOA “manager” and “management companies” are so difficult for the these groups to follow? Every buyer should have the right to decide if they want to buy in an HOA without the HOA, HOA Board, HOA manager or management company avoiding or purposely not disclosing relevant facts. If the HOA is run fairly then they will have nothing to fear. The lack of honesty and transparency in some HOAs is the reason so many people regret buying in HOAs.


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