So, you like your HOA. Nothing to worry about. All those complaints by homeowner rights advocates won’t affect me in my HOA. I love my HOA. The HOA board does no wrong, and anyway, the HOA has insurance. Not so! Well, as the tide is slowly turning. HOAs are now being exposed as not so perfect and not so liability free.
A recent Las Vegas court decision awarding $20,000,000 – that’s right — to a Lamplight Village homeowner based on a seemingly trivial failure by the HOA to maintain a swing set will cost each member of $90,000. According to the report by KTNV, 13 Action News, the HOA insurance company and HOA refused to settle for a mere $2,000,000. The membership was never told about the lawsuit and the question is now being raised regarding intentional misconduct and negligence.
Seeking relief, members are looking to their Homestead Exemption laws to shield them from non-consensual liens. In Arizona, and in other states, homestead exemption does not protect HOA members from HOA claims. While the suit is against the HOA, it has authority to collect special assessments, and this is one special assessment, to cover the court damages. Or, it can file for bankruptcy and be run by a court appointed receiver.
HOA members are playing Russian roulette with their HOA, as my comments above show. Members seem to have adopted an attitude of, I’ll take my chances. But, an unchecked HOA board, a rogue one especially, and widespread apathy by the membership leaves the member at risk that can amount to a huge risk.
I brought this looming liability to the attention of the public several times. In my analysis of the 1964 HOA “bible,” I wrote in 2006,
It [the Handbook] advises that the states will protect the HOA from any homestead exemption because of this priority of liens (p. 322) but urges the need to insert wording to grant the mortgagor a priority lien before this “developer” lien (p. 321). The home-buying public protections, as was the intention of the various state legislatures when creating the homestead protection, was intentional disregarded by the advertising of this technical oversight.
In 2007 the Arizona Legislature rejected SB 1330 that would have restored the homestead exemption. The loss of this protection that was enjoyed by citizens not living in HOAs, this special law for special entities, is an instance of cruel and unusual punishment against the homeowner in favor of the survival of the HOA. I made this argument in HOA Common Sense, No. 8, which included arguments against consent to be governed, in No. 4.
Did the homeowner consent to have his rights to the exemption denied with the full knowledge that he gave his consent by accepting his deed? Is the HOA lien indeed a bona fide consensual lien that allow the denial of homestead exemption? Read the arguments presented at the Arizona legislative hearing.
Living in HOA-Land, that
“collection of fragmented independent principalities within America, known in general as “HOAs,” that are separate local private governments not subject to the constitution, and that collectively constitute a nation within the United States,”
is fraught with hidden liabilities.