Will CAI mediation services for HOAs treat homeowners fairly?

th CarolinaThe question before us is: Can homeowners expect a fair and just opinion when submitting to CAI mediation[1] services?  My answer is a resounding NO! CAI has a rock-solid position to defend the HOA by interpreting the governing documents and state laws in favor of the HOA.  I come to this view after reading hundreds of CAI involved cases and its amicus curiae briefs[2]friend of the court filings — across the country.

In Arizona, and elsewhere, CAI has jumped on the bandwagon to provide mediation services because of OAH’s promotion of mediation and ADRE’s favorable view.  In my view, it’s just another opportunity to intimidate homeowners under the appearance of community services for a better America.

CAI amicus brief shows that it is not a neutral party

To get an idea of how CAI might function as a mediator, I look to its amici briefs for guidance, and, in particular, its brief in the 2016 South Carolina appellate case, Tallahassee Island Members Club.[3]  The brief demonstrates how CAI will skirt the fundamental issue for the court to decide and argue peripheral concerns.  In short, the case centered on state law and several CC&R covenants that were changed several times over the years.

In this instance, HOA members were allowed to resign membership in an entity that provided amenities, with a statement that dues were owed.  One interpretation was forever as long as the homeowner retained lot ownership, versus only past dues are owed up to the time of resignation. The question of resigning was not an issue.  (As I see it, it was a flaw in the CC&Rs designed to attract home ownership – you can leave.)

The Court, showing its cosmopolitan view of the world, decided in favor of the homeowner and, in doing so, made the following statement: “In essence, Appellants would be trapped like the proverbial guests in the Eagles’ hit Hotel California, who are told ‘you can check-out anytime you like, but you can never leave.’[4] In short, the Court held that it is meaningless to allow a member to resign and yet still be obligated as if he were still a member. This was the only valid point, in my opinion, to be argued by CAI: does the resigned owner pay forever?

The CAI brief was a cry for the protection and survival of the HOA and the grave harm to the state of South Carolina if the court ruled against the HOA.  The fear mongering ploy. It skirted the wording and reasonable interpretation of the wording, except to argue, once again, “contract interference” when things didn’t go its way.  The heart of the matter remained: this is what the CC&Rs said and if it was a mistake or ill thought out, that’s the HOA’s problem.  In contrast, recall how many times the homeowner was charged with trying to get out of a bad contract and must be held to the contract.

Excerpts from the CAI amicus curiae brief

Below are excerpts from the brief with its repeated and desperate cries and moaning that the sky would fall.

But first, remembering that this is 2016, look at CAI’s lack of candor to the tribunal (a violation of professional conduct) and its arrogance in making such statements to a state supreme court, when as far back as 2005 it no longer had HOAs as members.  CAI also failed to state that it is a business trade organization and not an educational organization for its members.

Its [CAI] members include community associations . . .. CAI regularly expresses its position on issues of potentially national concern, and advocates on behalf of community associations and their residents before legislatures, regulatory bodies and the courts.

Note: With respect to CAI’s arguments, square brackets “[ ]” are my comments to the quote, and underling or bold is my emphasis):

If members could freely abandon their membership . . . community associations would face an obvious crisis [true, but that’s the basis of the HOA legal structure, a defect in the structure] and a great inequity would be created in each such association [not true, based on the joint and several nature of the HOA legal construct

Community associations serve vital purposes for the benefit of property owners in South Carolina [and] other quasi-governmental services. [. . .] The Opinion is contrary to sound public policy because it undermines the ability of community associations to provide quasi-governmental functions to their members. [How interesting. Now another about face to protect the HOA.] This will increase the burden on the State to provide those services. [Yep. But, it’s part of the agreement. Trying to get out of an agreement?].

The Opinion fails to consider the significant negative financial impact that its ruling will have on community associations in this State, as well as their members. [Was that an issue before the court?]

The Opinion undermines previous South Carolina caselaw, which confirms that declarations of covenants and master deeds are contractual in nature, in that it [the opinion] allows parties to those contracts to unilaterally breach them and avoid their promises. [Not so. The CC&Rs provide for unilateral resignation. It’s part of the contract that the HOA must enforce and live up to].

CAI respectfully posits that the Court of Appeals misinterpreted the plain language of the Act [SC statutes] in a way that denies the freedom to form community associations (or many other kinds of nonprofit organizations) whose financial viability depends upon regular, predictable financial contributions from a finite pool of members. [Well, that’s how the ‘game’ was structured.]

[How many nonprofit entities have the right to lien and foreclose on members who fail to pay their agreed upon pledges or dues? How many? But this was part of the deal not publicized to the home buyer: the member is jointly and severally obligated to the HOA for the failure of other members to pay their full freight.]

No nonprofit club or association can survive unless it can enforce members’ voluntary, written contractual pre-resignation commitments.  [OMG! That’s another overly broad statement].

Such a voluntary arrangement [CC&Rs] is not a trap. It is the agreement that members freely make when they join certain associations, such as amenity clubs or property owners’ associations. It is the bedrock principle upon which every community association survives. [. . .]  Consequently, the financial viability of the community association is dependent upon the members honoring their voluntary, written, contractual financial commitment. [I agree. But here the HOA CC&Rs are defective, but for CAI that doesn’t count. Oh gee judge, we made a mistake let us correct it now].

Conclusion and Advisory

No, this is the kind of advice and mediation counseling of a homeowner can expect using a CAI mediation service. It must not be allowed to happen, nor supported by municipalities and state agencies charged with independent due process and the protection of the general public.

IT IS IMPORTANT that readers understand that this brief is a tacit admission by the CAI attorneys, the experts in HOA law, that the HOA legal structure and concept is defective; that what is necessary to make the defective scheme work is an adhesion contract and an authoritarian government that places the HOA, the state, before the fundamental rights and freedoms of its members, the citizens of this country.  The state must not be allowed to fail at any cost, is its guiding principle.

 

 

References

[1]In mediation, the disputing parties work with a neutral third party, the mediator, to resolve their disputes. The mediator facilitates the resolution of the parties’ disputes by supervising the exchange of information and the bargaining process. The mediator helps the parties find common ground and deal with unrealistic expectations. He or she may also offer creative solutions and assist in drafting a final settlement. The role of the mediator is to interpret concerns, relay information between the parties, frame issues, and define the problems.”What is mediation?”; Findlaw. (Emphasis added).

[2] Amicus curiae:  “A person or group who is not a party to an action, but has a strong interest in the matter, will petition the court for permission to submit a brief in the action with the intent of influencing the court‘s decision.”  https://www.law.cornell.edu/wex/amicus_curiae.

[3] Tallahassee Island Members Club v. Dennis, 417 S.C. 610 (2016).  CAI brief.  I read both the brief and court opinion.

[4] Eagles, Hotel California, on Hotel California (Asylum 1977).

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Published in: on October 8, 2017 at 1:30 pm  Comments (8)  

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)  

Understanding the HOA disclosure game

The RA-CAI-RE Triangle, Part 3[i]

CAI, the real estate interloper

gorilla6

400 pound gorilla gets whatever he wants

Before I proceed, let me say upfront that I, and all advocacy groups should, reject CAI’s presence and role in purely real estate matters.  It has no valid legitimate interest in attending stakeholder meetings held by ADRE.  As I see it, CAI is an interloper into HOA real estate matters and attends these meetings to gather info and to influence any proposed legislation that it finds detrimental to its, CAI’s, interests.  CAI has no legal authority, even as a friend of the court, to speak for any HOA on public matters.  ADRE should acknowledge that CAI speaks for itself and should be given little weight unless the advocates have a lawyer present.

To understanding the disclosure ‘game.’

The legal requirements for disclosure pertaining to HOA sales is a complex set of laws and court opinions involving 3 different parties: the seller, the seller’s real estate agent, and the HOA. Speaking of Arizona, and probably pertaining to other states as well, the simplest of the 3 are the HOA obligations under the PUD and Condo “Resale” statutes, ARS 33-1260 and 33-1806.  These statutes are essentially copied and made part of the HOA Addendum (lines 30 -50) to the residential purchase contract.  Note that the Addendum was created and published for use by AAR, and is not a required state form.

However, the seller is involved if, for some arbitrarily set number, there are 50 or less units. But, where does the seller get the info? From his HOA, of course.  He doesn’t make them up, does he?  This aspect of mandatory disclosure has been the target of much proposed reform legislation.  I leave this topic to a committee of the advocates.

My focus is on the other 2 entities involved in HOA disclosure: the seller and the seller’s agent.  The central issue for both is, what must be disclosed.  The general law – common law — on seller and seller agent disclosure can be found in the Restatement of Contracts, the Restatement of Torts, and the Restatement of Agency.[ii]

Addressing the agent’s legal requirements, ADRE Commissioner’s Rule (Arizona Administrative Code) R4-28-1101 is basically a copy of the general agency law found in note 2.  Specifically, agents must treat all parties fairly and divulge material information “that they” possess.   Interestingly, the AAR generated forms[iii] are silent on agent obligations.

In case you are wondering, the ADRE Commissioner Rules, R4-28-101 defines ‘material change’ as: ‘‘[M]eans any . . . change that has a significant effect on the rights, duties, or obligations of the developer or purchaser, or use and enjoyment of the property by the purchaser.”  “Material” having the common meaning of “significant”, “important,” “relevant,” “essential.”  ADRE has not enforced R4-28-1101.

Addressing the disclosure obligations by the seller, we have a continuing story.  Forms are prepared by AAR and not reviewed or approved by ADRE.  ADRE has not set any standards for CC&Rs, or disclosure statements, or the purchase contract, leaving it to the real estate trade association, AAR.  The intimidating SPDS is not an ADRE required form but a work product of AAR tied to the purchase contract (section 4a, page 4).

The HOA addendum is not a statutory form but one required by the AAR purchase contract under a check-off box (line 28, page 1). The legal basis for seller disclosure is grounded in Lombardo v. ALBU is also material disclosure, even to disclose when asked a question by the buyer.[iv]

 

It can be asked: Are constitutional rights and freedoms material or not in an HOA controlled purchase?  If not, why not?  It is common knowledge that there are issues with HOA living, but the RAs and REs have sealed lips.   CAI is also silent in its educational seminars, newsletters, guides, brochures, etc. In Arizona, the municipal sponsored seminars[v] under the trade name, HOA Academy, and conducted by CAI attorneys are also silent on disclosure. “See no evil hear no evil, see-no-evilSspeak no evil.”  The buyers are kept in the dark as to the legal, financial, and social consequences of buying an HOA controlled property by this private-public partnership.

 

References

[i] 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.

[ii] Restatement (Second) of Contracts § 161; Restatement (Second) of Torts § 551; Restatement (Second) of Agency § 350.   See Arizona Supreme Court opinion in Lombardo v. ALBU, 14 P.3d 288 (Ariz. 2000).

[iii] See Seller Purchase Disclosure Statement (SPDS) and Advisory, HOA Addendum, and Residential Resale Real Estate Purchase Contract. Can obtain them from AAR.

[iv] Supra n. 2; in Lombardo v. ALBU, 14 P.3d 288 (Ariz. 2000).

[v] The municipalities include Surprise, Glendale (Mulcahy), Goodyear (Krupnick, Goodman, Mulcahy), Peoria, Chandler, Avondale (Krupnick, Goodman), El Mirage. The names in parenthesis are the dominant CAI attorneys. Several municipalities did not identify their attorney instructors.

Published in: on October 3, 2017 at 6:38 pm  Comments (4)  

CAI recommends Realtor HOA education

The RA-CAI-RE Triangle, Part 2[1]

Part 1 of this series confined itself to the historical relationship between NAR, CAI and ULI.[2]  Part 2 addresses the 2015 NAR magazine article[3] acknowledging that HOA buyers are largely uninformed and lack general knowledge of HOA affairs and issues.

The author informs NAR readers that, among other things,

Many owners do not recognize that the benefits of shared ownership involve relinquishing some of the independence of sole ownership. That’s the root of so many of the HOA horror stories we’ve all heard. . . . Truly, persons who want a home that is their castle and theirs alone should not live in HOAs. . . . Many owners in HOA communities consider the documents unimportant, treating them as if they were an appliance owner’s manual.

The financial health of an HOA community also impacts owners. To keep monthly assessments low, some HOA boards will not accumulate sufficient funds in a reserve account to offset ongoing deterioration of common elements. . . . HOAs will need major special assessments or bank loans when big building components need replacement.

The author concludes with, “But in order to ensure that every owner gets the most out of their HOA, they must be educated about them. That, of course, starts with a knowledgeable real estate professional.”

Bravo you say for calling this serious question of the lack of full disclosure to NAR and its agent members!  Bravo!  But wait, the author, Kelly G. Richardson, according to his bio “clip,” is a lawyer and active Realtor[4] in California.   What is not revealed, I discovered, is that Richardson is also an active CAI member in California’s CAI chapters (Calif. has several CAI chapters).

Being thus alerted, I had to examine any underlying, real message contained in this article. My first thought was: Who’s going to offer these classes? RAs offer many real estate classes in every state, but who will educate the RA educators? Obviously, following in the footsteps of several states on HOA manager licensing, let CAI do it!

As I see it, although the article called attention to homeowner dissatisfaction, it was addressed to Realtors and not the general public.  If pursued by NAR, it would be another channel for CAI to further indoctrinate uninformed agents and real estate departments into the CAI HOA School of Thought that advances its special interest agenda, but not truth, the whole truth, and nothing but the truth.  The whole truth would still be missing.

Furthermore, there is no call for full disclosure by agents who, supposedly now, have come into the light and can spread their knowledge to the uninformed HOA buyers.  A very important omission for NAR that advertises its agent members, known as Realtors, as friends of home buyers.  Full disclosure is a state requirement under agency and real estate law.

Part 3 will examine disclosure, its legal basis, who wants what to be disclosed, and the required forms, if any.

 

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] See The Realtor association and HOA-Land.

[3] A Note of Caution About HOAs, RealtorMag, Official Magazine of the National Association of Realtors, February 2015. See also my Commentary, Realtor magazine publishes HOA socialism by CAI Trustee.

[4] “Realtor” is a registered trademark of NAR.

Published in: on October 2, 2017 at 3:27 pm  Leave a Comment  

the importance of endnotes, references and links

The Lone Ranger remembers.   Lone Ranger1

Back in my college days I had a history professor who liked to do “surprise quizzes” (remember those college grads?) based on the reading assignment for that day.  There usually was a question based on a footnote or picture caption. He made his point and we began paying attention to these items in our text.

I’d like to mention to my followers and readers that endnotes, footnotes, references, and links contain important material related to the topic of the post.  They amplify and clarify issues.  Please read them to better understand the message at hand.

Published in: on October 2, 2017 at 7:48 am  Comments (3)