HOA golf clubs, property values, and increasing financial liability of homeowners

According to the Desert Sun, the question of the relevance of golf clubs in maintaining property values in an HOA was brought before the California courts.[1] A number of homeowners in Rancho Mirage, CA are challenging fees imposed on them to support a golf club that they rejected joining when they bought their homes. The HOA justifies its fees, saying that the golf club helps to maintain property values and home resale prices.

One homeowner was quoted, “Now, no homeowner can be sure about their financial future . . . . You build your economic plan on a certain set of assumptions, and one of those assumptions is, I’m going to be treated fairly.”

“The HOA board argues that a well-maintained club is critical to maintaining the community’s high property values. Club president described the course as ‘the community’s backyard,’ suggesting that although homeowners might not play golf, they benefit from the club’s success.”

The Associa property manager argues that homeowners don’t understand that the biggest part of their home’s value is the golf club, which they have very little control over. The board, in fulfilling is obligations, can either enforce mandatory club membership or raise fees.

The HOA president believes that there is an “inherent flaw in the design.” In my view, it’s not the only one. Many of the “flaws” are buried and hidden within the governing documents and not brought to the attention of prospective buyers.[2]   What is needed to protect and warn buyers, since CAI and others have been insisting as of late that HOAs are business or investments, is a true “red herring” document (“red herrings” is the popular term applied because of the proliferation of bold, capitalized red lettering).

The HOA mandatory state PUD disclosure documents are laughable and come nowhere close to protecting HOA home buyers as do the federal (SEC) stock purchase disclosure documents (red herrings). The mandatory SEC document contains bold lettering and lettering in capitols to highlight important issues. It warns the buyer, among other things, that buying the stock is high risk and that past performance is no indicator of future performance. And there are detailed charts and tables that disclose all that is determined to be material to the decision to buy.

As you well know, this format and none of this detailed disclosure is required by any state mandatory HOA PUD document. For example,

  1. there is no warning that the buyer is actually pledging his home as security for the survival of the HOA, or a golf club;
  2. or that his home and its financial obligations are in the hands of, for all intents and purposes, complete strangers;
  3. or, as in this instance, that his financial obligations can extend beyond his home as decided by the board and stranger-members against his will;
  4. or that the state does not get involved, treating any disputes as a purely private matter;
  5. or that contract law does not apply, including the unenforceability of “agreements to agree.”[3]

And the HOA is not even a public entity with constitutional protections for the homeowner!

BUYER BEWARE!

 

References

[1] “Tension rising as golf clubs, HOAs look to future,” Rosalie Murphy, The Desert Sun, Dec. 28, 2015

(http://www.desertsun.com/story/money/real-estate/2015/12/28/rancho-mirage-morningside-hoa/77045734/).

[2] See in general, HOA Common Sense: rejecting private government.”

[3] Setting aside the question of a valid contractual agreement, “agreements to agree” deals with contract uncertainty where decisions are to be made in the future. The law requires certainty in contracts. Does a validly passed CC&Rs amendment constitute an agreement to agree due to the uncertainty of the amendment content? (Now you must pay golf fees like it or not.) Does a buyer’s consent to be governed by the CC&Rs amendment provision, which does not restrict amendment content satisfy the certainty  test for a valid future agreement? In the public domain there would not be any question as we are dealing with municipality law and doctrine, not contract law. However, HOAs are subject to contract law, not municipality law and that makes a huge difference.

So. Carolina HOA study committee misses the point

As a follow up to my “State legislature not concerned” commentary, the SC HOA Study Committee released its recommendations on HOA legislation.[1]   On the issue of, “Education for Homeowners and Board Members,” a committee member recommended CAI as a source for HOA education in general. Apparently, with all due respect, he is not fully aware of CAI’s history and its views on maintaining authoritarian private governments.

This property member representative offered, “Education is already available. According to one source, “CAI (Community Associations Institute) webinars offer specialized, professional training without leaving your home or office. . . . Homeowners should have reasonable access to an organization such as Community Associations Institute (CAI) or a knowledgeable State agency to obtain unbiased, accurate information.

Fortunately, the recommendation was not to have a private entity, including CAI, provide HOA education.

While the Community Association Institute (CAI) and other private entities offer educational resources to homeowners and managers, state government cannot place the sole responsibility of educating homeowners and board members on a private entity.”

The committee recommended that several state agencies “to seek reliable and unbiased information available from private entities and to publish and make such programs by private parties available online. So, the door is still open for CAI biased influence given the current climate that CAI is the only source and has no self-interest.

There is an abundant supply of information to inform the legislators of the true nature of CAI, its 42 year history of failure, and its policy to keep HOAs as authoritarian private governments.[2] But the problem is is to first educate the legislators in line with HOA Common Sense: rejecting private government. This requires a source to provide alternate perspectives on HOA governance: civil government, local government, constitutional law, and city managers.

A simple HOA bill would just have to say,

The association hereby waives and surrenders any rights or claims it may have under law and herewith unconditionally and irrevocably agrees 1) to be bound by the US and State Constitutions, and laws of the State within which it is located, as if it were a subdivision of the state and a local public government entity, and 2) that constitutional law shall prevail as the supreme law of the land including over conflicting laws and legal doctrines of equitable servitudes.

There is much to be accomplished in order for meaningful HOA reforms to occur. If advocates continue to fail to speak out and ignore, as I have urged, the principles of constitutional government as applied to HOAs, the outcomes over the years will also continue.

 “We must continue to provoke until they respond and change the laws.” Gandhi.

 

References

[1] STUDY COMMITTEE ON HOMEOWNERS ASSOCIATIONS, Dec.18, 2015 (http://www.scstatehouse.gov/CommitteeInfo/HomeownersAssociationStudyCommittee/HOAStudyCommitteeFinalReport12182015.pdf).

[2] See Will the real CAI standup: its contradictory beliefs, pronouncements and goals and CC&Rs are a devise for de facto HOA governments to escape constitutional government. In general see, Unconstitutional delegation of power to HOAs, HOAs violate local home rule doctrine and are outlaw governments; and Privatopia: Homeowners Associations and the Rise of Residential Private Governments, Evan McKenzie, Yale Univ. Press, 1994; Community Associations: The Emergence and Acceptance of a Quiet Innovation in Housing, Donald R. Stabile (Greenwood Press, 2000).

 

state legislature not concerned about the plight of HOA members

Dianna Wray does an excellent, detailed and historical presentation of the unchecked and unregulated power of de facto HOA governments operating outside of constitutional protections – the lack of due process and the unequal equal protection of the law. Without mentioning the above, Wray presents several stories of Texas HOA abusive power that strikes to the heart of homeowner mistreatment and injustice, as the legislature ignores his plight as if Texas were a banana republic. And rightfully so, she extends these unthinkable conditions to occur in all states.

The author warns her readers that,

HOAs are almost completely unregulated and the law is heavily weighted on the side of the homeowners’ associations — they almost always win. In Texas there is no regulatory agency overseeing homeowners’ associations. Most county attorneys and district attorneys won’t get involved with an HOA unless there’s evidence of criminal wrongdoing, and the website of the Texas Attorney General’s Office explicitly states that the office does not investigate homeowners’ associations and advises homeowners to get a private attorney. Most private attorneys conclude that the business just isn’t worth it.

And that goes for all state attorney generals.

She quotes Texas attorney David Kahne (co-author of the AARP bill of rights for homeowners, among other things).

Typically by the end of the lawsuit, it’s been such a hassle, most of the lawyers representing homeowners swear they’ll never do it again. . . . It’s lawsuits over grass growing in the driveway cracks and people who have fallen behind on their dues because of real problems in their lives and then they end up with thousands of dollars of debt, most of it owed to the attorneys.

Wray adds that Evan McKenzie argues,

that HOAs erode homeowner rights because they create a system in which the HOA is never held accountable for its actions. ‘Why do people think you can live in an urbanized area without any form of government except for these privatized entities that are under no legal obligation to uphold your rights?  (My emphasis).

Readers of this commentary must understand, and must understand very well, that the laws on the books in all states are grossly inadequate for the purpose of compliance.  When laws, like HOA laws, fail to provide effective enforcement penalties against perpetrators, like HOA boards, they are merely recommendations and suggestions.  The legislators are relying on the good will of HOA boards, attorneys and managers to voluntarily comply not only with the letter of the law, but with the intent as well.  The record clearly shows that this is not so!

Obviously in disregard of the above criticisms of the HOA-Land legal structure, HOA supporters respond with the same ol’ platitudes. From the HOA attorney,   “Believe me, a lot of people complain about HOAs, but the alternative is chaos . . . It seems like I have a really mean, nasty job, but if somebody doesn’t do it, suburbia would collapse.”  

From the Houston Texas CAI chapter Executive Director,

Without HOAs, common areas wouldn’t be kept up and people could paint their front doors scarlet, park boats on their lawns, put up countless yard signs, keep any number of pets and have six-foot-tall topiary rabbits in their front yards, destroying the look and value of neighborhoods.

They are resorting to fear-mongering!

These supporters, including CAI, are saying that they do not trust their fellow Americans and concerned people must resort to authoritarian contracts and strict enforcement of the rules in order to have a healthy, desirable and joyful community. Can you believe that? Talk about breeding hostility and division among your neighbors. One false move, a report by any “kindly” neighbor, can bring down the wrath of the HOA enforcers.

The author reminds of events in Texas long forgotten or not known to the people, even in Texas, of the battles of Winonah Blevins (2002) and Geneva Kirk Brooks (2004), pioneers in the fight for homeowner rights. Before these cases, won by the homeowners, there was the outrageous Texas Supreme Court decision in Inwood v. Harris (1987) in which the Men in Black ignored the explicit wording of the Texas Constitution regarding foreclosure protections and permitted Inwood to foreclose on Harris. (A few years later, apparently in response to the growing outcry of the court’s shameful special interest decision, the legislature amended the constitution to validate the Harris decision.)

 While the article is lengthy, it is not a manual of how to get along in HOA-Land and remain happy by just following the rules. Or a list of “should-be” or “ought-to-be” statements that are unattainable and beyond the norms of society, like you must accept the surrender of individual liberties for the greater good. It deals with the reality before homeowners and the intentional failure by state legislatures — in all states — over the years to stand by the people and not the special interests.

It is a “telling it like it is,” or that it could easily be that way at any time in your HOA with a changing of the HOA board, or a new attorney, or a new management firm. The homeowner, as presented in Dianna Wray’s well written article, lives at the suffrage of the board; helpless to defend themselves against HOA abuse without a costly battle. Remember that well!

 

Tipping Point: In Huntington Village, the Community Association has All the Power, Dianna Wray, Houston Press ( http://www.houstonpress.com/news/tipping-point-in-huntington-village-the-community-association-has-all-the-power-7998755, Dec. 15, 2015).

HOA claim of a loss in property value

A recent Arizona appellate court case provides some light on the alleged “loss of property value” argument generally made by HOAs in response to a homeowner’s action. In this straight-forward decision (Mason v. Whisper Ranch HOA,  CA-CV 2015-0053 (Ariz. App. Div. 2 (2015)) a homeowner objected to the addition of a detached garage by his neighbor, claiming among other things, a loss in his property value.

In spite of the approval of the HOA, the plaintiffs sued the neighbor and HOA were sued. In a memorandum decision, which means no new law was involved, the court held that the plaintiff failed to document the alleged decrease in his property value. Damages, which this was one, must be documented as to the amount. However, the appellants had to first prove damages which could only be shown by numbers. (If damages were acknowledged by both parties and a method of calculations cannot be applied, then a general number may be used).

How can the loss in value be calculated? Well, one can use real estate “comps” – comparative values – to set a value of the property. While this can be debated because of so many and, ifs or buts, it’s the only acceptable rational method. But then, can this method be used to show a loss in value (or increase for that matter)? Can a panel of “experts” be used to arrive at a change in value? Fat chance!

Must the plaintiff wait to get a bona fide offer? If so, does he have a bona fide offer before the neighbor’s new garage?

Even if the neighbor painted his house pink, how do you decide the loss in value, if any? (I am aware of a homeowner in Phoenix who did paint his house pink in an angry response to commercial development next to his property. His home did sell after, I’m sure, his price was reduced by the amount required to repaint the house an acceptable and conforming color. No impact on neighbors.)

Of, course, the HOA has other grounds for suing, like nonconformity to the overall aesthetics of the HOA.   The point is, make the HOA prove any loss in value!

Published in: on November 25, 2015 at 9:33 am  Comments (3)  
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Judicial error regarding HOAs as mini-governments and state actors

Two cases directly dealing with HOAs as mini or quasi governments by means of state actions tests have come to my attention: Brock v. Watergate and Westphal v. Lake Lotawana.[1] (The question of an HOA being a state actor is not raised, but that a specific act of the HOA is a state action. The questions are fundamentally different.) The decisions were based on the public functions (company town) test and one of the US Supreme Court criteria, the “close nexus” test.[2]

Here the question of an HOA being a municipality is linked to showing a comparison with company towns (established by corporations to provide housing for their employees) under the public functions test, which was held to be a municipality. The Court then makes the giant leap to hold that since the HOA was not a company town, and therefore not a municipality, none of its actions can be considered a state action. The Court’s illogical conclusion is that no act of a private entity can be considered a state action, because the entity is not a municipality! This attitude makes a mockery of state action/actors laws that protect citizens from quasi-governments. (Think about this after reading the excerpt below.)

The 1987 Florida Brock opinion, just 4 years after the court quoted Wayne Hyatt’s opposing view in Cohen Hill (see note 2), held that:

A homeowner’s association lacks the municipal character of a company town. In the case of an association, the homeowners own their property and hold title to the common areas pro rata. Moreover, the services provided by a homeowners association, unlike those provided in a company town, are merely a supplement to, rather than a replacement for, those provided by local government. As such, it cannot be said that the homeowners association in this case acts in a sufficiently public manner so as to subject its activities to a state action analysis. Moreover, the association’s maintenance, assessment, and collection activities are not sufficiently connected to the State to warrant a finding of state action. The state cannot be implicated in the association’s activities solely because the association is subject to State law. We conclude that the association in this case does not stand in the position.

(The Court did not realize that most HOA common areas and facilities are not owned by the members, but by the HOA corporation. The members are third-party beneficiaries. The second sentence above is not accurate.)

In further shocking dicta (unsupported legal authority for statements) in the above quote (see To Be in note 2), the Court declared that HOA services are merely a supplement to local government and that as a supplement its acts are insufficiently municipal in nature. Say what?

Well, I got news for the Court. Applying the “common meaning of the word doctrine” shows that “to supplement” means “to complete, add to, or extend by a supplement” and a “supplement” means “something added to complete a thing, supply a deficiency, or reinforce or extend a whole.”  With this definition the HOA would be a part of local government to complete it or supply a deficiency.  The HOA is a municipality!

Sadly, the narrow focus on individual and separate acts and actions to determine the involvement of the state in the functions and activities of the HOA is misguided.  Rather, it is the collection of the numerous acts of the HOA that should be used to determine whether or not the HOA is an arm of the state and stands in place of the state.  Consider for example, does local government supplement state government?  Does town local government stand in the place of state government?

However, based on the irrational argument used in Brock, as quoted above, the Court ruled that the HOA “does not stand in the position of a government.”

 

In the 2003 Missouri Lake Lotawana opinion, the Court reversed the trial court’s ruling, asking for a declaratory judgment, using the irrational opinion in Brock and held that the plaintiff’s allegations “require state action, and that, here, there is no state action because the Association is not a state agent. . . . the trial court is effectively saying that Mr. Westphal can have no claim because the Association is not a state actor.”

On the other issues the plaintiff directly alleged state action, arguing that,

[T]hat the Association’s conduct is state action because the Association is a quasi-governmental entity.  He maintains that the Association ‘operates as a ‘mini-government’ because it raises money through dues, has an elected governing body, enacts rules and regulations, and enforces such rules through the court system. In support of this argument, Mr. Westphal relies on [Chesus and Terre du Lac].[3]

Referring to the two cases, the Court concluded,

While both cases discuss how a homeowner’s association operates as a “quasi-governmental entity,” neither is authority for the concept that an association’s “quasi-governmental” actions are state actions. Mr. Westphal fails to cite any authority to support his argument that the action of a quasi-governmental entity is state action.

First, the Court selectively only used the term “quasi” and ignored “mini” as in stated Chesus. “Mini,” of course, speaks of a small municipality, yet a municipality. Both cases simply, without further ado, quote the same Wayne Hyatt statements as I quoted in To Be (see note 2) that contain both words.

And the Court is technically correct with regard to a lack of a court finding, but taking such a view makes a mockery of the law and is highly illogical. As argued since “quasi” means “like,” then any action of a quasi-government must be, a quasi-state action. The degree of “quasi” must extend to state actions, too. Stop the “word games”!

“Quasi” must be defined, but not in terms of the public functions test or private entity devise. It must be defined in accordance with our constitutional system of government that cannot allow for outlaw governments to stand alongside constitutional local government.

This commentary, somewhat technical at times, demonstrates the failure of the courts to address the fundamental issues that HOAs are mini-governments, and that by the collective functions and actions of HOAs there is clear and convincing evidence to make the case that they are indeed state actors. The whole is greater than the sum of its parts.

(As a reminder, I am not a lawyer and I simply offer my views on HOA-Land.)

Notes

[1] Brock v. Watergate, 502 So.2d 1380 (Fla. 4 Dist. App. (1987); Westphal v. Lake Lotawana, 95 S.W.3d 144 (Mo. App. 2003).

[2] See in general, To be or not to be a mini or quasi government? Hyatt said ‘yes’; Do state HOA Statutes Establish HOAs as State Actors?

[3] Chesus v. Watts, 967 S.W.2d 97 (MO. APP. 1998);  Terre du Lac Assn v. Terre du Lac, Inc., 737 S.W.2d 206 (MO. App. 1987)

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