Justice, integrity and the truth are missing from HOA Community Matters

Looking at the latest release of CAI’s Community Matters,” the 2018 version is substantially the same as the 2005 version.  In this propaganda brochure you will not find the following words:

  • Government
  • Bill of Rights
  • Constitution
  • Just
  • Justice
  • Waiver or surrender of rights

You will find the word “fair,” but only in reference to paying your fair share of the assessments.

The reader is told that “it is essential . . . that buyers . . . agree to comply with CC&Rs” when they buy into an HOA controlled property.  But don’t explain how this agreement took place. A buyer would reasonably say he didn’t sign any CC&Rs so there’s no agreement under contract law 101.  What took place was the acceptance of a deed that said the property was subject to CC&RS, and by the very fact that the buyer took hold of the deed he was implicitly having agreed to be bound.  How about that?

The defense argues that it is binding under the real estate law of equitable servitudes – was the buyer ever told this – and he was given fair notice to read and object to the CC&Rs.  Objecting to the CC&Rs was tantamount to NO DEAL!  Is this buying under pressure? Take it or leave it, making the CC&RS an adhesion contract?

But no need to let the buyer know these things; he’s in love with the property as his new home.

This document goes on to channel the reader’s mindset about the CC&Rs into physical things as “landscaping, maintenance, satellite dishes, clothes lines” etc. and away from serious matters of governmental powers that make him a second-class citizen without constitutional protections.

This document does warn the potential buyer that ”Some people bristle when faced with rules that must be enforced to maintain established community standards.”  Well, most people know and live with rules called state laws and ordinances.  However,  their reasonable expectations of enforcement never entertain just how draconian the HOA enforcement can be, rivaling the most authoritarian of governments.  The adhesion contract CC&Rs, and state laws, do not protect them under the equal application of the law requirement of the 14th Amendment, because the HOA is a private contract.

There is no separation of powers doctrine that would include a judiciary to protect citizens as in the public domain.

Their laughable solution is to blame the homeowner for not getting involved and make sure things run right.  The adhesion CC&Rs and the flawed legal structure of the HOA are never the culprit, nor is the Board that functions without any oversight body to protect the homeowners.  Issues often arise because of unrealistic expectations, misinformation and misunderstanding,” CAI acknowledges.   Guess who is the primary cause for all this misunderstanding?  You got it!  The one and only HOA expert on HOAs, CAI.

And yet, state legislators hear no evil, see no evil and speak no evil of HOAs.

Published in: on July 11, 2018 at 4:08 pm  Comments (10)  

ALJ HOA decisions in AZ are enforceable under a contempt order

One more attack on the validity of the OAH powers to handle HOA complaints bit the dust.  Three former attempts by Carpenter Hazelwood (CAI  member attorneys) to declare OAH unconstitutional resulted in a memorandum order from the AZ Supreme Court that declared the appellate ruling not admissible as precedent.[i]  Today, the appellate court in Whitmer (Pro Se)[ii] set the law straight as can be, although it seems that the HOA attorney and CAI member, Augustus Shaw, couldn’t seem to understand the law.

The case dealt with the explicit law, granting a homeowner the right to seek a court contempt order against the HOA for not obeying an ALJ  decision.  Without such a provision, OAH decisions would be meaningless, as I made clear back in 2005 when the original version of the law was put into effect. ARS 32-2199.02(B) reads,

The order issued by the administrative law judge is enforceable through contempt of court proceedings and is subject to judicial review as prescribed by § 41-1092.08.”  How plain can that be?

Somehow in a confusing, twist of words, the HOA attorney makes a suspect argument that ARS 32-2199.02(B) states that “the proper venue for a contempt of court hearing is the administrative Courts.”[iii]

The Superior Court in its appeal of the ALJ decision said it had no jurisdiction to hear contempt pleadings.  Can you believe that?!!  This appellate court decision said that the superior court was wrong and it must hear Whitmer’s pleading for a contempt order against the HOA.

 What this important, but unnecessary decision, clears the way for is that an HOA’s failure to obey an ALJ order at OAH  is subject to contempt of court.   This is the homeowner’s act to get compliance, and if the contempt order is violated, then either fines or jail time for the violator.

 No wonder CAI fought a desperate battle!

 

References

[i] “The Court in addition to its regular fashion of terse announcements, DENIED or ACCEPTED, added an order under its powers to do so, AZ Supreme Court Rule 111(g), that the Gelb decision was not to be published. Not being published means that it is not binding authority, or precedent.” Gelb v. DFBLS, CV 10-0371-PR (2011).

[ii] Whitmer v. Hilton Casitas HOA, CA-CV 17-0543 (2018).

[iii] Whitmer v. Hilton Casitas HOA, CV2016-055080.

 

Published in: on July 10, 2018 at 5:41 pm  Comments (6)  

Should HOAs be tax free social welfare entities?

I am talking about federal tax exemption status for HOAs under 501(c)4. HOAs do not qualify for educational nonprofits, (c)3, or recreational services under (c)7. Of the 342,000 HOAs (CAI data) less than 1,300 have a (c)4 exemption as a social welfare organization. In general, a social welfare organization must provide social benefits to the community at large, or general public.

Now, getting tax free revenues is applaudable as almost all homeowners would agree. After all, they are being double-taxed at the state and local level. But, like on the national scene, the tax break goes not to the individual homeowner, but to the HOA corporation. The dream, the fantasy, of the homeowners is that these savings would trickle down to its members as lowered assessments. I wouldn’t hold my breath. There is no mandate in any of the rulings that might apply to an HOA to pass on the tax breaks to its members. Is it a good thing? Could be, providing . . . .

On the other side of the coin comes the constitutional and ethical question as to why should HOAs get a tax break in the first place? They operate and function outside our constitutional system of government that denies citizens individual property rights and fundamental rights as enjoyed by those not living in an HOA.

The CC&Rs do no mention social welfare as its purpose, but confines itself to maintaining property values and enforcing the CC&Rs as it main purpose. Some going as far as saying either, “for the members” or “for the community.” It’s a serious contradiction in purpose to say “private” and to say “including the general public” in one breath. It’s an oxymoron.

In 1989, a ruling by the Federal Circuit court hold that a WV HOA was not entitled to tax benefits, stating,

“When a group of citizens elects . . . to separate themselves from society and to establish an entity that solely advances their own private interests [an HOA], no potential for general social advancement [benefit] is implicated. Wholly private activity, however meritorious, confers no such benefit which would render a compensatory exemption [tax break] appropriate”[2].

That says it all!

There have been several rulings over the years trying to qualifying the broad, vague wording of the IRS rules, which is the love of CAI lawyers – parsing sentences and redefining traditional meanings of words. Gary Porter[1] — a California CPA and active HOA tax specialist is a CAI member and past national president of CAI (1998-99) — was the leading proponent of this “word game” that held that HOAs were quasi-governments and, as such, constituted a community as defined by the IRS. His views were heard by the IRS and cited in the Sun City Grand, Surprise AZ application in support of a tax exemption.

In short, the heart of an HOA is thrown out the window — its private, contractual nature for its members – and replaced by a social welfare organization for the benefit of the surrounding community. Since the beginning of HOA time, this has been the fundamental legal basis for HOA governments.

However, in spite of the Circuit Court ruling, in 2015 it seems that the IRS bought this argument. It determined that SCG could be both, a private organization and a “surrounding community” at the same time.

Now, how about all the other HOAs? Not a word was made public about this achievement in the 3 years since 2015. I wonder why?

Notes
1. “IRC Section 501(c)(4) and Gated Associations,” Gary A. Porter, CPA (July 2, 2018).
2. Flat Top Lakes Assn v. United States of America, 868 F. 2nd 108 (4th Cir. 1989).

Published in: on July 3, 2018 at 9:04 am  Comments (3)  

Fed court rejected HOAs as a community or a social welfare nonprofit

Flat Top Lake HOA v. US (868 F.2d 108)  was a 1989 federal circuit court case on whether or not the WV HOA qualified as a social welfare nonprofit entitled to receive federal tax breaks. The IRS permits tax exempt status for HOAs as a social welfare entity under its 501(c)4 classification if certain requirements are met. In general, the HOA must primarily provide community benefits to the greater community rather than to its members only.

So much for history. Today, Sun City Grand (Surprise, AZ), a $20 +/- million operation with over 9,000 homes, has been functioning as a social welfare entity since 2015. As best determined, it claims that just being there is sufficient to be granted a tax exemption as a social welfare nonprofit and receive tax benefits.

But, a puzzlement! Why is the board seeking member approval of programs to be made available to the general public after 3 years have gone by?  Furthermore, the governing documents do not grant the board any such powers to change the nature of the subdivision without an amendment to the CC&RS. What is going on?

The Flat Top Court held that,

The homeowner’s association must serve a community [subdivision] which bears a reasonably, recognizable relationship to an area ordinarily identified as a governmental subdivision or unit. Congress recognized that a true “community” functions within a broader national fabric.

When a group of citizens elects . . .  to separate themselves from society and to establish an entity that solely advances their own private interests, no potential for general social advancement [benefit] is implicated.  Wholly private activity, however meritorious, confers no such benefit which would render a compensatory exemption [ tax break] appropriate.

So, from the dawn of HOA history it has been vehemently argued that HOAs are private entities and therefore hands off, we now have an about face just to claim tax benefits.   In other words, the HOA by its very nature withdrew from the greater society and cannot claim a tax benefit from it.

In dissenting from the majority holding, a judge maintained that “The Association performs [community benefits], as the majority recognized, ‘tasks of quasi-governmental nature’ for the Association members and others. . . and performs activities which the taxpayers otherwise would have to pay for.”   The judge did not address the question of double taxation as a result of reduced municipality services – paying HOA assessments and also paying taxes for services no longer provided by the municipality.

 

 

Published in: on June 20, 2018 at 8:49 pm  Leave a Comment  

Political free speech both without and within the HOA

I recently came across a post by a Massachusetts law firm , MEEB, that basically summarized my arguments and positions on unconstitutional HOA governments.  In particular, alleged waivers of constitutional rights and the prohibition against private contractual government  HOAs from restricting political public speech.  That applies to both in the public domain and within the HOA community domain.

In its 2012 post, “Court Decisions May Make it Harder to Restrict Free Speech Rights,” decisions in 3 court cases (VT and MA) are reviewed. In essence, these decisions challenge “an assumption long held and widely recognized by courts in many jurisdictions that the freedom of speech guaranteed in the U.S. Constitutions does not apply in condominium communities.”  The reason offered, as I’ve mentioned many times, “citizens, a community association is not a governmental entity, so its rules are not subject to the same strict constitutional tests.

In contrast to Twin Rivers,  in Mazdabrook “the court noted [political speech] ‘lies at the core’ of our constitutional free speech protectionsPolitical signs advancing a resident’s candidacy are not by their nature incompatible with a private development. They do not conflict with the purpose of the development.”  And the court concluded “that the sign policy in question violates the free speech clause of the State Constitution.”

 In regard to the alleged waiver of fundamental rights (my emphasis),

The New Jersey court expressed serious concerns about whether and how condominium owners can  voluntarily waive their constitutional rights. Such waivers, the court said, “must be knowing, intelligent, and voluntary…. [and] at the very least, [they] must be clear.  Mazdabrook’s rules did not specifically require Khan to waive his free speech rights, the court noted. Rather, “he was asked…to waive the right to post signs before getting board approval, without any idea about what standards would govern the approval process. That cannot constitute a knowing, intelligent, voluntary waiver of constitutional rights.”

 Mazdabrook’s rules did not specifically require Khan to waive his free speech rights, the court noted. Rather, “he was asked…to waive the right to post signs before getting board approval, without any idea about what standards would govern the approval process. That cannot constitute a knowing, intelligent, voluntary waiver of constitutional rights.”

In the Preu (MA) decision, the court addressed state actions by the HOA,

The court found that a law suit filed to enforce a community association’s rights under the state condominium statute constituted a “state action” that could subject association regulations to a constitutional test.

 The constitutional test would require strict scrutiny, which requires a necessary and compelling reason to restrict fundamental rights. Lesser loss of rights, say under state laws, would be subject to a lessor test, but more than the broader “a government’s general interest” that can easily be extended beyond justifiable logic.

In addition to the above rulings, California’s SB 1265 that states the HOA is a quasi-government faces a test in the legislature tomorrow. Let’s hope it passes.  The sponsor, Senator Wieckowski,  also managed to have SB 407 passed last year that broader prohibits restrictions on free speech regarding meeting rooms, assemblies, use of common areas, etc.

“It is the intent of the Legislature to ensure that members and residents of common interest developments have the ability to exercise their rights under law to peacefully assemble and freely communicate with one another and with others with respect to common interest development living or for social, political, or educational purposes.” (New Civ. Code 4515(a).

Now members can even make use of the ‘house organ,’ the monthly online or hardcopy communication provided to the membership for equal access to the membership for campaigning or publicizing opposing views.

Published in: on June 19, 2018 at 3:15 pm  Comments (4)