The Art of War and HOA Reforms War #1

While HOA reforms require new legislation in every state to restore lost rights and freedoms resulting from the adhesion, authoritarian CC&Rs “contract,” advocates need to understand that reform activity has moved from a social and political movement to a war against an entrenched enemy.  I have used terms like doing battle,  the enemy, attack, etc. not lightheartedly.

The common quote from The Art of War (the James Clavell version is easy reading), “If you know yourself and your enemy, you need not fear the result of a hundred battles,” is just one of many that are easily applied to any organized civil, contentious movement.  Just like we are facing in our attempts to reform the HOA concept and being faced with opposing forces led by CAI. 

We must all toughen up for success!

I have selected several statements from Chapter VI that can easily be seen as applicable to our efforts.  As a longtime student of history, especially military history, I offer my interpretations.  Alternate interpretations are possible. The numbering reflects the sentence number as used by Lao Tzu.

Chapter VI–

1. Whoever is first in the field and awaits the coming of the enemy, will be fresh for the fight; whoever is second in the field and has to hasten to battle will arrive exhausted.

2.Therefore, the clever combatant imposes his will on the enemy, but does not allow the enemy’s will to be imposed on him.

5.   Appear at points which the enemy must hasten to defend; march swiftly to places where you are not expected.

[Too often advocates have reacted to the CAI supported bills or positions rather putting their positions and bills on the “table” out first. They then need to catchup and defend against the allegations and not arguing their positions.]

[The following quotes advise the General (leader) to know the enemy — your opponent. Power negotiations is a two-party “game” and knowing the opposing teams’ strengths is important for success.]

10.  You may advance and be absolutely irresistible, if you make for the enemy’s weak points; you may retire and be safe from pursuit if your movements are more rapid than those of the enemy.

        [Taking some action regarding bills or any statements that need to be challenged.]

13.  By discovering the enemy’s dispositions and remaining invisible ourselves, we can keep our forces concentrated, while the enemy’s must be divided.

14.  We can form a single united body, while the enemy must split up into fractions. 

        [A failure of advocates to unite has hurt the reform movement. Each failure to unite allows CAI to boast, “See, they are nothing to be worried about.”  Legislators, like everybody else including lawyers, want to back winners, not losers.]

19.  Knowing the place and the time of the coming battle, we may concentrate from the greatest distances in order to fight.

22. Though the enemy be stronger in numbers, we may prevent him from fighting. Scheme so as to discover his plans and the likelihood of their success.

23.  Force him to reveal himself, so as to find out his vulnerable spots.

     [In summarizing these last 5 statements, advocates need spies, just like our military uses spies and sends out recon units in order to find out what’s happening. Lao Tzu stresses this aspect in his last chapter. With CAI closing ranks and restricting access to its websites, member spies must be recruited.  I did well using spies in my early activist days.]

AZ legislature fears HOA failures if homestead protection permitted?

Why is the exclusion of homestead protection for private HOAs a matter for  the AZ Senate FIN committee?  Is the committee afraid that HOAs will begin to fail in droves due to dead beat members retaining up to $400,000 in homestead exemptions if foreclosed on? (The HOA equivalent to public taxes).  That’s odd, because for years CAI has presented surveys that all is well in HOA-Land with a 70% – 80% member approval.  Or is there fear mongering going on again?

H’mmm.  Suppose now that the fear is real and down go the HOAs, mainly on the directors failure to manage the HOA’s funds.  Why then should HOAs get preferred treatment in violation of the Arizona Constitution, Article 2, Declaration of Rights? Let them fail as any other poorly run organization!

§32. Constitutional provisions mandatory. The provisions of this Constitution are mandatory, unless by express words they are declared to be otherwise.

§13. Equal privileges and immunities.. No law shall be enacted granting to any citizen, class of citizens, or corporation other than municipal, privileges or immunities which, upon the same terms, shall not equally belong to all citizens or corporations.

If the committee, and Legislature, proceed to withhold homestead protection then their act would be a clear violation of the AZ Constitution and subject to an easy challenge. It has happened in the past and the homeowners won! AZ Attorney General admits SB 1454 HOA to be invalid and without effect.

HOA Homestead Exemption Exclusion (SB1470)

`Please pass SB 1470, homestead protection for the people.

History of Homestead Exemption HOA Exclusion (SB1470)

In 2004 ARS 33-1806(3)(h) was added to the mandatory disclosure requirements, requiring a buyer to sign an acknowledgment that he agrees to the loss of his homestead exemption (now $400,000). Just one year later, in 2005, the statute was again amended to remove any reference to the loss of the homestead exemption.  In 2007 Governor Napolitano vetoed the homestead exemption bill on a flimsy argument – to many subjects.

Today, ADRE (real estate dept)  still does not inform consumers of the loss of their homestead exemption.

In 2007 I wrote, in part,

“They [CAI] raise the issue of a consensual agreement, the unsigned CC&R ‘agreement,’ which, under Arizona statutes, is an exception to the application of the homestead protection.  The author of the S/E amendment to the bill, Representative Farnsworth, made quite clear that ARS33-1807(A), which opens with, ‘The association has a lien . . . .’ (emphasis added), is a statutory lien and not a consensual lien – the homeowner has no choice in the matter whatsoever. 

“Any reference to a consensual lien must come from a voluntarily entered agreement, and, not from a statute. Our concern here is the alleged CC&Rs consensual agreement that may contain a provision for an agreement to a lien for unpaid assessments and the right to foreclose.  No CC&R that I have been made aware of mentions a surrender or a consent to the loss of the homestead exemption.  No real estate purchase agreement that I am aware of mentions an agreement to surrender the homestead exemption. The CC&Rs have been held as binding, not as a consensual agreement per se, but by the application of the doctrine of constructive notice, or the simple posting to the county clerk’s office.” 

This is the Legislature’s second chance to restore the equal protection of the laws to homeowners in HOAs. There is no justification for denying homestead protection when.

Resources

ARS Title 33, -Ch. 8

 33 – 1101. A. Any person the age of eighteen or over, married, or single, who resides within the state may hold as a homestead exempt from attachment, execution and forced sale, not exceeding $400,000 in value, any one of the following:

1. The person’s interest in real property in one compact body upon which exists a dwelling house in which the person resides.

2. The person’s interest in one condominium or cooperative in which the person resides.

33-1103. Homestead exemption; extent of exemption; exceptions

A. Real property that is subject to the homestead exemption provided for in section 33-1101, subsection A is exempt from involuntary sale under a judgment or lien, except in connection with:

1. A consensual lien, including a mortgage or deed of trust, or contract of conveyance.

33- 1256; 33 – 1807. A. The association has a lien on a unit for any assessment levied 14 against that unit from the time the assessment becomes due.

SB1470 (Feb. 13, 2023)

C. Subsection B of this section does not affect the priority of

10 mechanics’ or materialmen’s liens or the priority of liens for other

11 assessments made by the association The lien under this section is not

12 subject to chapter 8 of this title.

The need to regulate CAI monopoly

To answer to the question I raised, “Is CAI a coercive HOA monopoly?,” required further research and analysis, which resulted in  finding extensive and strong evidence, gathered from over the years, that CAI is definitely acting in violation of the anti-trust statutes; steps need to be taken to break up the monopoly.  Below are my recommendations to regulate CAI’s activities to allow for the voice of others to be heard, especially from owners of HOA homes who suffer under the monopoly.

A.       Regulations on CAI monopolistic activities

1.       CAI to cease all references and implications that it represents HOAs before the legislature, all government bodies, before the courts and including amicus curiae briefs without express consent to do so;

2.      Require CAI to state that it is a business trade nonprofit, explicitly a 501(c)6 and not an educational entity;

3.      Inform readers that it cannot have HOAs as members since HOAs are consumers of the services provided by the trade group members;

4.      It is actively engaged in lobbying state legislatures on bills favorable to the HOA  and not necessarily to the membership;

5.      Inform owners and the public in general that its attorney members represent the HOA personified by the Board of Directors and not the member.

B.    Regulations on HOA activities in support of CAI monopoly

1.       Similar to representing employees in bargaining with management, propose federal laws that permit and protect HOA members to organize its membership to bargain in good faith for amendments to the governing documents and Rules changes;

2.      Propose legislation that allows for the creation and protection of a national HOA Homeowners Coalition, similar in intent as the National Labor Relations Board (NLRB);

3.      To restrict the HOA from interference with the newly established  organized national and state  member entities;

4.      Quarterly inform the membership of the number of directors, officers, managers, and attorneys who are members of CAI;

5.      Publish the total annual amount of spending for CAI dues paid for any HOA members, donations, other fees, and expenditures paid for by the HOA;

6.      Inform the membership that all communications with their attorney are not exempt from disclosure by state law,

7.      and all communications with the HOA attorney constitutes corporate documents that are accessible to the members, unless explicitly exempted under  “Pending or contemplated litigation” apply;

8.     The CC&Rs or Declaration for any planned community, condominium association or homeowners association shall state that, “The association hereby waivers and surrenders any rights or claims it may have, and herewith unconditionally and irrevocably agrees to be bound by the US and State Constitutions and laws of the State as if it were a local public government entity.”

Is CAI a coercive HOA monopoly?

Community Associations Institute (CAI) dominates themarket for HOA educational services and controls the market around it by means of its extensive lobbying of state legislatures and by holding seminars, conferences and publications extolling its self-serving agenda that promotes the HOA legal structure and scheme; by the support  of state agencies that sponsor CAI seminars and classes, and by private entities trained under the CAI education program – ECHO in California and CALL in Florida, as examples. It has become successful in lessening competition as a result of its “improper conduct.”

A quick review of the internet postings shows (emphasis added),

“[The]  courts ask if that leading position was gained or maintained through improper conduct—that is, something other than merely having a better product, superior management or historic accident. In the end, courts will decide whether the monopolist’s success is due to ‘the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.’”

“Coercive monopoly” is defined as:

“A monopoly that is created using extraordinary power such as a government or international agency. For example, a government that grants legal protections to firms that create barriers to entry to prevent competition. Firms commonly lobby governments for rules that protect them from competition.”

With respect to CAI, a tax-exempt nonprofit, can it be charged as a monopoly? It is a well-established fact that no state has granted  CAI a protective government monopoly exclusion —  the right to lessen competition. And that includes local governments in several states that openly support and encourage the CAI HOA program; some states have actually employed CAI as its authority to educate the public regarding HOAs.

The  answer is YES according to the following Supreme Court case. The case addresses the instance where  the state assigns a “governmental monopoly” (making it a state-actor) to an entity (which HOAs are not), but must explicitly state that the entity has the right to lessen competition,

“Under this Court’s state-action immunity doctrine, when a local governmental entity acts pursuant to a clearly articulated and affirmatively expressed state policy to displace competition, it is exempt from scrutiny under the federal antitrust laws. In this case, we must decide whether a Georgia law that creates special-purpose public entities called hospital authorities and gives those entities general corporate powers, including the power to acquire hospitals, clearly articulates and affirmatively expresses a state policy to permit acquisitions that substantially lessen competition. Because Georgia’s grant of general corporate powers to hospital authorities does not include permission to use those powers anticompetitively, we hold that the clear-articulation test is not satisfied, and state-action immunity does not apply.”

 (F.T.C. v. Phoebe Putney Health System (133 S.Ct. 1003 (2013)).

CALL TO ACTION

I believe the case can be made for a CAI monopoly and for the Feds to  investigate (Citizens Complaint Center, Antitrust Division, DOJ),  and to file an appropriate antitrust lawsuit ASAP.