Staying the course to apply the US Constitution to HOA-Land

In my long involvement in HOA reform legislation I’ve suffered defeat after defeat culminating in this week’s AZ Supreme Court denial to hear Tarter v. Bendt and address my amicus curiae brief. The brief raised deep questions arguing that state legislatures and judges demonstrate an unconscious pro-HOA bias as a result of years of an unopposed picture of the HOA legal scheme. And as such, erred in the courts’ decisions against Bendt.

But taking heart from the words of Winston Churchill,

Or even better, from WWII General Joseph “Vinegar Joe” Stillwell,” Illegitimati non carborundum (Don’t Let The Bastards Wear You Down).

But still, I managed to have some successes.

Several of you have received my Don Q Medal of Valor for your repeated efforts to expose and inform the public about the hidden side of HOA-Land, the side the national lobbying entity avoids like the plague. Over the years I’ve come to the conclusion that I’m the real personification of Cervantes’ fictional Don Quixote. I wrote:

 “The reality of the HOA ‘windmills.’ This is my statement on the rejection of my efforts to restore constitutional protections to HOAs by a society suffering from a decay and decline in ethical, moral, and democratic values.

 “For the most part, my analyses and warnings have been ignored by elected officials and politicians at all levels, by the public at large, and by a large majority of homeowners living in HOAs. So, it appears that like Don Quixote,  I am out-of-step with the reality of these times. But it doesn’t make me wrong!  Historians will judge.”

(See HOAs as ‘windmills’, Dec. 2020).

I am also disappointed by the failure of HOA advocates to rally around the injustice perpetrated on a homeowner by an upscale HOA and the courts.

Desert Mountain opinion (AZ) constitutionality part 1

The Arizona appellate court ruling in Nicdon v. Desert Mountain[1] needs to be appealed to the AZ supreme court on color of law denial of fundamental rights to property; on violations of the equal protection of the laws.  While the issue at hand was an amendment to restrict short-term rentals to just 30 days, it raised several constitutional concerns.

It is unfortunate that the Court relied on earlier HOA case law as precedent.  When these older decisions are quoted and cited, they must be reviewed and rebutted along constitutional concerns. 

Disclaimer: Understanding that in spite of my 20+ years reading hundreds of federal and state supreme court and appellate court opinions, I am not a lawyer nor am I employed by a lawyer; I only offer my views.

. . . .

With respect to Desert Mountain, the following are quotes from the opinion  that I find contentious and worthy of constitutional challenges.

1.  “By accepting a deed in the Desert Mountain planned community, Nicdon became bound by the Declaration, including properly adopted amendments. . . . when [a] homeowner takes [a] deed containing restriction allowing amendment by majority vote, homeowner implicitly consents to any subsequent majority vote to modify or extinguish deed restrictions”.

Surprise! Surprise! “Implicit consents”  means not clearly stated. This is a reality hidden from and not made known to the buyer at closing by the builder, the HOA, or the real estate agent, thus raising full disclosure of material facts violations. Meanwhile the courts, and CAI, have repeatedly upheld the validity of the CC&Rs as a bona fide contract against homeowners.

2.  “In addition, in interpreting contracts, “we attempt to reconcile and give effect to all terms . . . to avoid any term being rendered superfluous.”  The Court accepts CC&Rs as a valid contract.  Based on (1) above, this is an unequal protection of the laws and a due process violation resulting from misrepresentation of material facts.

3.  “In adopting the Amendment, Desert Mountain properly followed the procedures laid out in its governing documents.”  Under contract law this can be seen as an invalid “agreement to agree.”   The homeowner raised the issue of an unreasonable addition to the CC&Rs, but the Court saw it differently.  The real argument, in my mind, was the invalid agreement to agree and therefore,  a taking of personal property without compensation not permitted under the federal and Arizona constitutions.

Although no such restrictions explicitly appeared in the Declaration when Nicdon’s principals purchased their home, they could have reasonably anticipated further restriction or expansion on matters within the scope of the Declaration’s regulation.”

There are no grounds for holding that a member “could have reasonably anticipated further restriction or expansion on matters. . . .”  It’s dictum.  The governing documents are not set up for handling agreements to agree on broad and unreasonable amendments that are NOT negotiated with the members. Voting for the amendment is not negotiating. Many members speaking out on contract matters is not negotiating one-to-one. But, in order to make the HOA work, the amendment process, following public processes, rejects contract validity.  We have unequal protection of the law.

Also, is this an open-ended procedure  making the covenant invalid? “Some courts have concluded that an agreement to negotiate at a later date is an unenforceable agreement to agree. . . . But other courts have distinguished unenforceable agreements to agree from valid agreements to negotiate in good faith.”[2]

4.  “Given these provisions, as well as the comprehensive nature of the Declaration and its amendment procedures, a prospective purchaser of a lot in the community would reasonably be on notice their property would be regulated by extensive use restrictions, including limitations on renting of homes, subject to amendment in accordance with the Section 5.20 process.”

I would argue that a buyer would “reasonably be on notice their property would be regulated by extensive use restrictions” is  an abuse of discretion in that reasonableness is with regard to the content of the amendment and not the notice of an amendment.  It is obvious that there is no provision for negotiations with the homeowner.  The governing documents amendment provisions are set up as if it were a local government and not a one-to-one contract. It needs further explanation.

5.  “A restrictive covenant is generally valid unless it is illegal or unconstitutional or violates public policy” was quoted from the Restatement (Third) of Property (Servitudes) § 3.1(1). 

The Court added §3.1(1)),

 “this concept “applies the modern principle of freedom to contract,” which generally means that courts will enforce parties’ agreements “without passing on their substance.”. . . .  A restriction may violate public policy for several reasons, including if the restriction is “arbitrary, spiteful, or capricious.

I will forego a discussion of freedom to contract[3] and the reliance on the Restatement of Servitudes,[4] which I find biased in its support of HOA and not an independent reporter on common law and court decisions.  Part 2 will go into these complex but highly relevant constitutional issues relating to the HOA legal scheme.

. . . .

What has been lacking in HOA litigation over the years, with all due respect to homeowner champion lawyers, is constitutional law expertise.  I’ve read too many cases that touched upon constitutional arguments like free speech, due process, and equal protection of the laws but failed to delve deeply into these defects in the HOA legal scheme.

  The broad approach successfully used by Justice Ruth Bader Ginsburg in her women’s rights litigation needs to be adopted here. And, as usual, CAI was there representing the HOA or by filing amicus curiae briefs.

References


[1]   Nicdon v. Desert Mountain, No. 1 CA-CV 20-0129 (April 29, 2021).

[2] The Lawletter Blog, The National Legal Research Group, (April 30, 2021).

[3] The question of  “freedom to contract” is explored by Randy Barnett where he argues that there are limitations. Restoring the Lost Constitution: The Presumption of Liberty, Randy E. Barnett, Princeton University Press, (2004).

[4] Restatement (3rd) Property: Servitudes (American Law Institute 2000).


Colorado HB 1200 needs your active support

Colorado’s HB 1200,[i] brought to my attention by journalist Ruthy Wexler, is an outstanding bill that provides for the long ignored, not my job, state oversight of HOA violations. It is a measure that provides the constitutional protections against depriving “a person of property without due process of law” and against denying “the equal protection of the laws.” These protections have been denied by the HOA “constitution,” its CC&Rs. Although a private contract, these protections cannot be waived.

HB 1200 is a much more protective bill of homeowner rights and freedoms as was introduced in Arizona in 2006 and adopted in the face of stringent opposition by CAI. CAI then proceeded in 3 court cases over 4 years to have the statute declared unconstitutional and have the ruling applied to all Arizona HOAs. It almost won but the Arizona Supreme Court denied it precedent value and in 2011 the statute was amended to handle CAI’s claims of unconstitutionality. It is in operation today under Arizona’s real estate department.

I was actively involved in the creation of this Office of Admin. Hearings adjudication of HOA disputes and in the defense of its constitutionality.[ii]

The role of CAI, as presented above, should not be taken lightly. Strong and active homeowner support will be necessary to carry this bill to law. I commented on former Colorado Senate President Morgan Carroll’s book:

Yes, there have been champions of HOA reform, but advocates fail to realize that these legislators must buck the powers that be at the legislature and win over the votes of a majority of other legislators. And this takes outcries by many people, not with gripes of “I wuz wronged!” but with valid arguments as to why HOAs are wrong for the state and the general public well-being.  And how to fix  these wrongs.[iii]

Take heed Coloradans and get behind the sponsors today!

Notes

[i] HB 1200.

[ii] See AZ Supreme Court accepts advocate’s amicus brief in challenge to HOA statute.

[iii] See Why HOA reform advocates fail at legislative reforms (2011).

CAI School faculty advice – managing HOAs

I have described the CAI School of HOA Governance in an earlier post. In short its programs educate and promote the biased CAI view of governing HOAs.[1] I consider the School’s faculty consisting of those learned professionals, real estate attorneys, CAI former Trustees and national Presidents and some misguided constitutional attorneys and nonprofit organizations.

The latest School pronouncements come from a highly respected real estate attorney that is deeply involved in CAI, Kelly G. Richardson.[2] In view of his background and publications, seminars and speeches, I consider him to be part of the of the CAI School faculty that sets CAI’s objectives, missions and programs. Note that Richardson’s profile shows no credentials or expertise to speak about corporation management or governance, or constitutional or municipal laws.

Yet he feels free to speak outside his expertise about HOA governance that I maintain is founded on real estate equitable servitudes, covenants running with the land, where “The policy makers have failed to understand that the HOA CC&Rs have crossed over the line between purely property restrictions to establishing unregulated and authoritarian private governments.”[3] Richardson, with all due respect, does not have the credentials to advise HOA directors on governing the HOA.

In his “Homefront: Fiduciary Duty” article[4] he takes the time to clarify in some detail, finally for the members, that the BOD (board of directors) acts in the interests of the corporation and not the individual member. That’s straight corporation law not HOA law. However, I’m confused by the following statement: “If the director were a fiduciary to the individual member, that pursuit of delinquency or violation would breach the duty of loyalty toward that member, but the loyalty is to the corporation.” Richardson seems to be saying that indeed a director has a fiduciary duty to the member but that duty to the HOA comes first.

Then he goes on to advise directors that a dissenting director, one who voted in the minority, owes his allegiance to the HOA and must muzzle himself.

“Even though the director believes the decision is a poor one, the director’s loyalty to the corporation compels the director to support and not frustrate the board’s decision.” This appears to be one of the fundamental flawed teachings of the CAI School, never go against the HOA or BOD. Never! It is contrary to all expert advise on effective and productive management[5] or city management.[6]

Richardson closes with advice on the need to conduct due diligence so the director can fulfill his duty to the HOA.

“The duty of care requires directors to have sufficient information from qualified persons to make the decision.” But then comes the plug for CAI, “Savvy directors know their role as directors is to make good decisions and not to advise, and so support hiring outside experts for advice.”

He further warns directors, who have relevant knowledge and expertise, to remain mum and not speak out least he be sued. If the director chooses to speak out as he should do in the best interests of the HOA, ”the director is not acting as a director but is an unpaid consultant and could be held liable for their advice.”

 Once again Richardson is advising directors to remain silent and to trust in the experts adding support to my earlier assertion, BODs, in general, resort to CAI not for legal advice on how to run the HOA government but as a crutch to allow them to dodge their obligations to govern the people.”[7] His managerial advice does not come from any credentials in political science, or constitutional law, or municipal government, but as a real estate professional espousing the CAI School of HOA Governance model of contractual, private, local government. In short, by fear mongering, it gives credence to the view that the HOA lawyers control the BODs.

Indoctrination “is the process of teaching a person or group to accept a set of beliefs uncritically.” Over the years CAI has been very successful in indoctrinating all the people: the policymakers, the state legislators, the state real estate departments, the media and the homebuyers. Richardson’s article justifies the need for a restructuring of the independent HOA principality and a reorienting the board of directors away from the CAI School doctrine.[8]

 Notes

[1] The foundation and principles of the School can be traced back to CAI’s Public Policies, The CAI Manifesto (its 2016 “white paper”), its numerous seminars and conferences, its Factbooks and surveys, its amicus briefs to the courts, and its advisories, letters, emails, newsletters, blogs etc. I have designated these foundations and principles collectively as the CAI School of HOA Governance.

[2] Kelly G. Richardson: CAI Board of Trustees 2011-2017; Community Associations Institute (CAI), National, President, 2016; College of Community Association Lawyers (CCAL), 2006; CAI’s California Legislative Action Committee, Chair, 2009, 2010; National Association of Realtors; California State Bar Association, Real Estate & Litigation Sections.

[3] See in general Restructuring HOAs: “CAI School and member benefits” pt. 2.

[4] HOA Homefront: Fiduciary Duty – What It Is, And Is NOT, The Public Record, (Feb. 26, 2020).

[5] See for example: Are You Creating ‘Yes Men’ And Hindering Your Own Leadership Success?”, Terin Allen, Forbes.com (Nov. 10, 2018). “In my experience, most people get this way because they are responding to a culture or people in management who elicit and reward this type of behavior. . . . [in order to] survive on a dysfunctional leadership landscape where all the signals and messages confirm for them that dissent is bad and agreement is good.”; “7 Ways “Yes People” Can Destroy Your Business,” Barry Moltz, American Express Company (May 27, 2013). “Yes people don’t tell the truth. They only tell the . . . business owner what they want to hear. This doesn’t help a leader, who needs the whole story, good and bad, to operate a business. It only serves to increase your vulnerability.”

[6] Orville W. Powell, City Management: Keys to Success, AuthorHouse (2002). Powell “is recognized in this country and internationally as an expert in the field of city administration.”

[7] See Restructuring the HOA model.

[8] See HOAs are in need of a major restructuring.

 

Toward a democratic HOA subject to the Constitution

The news is good lately as several state legislatures have and are dealing with substantive HOA reform legislation that confronts the HOA legal structure as un-American. California’s SB 323 passed into law last year amid the hostility of CAI; Florida’s HB 623 is in the legislative process of becoming law; and Arizona’s SB 1412 is just starting out in the legislature.

The substantive amendments to state laws are:

SB 323 (CA) — seeks to introduce fair elections procedures for HOAs, addressing one of my 6 substantive defects in the HOA legal scheme.  Deborah Goonan’s excellent discussion of this bill[1] brought to my attention a second defect in the HOA legal scheme, the lack of enforcement of the law.

“A member of an association may bring a civil action for declaratory or equitable relief for a violation of this article by the association. . . . “A member who prevails in a civil action to enforce the member’s rights . . . the court may impose a civil penalty of up to five hundred dollars ($500) for each violation.”

HB 623 (FL) —

“This provision will amend 718 F.S. so any bylaws, or reasonable rules or regulations of the association which diminish or infringe upon any right protected under the Fourteenth Amendment[2] to the United States Constitution or Art. 384 II of the State Constitution and would be void and unenforceable without further action of the association. However, the provision states that the association may record a notice in the public records of the county in which the condominium is located evidencing its intention to not enforce such provision, it would foolhardy for them to do so. This has been overdue in our quest for achieving equal rights.”[3]

Much to my surprise Eric Glazer, of FL HOA & Condo Blog and host of HOA Condo Craze, warns of danger if HB 623 is made law.[4]

To simplify, the 14th Amendment made The Bill of Rights (The first ten amendments to the Constitution) applicable to the states.  So, this law basically says no provision of your governing documents can infringe upon the rights you have under the Bill of Rights.  All of you know several of these rights such as the right to free speech, freedom of assembly, and freedom of religion.

There is plenty of law out there that says when you move into an association, you may give up some of the rights you may ordinarily have in your private home. You do this by agreeing to be bound by the governing documents.

SB 1412 (AZ) — seeks to prohibit HOAs and condos from restricting political free speech. Members are permitted to associate, meet, discuss, show signs regarding political activity.

“NOTWITHSTANDING ANY PROVISION IN THE CONDOMINIUM DOCUMENTS, AN ASSOCIATION MAY NOT PROHIBIT OR UNREASONABLY RESTRICT A UNIT OWNER’S ABILITY TO PEACEFULLY ASSEMBLE AND USE PRIVATE OR COMMON ELEMENTS OF THE CONDOMINIUM IF DONE IN COMPLIANCE WITH REASONABLE RESTRICTIONS FOR THE USE OF THAT PROPERTY ADOPTED BY THE BOARD OF DIRECTORS. AN INDIVIDUAL MEMBER OR GROUP OF MEMBERS MAY ORGANIZE TO DISCUSS OR ADDRESS PLANNED COMMUNITY BUSINESS, INCLUDING BOARD ELECTIONS OR RECALLS, POTENTIAL OR ACTUAL BALLOT ISSUES . . . .”

I cannot emphasize that these bills have a very large umbrella covering many issues found at fault in HOAs. They provide the legal authority supporting many, many complaints, even those where the homeowner is just not happy with the way the HOA is run. In these cases, the HOA hasn’t really violated any law of the governing documents per se. The complaints should their focus on the lack of fair elections to remove wayward boards, or due process and equal protection of the law violations. The 14th Amendment applies!

What is needed is the strong support for the champions of these bills, Sen. Bob Wieckowski in CA, Senator D. Farnsworth in Arizona, and Representative Jason Shoaf in Florida. The California bill made law was achieved, in my opinion, with the help of the strong support of Marjorie Murray of CCHAL.[5] They fought and are fighting the system — state legislatures do not favor HOA reforms.

References

[1]California HOA elections bill update (March 2019)”, Deborah Goonan, Independent American Communities.

[2] The 14th Amendment. Section 1 state prohibitions against laws denying due process of law and the equal protection of the laws, and abridging the privileges and immunities of citizens.

[3] Comment number 6, CCFJ.net, Milena Macias, Esq. (Feb. 4, 2020).

[4] “A PROPOSED AMENDMENT TO THE LAW THAT HAS DANGER WRITTEN ALL OVER IT”, Florida HOA & Condo Blog, Eric Glazer, Esq. (Feb. 3, 2020)

[5] Center for California Homeowner Association Law.