Draconian punishment and intimidation, No. 8
The Tennessee appellate court in Brooks found “that the foreclosure sale price shocked the conscience of the court.[i] A home valued at over $321,000 was foreclosed for just $12,800 of which $6,734, more than half, went directly into the attorney’s hands.[ii] That’s more than 25 times the “damages” to the HOA. The Charleston Regional Business Review reported that the average foreclosure debt was about $4,500 and the average home value foreclosed was about $160,000, or 36 times the debt.
An award of more than the 10 times for punitive damages was held by the US Supreme Court in State Farm v. Campbell[iii] to be a cruel and unusual punishment in violation of the 8th Amendment. This right to foreclose in unjust and draconian, taking away a person’s home and leaving him with nothing! It is unconscionable and discriminatory as explained below. Furthermore, HOAs assessments are considered a consensual lien and are exempt from homestead protections. (See paper No.4 above, speaking about your legitimate consent to be bound.)
With respect to HOA foreclosures, we once again discover that HOA assessments are being treated the same as public government taxes and property assessments — must be paid and your property can be foreclosed for non-payment. Both taxes and HOA assessments are not related to hard cash payments for which the lender is entitled to foreclosure to protect his loan, nor are they based on any specific transactions, like payments for garbage collection, for electricity, or for police protection, etc.
Why should the HOA be given this right when other entities do not have foreclosure rights, and when there are other available collection methods — garnishment, sale of other property, etc. — to collect on bad debts? Other entities, both public and private, must face the possibility of failure or bankruptcy – there are no guarantees in life. A standard accounting procedure, and used by CAI Central in its financial statements, is what is called “Bad debts reserve” or “Reserves for bad debts,” which is an annual estimate of uncollected assessments.
Using common sense, we can understand the value to the HOA to “evict” the non-payer and to replace him with a new owner who will make timely assessment payments. That’s logical. There is very little opportunity to raise additional funds for expenses except by means of increased assessments on other members, the “it’s not fair” argument. While the end of the foreclosure action has a rational value, the means is highly suspect.
In addition to the arguments of special rights as enjoyed by public entities and an unconscionable punishment, HOA foreclosures are discriminatory. The following quote is from an Arizona CAI attorney:
Assuming foreclosure eligibility requirements are met, whether foreclosure is a viable option depends largely on what other liens, interests, and encumbrances burden the subject property. . . .If the property is not subject to a mortgage or there is a minimal first mortgage, foreclosure is a viable option as there is likely equity in the property. . . . Even if the property is subject to a recorded first mortgage and there is no equity in the property, foreclosure still may be a viable option. Sometimes the threat of foreclosure alone is enough to get a delinquent owner’s attention. . . . the owner will often pay the association in order to keep his/her home.[iv]
This is an admission of the discriminatory nature of the foreclosure process — works only if the homeowner was an upstanding citizen who had paid his mortgage and assessments for many years, and had created all that equity that the HOA now seeks. It is also an admission of the punitive and intimidation motives of the HOA — “the owner will often pay the association in order to keep his/her home” — without facing the reality that “you can’t get blood from a turnip”! The HOA attorneys promote the view that the non-payers are scofflaws and deadbeats who are seeking to stick it to the good, assessment paying members. “It isn’t fair!” goes the cry.
What the foreclosure process does do, and is not mentioned by the CAI attorney, is that the attorney can claim fees many times in excess of the amounts owed the HOA. So, who really benefits? Certainly not the homeowner who loses everything with this draconian punishment. And there are other methods available to collect bad debts, and if not viable, well, then that’s the cost of doing business.
Is this good public policy to treat homeowners facing hardship not of their doing — take away their home and leave them with nothing? Legislation must be put into place to protect against intimidation and wrongful foreclosure, and to ensure a strict enforcement of the foreclosure process, especially requiring documentation and an exact specification of the undisputed debt owed. If the state legislatures truly believe that HOAs are the next best thing to Mom’s apple pie, they should be ready to ante up and financially support HOAs facing financial difficulties. Perhaps in this way homeowners will get the accountability to the state and the requisite oversight of HOAs.
As to the broader solution, there is a just and compassionate legal solution to this state of affairs that can be put into place quickly and effectively. Allow the homestead exemption for HOA assessments! If a state has no homestead protection, simply enact one ASAP! This is a fair, compassionate, and sensible solution. I anticipate strong opposition to this proposal, but I remind the opponents to be prepared to address the unclean hands of the HOA as summarized in this Common Sense series of papers.
PS. I apologize for the intrusion by WordPress to have added underlines to certain words.