HOA “bible” ignores members’ property rights

An excerpt from the HOA “bible” that was the source of the HOA legal scheme and structure, and included appendices on model CC&Rs and bylaws (Appendices F, G, and H, pages 384 – 402). While over time minor changes have appeared in governing documents, they are for the most part, and in particular on fundamental issues, boilerplate covenants contained in the Handbook.

Note that no mention is made of the homeowner, the HOA member, whose property interests are at stake and the subject of the legal scheme. “Association officers,” as we have discovered, represent the association and not the personal property interests of the members. The members are there, it seems, to fund the HOA. It is a top-down governmental structure with little concern for protecting principles of democratic government.

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.

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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.

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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

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[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 (3^rd) Property: Servitudes (American Law Institute 2000).

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Fundamental government functions: public or private HOA

Last month I commented on The Goldwater Institute’s Local Liberty Charter by Nick Dranias, its Director of the Center for Constitutional Government. The title asked the following question: Whither goest local government? Restrictive HOAs or responsible public government? A “follow-up” question that was not raised is:

Disregarding the knee-jerk reaction by those opposed to government involvement, “private enterprise can do the job better than government”, why, in the face of the serious problems surrounding the restrictive covenant, private government HOAs, does The Institute believe that restrictive covenants will provide for a better government?

It must be understood that we are not talking about providing services, such as trash, utilities, etc., but the basic functions of a government itself. What then becomes of public local government? In essence, the very concept of public government becomes an anachronism, replaced by myriads of independent local “principalities” since our now antiquated concept of government does not permit it to interfere with these private arrangements. What becomes of that initial contract between the people and its government, commonly known and referred to as the US Constitution? What becomes of the protections of individual freedoms and liberties protected by the Constitution?

Are these the concerns of the homeowners living in HOAs — those people whom we are told actually prefer and “love” HOAs? Definitely yes! Just look at the HOA reform legislation of substance, other than those dealing with the day-to-day operations. You will see legislation that attempts to restore fundamental rights and freedoms and “equal justice under the law” to homeowners living in HOAs, that were taken away by special interest influenced legislation.

I congratulate Mr. Dranias, and Shu Bartholomew, for keeping HOA issues before the general public: the basic issue is private or public local government. However, I was disappointed that Mr. Dranias’ appearance on the On The Commons internet talk radio show this past Saturday did not address these important HOA constitutional concerns.

There was, though, a brief mention of a loss of constitutional protections in HOAs. In response to Shu’s concern for private security use of radar guns and the absence of constitutional protections found in the public domain (32 – 35 minute mark), Mr. Dranias gave a response that might have been missed by most listeners. He referred to the city “spinning out or spitting out” a private entity to handle functions that it wanted to unload that such an entity was an agent of the city and was “bound by the same responsibilities of the city.” He added that, “the city cannot avoid its constitutional restrictions by contracting.” He spoke of “if this is an inherent function of government and they chose to contract it out . . . that person would be subject to constitutional law.”

The key point here is that the state did not establish the HOA (court rulings so hold) and, therefore, these private governments are not subject to constitutional protections. Again, this is the reason why there is a strong visceral reaction by CAI to any mention that HOAs are de facto governments.

In response to my email to Mr. Dranias, I was told that he will be addressing the issue in a future report. I eagerly await this report, and I await his return to On The Commons to speak of these concerns.