tort suit against HOA brings homeowners $3.9 million in awards

Here are the tort suits that  can be brought against almost any rogue or knowledgeable Board that intentionally ignores the laws. Note there’s only one complaint for a breach of contract. Keep them this in mind!

The decision in a jury trial of a suit against a condo in Hawaii brought,

“The jury found the condominium association’s board of directors, and its employees and agents violated state condominium laws. They were also found to be engaged in a variety of illegal acts including racketeering, civil conspiracy, gross negligence, malicious prosecution, breach of contract, and both negligent and intentional infliction of emotional distress.”

Jury awards $3.87 million in Molokai condo dispute

AZ SB 1468 – holding HOA boards personally liable for going to court

SB 1468 is one of three bills that will put into place strong and effective penalties against HOA boards who use the threat of law suits to intimidate and punish homeowners into keeping their mouths shut. This bill will hold directors personally liable for the HOA’s attorneys fees if they lose in court.

This long needed enforcement of HOA laws against the boards, rather than just the members, comes about as a result of the HOA industry failing to police itself and to oppose intentional and rogue HOA violators. HOA lobbyists pay lip service to the ”5%” bad boards, but oppose any meaningful attempt to reign them in, a gross failure to act as a good corporate citizenship. Well, it’s time to pay the piper! HOAs “have gotten away with murder” against widows, retirees, single parents, minorities, and those who do not have the money or stamina to buck the HOA. Many of which are simply having the board to just comply with the law and governing documents.

Not only are the boards themselves directly at fault, they are also guilty of abdicating their duties and responsibilities under the law and governing documents to their hired hands, the attorneys and management firms. They are negligent in allowing their agents to act without accountability and without proper oversight and restrictions. The HOA attorneys make money win or lose by going to court. The HOA attorneys often step across the line and collude with the president and wayward boards to violate the laws and governing documents under the excuse of “in defense of my client.” They violate Arizona R. Civ. P. 11(a) (federal rule 11(b)) that requires,

The signature of an attorney or party constitutes a certificate . . . that to the best of the signer’s knowledge, information and belief formed after reasonable inquiry it [the complaint] is well grounded in fact and is warranted by existing law . . . and that it is not interposed for any improper purpose, such as to harass . . . or needlessly increase the cost of litigation.

and Supreme Court Rules of Professional Conduct, 1.2(d), counseling client to break the law, and  1.13(b), Organization as Client, with respect to knowledge of client breaking the law.

Former Arizona Supreme Court Disciplinary Commission Chair, David D. Dodge, wrote about attorney “overzealousness” in the June 2005 edition of Arizona Attorney. (See my Commentary, HOA attorney fiduciary duty to homeowners).

The pro-HOA forces will immediately cry, “NO one will want to become a board member and the HOA will fail.” Well, I got news. Not too many members are rushing to become board members today, anyway. This bill requires the legislators to not only make a just and proper approval of the SB 1468, but to take a proper and just ethical and moral stand against authoritarian, undemocratic private governments that abuse the citizens of Arizona. Violations of the laws and our principles of democratic government cannot be allowed to continue! There are existing legal mechanisms today — just as there are mechanisms for HOAs to obtain public street variances, but HOAs prefer their independent principality status rather than be part of the greater community — that will maintain the perceived planned community benefits while holding the HOA government subject to the 14th Amendment as required of all government entities. (See A proposal for the “Muni-zation” of HOAs; Stop developers from granting private government charters).

Homeowners in HOAs have been waiting a long, long time for effective enforcement against HOA violators. Passing SB 1468 would be a very good start!

PS. The other bills are HB 2445 and SB 1240.

SB 1468 changes to the law

Notwithstanding any provision in the condominium documents, if a unit owner incurs attorney fees in a court action between the condominium or the board and the unit owner regarding enforcement of the condominium documents and the unit owner substantially prevails in the action, the following apply:

1. The members of the board of directors who voted on the record to support the court action against the unit owner are personally liable to the association for attorney fees and costs incurred by the association in the action.

2. If there is no record of who voted to support the court action against the unit owner, all of the members of the board of directors are personally liable to the association for attorney fees and costs incurred by the association in the action.

Courts finally realizing the gross injustice of HOA foreclosures

The gross injustice of HOA foreclosures is slowly being realized by the courts. In Brooks, the Tennessee appellate court heard an appeal on a non-judicial foreclosure whereby the HOA sold, and bought, a “free and clear” home valued in excess of $321,740 for just $12,828, of which about half, $6,734, were attorney fees.

That’s more than 25 times the “damages” to the HOA, and more than the 10 times limit set by the US Supreme Court for punitive damages. See State Farm v. Campbell, 538 U.S. 408 (2003). And, the Rivertown HOA failed to acknowledge that the homeowner had paid part of this amount before the foreclosure.

The court held, emphasis added,

In addition to finding that the foreclosure sale price shocked the conscience of the court, the trial court determined that various irregularities in Rivertown’s bookkeeping justified setting aside the sale. In its January 27 order, the trial court found that it was “unclear as to what amount would have brought Plaintiff to a zero balance on assessments[.]”

Brooks v. Rivertown on Island, No. W2011-003260COA-R3-CV (Tenn. App., Dec. 6, 2011).

Call for HOA action: “Occupy Wall Street” vs. Occupy the Legislature

“Occupy Wall Street”! What a way to get attention! How about an “Occupy the Legislature” demonstration against unjust and unfair HOA foreclosures with their intimidation, threats, and cruel and unusual punishment? In every state — especially Florida, Nevada, Arizona, Texas and California.

The pro-HOA supporters’ reason for the need for foreclosure rights can be found in the defective HOA legal scheme that is similar to a partnership. In partnerships there are a limited number of financial supporters, the owners, who are jointly and severally responsible for all the HOA debts — those with the money pay for those without the money. A legality. And like a privately held small business, the financial base is relatively small and limited to the homeowners who have very little practical means to escape their obligations by leaving the HOA.

Those who feel that foreclosure is needed need to ask themselves, Does the means justify the end? An “I don’t care” response is unacceptable, and legitimizes the authoritarian HOA government. Foreclosure is a special law for a special group that violates state constitutions — the equal protection of the laws, special laws for private organizations, and “color of law” constitutional violations. No state has declared its intent or purpose for the statutes – they wouldn’t dare – that justifies a legitimate government interest that can withstand judicial review of the statute. And that review is a strict review that looks to a necessary and compelling reason to deprive citizens of their rights.

And remember, there is that huge cloud hanging over the genuine and freely given, after full knowledge of all the material facts, consent to the CC&Rs. CC&Rs, a real estate doctrine based on equitable servitudes and not constitutional law, do not legally require an explicit signature or explicit surrender or waiver of constitutional rights, or for a bona fide consent to be governed by the de facto HOA political government.

Homeowners must let go of their irrational fears that the HOA would be shut down. They must stop their blind adherence to the CAI chant of “no government intervention” that really is a belief that HOA governments, unaccountable to the Constitution and state governments, are far better than public government with its police powers to protect citizens from abuse by other citizens.

An Occupy the Legislature movement is a grass roots, ground level action. It must come from local homeowners organized under local leadership, behind a fixed purpose. And right now, “Stop HOA foreclosures” is a very appropriate mission.

See HOA foreclosures:  will the real CAI stand up

HOA foreclosures: will the real CAI stand up

In reading the Carpenter Hazlewood (CHDW) October 28, 2011 eNewsletter, Lien Foreclosure: Is it Still a Viable Option?, I asked myself : Did the CAI attorneys lack “candor toward the tribunal” (as required by attorney Professional Conduct Rule 42, ER 3.3, as can be found in all states) when opposing foreclosure reforms all these years? It seems that CAI presents more than one personality, more than one face, depending upon its audience. CHDW (and CAI firm Ekmark & Ekmark) had vehemently opposed foreclosure reforms as far back as 2004 when, in Arizona, HB2402 sought relief and justice for homeowners. Never once did the legislators hear what is now admitted to in this article by Ms. Patel.

The following excerpt from Who prosecutes on behalf of homeowners in HOAs? (2010) reveals the attitude of CAI lawyers in 2004. Through the questioning and testimony of Ms. Koepke (Ekmark & Ekmark) by the FMPR committee in February 2004 (based on the audiotape record of the committee hearing), we learn,

In her testimony Ms. Koepke had stated that she was an ethical person of integrity who foreclosed only as a last resort upon the instructions of her HOA clients. However, she had a problem with making use of alternative methods of collecting debts as are available to all lien holder in other arenas, and saw no moral issue with completely stripping the homeowner of all his equity for a few pieces of silver. Her justification was that they were “scofflaws” who needed to be punished to deter future untimely payments. In the complete audio, you will hear the committee Chair informing Ms. Koepke that such actions were “unconscionable.” I added a commentary as an addendum, which presented a few background cases and incidents in which Ms. Koepke was involved. This short commentary video can be found at Foreclosures.

A few important questions not answered by the CAI attorneys are: 1) Why should the HOA be allowed foreclosure rights when it has not advanced any real, hard cash like a bank or other lender? 2) Why aren’t alternative means of collection, as available to all other entities, not satisfactory? and 3) Why this special right for HOAs?

The current Patel article, addressed to HOA directors and managers not the legislators, shows another attitude toward HOA foreclosure.

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.

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”! What the foreclosure process does do, and is not mentioned by these CAI attorneys, is that the attorney can claim fees many times in excess of the amounts owed the HOA.. So, who really benefits? Is this good public policy?

Important questions for all homeowners:

1. What are the CAI attorneys telling your legislators today?

2. Are they being candid with the legislators, or are they pursuing their — the CAI, not the HOA – personal agendas?

3. What are you doing to make sure the legislators are being given the whole story?


For further reading . . .

Special Message to McCain and Obama on Homeowner Protections in HOAs

Right to Foreclose laws are supposedly good for HOAs, so why are fees increasing?

Do HOA foreclosures violate 14th Amendment?

Homes in HOAs are Lifetime Collateral for HOA Survival