HOA Private Government

Due to software issues, I’ve moved all Commentaries back to my original

blog at HOA Constitutional Government.

I am sorry for this temporary inconvenience.

Earlier I presented demographics from a 2007 CAI study in HOA satisfaction that alluded to the homeowner association resident population being significantly different from the general  population[i].    From the survey, the demographics showed that HOA residents are non-minority, educated, well off seniors.   Either the CAI – Zogby sample was biased or it was representative of the general HOA population.

Being curious as to whether HOAs admit to a segmentation of the general US population, I conducted a non-scientific, “take a peek” analysis of my own. My methodology selected 25 HOAs at random in Maricopa County, AZ, and to look at the single issue of Hispanics living in HOAs.  Because of the lack of accessible data, I relied on subdivision lot ownership records with Spanish surnames as my criteria for Hispanic ownership.  I obtained data on the 8 city/towns represented by the sample HOAs, as well as state and county data[ii]. 

The table below compares the city/town Hispanic percentages, based on the 2000 Census,  with the results found from the HOA county records.

The 2000 Census showed a population of 25% Hispanics in Arizona and the sample shows 24%.  The 2008 update gave a 31% Hispanic population in Maricopa County. 

Now, seeking an explanation for this result, I reasoned that this smaller population figure could be the fact that Hispanics in Arizona own a smaller proportion of the homes than non-Hispanics.  In fact a study by HUD based on 2000 Census data revealed about a 50% reduction in ownership of homes for Hispanics:  24.8% for non-Hispanics vs. 12.4% for Hispanics (see Ownership, n. 2).  Even with this substantial reduction in the number of Hispanic owners expected to be found by this analysis of county ownership records, the sample still reflects a significant difference from the Census data.

This question of HOA demographics needs to be given serious study and appropriate research conducted, since there is the implication that HOAs are a vehicle for class structure within the US.  Local governments increasingly support, and even mandate, an  HOA for all new home construction.  And, additionally, that the HOA form of government repudiates the US Constitution, and denies homeowners the equal protection and due process of law in pursuit of an empty statement of maintaining property values.

Notes

[i] See 2010 US Census ignores HOA demographics.

[ii] Ownership in Maricopa County, http://www.huduser.org/Publications/PDF/hisp_homeown7.pdf; population data from http://quickfacts.census.gov/qfd/states/04/0412000.html.  The data was based on the 2000 US Census and 2008 interim data.

With an estimated 20% of the population (based on industry data) residing in homeowners associations,  a percentage higher than either that of Black of Hispanic categories, the demographics of HOAs remains a mystery.  Who lives in homeowners associations?

The only hint at HOA demographics comes from the 2007 industry survey on HOA satisfaction, sponsored by the Community Associations Institute (CAI) trade group[i].  This sample of some 709 phone calls revealed a significant difference between the sample and the 2000 US Census data[ii]. 

This difference can be explained by one of two alternatives.  One is that the sample is biased in order to bring about the most highly favorable results for CAI.  The other is that the sample does reflect the norms of  homeowners associations, and reveals that the HOA population represents a distinct class or subset of American society: the senior, educated, white, well-off segment of America. 

The demographics of this survey should be of concern to the policy makers.  If the sample demographics are representative of HOAs, then the claims of HOAs as “affordable housing” should be replaced with the more accurate description, “discriminatory housing.”   Then the public policy that requires only HOA subdivisions for all new housing in an increasing number of towns and cities is discriminatory.  Unless, of course, the above demographics are not representative of homeowner associations.

It would seem that the time has come for “the acceptance of a quiet innovation in housing”[iii] to be exposed to the sunlight, and that a more thorough survey of homeowner association demographics is in order.  Who lives in HOAs?  Are HOAs, aided and abetted by local government mandatory HOAs for new housing,  establishing a class division within America?  

Notes

[ii] See Who lives in an HOA? Public officials take notice  (Jan. 2008).

[iii] Taken from the title of the CAI co-funded book, Community Associations: The Emergence and Acceptance of a Quiet Innovation in Housing. Donald R. Stabile (Greenwood Press 2000).

California attorney Tyler Berding writes in the April 2010 Executive Council
of Homeowners’ (see note 1) ECHO Journal, “Bankruptcy Won’t Work,” about
“the practical and legal reasons why associations almost never go into
bankruptcy.” Essentially, Berding informs his readers that the HOA is
communal, like a partnership, where all “partner-members” are responsible
for the debts of the HOA “partnership”. Didn’t anybody tell you that before
you bought your home? Or that your home is collateral for the survival of
the HOA?

He correctly maintains that because the HOA has “deep pockets”, the pockets
of its individual members, jointly and severally, the pursuit of a
bankruptcy is not rationale. The judge will assess the remaining solvent
homeowners to ante-up to pay all the debts of the HOA. One could say it’s
one of those undisclosed pitfalls of HOA ownership. Pursuing individual
homeowners who haven’t the means to bail the HOA out of its financial crises
is just a fruitless undertaking by the members, who still do not want to
accept the failure of the HOA legal structure to protect their individual
assists. They have been blinded by the false propaganda of “the voice of the
community” thinking that “community” means their own individual interests,
and do not see the communal nature of their HOA membership.

Berding does not mention that the failure to budget for bad debts, a
standard accounting practice, reflects poor management by the HOA board, and
its advisors (although he admits to understanding the meaning of
“assessments for bad debts” below). Failure by incompetent boards and its
advisors to act in a prudent manner, as required under law, is another
inherent fault, another deficiency, within the structure of the HOA concept.
You can’t be successful in mass merchandising HOAs and getting all those
people to buy if you bring up these serious financial negatives. Or to get
the legislatures and planning boards and local governments to
enthusiastically support and encourage HOAs if you bring up any negatives,
can you?

Here are some of Berding’s messages from the ECHO Journal:

“Ironically, it is not unusual to find that an association’s largest
“creditor” is itself. The failure, year after year, to make reserve
transfers creates unfunded liability and makes it impossible for the
association to effect repairs when the time comes. . . . . The fact that
some owners don’t pay their share of what their association owes to a
creditor is not enough. That seeming shortfall becomes an internal debt to
the association, which is in turn simply spread again across all owners in
the form of assessment increases or emergency special assessments, until the
creditor is paid in full. The ability of an association to pay its
obligations is as deep as the combined equity of all property in the
community and the assets of all of its members. This makes bankruptcy not a
feasible option for associations.
. . . .
“For all of these reasons, a bankruptcy filing will not normally be
considered a remedy available to a community association. There would have
to be no equity available in property in the community, and each individual
owner would have to file his or her own bankruptcy petition for that to be
effective as against the association’s creditors. That’s simply not going to
happen or ever be a permanent situation. As owners walk away from property
and mortgage holders take it back, the banks become responsible for the next
round of assessment shares to pay the creditor. Lender foreclosures wipe out
mortgages and create new market equity in property. Owner bankruptcies, even
if pre-petition assessment debt is discharged, won’t address post-petition
rounds of assessments for bad debt as they’re spread across all owners.
Shares may slowly contract and debts can be negotiated, but the principle
that the obligation is shared by all remains.”

Notes (emphasis added)

1. The Executive Council of Homeowners (ECHO) is a nonprofit membership
corporation dedicated to assisting California homeowners associations. “The
mission of ECHO is to advance the concept, interests and needs of homeowner
associations through education and related services to board members,
homeowner members, government officials and the professionals in the
industry.”

Please pay attention to the contradiction in the mission statement of ECHO
above. Do they speak for the homeowner members or for the HOA boards? Anyone
with anyone knowledge of the legal structure of corporations understands the
“class” distinctions between management and owners. With respect to HOAs,
the attorneys are careful to state that the HOA attorney’s client is the
HOA, as represented by the board through its president, and not the class of
individuals who are owner-members. To state that the HOA board represents
the interests of any individual homeowner, or even the entire class of
owners is a false and misleading statement. The statutes and CC&Rs do not
grant the HOA board the authority to represent the interests of the
membership before public entities.

Its name is misleading and should read: The Executive Council of Homeowners
Associations, ECHOA!

Once again, the necessity of obtaining an attorney to read and explain the
legalese of those CC&Rs or declaration cannot be overstated! Why? Because
Arizona government agencies do not protect home buying consumers!

With respect to the transfer fee demand by the Montelena HOA on a buyer to
pay a whopping $2,500 fee to the association (see Homebuyer: HOA
‘Unscrupulous’ In Raising Fee), let’s examine what the buyer would be
getting into. First, and highly questionable and undemocratic, the 440
members of Montelena HOA have unwittingly agreed to have the board, by
majority vote, to set forth rules that become and are held to be amendments
to the CC&Rs, without a vote of the membership (see Article 5.3 of the
CC&Rs). Generally, it usually requires a supermajority vote of the members
to amend the CC&Rs.

Furthermore, buried within Article 6 of the CC&Rs, titled “Membership and
Voting”, are sections 6.8 and 6.9 that require a new owner to pay 2 fees,
both equal to 1/6 of the then current annual assessment, as contributions to
the annual assessment and to the Reserves assessment. And, surprisingly,
section 7.15 allows an additional third fee, a transfer fee, designated as
such, imposed by either the board or the management company. How many fees
is that on the third-party buyer (as such, he is not a legal party to the
CC&Rs agreement). Article 8 grants the HOA the right to lien and foreclose
for nonpayment of assessments. On the third-party buyer, too?? (The buyer
must agree under his purchase contract with the seller, not the HOA, to
assume these assessments in order for the assessment to be binding on him.)
Under section 7.2, Annual Assessments, the board cannot increase assessments
above 20% without a 2/3 vote of the members. Section 7.8 says the
assessments must be uniform across all members, raising the issue that a
transfer fee on sellers alone violates the CC&Rs. (Note that transfer fees,
by whatever name, have been outlawed by new law this year, HB2768).

The public should be protected and made aware that there are so many powers
granted to the HOA or denied to the homeowner hidden within these 50 – 120
page legal agreements. Agreements, by law, that do not even have to be
seen, read or acknowledged in order to be binding on unsuspecting
homeowners. The real estate agent who is required materially disclose all
information and to treat all parties fairly under the simple R. E.
Commissioner’s Rule, R4-28-1101, is allowed to ignore this rule.
Furthermore since the Arizona Constitution allows real estate agents to
function like an attorney in regard to real estate transactions, an
additional duty to protect the buyer has been placed upon the agent.

Now, it is not unreasonable to argue that a prudent person buying, for many,
their largest asset purchase would consider the above representative
covenants as material to his decision to purchase in a particular HOA, or in
any HOA. And, it is not unreasonable to argue that the real estate agent is
duty bound to provide such material information to the prospective buyer,
and that the real estate department, in keeping with R4-28-1101, would have
promulgated guidelines and procedures in order to make this material
disclosure a meaningful and effective rule. The rule has been ignored by
ADRE with respect material information about HOAs.

Last month, in regard to another failure to protect a homeowner from HOA
abuse (see Who prosecutes for homeowner justice against HOAs?), I wrote to
the Arizona R. E. Commissioner, asking:

Who will protect homeowner justice against HOAs?   I ask ADRE why is it not adhering to its mission, as stated in its pamphlet, ‘The Arizona Department of Real Estate (ADRE) protects the Public Interest through Licensure and Regulation of the Real Estate Industry in Arizona’ . . . . Who, then, will protect the public interest if not the licensed real estate agent under ADRE regulation?  I call your attention to Commissioner’s Rules, R4-28-1101, Duties to Client.

A reply by the Assistant Commissioner side-stepped this questions posed
above with a “not my job” reply:

We have been given no authority to adjudicate disputes between HOAs and its
member-homeowners. The separation of powers doctrine places this
adjudication role in the hands of the courts, not in the hands of the
executive government.

I clearly did not ask that ADRE adjudicate disputes, but to enforce
R4-28-1101 and to stand behind its mission to protect consumers, all
consistent with the existing delegation of powers to ADRE and to the
Commissioner.

Qui Pro Domina Justitia Sequitur

(“who prosecutes on behalf of Lady Justice?”, DOJ seal)

Editorial comment. I suspect, like this year’s new law, HB 2774, “Take That
George!” bill (my description), that explicitly states that government
officials cannot be compelled to defend statutes, another bill, “Take That
George, redux,” will be proposed that would explicitly say that ADRE cannot
be compelled to provide consumer protection to buyers of HOA controlled
property.

In the words of Jim Wallis, preacher and author of Rediscovering Values,
“What has been deliberately and carefully made ’socially acceptable’ was,
not too long ago, thought to be irresponsible – both financially and
morally.”

I have argued that HOAs are a second form of illegitimate and unlawful, de facto local political governments.  Randy Barnett, a constitutional scholar, wrote: “Only if it is legitimate can an existing constitutional system issue commands to the citizenry that bind individuals in conscience.”[i]   The HOA government legitimacy rests on just “laws” respecting the rights and privileges of the people without violating the rights of others; that their member’s acquiescence to obey these unjust laws and covenants cannot be misconstrued and interpreted as having consented in good conscience to have so agreed.                                                                                    

I have also argued that, under “government”, Black’s Law Dictionary offers the simple definition:  “The structure of principles and rules determining how a state or organization is regulated.” And, to clarify by what is meant by a “state”, Black’s speaks in the same terms of the differences in function that distinguishes an association from that of the state, and of the need to determine the “essential and characteristic” activities and purposes of a state. A state, according to Black, is a community of people established for “securing certain objectives  . . .  a system of order to carry out its objectives.” Nothing-new here, but Black’s then goes on to say: “Modern states are territorial; their governments exercise control over persons and things within their frontiers” (emphasis added).  And Black cautions not to confuse the “state” with other communities of people in other forms of organizations designed to accomplish other objectives.

What has come to light since these earlier Commentaries, is the US Supreme Court interpretations of “state” and “government” in a question of the legitimacy of the secessionist State of Texas, in regard to the sale of  bonds by Confederate Texas.)

The Court reasoned (emphasis added),

It [a state] describes sometimes a people or community of individuals united more or less closely in political relations, inhabiting temporarily or permanently the same country; often it denotes only the country or territorial region, inhabited by such a community . . . .

The people, in whatever territory dwelling, either temporarily or permanently, and whether organized under a regular government, or united by looser and less definite relations, constitute the state . . . . A state, in the ordinary sense of the Constitution, is a political community of free citizens, occupying a territory of defined boundaries, and organized under a government sanctioned and limited by a written constitution, and established by the consent of the governed.[ii]

This 142 year-old opinion supports Black’ definition and the essential characteristic that makes an entity a government:  a government is the person or group that controls and regulates the people within a territory.  While the functions and services provided by a government are shared with many other entities, such as businesses per se and nonprofit organizations, this definition “separates the chaff from the wheat.”[iii]  HOAs are the governing body of subdivisions that are subject to covenants;  subdivisions are territories, plain and simple.

The Supreme Court further held, with respect to lawful and legitimate actions by de facto governments, and  Confederate Texas was so considered,

It may be said, perhaps with sufficient accuracy, that acts necessary to peace and good order among citizens . . . which would be valid if emanating from a lawful government, must be regarded in general as valid when proceeding from an actual [de facto], though unlawful government; and that acts . . .  intended to defeat the just rights of citizens, and other acts of like nature, must, in general, be regarded as invalid and void.

In other words, the acts and actions by a de facto and unlawful HOA political government have validity to the HOA “citizens,” unless these acts and actions defeat the rights, freedoms, privileges and immunities of the people, the HOA members.  The people are still subject to the Constitution in spite of all those arguments that the Constitution is negated by private contracts.  This view is consistent with Barnett’s arguments for obedience in conscience.

Unfortunately for our “Modern Times,”  there is a great division within this country, not this time between the Blue and the Grey, but between the Blue and the Red — the major political parties.  This great division, this Second Civil War as author Brownstein titles his book[iv],  is a war of ideology and dogma — as in the case with HOA “true believers” —  coming before “for the good of the county” and the people.

Notes

[ii] Texas v. White , 74 U.S. 700 (1868).

[iii] Government is defined by a “social contract”; HOAs by the new social contract, the CC&Rs, George K. Staropoli (included as Part III, “American Political Governments”, in The Foundations of HOAs and the New America.

[iv] Ronald Brownstein, The Second Civil War: How Extreme Partisanship Has Paralyzed Washington and Polarized America (Penguin Books 2007).

Some sense is finally being displayed by Cal. courts in support of the Constitution against the second local,  de facto  governments — HOAs.   Homeowners require protection to speak out, since HOA issues can be public issues.  Many states have an anti-SLAPP statutes.  

A SLAPP suit (strategic lawsuit against public participation) is a lawsuit brought primarily to chill a party’s constitutional right of petition or free speech. The anti-SLAPP statute was enacted to prevent and deter lawsuits that chill the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances and provides “an efficient procedural mechanism to obtain an early and inexpensive dismissal of nonmeritorious claims” arising from the exercise of those constitutional rights. (Martinez v. Metabolife Intern., Inc. (2003) 113 Cal.App.4th 181, 186.)

Section 425.16, subdivision (b)(1), states: “A cause of action against a person arising from any act of that person in furtherance of the person’s right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.”

The Signs Are Speech Protected by the First Amendment

The Signs Are Not Defamatory

The Signs are in a Public Forum and Concern a Matter of Public Interest

No Probability of Success on the Merits Nuisance

Slander of Title.  The Beach Club asserts that it has stated a cause of action for slander of title because the signs disparage and impair the marketability of its property.

 
HOLDING:  Beach Club action was SLAPP.

SANTA BARBARA BEACH CLUB, LLC, v. FREEMAN, No. B212972 (Cal. App. 2 Div. May 3, 2010).  

http://www.leagle.com/unsecure/page.htm?shortname=incaco20100503008

Dear Committee members:

I am providing a copy of an email from a NC homeowner that exhibits her frustration and inability to deal in a fair and equitable manner with her HOA board.  If you believe that homeowners openly and freely agreed to be subjected to this type of treatment by de facto private governments, then I have a bridge in Brooklyn that I’d like to sell you.  Homeowners need to be protected like any other segment of the people from abuse by any group or organization. To say that a homeowner can go to court for a redress of grievances, would be like saying that there was nothing wrong with the 1950s Poll Tax abomination, used as an effective, legal at the time, devise to stop voter registrations.

 Please see my earlier post to concerned parties pertaining to recent NC Supreme Court decisions regarding HOAs.

Please restore constitutional protections for homeowners, along with the respect and dignity that they deserve, and provide penalties against abusive boards for violating NC laws.

 Respectfully,

George K. Staropoli

Pres.

Citizens for Constitutional Local Government

Audited Consolidated Financial Statements
and Other Financial Information
COMMUNITY ASSOCIATIONS

INSTITUTE & SUBSIDIARY
June 30, 2009

L. ACCUMULATED DEFICIT

 
As indicated in the accompanying statement of financial position, CAI has reported recurring losses which have generated a deficit in undesignated net assets of $611,972 and $395,589 as of June 30, 2009 and 2008, respectively. Continued deficits threaten to undermine CAI’s  ability to continue its current level of operations in the future. The consolidated financial statements do not include any adjustments that might be necessary in the event that CAI is unable to continue its current operations.

Management’s plan to alleviate the deficit includes supporting and advancing manager licensing legislation in more states expanding and creating new international partnerships; developing a new virtual membership category and reducing personnel and overhead costs.

In accordance with the approved three year financial plan, the Board of Directors has approved a budget for the year ending June 30, 2010, which projects net income of approximately $42,000. However, there can be no assurance of the success of these efforts.

In response to a homeowners complaint, the AG’s office, Consumer Protection and Advocacy Section, replied,

Unfortunately, the problem you complained about is not within our jurisdiction.  Our office enforces the Consumer Fraud Act, however, the Act does not allow our office to pursue private disputes. Our office represents the state of Arizona and cannot act as a private attorney for individual citizens.

Understand that under the legalities here, the AG’s authority to deal with fraud is limited to “consumer fraud”.  Carefully reading the AG’s authority on its website[i], I found that fraud is defined solely in terms of the “selling or advertising“, which precludes its involvement in many of the HOA offenses and abuse.  Fraud, itself, is basically defined in terms of misrepresentation and false statements.[ii]  Consequently, homeowners must look elsewhere within the Attorney General’s Office for possible assistance. 

The Criminal Division[iii] has authority to  “protect the citizens of Arizona by successfully investigating and aggressively and fairly prosecuting criminal cases within the State of Arizona.”  Its Criminal Prosecutions Section contains the Fraud and Public Corruption unit, which “prosecutes white collar crime and fraud by individuals . . ..”  (Nothing further is mentioned of white-collar crime on the AG’s website). Note the distinction between “white collar crime” and “fraud”.  White-collar crime, as stated by the Gillespie Law firm, is a broad label, 

White-collar crimes typically refer to a type of financial, corporate, or economic crime often committed by employees or professionals using deception, as opposed to violent crimes that involve force. Most people who think of white-collar crime think of stock market and business fraud cases. However, white-collar crime involves a wide variety of criminal offenses.[iv]

Gillespie then lists the following as white-collar crimes:

1.      Bribery A.R.S. §§ 13-2601, et. seq. 

2.      Embezzlement, Theft, and Larceny A.R.S. § 13-1802 

3.      Extortion A.R.S. § 13-1804.  “Extortion” is a type of theft involving taking property or services through the use of a threat.  A person commits extortion when they knowingly 1) obtain or try to obtain something by threatening to: Cause damage to property, 2) Expose a secret that will subject anyone to hatred, contempt, or ridicule, or to impair their credit or business, or 3) Cause anyone to part with any property.

4.      Fraud Schemes A.R.S. § 13-2310[v].  A person commits a “fraudulent scheme” if, through the use of a scheme, they knowingly obtain any benefit by using false pretenses, representations, promises, or materials omissions.

In order to get the Attorney General to take your case, you need to file a complaint according to the above, with  evidence that can be taken to court.[vi]  Will he take your case?  In spite of the fact that he’s running for Governor, based on his prior unwillingness to defend homeowners against HOA abuse, and his failure to defend the OAH adjudication of HOA disputes, not very likely.  The AG has the discretion to declare, and will most likely do so, declare your complaint a private matter, a tort — a civil, not criminal wrong.[vii]  And asked if his office is to do justice, unlike the Dept. of Justice, he will probably say, no, it is to defend the state government. 

The AG will once again say  (paraphrasing), “Go ye unto the legislature, the sovereign of the state, and seek redress of your grievances.”   We must reply, “Will you come forward and support our cause against HOA abuse and injustice?”  And we must remind him that, “In every stage of these oppressions we have petitioned for redress in the most humble terms: our repeated petitions have been answered only by repeated injury.” [viii]

 Notes

[ii] “A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his detriment“, Black’s Law Dictionary.

[iii] http://www.azag.gov/criminal

[iv] ARIZONA THEFT / WHITE COLLAR CRIME, The Gillespie Law firm; the law firm is a criminal defense firm  (http://www.craiggillespie.com /theft.html).

[v] “Any person who, pursuant to a scheme or artifice to defraud, knowingly obtains any benefit by means of false or fraudulent pretenses, representations, promises or material omissions is guilty of a class 2 felony.”

[vi] “Fraud must be proved by showing that the defendant’s actions involved five separate elements: (1) a false statement of a material fact,(2) knowledge on the part of the defendant that the statement is untrue, (3) intent on the part of the defendant to deceive the alleged victim, (4) justifiable reliance by the alleged victim on the statement, and (5) injury to the alleged victim as a result.” The Free Legal Dictionary,  (http://legal-dictionary.thefreedictionary.com/fraud). 

[vii] Viewing HOA injustice as a civil matter sets public policy against the homeowner in that the state is not interested in violations of the law with respect to HOAs. In general, a crime is an offense against society, whereas a tort is a civil wrong against a person. See Tort Law for Legal Assistants, Edwards & Edwards, eds. p. 6 (Thomson 2004).

[viii] Declaration of Independence.