Saturday, December 31, 2011

HOA convenants not generally regarded as contracts

In 1990, Jack Scheuerman began practicing law for homeowners associations.

“In those days, doing HOA legal work was pretty easy,” Scheuerman said. “You just dealt with the board or the property manager. You advised them about the rules and covenant enforcement.

“There was not a lot of conflict.”

How things have changed.

Today, Scheuerman represents about 170 HOAs and it’s no longer a quiet little niche legal practice.

“There’s definitely a lot more conflict,” he said. “We’ve seen a dramatic increase in covenant violations.”

He’s not sure why folks who sign contracts agreeing to covenants when they buy their homes then decide not to honor their word.
That's because people don't see HOA convenants -- a real property contrivance -- as contracts. Especially once the developer that drafted them has turned over control of the HOA to the property owners. HOA convenants function more like municipal or county ordinances. No contracts are signed with the city or county; they are the law. And just as some property owners get crosswise with their local governments over ordinances affecting the use or modification of their properties, it also happens in HOAs.

In addition, many property owners don't see HOAs as legitimate governing authorities but instead as an intrusive, overbearing junta of volunteer directors with too much time on their hands aided by managers and attorneys seeking to maximize fee-driven enforcement activities and litigation revenue. Court rulings equating covenants with contracts do nothing to alter this widely held negative perception of HOAs.


Anonymous said...

from the story:

In an effort to ease some of the HOA tensions in the Pikes Peak region, Scheuerman is encouraging residents of HOA communities, HOA board members and property managers to attend an upcoming meeting of the Southern Colorado chapter of the Community Association Institute, a nationwide trade group for HOA property managers and board members.
The event is scheduled 4-7 p.m., Jan. 10, at the Marriott Hotel, 5580 Tech Center Dr. The cost is $15 for HOA board members and owners and $25 for others...Scheuerman hopes to see you there.

Because paying $25 to be told that you, the homeowner, are the problem and that you should shut-up-and-do-as-you're-told is going to "ease tensions". Yeah, right.

The people we called "useful idiots" back in the 20th century used to rationalize the failure of their ideology by saying something like "Communism is great in theory. It's just that people aren't good enough for it."

This has morphed into the Party line of today's apparatchiks: "H.O.A.s are great, it's just that the homeowners aren't good enough."

The advocates of Communism Inc. claim that homeowners should Get Involved™ and Become Informed™. But informed and and involved homeowners is the last thing the C.A.I. really wants. Their real endgame is for their industry professionals to "have nearly absolute power over homeowners". This why C.A.I. members go to great lengths to disenfranchise, demoralize, and marginalize homeowners at every opportunity.

As Mike Reardon observed:

Most normal people shun association meetings after discovering what a sham they are. The folks angry enough to come to a meeting and endure the patented "abuse them till they leave" routine....well most normal people want even less to do with that! It really is a remarkable pathology!

Or, as Evan McKenzie told Shu Bartholomew on her radio program last year, the industry professionals instruct H.O.A. board members to

"Just jack [the homeowners] around. Who cares what the rules are? Who cares what the law says? It doesn't make any difference. The transaction costs of enforcing an owner's rights are so great that they are hardly ever able to do it."

Jack Scheuerman portrays homeowners as dishonorable malcontents who "buy their homes then decide not to honor their word." But it used to be that "courts required affirmative evidence of agreement to form a contract...Today, by contrast, it seems widely (though not universally) accepted that if you write a document and call it a contract, courts will enforce it as a contract even if no one agrees to it" (see comment at "The Fine Print Society"). Telling people who are being abused that they agreed to be abused is only going to work for so long before they start looking for their rights elsewhere.

It's no wonder that H.O.A.s have a 69% negative approval rating from homeowners, with 19% having "been in what they call a 'war' with their HOA."

When C.A.I. professionals like Jack Scheuerman profit from strife and conflict within H.O.A.s, they have a perverse incentive to create strife and conflict. What's really driving this isn't any moral failing on the part of the homeowners, but the dynamics of the property managers and lawyers who are just out to generate more fees for themselves to collect.

Tyler Berding said...

Regardless of perception, the fact is that a "covenant" is still a contract under the law and enforceable as such. A covenant "running with the land" is entered into by anyone who buys real property that is burdened by such a covenant. Now, there may be enforceability issues, especially where a developer imposes covenants that courts have found to be "unconscionable" and hence, unenforceable, or where the covenant is vague or ambiguous, but the governing documents of a community association are nevertheless corporate and contractual, not statutory in nature. They may function in a manner similar to municipal ordinances, but that's not what they are. Except in rare instances, they cannot and will not be enforced by the state. It is up to individual owners or, if there is one, the community association to enforce or amend them. The significance is that if the individual owners, in sufficient numbers, wish to change the rules, they can without regard to the larger politics of any city or state legislative body--they don't have to wait for a moribund legilsature to act. Democracy is rarely given and has to be taken by those who wish to use it, and except for a few, owners tend to ascribe little importance to the activities of their homeowners association. The complaints may be many, but the willingness to take charge and effect change is sorely lacking. We can talk all day about "oppressive" condo regimes, but for the most part they are either expressing the will of the silent majority, or, more often, filling a vacuum created by apathy.

Anonymous said...

...and local government would be constitutionally restrained from ordinances that give powers to local government as restrictive covenants have given to HOA corporations.

Local government is often responsible for many of these restrictive covenants which are imposed by local government as a condition of plat approval.

Consider also that in some cases, restrictive covenants will have a provision requiring local government approval before they can be changed.

Such geographically bracketing of "ordinances" by the same political subdivision of the state, not voted on by voters, and extremely invasive into owner's fundamental sticks of ownership would NEVER pass constitutional muster.

The county can't impose an ordinance obligating owners to give the county right to access owners property at any time. The county can't impose an ordinance obligating owners to give a private corporation the authority to enter owners' property at any time. Somehow, however, it is okay for the county to mandate that a property owner grant a private corporation a right to enter owners' property at any time as a restrictive covenant imposed as a condition of plat approval. As noted by others, local government can prevent free speech, prevent ownership or possession of guns, etc. by using restrictive covenants in this fashion.

The Declaration of Independence said...

When, in the course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the laws of nature and of nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness. Prudence, indeed, will dictate that governments long established should not be changed for light and transient causes; and accordingly all experience hath shown that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same object evinces a design to reduce them under absolute despotism, it is their right, it is their duty, to throw off such government, and to provide new guards for their future security.

Anonymous said...

> The significance is that if the individual owners,
> in sufficient numbers, wish to change the rules, they can

"You can vote in China, and you can vote in your HOA."

When an HOA corporate board of directors can unilaterally deny a homeowner's right to vote or hold office, and when these incumbents control the ballots and count the votes, all the while using a homeowner's own money against him, the suggestion to Get Involved™ is nothing more than the usual self-serving garbage that emanates from the organs of the industry. Which is both sad and ironic, because some of what Mr. Berding has contributed to the discussion over the years is so illuminating that it should be required reading by our policy makers.

The Founding Fathers didn't win our freedom by acknowledging the legitimacy of British rule. Nor should homeowners acknowledge the legitimacy of a corrupt, unsustainable, and unworkable system that exists to feed property managers and HOA lawyers. This is why I refuse to participate in a phony democracy.

In "101 Things To Do 'Til The Revolution", Claire Wolfe wrote that

The ideal citizen of a tyrannical state is the man or woman who bows in silent obedience in exchange for the status of a well-cared-for herd animal. Thinking people become the tyrants worst enemies.
On the road to tyranny, we've gone so far that polite political action is as useless as a miniskirt in a convent. But most people are still standing around numb and confused, knowing something's wrong with the country, but hoping it isn't quite as bad as they're beginning to suspect it is.

Considering that 1 out of 5 homeowners have been in what they call a "war" with their HOA, perhaps the subjects of Collectivist Corporate Communities of Privatopia should heed some of the items on Ms. Wolfe's list:

4. Don't vote; it only encourages them
5. Do write letters to newspapers and magazines.
7. Question authority
17. Oppose property seizure with all your might
29. Identify the informant in your midst
37. Respect individuals, not groups
88. Never beg for your rights

235 years ago, another group of oppressed subjects wrote a document that many Americans today mistake for the Communist Manifesto:

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. A Prince whose character is thus marked by every act which may define a Tyrant, is unfit to be the ruler of a free people.

We have seen the sociopathic behavior of "community associations" when given the opportunity to lie, cheat, and steal from homeowners. Blame the homeowners for "apathy" all you want, while ignoring everything your industry has done to create it by demoralizing, disenfranchising, and marginalizing the homeowners.

As some guy named Evan MckEnzie wrote about his experience as a lawyer representing HOAs:

I certainly began to see very quickly how the cards are stacked against the owners. I noticed among other things how the lawyer works with the BOD, and how the owners are shut out of the loop most of the time, and how a great deal depends on how the lawyer views the owners.

The HOA industry doesn't want homeowner participation, it wants its clients to "have nearly absolute power over homeowners". I, for one, will not prostrate myself before an HOA board of directors (your clients) in the hope that they'll throw me a scrap of dignity.

Anonymous said...

Tyler Berding's comments have a few gaping holes.

Ever heard of a declarant-controlled HOA/condo corporation? Ever seen restrictive covenants/bylaws that grant a declarant multiple votes per lot/unit or the right to unilaterally amend restrictive covenants? How about restrictive covenants that include provisions prohibiting changes unless the local government agrees to them?

How about all the states where the HOA board or its managing agent can decide whether a property owner should be allowed to vote? As the ballot counter, no doubt the management companies are frequently driven by the ballot choices as to whether a particular member should be denied the right to vote. With secret balloting, one cannot even know if their vote counted.

With respect to The significance is that if the individual owners, in sufficient numbers, wish to change the rules, they can without regard to the larger politics of any city or state legislative body--they don't have to wait for a moribund legilsature to act. : without the right to vote, right to run for election, open meetings, open records, equal voting rights, local government intervention, etc., how is this "faux democracy" supposedly subject to modification by the homeowners?

Anonymous said...

In "It's Your Neighbors, Stupid", Tyler Berding praises community associations for freeing owners from the responsibility to Get Involved™:

Community associations are simply the legal arrangement employed to ensure that the financial load of maintaining the project is distributed equally and fairly. It is the mechanism we use to avoid having individual owners going door to door to pass the hat.

Owners can sue each other directly to enforce the rules but most would rather not do that. It's messy and expensive and
personal. Instead the corporation does it. But that doesn't change the essential character of the dispute; it just makes it less intimate. Associations, like governments, provide the anonymity and security that prevent street brawls.

So can we blame the corporation for foreclosures? Sure, but that would be a waste of energy. It's merely what we create to allocate the financial burden fairly among all owners so they don't have to do it themselves. Can we blame the board of directors for enforcing the rules? For not enforcing the rules? Yes we can and we do, but let's be honest—aren't we really saying: “
Do this dirty job so that I don't have to do it?” Do away with community associations and run the project as a committee of the whole? Not likely. That's anarchy waiting to happen. No, we are stuck with government and we are stuck with community associations, warts and all. They do the messy jobs for us so we can all just be neighbors.

So if the homeowners did Get Involved™, the personal nature of disputes would be expensive and lead to less neighborliness and "anarchy" and "street brawls".

I think it is Shu Bartholomew who regularly points out -- and she can correct me if I'm wrong -- that the industry sells HOAs as a "care-free lifestyle" where everything will be taken care of for the homeowners; but when the industry is lobbying for more power, they turn around and blame the homeowners for their lack of involvement as evidence that HOAs need more power.

Tyler Berding said...

Anonymous: Some of the things that you mention have already been struck down by courts thanks to owners who were willing to step up, get involved and challenge them. Get your dictionary out and look up the word "u-n-c-o-n-s-c-i-o-n-a-b-l-e" and you will understand my comment. If you believe you are powerless then you will be.

Anonymous said...

Mr. Berding,

I've twice been willing to step up and go to court with against my HOA and its agents; once as the defendant and once as the plaintiff.

I've learned that courts will enforce the most unconscionable behavior by your industry. In fact, it was because of my involvement with my HOA that I did learn of the word "unconscionable" several years ago. What I have seen of both your industry and the court system has sickened me more than I can express here.

Am I powerless? Hardly.

But everything I have experienced has convinced me that your industry, and the judiciary for that matter, would like me to be. Your industry doesn't want participation from owners, it only wants the appearance of participation, with homeowners rubber stamping decisions already made, for the sake of legitimacy. It's the same reason why regimes like Iran, North Korea, China, etc. hold elections.

Getting involved with my HOA -- ie, participating in fraudulent elections or any other HOA-sanctioned activity -- is not empowering. It's a fool's errand. So until your comrades succeed in their goal of financially ruining me, I will continue to be involved. Just not in the way your industry's propaganda says I should be.

Of course you would advise homeowners to go to court. Not because homeowners who can't afford justice will be treated fairly (they won't be), but because that's how you and your kind get paid.

Anonymous said...

Get your dictionary out and look up the word "u-n-c-o-n-s-c-i-o-n-a-b-l-e" and you will understand my comment.

Mr. Berding,

You misspelled "disingenuous".

Searching through the archives of this blog, , I have found exactly one story of a court that struck down CC&Rs on the grounds that they were unconscionable.

Tuesday, September 16, 2008
California Appellate Court finds CC&R provision unconscionable
CAI stalwart Jon Epsten wins on appeal by arguing on behalf of an HOA that the waiver of jury trial against the developer contained in the CC&Rs was unconscionable.
Does that mean owners will win using the same arguments of unconscionability when the CC&Rs take away their rights? Don't count on it. There is so much judicial protection of associations going on now that it is like watching the Chicago Tribune cover for Barack Obama.
Thanks to Fred Pilot for this alert.
Posted by Evan McKenzie at 8:53 AM

And as you are aware, last year the United States Supreme Court upheld the constitutionality of adhesion contracts requiring mandatory arbitration.

Wednesday, April 27, 2011
Supreme Court Arbitration Ruling: Courts for the Wealthy and Wall Street
I expect to see such arbitration clauses and class action waivers in every single contract we get in our hands, from now on. The Supreme Court just gave corporate America a way to slam the door to the courthouse in our faces. No lawyer will litigate a thirty dollar case against a giant corporation. Now orporations can strip us of our class action rights just by inserting a term in a non-negotiable adhesion contract.
Will this include condominium or HOA declarations? I am sure it will be tried.
Posted by Evan McKenzie at 4:10 PM

It is noteworthy that conservatives, who claim to revere the U.S. Constitution, celebrated this nail in the coffin of the 7th Amendment because big corporations find the 7th to be inconvenient.

As Professor McKenzie wrote a few days ago in "The Fine Print Society" about terms of adhesion contracts, "the days are long past when judges were willing to throw them out...they are deemed essential to the free flow of modern commerce. "

Pooh said...

So what do you do about an HOA board that does not abide by the CC&R's & Bylaws? I am presently in one, who's by-laws & CC&R's, state board members are to serve a three year term, by which at the end of their term, an nominating committee will be set up & at the next annual meeting, there will be voting of those nominated or nominations from the floor. All voting will be by paper vote. Only problem is the President & Treasure refuse to step down when their term has expired & elect a board who has them & them only on the ballots, refusing to allow anyone else who my wishes to run!!

Mike Reardon said...

I used to take my dog's tail, stick it in his face and laugh as he tried to catch it.
I never thought it would make me any money though.
Sure, I think I will spend the equity in my home asserting my rights in court......brillant Mr. Berding!

Kim said...

Do not Do it, fight for your rights to not have an HOA control you. I also live in Illinois in an HOA that it is more corrupt than the States government, and guess what there is nothing you can do about it. These are not contracts a contract stays the same these are ever changes on a monthly basis, we are fighting issues regarding CCR's in regards to the new Illinois CICCA ACT, the Act trumps any existing documents only wording has to be changed to be in compliance, that is if you have been transparent up till now. Guess what they are pushing a majority vote saying this has to be done for compliance and added additional CCR's to benefit them and additional wording that does not hold them accountable for anything. This HOA is a nightmare, these issues stem as far back as 20years. Let's talk about preserving home values, ours are the lowest of the surrounding towns, I purchased my home in 05 for $142K well the homes are now going for $28k where is my guarantee according to their governing documents. HOA's are such a load of crap with no checks and balances and no accountability. And if you think you can run for the board when the good ole boys run your community, think again. Heed this advice - SAY NO AND FIGHT IT!

Pooh said...

So your saying not to back down, when it comes to your rights, as a home owner? Especially, when you see other owners turned against you by the board, for trying to look out for the best interest of the elderly owners, living only on S.S., but not enough in the association, to stop a slush fund to build up a checking account that is already well provided to take care of any incidentals or future expenses. Is their any real hope, or way to solve the situation of a run away board who do as they please, without regards to all members in the association or following mandated laws in the state or cc&r & bylaws that you agreed to follow, when you bought your unit? doing only what they feel will profit themselves individually, having no regards to the laws that are put into place by the government to protect individual rights.