Do owners believe CC&Rs are contracts, part trois...

Tyler Berding tried to comment my long post in response to the Pilot/Berding exchange, but Blogger rejected it as too long. I am posting Tyler's response here:

From Tyler Berding:

I agree with Evan that the vast majority of buyers of property within a common interest development do understand that there are covenants running with the land that impose certain restrictions on its use and financial obligations on them. Maybe not in those terms, but certainly they know that the roof isn’t maintained by the city, that you can't leave wrecked cars on their front lawn, that the property is managed by a board of directors, and that there is a community pool that isn't maintained for free. If they are truthful they will also tell you that they recognize that the assessment statement that arrives every month is to collect money to pay for something other than the annual Christmas party.

To suggest otherwise would be insulting to most owners. People do understand that there are obligations that must be met, and a high percentage meet those obligations and would look at you blankly if you told them that somehow they didn't have to pay the monthly assessment because it was not fully explained that they bought a home with covenants. The fact is that very few believe that--so we should get off of the "They were duped" soapbox. Yes, not only are CCRs covenants which can be enforced by the courts as can any contract, it is a business proposition that most people understand until they choose not to. So, no I don't agree that people fail to see their obligation to pay assessments for example, as a contractual obligation, just as most people don't fail to see their car payments, feeding the parking meter, property taxes, and mortgage payments also as binding obligations.

Now having said that, it is also clear that if any contract provision is extracted through deceit it can be deemed by a court to be without the owner's consent and hence unenforceable--as in, no contract ever existed. Courts have found provisions of CCRs imposed unilaterally by developers to be "unconscionable" and therefore unenforceable for that very reason--no consent. The courts of many states, for example, have invalidated such things as binding arbitration provisions imposed by developers. So if an owner can prove that they actually had no idea that they were buying a home which was bound by covenants, and can offer sufficient evidence to prove that they were misled, they might have a claim against their seller, and maybe a case for rescinding the contract and returning the house--but remember, that takes proof, not just a short memory, and no, you can't rescind the contract and also keep the house.

As Evan knows, I think that the debate over the legal nature of the relationship between a homeowner and their homeowners association is largely a distraction from the real problem which is that community associations are created mostly for the benefit of municipalities and developers, with very little insistence by government on a financial model that can remotely meet the expectations of the eventual homeowners. Community associations are dying financially. Their business model is fundamentally flawed and many will eventually become obsolete and fail. That is the real issue--not whether a board’s authority to enforce the governing documents is a legitimate exercise of police power, or of contract, or of whatever other legal or moral hook you choose to hang your hat on. And before anyone gives me a big thumbs down for that comment, consider another of Evan’s blog posts, the one today about a city threatening to shut down an association and evict the owners because they haven’t paid their water bill.

If you think that situation is an anomaly, then you have been spending too much time reading the Constitution and not enough time looking at the budget. Community associations are a financial disaster in normal times, and when hidden or unexpected damage or expenses arise, most associations lack the financial reserves to meet the demand. The water bill case is just one example. The average association does not have half the financial reserves it needs to properly maintain the expected issues—and they have zero funding for the unexpected.

So I guess my response to your post, Evan, and to Fred’s position, is this: While I think that community associations are creatures of contract--I also think we spend too much time debating such things as the legal structure of community associations as if that were somehow a fundamental problem. It isn’t, it’s largely academic, and in the big picture, it isn’t important. I can appreciate that it generates a lot of heat, but unfortunately not too much light. That’s because there is no conclusion—and there never will be because the reasoning is largely circular. “Boards of directors abuse owners because homeowner associations are not legitimate forms of government” Where would anyone start to respond to that? And please don’t tell me to check the U.S. Constitution. That truly would be circular.

But worse, that debate, while stimulating and capable of taking up many kilobytes of blog space, diverts us all from the more immediate discussion of how best to protect owners and preserve what little value remains in many of their homes. If large scale underfunding cannot be rectified, and I believe that with most existing condo associations, it cannot be, then it won’t matter whether the form of government is constitutional or not, or who created it, or if the governing documents were found in a Cracker Jacks box. Better, all of us should be discussing how to help owners save whatever remaining equity they have, and then second, how to convince government to quit mandating for sale housing that will inevitably become obsolete because it has a form of governance that cannot fund its operations--just for the sake of additional property tax revenues. Sustainability is an objective for which we might actually get consensus!

As always, thanks for the opportunity to enter the discussion.

Tyler

Tyler P. Berding, Esq.
Principal
Berding-Weil