Wednesday, January 04, 2012

Fred Fischer on the "Do owners believe CC&Rs are contracts?" debate

Fred Fischer weighs in:

You may share the following with anyone. The following is my response comments to the Privatopia story of, Monday, January 02, 2012 Do owners believe CC&Rs are contracts, part trois...

For CID housing to continue to exist into the future and be sustainable will require a major shift away from its present use of adhesion contracts imposed upon property buyers. Therefore a legal shift needs to occur at build-out from the original intent of the developer to manage and sell his properties. To the owner/members so that they can manage and sustain what is then their properties and responsibility.
We have long understood as Tyler stated,….the real problem which is that community associations are created mostly for the benefit of municipalities and developers… Which has resulted in property owners sending a loud message of un-support for the private governance imposed upon them by their local municipalities that burdens them with high liability and no protections. By striping members of their basic liberties and the use and enjoyment of their own properties that treats members like renters and children who have to ask permission to do anything. Even though the member’s private properties are not owned by the HOA entity yet the contract authorizes the HOA absolute control over many aspects of it.
To say that all housing associations should be abolished is not doable presently especially for complex types of CIDs which have utilities company’s, private streets, golf courses, high rise condos, apartments, airparks and commercial property etc. . However they could be converted to help reduce the substantial conflicts and liabilities that automatically and inherently come with privatized housing governance in a few basic ways. First existing and new non complex CIDs could be converted to special districts or other governance forms that are less expensive to operate while retaining the member’s property and other rights. Second the absolute control over the private properties must be largely eliminated in order to reduce the liabilities and conflicts. Third only CC&Rs that truly ‘touch and concern the land” such as structural or permanent changes should be created instead of subjects like refuge containers, signs, animals etc. Fourth require State oversight and licensing of association management firms and others. So CID members can hold accountable those who collect and manage member’s funds and provide advice and servicers to Boards.
Now maybe we can get past the obvious that CC&Rs are enforceable and that most people understand that they are obligated to pay for many of the amenities and services found in their CIDs. Furthermore I agree with Tyler that we need to spend far less time fretting over many of the HOA issues that we already well understand and start making some substantial reforms that will make CID housing, property owner friendly and financially solvent today and into the future. Which will require the property owner’s participation at the creation table to include their best interests and not just those of the municipalities, developer and others. Tyler is also correct when he said that …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.

Finally at the end of the day no one can say we don’t understand why housing association governance is economically collapsing or so controversial. Because when basic liberty and the use and enjoyment of one’s property becomes absolutely controlled by others, to the point that a door knocker or flower pot can’t be installed without committee approval with the consequence of a fine and foreclosure if disobeyed. We have just created a new form of tyranny masqueraded as a housing association so that others can earn an income or profit over the conflicts and this needs to end NOW. Or CID housing will continue to economically and socially collapse and then tens of millions of property owners will possibly be living on the streets.

Thanks, Fred Fischer


Anonymous said...

As Professor McKenzie said last year's Urban Institute video :

 "The condominium…it's kind of almost a fictional real estate interest. These things can only exist by statute…Condominiums can only exist where statutes authorize them to exist. So we've had them since about 1960."

And as Steven Siegal wrote back in 2007:

 "Before 1960, the condominium form of ownership was unknown in the United States. Beginning in the early 1960s, the states began enacting statues authorizing the condominium form of ownership, principally in response to the enactment of the National Housing Act of 1961, which extended Federal Housing Administration mortgage insurance to the condominium form of ownership. See McKenzie, supra note 2, at 95. By 1967, all fifty states had enacted condominium statutes. Id. at 95–96." ("The Public Role in Establishing Private Residential Communities." Urban Lawyer. Fall 2006. Footnote 23 on page 869.)

A few days ago, Tyler Berding wrote in a blog post that should be mandatory reading for our policy makers that

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.

cf. Tyler Berding's death spiral. Although Mr. Berding writes primarily about condominium associations, many of his arguments are applicable to "community associations" consisting of single-family housing.

Since there is no common-law basis for condominiums, and condominium ownership can only exist by statute, maybe it's time to think about prohibiting condominium ownership -- or at least any new construction of and FHA subsidies for condos. It is a failed legal fiction that has caused a lot of harm to both the individuals involved and the economy as a whole.

Cynthia said...

Fred Fischer, a brilliant, informative, educated and realistic perspective. Thank you very much for writing, submitting and allowing Dr. McKenzie to post.
Anonymous above, what a great comment!
I am thrilled to pass the link to the site and this intelligent, well thought, logical, transparent, truthful, realistic perspectives offered by THE REAL EXPERTS IN THIS COUNTRY.
Thank you all.

Anonymous said...

It seems appropriate to bring up something that Mr. Berding wrote two years ago regarding community associations (aka HOAs):

"It seems that I am increasingly a prophet of doom. But really, if owners are unwilling to govern themselves then condominiums are merely apartments, and if they are unwilling to make the contributions that must be made for a community association to survive, then they must be willing to surrender their ownership interests and be renters. This is a housing crisis as serious as the present economic one, and it may be worse, because the crisis in community association government is not likely to end in a year or two."

On the October 02, 2010 episode of "On The Commons", Mr. Berding talked about a "hybrid" model:

[41:55] Maybe we need to have a whole different concept… Instead of the developer building this building and selling the units off to individuals, who the end up owning the entire building and have to maintain it… Maybe what we ought to do is have a hybrid between an apartment building and an ownership of the individual units. The individuals own the airspace in their unit, and they pay an assessment. But the developer, an investor, retains ownership of the building shell, and treats it like a residential rental property. The association, which would deal with just behavioral issues and recreational issues and things like that, doesn't deal with the repair of the building and all of those expensive things. The owner of the building does that, and he gets paid a certain amount of money by each owner, call it rent if you want. So you can get the appreciation from being the owner of the unit, but somebody else is going to be responsible for the shell. And that kind of hybrid may very well be where we're going to have to go in the future. We've kind of done it a little bit with time-shares… When you have one owner, an investor, owning the shell of the building, and let the individual owners own their individual units, buying and selling them same as they could, you'd shift the responsibility to somebody who has a long-term interest in protecting the condition of the building. [43:55]

An alternative to Mr. Berding's proposals would be to convert condominiums to co-ops, where the owners are shareholders of a single mortgage. Although I admit that I'm not familiar with the pros and cons of co-ops, but it can't be worse than the current situation.

The fourth alternative is the industry's answer to everything: more power for the association balanced with fewer rights for the individual homeowner -- up to and including the power to foreclosure for trivial amounts and reasons. This doesn't address the problem that associations are a fundamentally flawed, unsustainable, and unworkable business model; but does put money in the pockets of the vendors and attorneys.