Sunday, January 22, 2012

Homeowners association pursues extreme option — foreclosure — against Korean War veteran

A measly $338.91.

That's how much Sherman McCray owed his homeowner association when the board of directors foreclosed on his Clermont house.

Of course, the debt wasn't just $338.91 by the time a Lake County judge on Jan. 3 ordered the 81-year-old Korean War veteran's home sold.

Oh, no. Between 2010 when McCray failed to pay a homeowners assessment and that final hearing, the all-powerful homeowner association in the Vistas subdivision had levied late fees, costs and interest, and it had busied itself running up absurd lawyer bills by sending threatening letters at every turn.

Total cost now: $4,272.24.
The commentary describes this as yet another sickening tale of diabolical, petty homeowner associations in South Florida and asks why the HOA would exercise a punitive option against an elderly disabled veteran obviously overwhelmed by health troubles and without a thorough understanding of the rules. McCray clearly needs an advocate to help him navigate the dangerous legal minefield that's Privatopia.


Anonymous said...

Did this HOA "preserve property values" for former owner McCray? Or did the HOA corp divest McCray of 100% of the equity in his house?

The analogy to a "mine field" is a start. In the HOA world, however, the field is nothing but one giant re-usable land mine. There is no safe route through the field. The only thing you might be able to do is to avoid the field to begin with.

No doubt this will be painted as an "isolated incident" by the HOA trade vendor group - no doubt the attorney demanding 10 times the amount allegedly due is a member of such HOA vendor trade group.

Evan McKenzie said...

And as I told the journalist: "The law isn't designed to help a struggling homeowner hang onto the house. Rather, it's set up to make money for lawyers whose fees are guaranteed when the house is sold in a foreclosure, said Evan McKenzie, a former homeowner association lawyer and an associate professor of political science at the University of Illinois at Chicago. He is a nationally recognized expert in aggressive homeowner associations.

"The law needs to be changed so that associations can foreclose only for what is owed them. The lawyer should get his fees through another mechanism," McKenzie said.

If that were the case, attorneys wouldn't be so eager to foreclose, he said, and wouldn't be advising their clients to do so."

Anonymous said...

Professor McKenzie,

Back in March 2004, you defended the right of HOAs to foreclose, on the condition that non-judicial foreclosures are not allowed:

Friday, March 12, 2004
The plain truth about HOA foreclosures…

Saturday, March 13, 2004
More on foreclosure

Tuesday, March 23, 2004
My ears are burning...somebody must be talking about me.

Saturday, April 03, 2010
Lawyer: "Be aggressive with your foreclosure actions."
comment at April 4, 2010 8:42:00 AM CDT

Given your recent remarks that "the days are long past when judges were willing" to nullify unconscionable "contract" terms, that courts are not willing to protect consumers, and that the unconscionable foreclosure of Sherman McCray's home was approved by a judge, is it still your position that foreclosure by HOAs should be allowed if such actions are reviewed by a judge?

Anonymous said...

"Since HOAs are very local and small, participants are often neighbors and hence have incentive to settle disagreements in a civil manner."

-Brian Schwartz
"Free Market Alternatives to Zoning"
The Independence Institute
February 28, 2009

IC_deLight said...

I agree with your observations, Evan. Homeowner advocates in Texas have been pointing this fact out for years as well. Accomplishing change in this area is difficult given:

i) Legislators personally profiting from these schemes due to their business of HOA management companies or as lawyers allegedly representing HOA corps. See, e.g.,:
Sen. John Carona defends controversial HOA rule

ii) a trade group of HOA management companies and HOA attorneys - responsible for the existing state of affairs - who would prefer to preserve the status quo of keeping homeowners "soft targets" for lucrative abuse. Once the priority of payment scam was in place, the HOA attorneys would utilize contingency fee agreements which led to numerous problems. See, e.g., the explanation from this elected official's firm website: Property Owner Associations

States such as California and Arizona have already implemented legislation to rein in the "priority of payment scam". Other states such as Ohio (SB 187 last session) - apparently due to lack of experience with this unscrupulous industry trade group - have actually made the priority of payment scam the only way the HOA is allowed to operate.

Hopefully now that Texas has new laws addressing the "priority of payment scam" and prohibiting contingent fee agreements for the HOA attorneys, the insidious practices of this trade group will begin to be curtailed.

Evan McKenzie said...

There is no contradiction between my 2004 comments and the ones I just made. I'm just repeating what I have always said: Nonjudicial foreclosure should be illegal. Period. Judicial foreclosure has to be available for assessment collection, or many people will stop paying assessments and the few who pay will carry the load for those who refuse. But it should be impossible to foreclose on owners for a few hundred bucks in assessments and thousands in attorney fees. I have said this over and over.
Everybody who says there should be no foreclosure power is in truth an HOA/condo abolitionist who wants them to go bust.
That is a totally irresponsible position that would cause millions of current owners to suffer great financial hardship.
Here is what I said before, and I say the same thing today:
"As for foreclosure, to me it is an extremely harsh remedy that should only be available as a last resort and with greatly increased limitations and protections for the owner. I want to stop these foreclosures for $250 and $2500 in attorney fees, and I think nonjudicial foreclosure should be legally prohibited."
"In my opinion, HOAs should not be allowed to use nonjudicial foreclosure. The practice is being abused by a small number of collections attorneys who have invaded the field of community association law but who in reality wouldn't recognize "community" if it walked up and bit them on the butt. These folks are community destroyers--the HOA version of divorce lawyers. Their goal is foreclosure, not collection of delinquent assessments. But I do believe that HOAs need to have recourse to judicial foreclosure as a last resort. Associations need to get paid. They must be able to defend themselves against chronic deadbeats, or disaster will result for those who are paying their assessments as they are forced to carry the load for the free riders. Associations don't have the resources to cushion them for years of non-payment by a significant number of residents. Leaving associations only with recourse to debtors' personal assets--garnishment, attachment, and so forth--will crush many innocent, dues-paying members, and eventually lead to association insolvency. At least, that's the way it looks to me."

So--keep judicial foreclosure with limits, including that the action must be over a certain amount of unpaid assessments (say, $1000), not including attorney fees. If the unpaid assessments are below the jurisdictional amount of assessments, the action is dismissed. If the owner pays the assessments, the action is dismissed and the lawyer's claim is no longer part of a foreclosure action.

Anonymous said...

[...continued from above]

You claim that denying HOA corporations the power to foreclose "would cause millions of current owners to suffer great financial hardship." But this assumes that (1) it is necessary for the HOA corporation to exist, and (2) homeowners would be worse off without HOAs. These are assumptions I, and I suspect many of your readers, reject; especially since millions of homeowners are already suffering great financial hardship.

When 69% of residents have a negative opinion of HOAs, with 19% having "been in in what they call a 'war' with their HOA", serious problems exist that aren't going to be solved by tweaking a few numbers here and there. The entire concept is fundamentally flawed.

About 10 years ago, after the Winona Blevins case, Texas passed something called the Property Owners Protection Act, which was supposed to accomplish what you have recommended. But as we all know, the law was so full of loopholes that it did not make a difference. And the Sherman McCray case (the subject of this blog post) has demonstrated that judicial oversight is no panacea for unconscionable foreclosures.

In the real world, laws will have loopholes and judges will be morally corrupt. The industry has demonstrated its intention to abuse any power that it has. This is why foreclosure by HOA corporations should be unambiguously prohibited, with no exceptions or loopholes, period.

Even if an HOA corporation are prohibited from foreclosing for attorney fees, there will still be an incentive to foreclose on a $300,000 house to collect $1,000 in assessments, because somebody is still going to make a lot of money from selling the house.

If HOA corporations are dependent on a business model that cannot survive without the ability to take somebody's $300,000 house to collect $1,000 in assessments, then perhaps community associations should not survive.

Anonymous said...

A week later, there is no coverage of "Sherman McCray" at Fox News, Overlawyered, the Wall Street Journal, Pajamas Media, etc...
Your Search for "sherman mccray" did not return any results.
Chronicling the high cost of our legal system
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Nor, a year and a half later, of "Michael Clauer", the U.S. Army captain who had his house stolen by his HOA while he was deployed to Iraq :
Your Search for "michael clauer" did not return any results.

The "We Support the Troops" pundits should be ashamed of themselves, because they place the profits of corporate lawyers ahead of the interests of our military service members, including combat veterans.

halojones-fan said...

Maybe the moral of the story here is that if you're just gonna blow off your payments for a contracted obligation, you should read the law *first*.

It's not like this guy got strong-armed or coerced into joining the HOA. He joined up, he knew the rules, he broke them willingly and repeatedly. I'm not sure what your proposed solution is, except to say that the courts can invalidate the right of citizens to form associations and negotiate contracts if one of the parties is cute enough.