Saturday, March 03, 2012

Will HOAs become target of small claims suits?

You've paid your HOA assessments yet the common areas are unmaintained and the pool is closed, having turned into urban pond that's a mosquito breeding ground. It's not fair.

Might people who might feel that way toward their HOAs -- which as the perfessor and I have noted aren't winning popularity contests and continue to receive negative media attention -- take them to court and demand a refund or credit of their assessments?

If they do, the might become part of a fledgling trend to sue deep pocketed defendants who might otherwise have them legally outgunned in court in the no-lawyer courtroom: small claims. This story reports on how large companies such as Honda and AT&T are getting sued in small claims and facing judgments.


The Right To Own Your Own Home said...

> no-lawyer courtroom: small claims

Since an HOA is a corporation, the "registered agent" would appear on the corporation's behalf.

The "registered agent" of my HOA corporation is the HOA's law firm.

So if I sue my HOA in small claims court, the HOA would still be represented by the lawyers. They don't work for free.

Even if a homeowner prevails, the costs to the HOA will be passed back to the homeowner.

As the saying goes, "Suing your HOA is like suing yourself."

Tyler Berding said...

"...deep pocketed defendants"? HOAs? Fred, you're kidding, right? HOAs are not Honda Motors--how would the disgruntled owner collect--lien all the homes of his neighbors? Let's see who loses the popularity contest then.

Look at this from 30,000 feet: If the pool is so far gone it's closed and breeding mosquitoes it's quite likely because the association is broke. If so, any judgment would be worthless or just drive the project that much further into the financial swamp. And, small claims judgments can be appealed in most states, which would then involve lawyers (or would the board members be willing to appear and defend these cases themselves?) and suck up a lot more of everyone's cash. If the claim were tendered to the HOA's insurance carrier it would either reject it or eventually cancel the policy.

While suing his HOA might make the owner feel empowered, in reality he's basically suing himself and the effort would accomplish nothing except to alienate his neighbors. And forget about something like this teaching the board a lesson or some other similar sentiment--given enough of this sort of thing there won't be any boards--only Receivers.

The Right To Own Your Own Home said...

> how would the disgruntled owner collect
> --lien all the homes of his neighbors?
> ...
> While suing his HOA
> might make the owner feel empowered,
> in reality he's basically suing himself."

Yet a perpetual lien on all the homes is exactly what an HOA has. Which may explain why HOAs are losing the popularity contest. Not that the legislatures and courts care about individual American homeowners.

When an HOA sues a homeowner, it's justice -- "for the good of the community". The lawyers are just angels representing all of the other homeowners.

When a homeowner sues an HOA to correct a grievance, he's a "disgruntled homeowner" who is hurting his neighbors.

Tyler Berding is absolutely correct.

But his comment also sheds light on why HOAs cannot be reformed. No amount of regulation or changing a few parameters is going to fix them. The fundamentally flawed HOA structure puts the homeowner in a "no win" situation with no effective recourse, while lawyers like Mr. Berding and his colleagues laugh all the way to the bank at our expense.

And we're expected to believe that the homeowner knowingly consented to this state of affairs?!

Worthless platitudes like "make HOAs abide by the constitution" or "ban non-judicial foreclosure" or "raise the limit on which an HOA can foreclose" or "ensure fair voting" or "regulate property managers" are just that -- worthless platitudes. As long as HOAs exist, the perverse incentives and moral hazards will remain in place for sociopaths to exploit.

In October 2010, Tyler Berding told Shu Bartholomew that "Sometimes it's hard to divorce the interests of the owners from the interests of the association. Because by definition the association are the owners".

As anyone who has ever seen the 1979 movie Alien knows, it was also impossible to separate the face-hugging parasite from Kane after the creature had attached itself to its host.

And as anyone who saw the sequel Aliens knows, Ripley's solution was to "take off and nuke the site from orbit. It's the only way to be sure".

My solution, at , is not as dramatic or fiery as Ripley's: simply let the homeowners off the ship before it sinks. If anybody has a better idea, I'd like to hear it.

Anonymous said...

I wonder if Mr. Berding is worried about "alienating the neighbors" when the HOA corp sues its involuntary members? "Alienating the neighbors" is hardly a concern of any board, management company, or HOA attorney. The "neighbors" are ALWAYS the target of any HOA board. This is the insidious "business" that the HOA corporation engages in.

Fred Fischer said...

Tyler is right when members bring a lawsuit against their housing association they are suing themselves. Unfortunately this discourages the membership from holding the Board accountable for questionable decisions and even protects them when they practice poor judgment, do illegal acts or abuse their authority. Consequently for this reason alone States / municipalities should eliminate the exclusive mandating of privatized (contract) governance under non-profit corporation control for CIDs to allow other forms of governance to also be used. Unless the owners themselves choose to create their own non-profit housing association at their own expense and accept its endless risks. Since housing owner ship under housing associations requires a much higher cost of operation than traditional public governance. In addition to a much higher number of upkeep standards and maintenance requirements which a large number of consumers cannot reasonably afford or conform to.

No housing form no matter what we call it can be sustainable as long as transparency and oversight is denied and those in control are not held accountable. This is exactly what exists in CID housing, when association governance and arbitration is imposed upon buyers which results in many property rights being eliminated, justice becoming privatized and assessments being treated as an equal to a mortgage.

Finally what State legislatures and the courts have failed to understand is that CID housing is a form of architecture and how it’s governed is a different issue with many options. “Unfortunately for consumers the architecture and governance have been legally and legislatively made synonymous in order to force privatized housing upon consumers to benefit business and government but not the buyers “and this one type of governance fits all policy needs to end.

Anonymous said...

"If the pool is so far gone it's closed and breeding mosquitoes it's quite likely because the association is broke."

Or that the HOA board member(s) and/or HOA property manager and/or the HOA attorney are embezzling the funds.

But that never happens, because the Invisible Hand of the Free Market Fairy prevents such behavior.