Constitutional Local Governments

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I am a nationmally recognized homeowner rights advocate, and author of "Establishing the New America of independent HOA principalities."

Tuesday, November 23, 2004

HOA foreclosures as an excessive penalty violation of due process?

Last year Arizonans finally received some justice with the passage of the watered-down HB2402 modifying ARS 33-1256 and 33-1807, Liens for Assessments. But homeowner injustice remains with the unconstitutional failures of due process protections and the unequal protection of the laws relating to the association's right to penalize and foreclose.

Under these two statutes and ARS 33-1803, Penalties (planned communities), the association is allowed to penalize homeowners who fail to make assessment payments on time with penalties and interest charges on these debts. It gives the false belief that the association had advanced its own funds to the homeowner and is now seeking a timely repayment. Such is not the case, for these associations do not advance funds nor is their primary business a lending or credit business.

Black's Law Dictionary defines a penalty as,

"1. Punishment imposed on wrong-doer, esp. in the form of imprisonment or fine.
2. Excessive liquidated damages that a contract [in our case the CC&R contract] purports to impose on a party that breaches.

'A penalty is a sum which a party ... agrees to pay or forfeit in the event of a breach, but which is fixed, not as a pre-estimate of probable actual damages, but as a punishment, the threat of which is designed to prevent the breach ...'

Excessive punishments, as in excessive punitive damages, has been found by the US Supreme Court to be an unconstitutional violation of the 14th Amendment's due process clause and a deprivation of property. (State Farm v. Campbell, 538 US 408 (2003) see note 1 below). Foreclosing on a $200 HOA debt with over $2,000 in attorney fees causing the homeowner to lose his equity in his home that can have a market value of $120,000 or $200,000 or even $1,000,000, representing a 200x to 5,000x ratio of damages to losses, is extremely excessive. The Court offered a 10 to 1 or less ratio as acceptable ratios for punitive damages.

For these reasons, I ask that new legislation be adopted to remove these punishments, such as the right of the HOA to impose daily fines to the extent they become excessive, and the right to foreclosure as a remedy to collect assessments in arrears, as they are excessive punitive damages under the USSC guidelines of State Farm v. Campbell.

Note 1.
The US Supreme Court case of State Farm v. Campbell, 538 US 408 (2003) in which the Court said:

'"The Due Process Clause of the 14th Amendment' prohibits the imposition grossly excessive and arbitrary punishments a tortfeaser [worng-doer]."

"[The $145 million award was] neither reasonable nor proportionate to the wrong committed, and it was an irrational and arbitrary deprivation of the property of the defendant".