Calif. Law Review Commission comments on the state of HOAs

SUMMARY OF TENTATIVE RECOMMENDATION
State Assistance to Common Interest Developments
September 2004

Community associations are run by volunteer directors who may have little or no prior experience in managing real property, operating a nonprofit corporation, complying with the law governing common interest developments, and interpreting and enforcing restrictions and rules imposed by a common interest development's governing documents. Mistakes and misunderstandings are inevitable and may lead to serious, costly, and divisive problems.

The principal remedy for a violation of common interest development law is private litigation. Litigation is not an ideal remedy where the disputants are neighbors who must maintain ongoing relationships. The adversarial nature of litigation can disrupt these relationships, creating animosity that degrades the quality of life within the community and makes future disputes more likely to arise. Litigation imposes costs on a common interest development community as a whole - costs that must be paid by all members through increased assessments. Many homeowners cannot afford to bring a lawsuit and are effectively denied the benefit of laws designed for their protection.

The proposed law would create the Common Interest Development Bureau within the Department of Consumer Affairs. The bureau would educate common interest development homeowners and board members as to their rights and obligations under the law, provide informal assistance in resolving disputes, and as a last resort, enforce the law governing common interest developments.

NJ bill S2016 seeks to hold HOAs answerable under the Constitution

NJ Senator Shirley Turner sponsored a bill to revise NJ's Condo Act, S2016 (2004).

It can be found at S2016

Section 2 reads, in part:

e. The very nature of a homeowners' association is to provide governance over and maintenance of the real property of a common interest community that is owned in common by all of the residents. New Jersey statutes require these associations to be formed by the developer, but have not provided the necessary detail to guide these special corporations in carrying out their duties once the control of the community has shifted to the owners. Homeowners' association governing boards have relied on corporation law to fill in many of the gaps that the "Condominium Act," or other statutes, do not address. Corporation law, however, is geared towards businesses or charitable organizations. Homeowners' associations are technically not either; they are, in fact, the functional equivalent of neighborhood governments. Accountability measures are needed to ensure that such quasi-governmental entities are operating democratically and guided by principles of fairness that benefit all of the owner-members of these communities.

HOAs have no constitutional right to foreclose

The proponents for the need to foreclose on a homeowner for failing to make his assessment payments have argued that there is a compelling government interest in preventing the failure of the planned community as a result of the widespread or prolonged failure of homeowners to make their assessment payments. However, there is no constitutional right for a planned community to receive homeowner assessments, just a questionable contractual right supported in many states by statute.

First, the inclusion of this provision in the CC&Rs, or by state law, is only to punish delinquent members, and the punishment is excessive. The US Supreme Court has ruled that excessive punishment with respect to the amount of punitive damages awarded by the courts is a violation of the Due Process clause of the 14th Amendment.

• Second, while the argument that the state has a compelling reason to protect private contractual arrangements, in general, by means of judicial enforcement is valid, the argument that the state may use the "club of foreclosure" as the means to enforce the CC&R contractual agreement to pay assessments lacks merit.

Suppose that a charitable pledge agreement contained a right to foreclose on the contributor's home if he fails to pay the pledged amount, either in full or by means of a partial payment arrangement. And it was irrevocable for 20 - 30 years. What would be the outcome? Obviously, no one would make any pledges under these circumstances. Yet, because of the contractual arrangement, these charitable organizations could enlist the courts to enforce the agreement on the basis that they provide a sorely needed benefit to the state or community as a whole.

We ask, What damages would be suffered by the charity? What remedy, if any, would the charity be entitled to receive? The $100,000 plus home for a $100 pledge? For a $1,000 pledge? Can the charity argue that this pledge is vitally necessary for it to achieve its charitable objective, for the benefit of the community, as set forth in its budgeted activities? Is the charity entitled to the right to foreclose?

No, this remedy won't fly. But when it comes to such outrageous CC&R provisions and statutes, they are accepted and viewed as a fundamental right of the HOA. A right that is needed, as implied by these arguments, if the HOA is not to fail. No, this argument is also without merit.

Let's stop protecting Homeowner Asssociations and start protecting the fundamental rights of homeowners -- due process and the equal application and protection of the laws.