California Homeowners' Long Struggle to Regain Their Rights

April 30, 2004

By Peter Amherst
Copyright AHRC News Services

It has been a long road for California homeowners who live in homeowner associations. At 1.30p.m. on Tuesday, May 4, Martha Escutia, the chair of the California Senate Judiciary Committee will gavel the meeting to order. One of the main items on the agenda - Senate Bill 1682.

The author, Senator Denise Ducheny of San Diego, will present the first bill to limit the power of non-judicial foreclosure by homeowner associations. The bill has bipartisan support.

The bill will forbid homeowner associations from using non-judicial foreclosure for unpaid assessments and dues that are less than $2,500. Attorney fees, collection costs, late charges and interest cannot be included in this amount. For unpaid assessments and dues above that amount, the bill imposes stricter requirements, and most importantly, restores homestead protection to a person's home. For most couples, that would mean that at least $75,000 is protected in case there is a foreclosure sale. Currently, there is no such provision.

The bill was prompted by the outrage that swept across California and the nation, when an elderly couple's home was sold in non-judicial foreclosure for a $120 unpaid assessment. Their home was worth $280,000.

Opponents of the bill are gearing up for an all out titanic struggle. The Executive Council of Homeowners (ECHO), a trade organization of CAI lawyers and managment companies in Northern California has already announced that it will fight the bill. Skip Daum, the professional lobbyist for Community Associations Institute (CAI) and California Legislative Action Committee (CLAC),has already written a letter outlining the opposition of CAI and CLAC. CAI is the leading industry lobbyist in the U.S. for the homeowner association industry. CLAC is a legislative lobby group formed by CAI lawyers in California.

The roots of the foreclosure issue stretch back over 20 years.

In the California legislature, receiving a Select Committee to investigate something is considered to be a political plum. It means resources, visibility - and ultimately power.

In 1984, assemblyman Larry Stirling(R) had done a favor for Willie Brown, the powerful Speaker of the Assembly. He had supported one of Brown's bills. In return, Brown told Stirling that he could have a Select Committee of his choosing. Stirling chose homeowner associations.

As this came under the aegis of the Assembly Housing Committee, Stirling got together with Gray Davis, the chair of the committee. (Davis would go on to become governor - and in a special election last year, to become ex-governer after Schwarzenegger defeated him.)

While the details are still not clear, they chose Katherine Rosenberry to head up the work of the Select Committee. Homeowners say that that this was an incredible choice because Rosenberry had been the national chairperson of CAI - the main industry lobby group. They say that it is like appointing the head of an oil company to regulate gas prices.

It was gravy time for CAI lawyers. Their fundamental principle was to turn homeowner associations into cash registers for themselves. One of the key buttons on that cash register was giving power to homeowner associations - in effect, to homeowner association lawyers - to non-judicially foreclose on homeowners who had fallen behind in their dues.

This was signed into law as the Davis Stirling Act in 1985.

Homeowners who lived in homeowner associations were blissfully unaware of what their representatives in Sacramento were doing. It took several years before some of the draconian effects of this law began to filter down into the consciousness of Californians. Several seminal acts by CAI lawyers precipitated the beginnings of a revolt by homeowners. As has often been the case in history, it was greed overreaching itself that sparked the protest.

One of the first such overreachings was by Julie Bornstein in the early 1990's. Bornstein was the assembly woman for the Palm Springs area in the California legislature. On behalf of CAI, she introduced a bill that would place a lien for unpaid assessments before even the first mortgage. When homeowners got wind of this, they realized that such a law might dissuade mortage lenders from making mortgages on homes out of fear that they would not be in the primary position. Homeowners worked with the banking industry to get this bill defeated.

This experience alerted homeowners to the broader picture. They realized that Sacramento was riddled with CAI lobbyists, and that their fundamental rights were under attack from right, left and center. They read the Davis Stirling Act and discovered the coup that had taken place in 1985.

But events were coming fast and furious, and they had little time to even begin an assault on the Davis Stirling Act.

They discovered that some property management companies such as Merit Property Management were not only engaged in a sophisticated bookkeeping manouver, but were trying to get it enacted into law through AB 1793. If a homeowner had accumulated fines and/or late fees on an unpaid assessment, Merit was allocating the payments that it received from homeowners first to the fines and fees, and then to the unpaid assessment. This meant, in part, that the unpaid assessment would continue to generate escalating fines and late fees. (The notorious Marquis Management Company that billed itself as the largest in the country had a similar practice. Its head, Diane Fullerton, was paying herself $50,000 a month, even though it went bankrupt twice. She was arrested for bank fraud several years ago.)

Merit and others now tried to get a law passed that would authorize non-judicial foreclosure for unpaid fines and fees. This was AB 1793. Homeowners Pat English, Jim Troutman, Elizabeth McMahon, Willowdean Vance and Muriel Certo heard about it. They decided to head for Sacramento. They were in for an eye opener.

The night before the legislative hearing, they found out that CAI and CLAC were hosting a dinner for the chair of the Assembly Housing Committee, Dan Hauser. The bill would be heard before his committee the following day. One of the homeowners was able to secure entrance into the dinner for the 5 homeowners.

As the wine flowed and the schmoozing was enough to sink the Titanic, they realized what had been going on in Sacramento for years. CAI/CLAC lawyers were buying the legislature.

They sprang into action. Willowdean Vance, a former newspaper columnist, began to call TV and radio stations in the Sacramento area.

When Dan Hauser walked into the Assembly Housing Committee room the following morning, he found television cameras.

Suddenly, he had a few whispered words with an aide. Then he announced that AB 1793 was being withdrawn.

The result was dramatic. CAI and CLAC were dumbfounded. They had met the power of some brave homeowners for the first time and lost.

But the struggle of the homeowners was only just beginning. They soon realized that the media was not only oblivious to what was happening in homeowner associations, but also that in some cases, CAI operatives had taken over.

Jan Higginbotham was one such CAI operative. She had secured a weekly column in the Real Estate section of the Los Angeles Times on homeowner associations. Her columns regularly referred readers to CAI lawyers.

Homeowners protested this clear example of a conflict of interest. Her column was clearly an advertising piece for CAI. However, the editor of the Real Estate section adamantly refused to replace her. It was only after the Tribune Co. of Chicago bought out the Los Angeles Times that the new editor listened to homeowner complaints and replaced Higginbotham

It would take most of the 90's for the homeowners to get their message across to the media that homeowner associations were now a major portion of the electorate and that there were serious problem in them.(Currently, 50 million Americans live in homeowner associations. 8 million of these are in California.) The occasional non-judicial foreclosure for a ridiculously low amount would hit the radar screens of newspapers and television stations. But there was no in-depth coverage.

In 1990, several homeowners had started the American Homeowners Resource Center(AHRC)to act as a clearing house for information on homeowner associations. It worked as a grassroots, non-profit organization of volunteers.

As the 90's progressed, however,it realized that it had to move beyond the mere dissemination of information. It had begun to map the network of CAI operatives and their incestuous relationship with politicians. It began to realize that there was a whole network of corruption out there, and nobody was really uncovering that.

Hence, in 1998, it started its website, AHRC News Services. It began to publish graphic stories of how elderly homeowners were literally tossed out of their homes onto their driveways with only the clothes on their backs and a few items of furniture.

Relatively soon, the major newspapers and television networks began to pick up on the stories, and they started to probe behind the scenes for the dynamics that generated such foreclosure. Today, the AHRC website is used by news organizations around the country and the world. It receives almost 47,000 hits a day, or 1,400,000 a month, and is used by people in more than 70 countries. The fully interactive website is designed to give everybody a voice, and thousands have taken the opportunity to tell their story or make a comment.

Homeowners both in California and around the nation knew that one of the most significant reforms needed in homeowner associations was the abolition of non-judicial foreclosure. They knew that CAI lawyers salivated and licked their chops at the thought of non-judicial foreclosure. Even if they never foreclosed on a home, these CAI lawyers knew that they had a juicy, financial meal.

They would generously pile on the legal fees and then demand that the homeowner pay all of these if he wanted to save his home from foreclosure. Most homeowners paid these extortionate fees rather suffer the expense and trauma of fighting a foreclosure lawsuit.

Homeowners then began to get wind of what they had long suspected - that some of these CAI lawyers were buying these foreclosure homes through straw buyers - a clear violation of the law and bar ethics. This investigation is ongoing.

But homeowner efforts to get a legislator to introduce legislation banning non-judicial foreclosure ran into one brick wall after another.

Until the Radcliff case!

Suddenly, the atmosphere changed.

News story after news story reported how Tom Radcliff, retired and disabled, had with the help of his sons built his retirement home near Sacramento, California. Just as he completed his house, he became sick and in the midst of it, the $120 bill from the homeowner association went unnoticed.

But the fact that he not paid the $120 did not go unnoticed. Before he knew it, there was a notice on his front door giving him 3 days to get out of the home that he had built and loved.

The public was incensed. His local senator, Rick Oller, was incensed.

On February 17, Senator Denise Ducheny held a special hearing before her Senate Housing Committee. There was a packed room. T.V. cameras occupied every available spot.

Senator Oller spoke with great feeling. He said that even if everything that had been done to the Radcliffs was legal, it was still grossly unethical. Other speakers, Marjorie Murray from the California Congress of Seniors, Norma Garcia from Consumer Union and Arnold McMahon from AHRC, spoke to the great injustice that had been perpetrated. Senator Ducheny promised to introduce a bill.

SB 1682 is that bill.

For homeowners, this is an enormously important bill. While making reasonable arrangements for homeowners to pay their assessments, it nevertheless removes the juggernaut of non-judicial foreclosure from over their heads. It proposes to undo in significant part the damage that was done by the Davis Stirling Act twenty years earlier in 1985

For CAI, CLAC and ECHO lawyers, the alarm has been raised. They see the danger that their fees will be significantly impacted if this bill passes.

Homeowners expect CAI, CLAC and ECHO to mount both overt and covert actions. Homeowners fully expect these industry lobbyists to bring in board members to testify that their association will collapse in financial ruin if this bill passes. Yet most homeowner associations have hundreds of thousands of dollars in the bank - many have millions.

The battle will be intense. The battle will also be important across the country. If California passes this bill, it will give renewed hope to many homeowners in their states to start demanding for the abolition of non-judicial foreclosure as well.

Both Mr.Radcliff's son and Mr. McMahon will be testifying before the Senate Judiciary Committee on Tuesday, May 4th. at 1.30p.m.

Homeowners who wish to communicate their views to members of the California Senate Judiciary Committee can do so by clicking on the following link:

California Senate Judiciary Committee