Untangling the Homowner Association Nightmare Terrorizing our Well-Manicured Communities

April 20, 2007

By Linda Gehring
Copyright Linda Gehring

Two short years ago I admit I was naive. I actually believed our Constitution was worth the paper it was written on, and justice still happened in America and the good guys eventually prevailed (despite ever more disturbing headlines warning me that my faith just might be a little misplaced).

Approximately $47,000 later lost in both money and equity over a small claims justice court action and what I discovered traveling this rocky road these past two years, my naivete has evaporated.

This is a story about how the Arizona legislature and judiciary, in collusion with their 'pimps', industry lobbyists (as I said my naivete has evaporated), have colluded to rewrite and then interpret the 'contract' that I unknowingly entered into when I purchased a small townhome in North Phoenix in 1994 (which now due to these manipulations and maneuverings, is not worth the paper it was written on as intepreted by a Scottsdale Justice Court Judge).

The CC&Rs for our community were written in 1985, and by today's standards and before the CAI began writing the 50+ page documents that are now standard in order to insure their job security, relatively simple and easy to interpret. Since they were written in 1985 prior even to the enactment of the Condominium Statutes in Arizona, the contractual documents were all the 'legal' obligations I had (although they were not provided or disclosed to me upon purchase, other than that there was a fee for provision of the maintenance of the pool which community volunteers handled, but even that was ruled as irrelevant). Under the common law and U.S. Constitution, the State is required to uphold obligations entered into between citizens, however, at that time adhesion contracts for private property ownership in America based on agreements between cities and developers was not on the founding fathers minds, I am sure since, of course, they came here to escape any controls over private property. Since, constitutionally, the U.S. Constitution also provides that 'no ex post facto' law shall be enacted (meaning 'after the fact'), under that Constitution the State could not murky the waters of my CC&Rs obligation with any of its silly old laws unless I or the other members amended the agreement according to its terms - or so I thought. A judge, of course, ruled differently.

Under these 'new' Arizona Statutes, how did my original CC&Rs and obligations change which eventually resulted in losing over $47,000 of my personal property and equity?

Lobbyists, and governmental collusion making not so strange bedfellows, it appears, over less than 12 years.

In legal terms as it is with most older CC&Rs, ours was created as a non-profit organization, with the Declaration or CC&Rs first in priority in interpretation, and the Association or corporate structure created within the Declaration as a corporation then, based 'in contract,' unlike any other nonprofit organization in existence - it is based on a contract with all 'functions' of the corporation and its administrators, the Board of Directors, incorporated within those documents and even predating most of the non profit corporate statutes in Arizona. For the Board to have any additional power over those granted in the documents as a pre-existing contract would not be legal under our Constitution unless the membership amended the contractual documents - Declaration, articles and bylaws - or so I thought. Of course, the judge found differently.

He also found that, although at least the Condominium Statutes in the State of Arizona are actually written constitutionally (prefacing each power given to the Association with 'Subject to the declaration), some newer statutes enacted in 1994-96 after my purchase (remember, no ex post facto law is constitutionally allowed) were also applicable. How did this happen? Well, it appears in 1996 the legislature was lobbied to creatively redefine condominiums and tied that definition into who had ownership rights to the common area. Webster would be amazed at the definition, since I have yet to find a single condominum that gives ownership rights of the common area to the owners, since by most contractual terms and common law the Association owns the common area in any development because their control and authority for any future 'rules' was restricted to the Association owned property, unless of course the entire membership amends the Declaration, the sole source of the deed restriction for the private property owners. What other legal tricks were then secretly passed to attempt to negate my CC&RS and the 'protective' provisions contained within them for the owners in this development and acknowledgment of its 'non-profit' status? Lose me over $47,000. How, you might ask. Well........

1. Increase the amount of my assessment obligation for maintenance over the that provided in the contract, an arbitrary sum based on a membership vote taken in 1993 initiated by the management concern in order to institute a 'reserve fund' to provide for its fees and vendor costs (which, according to the original terms, would have needed to be ratified annually since CPI increases were already factored in for any anticipated cost increases). Never mind also that under federal administrative law it is the contractor who is obligated before leaving the development to sufficiently fund it so that no future large increases are required (since these are, after all, nonprofits with a 'hidden tax'). The management concern, however, was brought in by the developer who actually claimed he was 'just another homeowner' to absolve himself of that obligation, without the management disclosing this, of course, to that also naive Board and membership before taking the 'vote.'

2. Instituted 'late fees' in our community. Ours provided interest only for late payments, so as to 'reimburse' the HOA for its loses as a nonprofit, not profit at the expense of the tardy and mostly working couples, singles and retirees living in this 'cheaper' form of housing.

3. Instituted monetary 'penalties' even though in the very wording of that statute the legislature must have known it was on shaky ground, since it is not written as a 'mandate,' (with the word 'must' or 'shall') but with the words 'may.' ("The Board of Directors MAY institute a monetary penalty...."). Remember, no ex post facto law may be enacted, and while the States are obliged to uphold contractual provisions, it cannot unconstitutionally impose new ones, without abridging the Constitution).

4. Allowed our Board to purchase an 'indemnification' policy with the Association dues protecting itself for any acts or omissions. Our Board not only bought one for itself, (when any insurance coverage obtained needed membership approval) it bought one through the management concern also covering them under this policy (affording coverage to a vendor for-profit corporation thus absolving it also - passing on their own costs of doing businss, and allowing it to act at will against the membership, either through the Board or on its own, with no loss against them even if an owner should prevail in an action against them. Thus, even if you sue the management concern, you are providing their coverage through your dues. It also covers any 'agents' would could be argued covers also the Association attorney - no fears of malpractice claims from them! Our original provisions were for bond coverage - bonds have to be applied for and background checks done. It also provided that a court indemnification procedure was necessary before the Association paid for the costs of suit, and repayment by the Board member if found at fault. What has this change done and who do you thank for that one? The insurance lobbyists selling these policies using management concerns and CAI attorneys as their brokers, and of course lobbying for this statute. It's a great way to double team on the defense of a suit, as happened in my case - two defense attorneys were allowed, an inside and outside (CAI) attorney both provided courtesy of Farmers Insurance (in a small claims action - running up the legal fees is the first line of defense in these actions). I was blindsided by this policy. It was purchased in 2004 and not disclosed to the membership (forget about ex post facto law, or removing any and all accountability to the membership that this policy removed). It is also a great way for the insurers to accept and defend on the case initially, and then as the case develops back out if it deems then the actions were 'willful.' You are still not safe, however, as most likely Farmers is continuing to pay the CAI attorney, with the CAI attorney then claiming it will work on a contingency (because the case has now been moved to 'their' judge, already guaranteeing the outcome).

5. Appears to have removed my homestead exemption; however, I would have fought that one tooth and nail. Ours were formulated in 1985 and in Arizona there already was a homestead and that was a given. It was not 'removed' until 1996, and with the way that statute is written still doesn't appear to me to totally remove it, just confusing the issue enough requiring legal redress to get it back - it reads to me that any sums due the Association upon a forced sale if the sale price does not provide for your full homestead (which they rarely do), then if either the Association or first mortgagor forecloses those sums come out of excess sums due the owner (since most CC&Rs provide that if the Association forecloses, the liability for repayment of the past due assessments is satisfied with the assumption of the property).

There were no penalties in our original documents, no fines, reasonable dues and relatively few restrictions as formulated in 1985. Enforcement remedies were 'at law' for any breeches, and even enforcement by the Board and Association was 'discretionary' - in other words, let the punishment fit the crime. Courtesy notices, and membership votes for sum necessary to repair any severely 'let go' property to be billed to the offending member and collected upon sale or suit, if necessary.

It is the state legislators and industry lobbyists who have created this 'terrorism' in our communities - all for a buck and in the name of commerce, with your home being THEIR most 'commercial' investment and interest, not yours. And every sum paid to every one of these industries is fed right back into their campaign contribution coffers - this is how statesmen and judges are elected - by the people they are robbing blind each and every day.