The state protection of private corporation HOAs

February 17, 2003

By George K. Staropoli (View author info)

I am not a lawyer, but we've been successful here in Arizona calling these facts to the attention of our legislators.


A. Bill of Rights vs Private Contracts

In this argument I use "HOA" to refer to the private governmental body of the planned community real estate "package" of open space, homes, amenities and rules and regulations. This very same accumulation of benefits has been, and continues to be governed, by democratic forms of government consistent with the US Constitution and Bill of Rights in what we know of as towns, cities, villages and communities.

As can be seen from the preceding materials, the heart of the problem with the legal concept of homeowner associations lies in :

1) the adoption and predominance of private property and contractual rights over the constitutional protections of the Bill of Rights, and

2) in the view that HOAs are private governments since the association, by anyone's logic, is a state actor. Defenders of HOAs hide behind the private property restriction in the US Constitution, and state governments, the legislatures, the attorneys general, the protective agencies such as the real estate departments, have all adopted a hands-off policy in deference to this private property argument over the Bill of Rights.

B. HOAs as governments

Several political scientists have argued that the homeowners association possesses governmental powers, making these association quasi-governments or private governments denying homeowners their civil rights by virtue of the private contract view of CC&Rs.

Professor Evan McKenzie writes in Privatopia: Homeowner Associations and the Rise of Private Government, 1994,

"CIDs [HOAs/POAs/RCAs] currently engage in many activities that would be prohibited if they were viewed by the courts as the equivalent to local governments. Residents in CIDs commonly fail to understand the difference between a regime based formally on rights, such as American civil governments, and the CID regime, which is based on restrictions."

Professor Robert J. Dilger writes in Neighborhood Politics: Residential Community Associations in American Governance, 1992,

"For example, most of those who advocate the formation of RCAs assume that RCAs follow accepted norms of decision making that incorporate all the rights and privileges embodied in the US Constitution, including the right of free speech and assembly guaranteed in the First Amendment and the rights of due process and equal protection under the law found in the Fourteenth Amendment. However, RCAs often employ decision making processes that are far more closed and autocratic than those used by local and mandated for all governments in the United States by the U.S. Constitution? "


C. Supreme Court tests for State Actors

"State action may be found when private individuals or groups are endowed with governmental powers or functions because they in turn become state agencies or instrumentalities. "

"The fact that property is private is not sufficient to justify the State's permitting a corporation to govern a community of citizens so as to restrict their fundamental liberties."

So said the 9th Court of Appeals in Lee v. Katz, 2002

Additionally, the US SC found in, Brentwood Academy v. Tennessee Secondary School, 1999:

"We have, for example, held that a challenged activity may be state action when it results from the State's exercise of "coercive power," when the State provides "significant encouragement, either overt or covert," or when a private actor operates as a "willful participant in joint activity with the State or its agents."

"We have treated a nominally private entity as a state actor when it is controlled by an "agency of the State," when it has been delegated a public function by the State ... we have found a private organization's acts to constitute state action only when the organization performed a public function; was created, coerced, or encouraged by the government."

With state legislatures creating statutes that:

1. interfere with the HOA private contract,

2. act to deny homeowners living in HOAs their Constitutional rights,

3. are strongly biased to provide benefits to the HOA, giving it powers and rights that are unique and singular to the HOA as compared to other nonprofit corporations,

then we have a definite case of "coercive power" and "significant encouragement, either overt or covert", by the legislature.

Furthermore, no one disputes the fact that HOAs possess public functions, although they are not a government, a political entity, by law.


D. State government protection of HOAs

The Supreme Court, Shelley vs., Kraemer, 1948, considered several cases in regard to violations of civil liberties (minority person's rights to purchase real estate) and the application of the 14th Amendment to restrictive covenants, referencing other cases. The question of the applicability of the 14th Amendment is directly linked to acts by the state and not acts by private parties. In other words, by entering into a private agreement, either party may violate the constitutional provisions on civil liberties.

The Justices wrote, "Here the particular patterns of discrimination and the areas in which the restrictions are to operate, are determined, in the first instance, by the terms of agreements among private individuals. Participation of the State consists in the enforcement of the restrictions so defined ? But here there was more. These are cases in which the purposes of the agreements were secured only by judicial enforcement by state courts of the restrictive terms of the agreements." The question became one of, To what degree does the actions the state or state agency deprive citizens of the equal protection of the law?

The Justices cite the Virginia vs. Rives case, 1880, and the Trust & Savings v, Hill case, 1930, writing,

"The Court observed: 'A State acts by its legislative, its executive, or its judicial authorities. It can act in no other way.... This Court pointed out that the Amendment makes void 'state action of every kind' which is inconsistent with the guaranties therein contained, and extends to manifestations of 'state authority in the shape of laws, customs, or judicial or executive proceedings.' Language to like effect is employed no less than eighteen times during the course of that opinion.

"The federal guaranty of due process extends to state action through its judicial as well as through its legislative, executive, or administrative branch of government.'

In short, the state courts or any agency, such as the real estate department, or the attorney general are bound to uphold the 14th Amendment's equal protection of the law and its due process prohibitions.

Getting to the heart of the matter of state enforcement of restrictive covenants, the Justices state,

"We hold that in granting judicial enforcement of the restrictive agreements in these cases, the States have denied petitioners the equal protection of the laws and that, therefore, the action of the state courts cannot stand."

"The Constitution confers upon no individual the right to demand action by the State which results in the denial of equal protection of the laws to other individuals. And it would appear beyond question that the power of the State to create and enforce property interests must be exercised within the boundaries defined by the Fourteenth Amendment."

These private governments that have been created, maintained and protected by the state governments much in the same way the United Nations has setup, maintained and protected countries as UN Protectorates. It has been my argument, supported by other homeowner rights advocates, that the HOA model or concept is a defective product that required the real estate special interests to resort to various legal arguments and self-serving statutes in order to make these governments accepted to the public, much like these UN Protectorates could not stand on their own without the support of others.

In the Arizona Appeals Court, (2 CA-CV 2001-0198), an opinion was given that bears directly on the issue of the delegation of legislative powers. The court said, "The legislative authority of the State shall be vested in the Legislature . . . . it is a well established theory that a legislature may not delegate its authority to private persons over whom the legislature has no supervision or control.

"The legislature cannot abdicate its functions or subject citizens and their interests to any but lawful public agencies, and a delegation of any sovereign power of government to private citizens cannot be sustained nor their assumption of it justified."
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