Creating a Municipality or Utility to Govern HOAs

This post is an offshoot of the thread: "Radically changing HOA governance" to specifically discuss the ideas presented by Fred O'Neal regarding transferring HOA governance to a municipality. Here is his post:

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You are entirely correct, in my experience. I am a lawyer and I have been litigating AGAINST HOA's for 25 years now. I've made a lot of money off it. In particular, arrogant board members have made me a small fortune by throwing their weight around and trying to use the board's power to crush perceived 'troublemakers.'

If you're interested in where HOA's came from (they, basically, weren't around when I was young), there are two books by a lawyer-turned-professor, Evan McKenzie, which provide the history of the rise of HOA's - "Privatopia" and "Beyond Privatopia."

In my opinion (and though it would hurt my practice), all HOA's should go away once the developer has sold his last unit in the development and they should be replaced either by a governmental unit (e.g. Municipal Service Taxing Unit) or a regulated private utility company. A governmental unit levying and collecting a specially assessed tax on homeowners within the development will eliminate enforcement actions and lien foreclosures - and greatly cut down on attorney's fees and collection actions.

The current covenant enforcement aspect of an HOA should be handled by individual-against-individual lawsuits, i.e. a level playing field. That way there will be many fewer enforcement actions filed in the courthouse (and, then, only where there has been an egregious violation) and an elimination of the possibility of power-hungry or vindictive board members using other peoples' money to crush perceived 'troublemakers."

Frederic O'Neal, Esq.

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Leilani:

You ask -

1. How would levying a special tax eliminate lien foreclosures? People will still get behind. What happens to them?

In Florida, Municipal Service Taxing Units (for example, we have one in our subdivision which is a "lighting district" - meaning, it provides the street lights in the subdivision, replaces burnt out bulbs, replaces broken street lamps, etc.) are run by the local County government. The County accounting office totals the operating cost of the district, divides it by the number of homes, then provides that number to the County Tax Assessor who adds the pro rata cost to each home's annual real estate tax bill. If you don't pay your taxes, a tax certificate is sold by the County Tax Collector. You have roughly three years to redeem the certificate. If you don't, your property can be sold by the tax collector at a public auction. If there is a mortgage on your home, the mortgage holder will also be notified of the pending sale and can redeem the certificate and avoid the sale.

2. Please give an example of a "current covenant enforcement aspect of an HOA" and how would individual-against individual lawsuits work in such an example?

I have a case which just came in the door yesterday. My client needs to replace the roof on her home. Her subdivision's covenants say that, if her house is "destroyed," she must restore it just as it is. The HOA reads that provision as encompassing replacing her roof because of its age and deteriorating condition. She currently has a tile roof. The HOA insists she must replace her existing tile roof with another tile roof. She wants to use shingles, instead (at a much lower cost). Right now, our suit over whether she must replace her tile roof with another tile roof would be with the HOA. If the HOA is removed from the equation, then she only has to worry about being sued by her neighbors (who, as I understand it, have no problem with her replacing her tile roof with a shingle roof). Net result - one less lawsuit clogging up the courthouse.

3. Is such a municipality structure set up anywhere in the country or world?

Throughout Florida, we have Municipal Service Taxing Units handling many of the tasks (e.g. lighting, maintaining landscaping, maintaining perimeter walls, maintaining private road systems, providing private security) an HOA would ordinarily handle.

4. Who would manage the maintenance of the complex and how do we safeguard contractor collusion and abuse (i.e., getting paid exhorbitant dollars and sharing the money with the municipality, etc.)?

Since the County operates the Municipal Service Taxing Unit, you have County Auditor, County Manager, County Commissioners, as well as law enforcement since collusion and abuse and kickbacks from contractors constitute crimes. If you have a recreation facility which you want to maintain as a private club, you may want to set up a separate corporation to own and operate that. If the County manages it, chances are the facility will end up being opened up to the public.

Fred O'Neal

So Fred, why do you think the Association is at fault?
They are simply enforcing the covenants, i.e. the contract that your client agreed to comply with when they purchased the property.
Doesn't you client bare some of the blame for wanting to violate the terms of the contract she entered into?

Regardless if the HOA exists or not, why is it ok for your client to violate the terms of the contract they agreed with?

Why would it be ok for the clients two or three neighbors, who have no issue with the roof, to make the decision for everyone (the Board isn't making the decision to waive or not to waive a covenant for a single individual, they are simply enforcing the covenants as written)?

Rather then take the issue through the courts, why didn't your client simply try to gather support (perhaps with the help of the neighbors) and amend the contract (covenants) to allow shingle roofs or tile roofs? That is an option the contract provides, is it not?

Perhaps, instead of spending money on attorneys (or are you taking the case hoping to have the court award attorney fees?), why doesn't the client and neighbors pool their money to purchase the tiles. Honestly, aren't the legal costs more then or equal to the difference between a tile roof and a shingle roof?

It wouldn't.
In fact, it may be worse as your neighbors (who make up the board) may have more compassion and understanding then a government employee who doesn't know you or live in your neighborhood (expecting that a government employee would be involved and it wouldn't simply be an automated process of filing liens and foreclosures).

It would then be a tax lien vs. an Association lien.
Tax liens have priority over all other liens.

Of course, this would vary between States, Counties and, perhaps, municipalities.


Depending on the covenants, an Association has the following options for enforcement:
1) Warning letters
2) Monetary penalties/charges (i.e. fines)
3) legal action through the courts.

Typically, for various reasons, letters and monetary charges (or the threat of monetary charges) have most violators bring the violation into compliance. When legal action is required, the costs for that action is shared by all members.

Individuals would not have the ability to impose monetary charges. They would only be able to confront the violator or take legal action. Since legal action is expensive, there would be less cases because it's rare that an individual wants to bare the costs themselves (even though the entire development would benefit).

This means that you will likely have more violators and the covenants everyone agreed to comply with would likely mean very little (again look at the neighborhoods without an HOA). Then, as is typical in life, as the owners age and available funds go to other things, the upkeep of the home may be neglected. A neglected home may have an impact on bringing potential buyers to a neighbor who wants to sell. Several neglected homes may have an impact on bringing potential buyers to any homes in the development. If there are less potential buyers, sellers may not be able to get the prices they are asking. IF this occurs, property values may be affected.


Probably. However, I can't give specifics except to say look at the neighborhoods with no HOAs.


For condominiums, it would be all owners acting on their own. Those who can afford and are willing to maintain the common elements would. Those who are not, would not.

For HOAs, the common elements could become individual clubs which those who wish to utilize the amenity would pay a fee for membership and maintenance. Those who do not would not. If there are not enough individuals from within the complex, the club may open it up to the general public or simply close the amenity.

For HOAs, the common land would be under control of the city/County. Perhaps creating public parks, etc. Maintenance would be at the City/County schedule.

Frederic

I just have to ask what will your fee be for resolving this roofing issue?

Fred, Fred, Fred (a little condescending isn't it?),

Actually, you would be surprised on the number of things we probably agree on.
The things we likely disagree with would be interesting debates (if one is willing to debate on the core of the issue along with providing basis for their opinions).

My question would be, because it's typical in the CC&Rs I've read (which have been quite a few), does the covenants of your clients Association require prior approval for changing the exterior of their home?

If they do, and your client failed to do this, they failed to comply with the terms of the contract as written.

If the do and your client requested approval, was denied and made the change anyway, they failed to comply with the terms of the contract as written.

If they do not, then I actually agree with you that your client should be allowed to replace the roof with any material that meets current building codes.

Realistically, the question I just posed will likely be the crux of any ruling.

Leilana

Not sure what you're looking to accomplish. I also find the advice from Fred troublesome.

Let's get Fed out of the way. There are roughly 360,000 legal, governing documents for all HOA's in the United States. No legislative action is going to get rid of that, period. HOA's exist today because of the shift AWAY from municipal service to HOA, and now you want to shift back. Ain't going to happen.

There are issues within HOA governance that need to be addressed. Take one instance. Couple of years ago California passed SB563 which dealt with Open Meetings. It was created for one reason and one reason alone, too many Boards were illegally taking "Action without a Meeting". This came directly from the authors of the bill. There were many complaints, on record, about abuse.

You have a lien on your property each and every time your Association bills your assessment. To enforce, it must be recorded. People do get behind, but the governing body of an HOA has a obligation to ALL it's owners to protect their interests. I have noticed people go over board when recording lien. I just had to have 4 liens removed for the same thing. No one kept track, while others made money on the process.

What I proposed is a solution or idea. Someone have a better idea, I am all ears.

We had an instance of a neighbor to neighbor dispute. Two neighbors living next door to one another hated each other. One neighbor put a hose through a fence and flooded the other's backyard without damaging ANY community property. The group of five blackmailed the Board, they hired a new MC and proceeded to start a lawsuit costing the Association $200K out of the operating account (no insurance). There was no vote on record and our CCRs explicitly state the Association CANNOT litigate any matter in which they know will cost over $2500.00 without the majority approval of the Members.

There are Ombudsmen set up in several states, but am not aware of exactly how they function.

\Fred

I agree on a property owner's rights but if they willing signed some away (such as in an owners association), they willing signed them away. What are we going to do? Protect people from themselves?

In the case of the roof, the owner agreed to "meet community standards" when they "signed onto to being part of an association" thus, so be it. Meet the roof standards, get them changed, or get the he!! out.

I think there are positives that could come from that form of governance. Some like HOAs while others do not. I am reminded of another instance regarding municipal taxing units where a local real estate agent wanted to impose a tax on thousands of homes to plant flowers and such... right in front of the neighborhoods where he owned or represented dozens of properties. His HOA's (which he was a board member of) surely could have foot the bill but he wanted to impose a tax on all the surrounding subdivisions. Many upset property owners went to the news and the local county commissioner and that taxing unit died pretty quickly. Had there been no vocal opposition I am sure it would have passed and while the amount may have been minimal, awareness is necessary. I suppose with MSBUs and MSTUs there is more oversight.

And as for buying into a neighborhood knowing about a HOA, I can agree, except for when that HOA decides to change the rules. My family purchased property in two neighborhoods specifically because there was no mandatory association minimal restrictions. In both situations a board decided to convert the neighborhoods to mandatory. The actions of my previous neighborhood's "HOA" caused the association to go bankrupt. Who knows what will happen with my current "HOA." Sadly there is no oversight.

Depends on one's perspective.

Expecting we are talking in generalities and not about the specific roofing issue Fred raised, if the covenants are clear, there should not be a misinterpretation.

If we are talking specifically about Freds roofing issue, then what is considered a repair, replacement, maintenance or rebuild really isn't the issue. As I pointed out earlier, it's more likely that it's an issue of was prior permission sought and received or not. Fred, in my opinion, simply found a way to interpret the language differently - thereby causing one side or the other to back down, a compromise to be reached or for the issue to go through the courts for a ruling on what the language says.

Some interesting discussion here.

I'm definitely not an HOA advocate, and I've personally vowed to never live in one again, so I appreciate some of the info/discussion in these few related threads. However, I currently live in an HOA, am serving on the Board, and am trying to do the best and most appropriate things for my neighbors and myself.

All that said . . . it's interesting how two new users, FredO1 and LeilaniL, created and continue to respond to these topics patting each other on the back, asking questions of each other, promoting certain website, and promoting certain literature.

Hmmmmmm . . .

Yuppers. You got that one.

Fred

As a general rule I like to operate in a world of what is possible. Not create some alternate universe in which my views and thoughts will somehow become reality when they simply can't.

The chances of you living to see the day HOAs are eliminated or exterminated or as you like to say "slayed" is less than zero. So I would like to save you the disappointment and let you know that fantasy just won't come to pass.

Might there be a need for reforms well of course. But that discussion is not even possible when your starting point is in reality not even an option.

Good luck with the roofing litigation. Let us know how that works out.

Leilani,

Trying to get the thread back on topic, one of the main things I notice where there are issues between HOAs and members is that the individual doesn't really know what they have gotten into. Realtors, don't take the time to explain the situation. I've not heard of classes being offered about Associations and what to look for when buying a home. Many States simply don't have legislation requiring that the seller or the Association (through the seller) provides information so a buyer (if they take the time) will be able to make an informed decision.

California and Florida have some of the most stringent laws on the books regarding HOAs. However, both California and Florida really give a buyer enough information to make an informed decision.

As in FL and CA, most States do not require copies of minutes be given to potential buyers (which allows the buyer to see what the issues are and how they are handled). Many States don't even require that a full copy of the governing documents be provided to the potential buyer. Many States don't provide actual financial statements (some simply require summaries and some don't require any at all).

I believe that if States enacted more disclosure laws (similar to Virginia, which also has room for improvement) there may be less issues like the case Fred describes.

Tim

Tim and Jon:

Sorry about the condescending tone. Sorry to offend.

Have a nice life.

Fred

Tim

You have the patience of a saint.

Having skimmed through Fred's site his position on HOAs is quite clear. His little regard for those who volunteer their time to serve on a board is also apparent. His description of successful litigation against HOAs as " slaying them" while certainly quite macho leaves me quite unimpressed.

Fred seems to have made a living practicing law in part with litigation against HOAs and would like to pass this off as a principled career. Trying to bring back " neighborly" behavior. I'm not buying that being his motivation.

Arguing in court over what roofing material is required would be quite boring and unrewarding for me. Surely life would have more to offer. Maybe not.

With time people will show you who and what they are. It would then be your job to treat them accordingly. Fred's site shows me who and what he is.
Gloating over damaging any community including the uninvolved property owners seems to be in Fred's wheelhouse. This while claiming to protect the rights of others. Impossible for me to miss the damage litigation causes. Fred on the other hand is proud of his role.

I volunteer my time as a board member (29 years) to benefit and be a productive participant in the community. Fred charges for his time to be a destructive
element in any process. And always for a price.

I will remain more satisfied with my role going forward.

Fred, Fred, Fred;

You forgot me.

Have a nice life

CAI wrote a position paper opposing state offices of ombudsman. They gave a number of reasons for opposing it, while of course neglecting to mention that they don't like government scrutiny of their own profession.

The paper may be biased, but CAI briefly mentions interesting alternatives. They suggest that associations adopt internal dispute resolution and alternative dispute resolution prior to litigation. CAI also supports mandatory disclosure of documents to buyers before closing. For states that have outdated laws, they support the adoption of the Uniform Common Interest Ownership Act (UCIOA), which has laws for open board meetings and reasonable access to records.

Hi LeilaniL,

I'm curious and I do not recall if you talked about this.....What has been the PM's reaction to what you describe?

Richard, I am intrigued by your proposal but am not too clear on how it will work out practically. For instance, in my case with the rigged special election we had. It would cost us $10-$15k to get an injunction.

What would your proposed entity do for us?

I'm thinking that something like an ACLJ or ACLU (depending on your political proclivity) non-profit could be set up specifically to help owners defend themselves in cases where the board refuses to hold an IDR/ADR or in cases where an emergency injunction is needed fast but is too costly to get for owners, such as in a rigged election.

Part of this non-profit would need to be an education arm that perhaps certifies directors. For instance, a director must become certified within six months of taking office. The certification would include basic Davis Stirling laws, election laws, corporation laws, and especially ethical standards and fiduciary responsibilities of being an officer.

The non-profit would be funded as you suggest.

Thoughts?

Richard,

I like the idea of mandatory mediation which would be binding. Right now, IDR and ADR, even if the parties agree to meet, is not binding.

I think there needs to be a time limit on hearing the matter and giving the order as time is of the essence in most of these cases to reduce further abuse of the owners and mismanagement of HOA funds.

Who will oversee this government entity?

What kind of regulation of MCs is included in the draft?

Are you willing to share the draft for a peer review of sorts before meeting with the legislators?

I wouldn't.

Mediation and arbitration are two different things.

Mediation is to resolve the issue with compromise.
Mediation is not required to apply applicable statutes to the situation.

For example: Lets take Freds case about the roofs. Expecting that prior approval was needed and not sought and the roof has already been installed, the mediator may try to have both sides to agree to let the roof stay but when it is replaced or when the property is sold, the roof shingles must be replaced with a tile roof (vs. shingles).

In this example, the issue of compliance with the terms of the contract is never addressed (although that would be the crux of the case). The interpretation/ruling on the interpretation of the passage Fred brought up is never defined. It's simply a compromise to keep the court docket from being too full.

Binding arbitration means that you are stuck with the decision of the arbitrator, regardless if the law is on your side or not. There is no appeal (as there would be in court).

See:

Mediator Licensing and Certification
in California

Arbitration and The Unauthorized Practice of Law

The purpose is to keep these things out of court. It is would people you specialize in HOA's and how they are supposed to run based on current regulation. Small Claims, especially in Southern California, are run not by judges but commissioners who leave a lot to be desired. To get a case in Small Claims right now is 8 months and half the courts have been closed.

A week ago I spent a hour and half on the phone with someone trying to recall their Board that presented a proper petition. Both the Bard and the MC refused to send out ballots.

The project has enforcement and the ability to fine written into it.

I really like this idea. In California, the law was recently amended to allow limited types of HOA issues in Small Claims, including certain election issues and access to HOA documents. However, few judges have knowledge of HOA law and I have not yet seen a case brought to small claims asking the judge for election rulings, injuunction relief related to elections, etc. It may have happened, but I haven't seen it. When I call the small claims clerks, they know nothing about taking HOA issues to small claims court.

It would really be awesome to take an HOA-related issue to a dedicated judge knowledgeable in HOA law and who has the power to issue injunctions and rulings, oversee elections, etc. and especially do so in a timely manner (not in a year like Superior Court). That really would be great.