| Position Statement On Common Interest Developments |
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By Robert Metcalf, Treasurer, Published May 19, 2007 My Name is Robert Metcalf. I
currently reside in, and serve on the Board Of Directors for a Common
Interest Development (CID) known as Concord Crossing, located in The
Root Problem There are two basic issues concerning CIDs:
As American citizens most of us take for granted the responsibilities and protections provided for us in our laws. It is unfortunate however that a sizable part of us have had these rights and protections stripped away without being afforded the opportunity to really understand what it means to purchase a property in a CID. Approximately 60,000,000 The developer’s main interest is profit. In order to maximize that profit it is in their interest to control every aspect of the development during the construction and sales phase. They do this through the three main documents, which define the HOA.
What most people fail to understand is that when they sign off on these documents at settlement (I will have more to say about this later) they have subjugated themselves to an “adhesion” contract. They have agreed to live in a corporation, and live under corporate governance. While operating under the “Business Judgment Rule” is appropriate and necessary in the working world, it has no place in one’s personal life. The
Private Government While one can make the argument
that the developers have a right to run their business as they please, the
real issue is what happens when they leave. At some point the project is
completed and the developers perform the “Dedication”. That civic
sounding term is really just a euphemism to describe the legal act of
absolving themselves of any further responsibility for the community. What
they leave behind is a heretofore-unknown form of government; domestic
life structured as a corporation. In addition, the dictatorial powers that
are provided to the developer via
These kinds of draconian remedies are simply not right, and are the result of a law created by, and in the interest of, the real estate developers and the real estate developers alone. The foundation of good governance is the idea of checks and balances. An HOA is devoid of this. Even though the governing documents state that the unit owner may appeal a board decision, whom does he or she appeal that decision to? the board. The end result of this is that a small number of people, a majority of the board (in my case 3), can rule arbitrarily and absolutely, with little or no fear of consequences. Rules can be created, modified, or revoked without considering the community’s desires at all, in effect changing the “terms of the contract” at will. In most communities there are no term limits for the directors. This allows boards to become “entrenched”, and since they operate under the principles of corporate law, they can manipulate the HOA’s operation to virtually insure the continuation of their terms in office. If the actions of a board are especially egregious, the unit owner can get satisfaction through the courts. However, the cost to that owner in time, money, and their quality of life can be disastrous, particularly when compared to the board, which are essentially held harmless, regardless of the outcome. The CID Industry claims that
first and foremost a HOA is a corporation, and therefore should conduct
itself as one. But what does that really mean? Virtually every local
government is a corporation. Is there any legal difference between the
two, or any other corporation for that manner? Not really, save the
distinction between profit, and non-profit, and even that is primarily for
tax purposes. A corporation is a creature of the law, created to limit the
personal liability of those who control it. In Concord Crossing’s case
the Articles Of Incorporation do not specify any particular reason for its
existence at all, and I suspect the same is true of any corporation. In
fact, in the eyes of the law a corporation’s lawful behavior is
determined by what it does, how it acts. This is why the legal standard of
proper corporate behavior is different for IBM as opposed to The
CID “Industry” One of the side effects of the huge growth in CIDs has been the spawning of various types of support industries. These would include the developers, legal firms specializing in CID law, property management companies, and loosely knit member based associations. At the top of the list would be the “Community Associations Institute”. Founded in 1973, the CAI was created to represent the interests of HOAs and the property owners who lived in them. This however turned out to be less than successful, so in 1992 they transformed themselves into a 501c, a trade organization that does advocacy on behalf of its members. According to the latest information I am able to obtain the CAI has approximately 16,000 members, nearly all of them some form of service provider that targets HOAs as potential customers. As a result, all of these organizations have “public policy” positions. Why? What possible reason could these entities have for adopting such a posture? The answer, and there can only be one, is control. The CAI doesn’t even try to disguise it. Their mantra, and this is verbatim, is “The HOA is a business, run it like one”. At every turn they resist any effort to amend the laws, and return control and oversight to the residents. Here are some examples According to “The Alliance
Messenger – July 2003”, a HOA industry newsletter, trumpeted the
following legislative victory in
This next one is particularly interesting considering the current law. They defeated HB 844; HB 1279 – American Flags And Flagpoles. Here is what the bill provided: HB 1641 – Property Owners Association Restrictions. This bill would have mandated the following:
While I realize that the above
deals with For its part the CAI has produced a remarkable 65-page document titled, “Public Policies”, which is available in total at http://www.caionline.org/govt/position.cfm. While it is beyond the scope of this document to provide an analysis in detail, there is one overriding theme in all of CAI’s positions; They do not, and will not, support any policy or legislation that in any way places greater limits on HOA’s authority to control developments then now exists. The “value” of all this,
according to the CID industry is the preservation of property values.
Surprisingly, there is very little concrete information with regard to
this. In fact I have been able to find only one study, Homeowner
Association Foreclosures and Property Values in “Although HOA foreclosures are ostensibly motivated by efforts to improve property values, neither foreclosure activity nor HOAs appear linked with the above average home price growth.” According to this study the linking of HOAs and property values is a myth. I doubt the “CID Industry” will be publishing the above any time soon. In my state, I challenge the notion and
stated purpose of these groups. In my opinion their goal is simply the
retention of power. George Orwell in his greatest of works, 1984,
stated as much in the final confrontation between Winston and The State.
It turns out that The State wants power and control simply for the sake of
power and control. Power in and of itself becomes the goal. Any
fleeting benefit to the community is simply the by-product of acquiring
and maintaining control. Anything that in any way threatens this
control must be stopped dead in it’s tracks, thus avoiding the
disclosure of the unfortunate truth; These organizations, associations,
and institutes serve no one but themselves, in order to perpetuate their
mythology, and their existence, at the expense of the property owners. The
“Big Lie” – Lack of Disclosure and Disillusionment Another issue that needs to be addressed is the lack of disclosure provided by the developers during the sales phase of a project. The average person simply has no idea of what they are getting involved in. In my case the HOA’s activity was described as “they mow the grass and plow the snow, you’ll love it”. I did not know, nor was I told, the degree to which the Association would control almost every aspect of my living in Concord Crossing. This deception is executed exquisitely in an environment almost devoid of any meaningful disclosure. If you pick up a pack of cigarettes, apply for a loan, watch a television ad for a pharmaceutical, or any number of other things, one thing is instantly, crystal clear; the law has forced the manufacturers or providers to disclose information about the product or service, that left to their own devices, they would suppress. Furthermore, that information is prominently displayed, so there can no misunderstanding as to what the possible outcome from using that product or service may be. Why shouldn’t those standards be applied to CIDs as well? After all, the acquisition of a home is for most people the largest purchase they will ever make. In addition, it is an action that is not easily undone. Everyone who has ever gone through the settlement process realizes the notion of reading every document that you must sign is unrealistic, therefore the standard CID industry defense, “you signed the contract so live with it”, is as disingenuous as it is hollow. My neighbors are intelligent, educated people, yet out of approximately fifteen residents I have spoken to about this only two were aware how invasive and ubiquitous the Association could be. How is this possible? How could such a large percentage of the unit owners be so completely ignorant about something that could potentially bankrupt them and perpetrate the losing of their property? Again, there is only one possible answer, the lack of proper disclosure. “The
Fatal Flaw” In the end, as horrendous and as sinister the above may be it, in my opinion, pales in comparison with what I call “The Fatal Flaw”. One could make the case that the concept of civilization at the atomic level, is the idea of law. The phrase “the law of the jungle” (i.e. no law) is the polar opposite to societal living. The cornerstone on which the efficacy of the law resides is in the citizens being treated fairly and impartially, which in turn generate the acceptance and support necessary for society to function in an orderly manner, hence the phrase “justice is blind”. The reason any person who sits in judgment, who happens to find themselves in the situation of having to judge someone with which he or she has had any personnel involvement whatsoever, will recuse themselves is to preserve that sense of impartialness. The same is true of juries. One only has to look at the great lengths that are taken to insure that a jury is unbiased to understand how paramount this concept is to the law. In a HOA this principle can never be applied. It is simply impossible for residents to make impartial judgments concerning other residents. This results in the “Fatal Flaw”. Every violation notice, fine, or ruling handed down by the HOA is taken as a personal slight. It cannot be avoided. The effect over time is cumulative; a corrosive force that slowly, but inexorably, destroys the fabric of the neighborhood, setting neighbor against neighbor, raising pettiness to a high art form, and creating deep-seated resentments that never dissipate. Unfortunately impartialness and fairness are diametrically opposed to personal involvement and friendship. Ultimately this fact, and this fact alone will force an end to this style of living, at least as it exists in its present state. Are
There Any Solutions? I think the first thing one has to realize is how widespread this problem is. The number of complaints about HOA abuse has become so great that even the AARP has issued “A BILL of RIGHTS for HOMEOWNERS in ASSOCIATIONS”. This document, which can be downloaded from http://www.aarp.org/research/legal/legalrights/inb128_homeowner.html, addresses many of the issues I have stated in this paper, as well as offering its interpretation of what must be done to protect homeowners. I strongly suggest that this document be studied. On the other hand the CAI will tout its Zogby poll (http://www.caionline.org/about/survey.cfm), which consisted of interviewing 800 CID residents about their HOA experience. Mind you, that’s 800 out of 60,000,000. I’ll leave judgment of the statistical validity of a sample that size, and hence the conclusions drawn from it, to the reader. For my part, I believe there are three distinct levels of remedy that could be enacted to provide relief for unit owners. Provide perspective homeowners with adequate disclosure. This, in my opinion, is the very least that should be done. While it doesn’t change the lot of people already involved with HOAs, it would serve to educate the population at large about exactly what they would be signing off on. At a minimum it should provide the following:
1. The buyer is entering into a binding contract with the HOA and agrees to live under the rules of corporate governance. 2. Corporate governance provides for the Board Of Directors to control every aspect of life in the HOA as provided for in the declaration, bylaws, and rules and regulations. 3. The monthly assessment is in fact a lien on the buyer’s property, and failure to pay will result in foreclosure. 4. The “business judgment” rule allows the BOD wide latitude in creating and enforcing rules and regulations, without seeking the approval of the unit owners. 5. The BOD will hear any appeal of a decision by the BOD. 6. Any decision by the BOD that is in conflict with the buyer’s constitutional rights will take precedent and by agreeing to this contract the buyer acknowledges that fact. This may sound dramatic, but the fact is that this represents exactly what the buyer is agreeing to. It would be interesting to see how the marketplace would react to this type of disclosure. Adopt a “Homeowner’s Bill of Rights” similar to AARP’s While this approach has several appealing attributes, in my opinion it still falls short. The reason being that it is still an attempt to make what is a fundamentally flawed idea work. I do believe however that it could bring substantial improvements providing it included the following:
Obviously this approach has many legal issues to contend with, however, one way around all of them would be to make each unit owner a director by definition. This would then allow the “Board Of Directors” (i.e. the entire community) to set up individual committees, including an executive committee, which would be responsible for the day-to-day operation of the HOA, as well as other bodies to handle other issues. Complete
abolition of the present CID structure In my view what is needed is a new class of government. A form of government that functions in much the same way as a CID but with one fundamental difference; it would be a public, not private, entity. That would mean that the actions it took and the behavior of the office holders within it would be held to the same standard as any other form of government. The election of officers would be under state oversight. Most important this form of government would be a constitutional actor by definition, thus insuring the civil rights of all who would be governed by it. Conclusion One might ask; “If you dislike it so much why don’t you move?” My answer is simple; “I don’t want to.” Care must be taken not to confuse the neighborhood with the HOA. The two things really have very little to do with one another. My neighbors are some of the nicest people I have ever known, and I do not want to lose those relationships, in fact, I will not lose those relationships. 60,000,000 people live in CIDs, that’s 20 percent of the American population, and I’m sure that most of those people feel the same way I do about their neighborhood and neighbors. Just as the brave people who were instrumental in the civil rights movement started as a small group of discontents, so it is with the anti CID movement. All one has to do is peruse the Internet to find an ever growing population of citizens who are tired of being subjected to this fraud. Make no mistake; this is as much a battle for civil rights as what occurred in the 1950s and 1960s. Most likely, events will occur in much the same manner, with relief initially coming primarily from the courts, as illustrated by the Twin Rivers decision. Ultimately however, legislation is the final solution, as it always has been. This is an important issue, affecting the quality of life for many on a day-to-day basis. Professor Evan McKenzie author of “Privatopia: Homeowner Associations and the Rise of Residential Private Government” stated: “All Homeowners Associations are one election away from disaster”. Don’t you think it’s time we rid the country of these patently un-American institutions and replace them with a true democratic system, one designed to preserve the resident’s rights as opposed to denying the same? Appendix
A – How Has The “Fatal Flaw” Gone Unnoticed In
the early to mid part of the last century an architect know as Le
Corbusier ( you
can find a biography at http://en.wikipedia.org/wiki/Le_Corbusier
) founded what is now know as the Modernist movement in design.
His vision is what is responsible for the skylines of most cities
throughout the world today. Gleaming skyscrapers, dozens of stories tall,
surrounded by park-like expanses of well manicured landscaping were the
basic components of his concept of utopia. The social scientists, urban
planners, and other architects of the time bought into the concept
completely. Immediately after the Great Depression the federal government
decided to correct the appalling conditions that existed in the slums of
our cities through the erection of public housing. The main problem to be
solved was how to deliver a sufficient population density footprint while
at the same time significantly improve the quality of life for the poor.
Their answer was to employ the concepts and design goals as
expressed by the Modernist Movement. In I
believe that we are in the midst of a similar situation with regard to
CIDs. At the time this concept of housing was being created and molded
into its current configuration, none of the "experts" were aware
of, or had even conceived of the problems that would inevitably
result from having residents exercising control over other residents.
They failed to realize that the personal acrimony which would result from
such a structure would be cumulative and inexorable. They failed to
realize, that over time, this phenomenon would bring community
participation to such a meager level that for all intents and purposes it
would be non-existent. When I first moved into Concord Crossing in 2000
the general meetings had a very high level of support, with unit owner attendance over
80%. At our last meeting we barely had enough meet the quorum of 20%,
which had already been reduced from the original requirement. Several of
my neighbors, who I know personally, that once were active community
volunteers have now withdrawn completely because of the hubristic and
petty behavior of the Board and the management company. Has the
community benefited from this? The fact is the people responsible for the creation of CIDs, just like the
"experts" mentioned in the previous paragraph simply missed the
most basic characteristic of human behavior; peers must treat each other
as equals if there is going to be a collegial society. And
as stated above, it will take at
least a generation for the public as a whole to realize and act on what in
my view is the most egregious failure of social engineering in
history – the CID. |