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October 30, 2006

AARP: The Right to Be Told of All Rules and Charges

"Homeowners shall be told - before buying - of the association's broad powers, and the association may not exercise any power not clearly disclosed to the homeowner if the power unreasonably interferes with homeownership"

This one touches an area that I've previously written about - disclosure. However, lets take a look at how they approach it:

Governing documents - associations may not enforce charges or other rules against homeowners except those set forth in plain English in governing documents. All operating rules shall be compiled in a single document, available to homeowners upon request, that at the beginning provides contact information for the ombudsperson and a description of the ombudsperson's role.

Defining "plain English" should be fun. Attorneys (who will draft these documents) are genetically incapable of writing anything in plain English. What is plain English to one may not be to another. Who's going to define this? Someone is is going to have to establish a standard set of terms that is acceptable to both the courts and would be construed as "plain English". As for the ombudsperson, let's see how many states actually adopt this.

Disclosure to buyers: At least 'x' days before an offer to buy a home becomes binding, the homeowner shall furnish the potential buyer with: [summary] information statement prepared by ombudsperson, including acknowledgement for buyer to sign, all governing documents, statement of existing and delinquent assessments, any outstanding violations, with supporting claims, current operating budget, financial statement, summary of reserves, a statement of the number of foreclosures filed within the prior three years; noticve of any pending legal actions against the association.

First, this relies upon the buyer to provide this information to the seller. If the seller chooses not to provide any, or only part, of this information to the buyer, who does not investigate on his own. This continues the accepted real estate provisions of not allowing the association to become involved with the buyer. As a result they have no control over what the purchaser has read or understands, and therefore, they should not be held accountable for that. If you want to place conditions on the association, then you have to allow for the assocaition to provide the information directly to the purchaser, and to receive back, any signed agreements. The last item, regarding foreclosures, has no bearing on anything. It was placed in here by the advocates who feel that assocaitions should not be allowed to foreclose, period. Why not ask the local municipality to provide the number of foreclosures in their jurisdiction, or in the state.

The next part states that the information requested by the homeowner will be provided within 10 days, that the owner isn't responsible for any errors, that the buyer isn't responsible for any errors, or for correcting any violations not noted and the association may only charge "actual costs", not to exceed $___.
What is an error? If a selling owner's assessment payment has been received at the front desk of the management company but hasn't been posted to the books when the certificate goes out, is that an error? Who should pay? Everyone thinks that putting this together is simple and therefore, you can easily keep the cost low, but the fact is that there is a risk involved, of mistakes. Mistakes have been known to screw up closings and sales. Any limit on costs for providing these documents should include a right to repair oversights or mistakes, or else allow the party preparing them to include the cost of the risk. Also, there is a time element. All too often, a real estate agent comes charging into an office demanding the documentation for a closing that's an hour away. There should be an allowance for asociations or management companies to charge a higher fee for last minute demands.

Also, the proposed model document only requires the owner to sign as an acknowledgement of receipt of the documents. I would change that to include a statement that they have read and either a) understand the documents and the associations right to enforce them; b) have consulted with their own counsel and had them explained to them; and that they agree to abide by them. Let's put a little personal responsibility into the equation. You can't make the association responsible for everything, and let the owner completely off the hook. Let's end the continual litany of "I didn't read them" "I didn't understand them" "What documents?"

Upon request, the association shall make any legally require study of the association's reserves avilable to copy and audit.

No problem

Limits on Default and Implied Powers - without reprinting the whole section, it basically says that the association shall only have those powers specifically granted it in the documents, and limits any "implied" powers. It also states that the association may not impose restrictions on structures or landscaping placed on individually owned property or regarding the design, colors, materials or plants to be used. Last an association may only borrow money if it doesn't pledge future revenues or create a security interest in common property.
By prohibiting any changes the model document locks the association into the documents as they are. Times change, as do the need for implementing or removing rules. Advocates want the association to act more like a municipal government, but doesn't want them to have the same powers to adapt as cities have. This is a tricky issue - the proposal removes one of the mainstays of a democratically elected government - to reflect the will of the owners, or just to govern. It presumes that board members routinely abuse the documents by creating powers for themselves, through rule-making, that they shouldn't have. While true in some instances, the owners always have the ability to rescind. Although not often used, the right is still there. It looks like they are trying to move rules up to the status of CC&R's, requiring voter approval for all rules.

The last item is patently ridiculous. It essentially prohibilts an association from borrowing funds, since most banks base the loans on an assignment of future revenues. This would require the association to rely on special assessments, placing undue hardships on all owners, but mainly on fixed-income owners.

Posted by joewest at 4:34 PM

AARP: Right to Fairness in Litigation

"Where there is litigation between an association and a homeowner, and the homeowner prevails, the association shall pay attorney fees to a reasonable level"
Removing limitations on a homeowner's right to sue the association, allowing compliance without giving up the right to challenge and allowing owner's the right to collect reasonable attorney fees when they prevail are all decent concepts that provide a modicum of fairness in the legal arena.

Some of the explanation borders on the idealistic, as if a level playing field can be achieved between the owner and the association. Our legal system is not built that way so that isn't going to happen, but giving the owner the right to offset their costs if they win, would go a long way in discouraging boards from using the legal system to solve minor problems.

One statement I would like to address is "However, such a provision [allowing prevailing homeowners to obtain attorney fees] does not fully rectify the imbalance of positions for homeowners and associations." This implies that such a position of "balance" exists outside the community association arena. It doesn't. Fairness is not a part of the US judicial system. City attorneys represent the city, not the taxpayers; corporate attorneys represent the corporation and the board, not the stockholders. The larger organization will always be able to draw on much greater resources than the individual when it comes to legal issues. You won't see fairness, what you are hoping for is justice. They are not the same thing.

Posted by joewest at 4:00 PM

October 22, 2006

AARP: Right to Resolve Disputes without Litigation

[This is Part 2 of a contnuing look of the American Association of Retired Persons (AARP) proposed Bill of Rights for Homeowners in Homeowner Associations]

There are always disputes in associations, and the deck is usually stacked in favor of the association when it comes to enforcing them. AARP's attempt to correct this imbalance creates instead, a nightmare of a bureaucratic process, making sure the owner can drag the process for 3 months or more. In my opinion its designed more to create an atmosphere in which the association doesn't even try to enforce their documents, thereby achieving what the contributors to this article really wish, an association that doesn't do anything.

Look at the process they are pushing:

Before the association can take any action, including fine or correction:

Provide two (2) notices to the owner, at least 21 days apart that describes the offense, state what is due or how to correct,. Also if this is a notice of a late assessment payment, you would have to notify the owner of the right to request an installment program (even if they've mised nly one payment. Describe the services of the ombudsman (assuming eavery state has one) and reference the ombudsman's list of low-cost mediators. The you will have to tell the owner that they have at least 21 days after the second notice to fix the problem, or they appeal it, go to the ombudsman or some other type of alternative dispute resolution, all without the association incurring any legal fees from the association.

Comment: Essentially the owner now has up to 63 days before they have to do anyting,without incurring any costs on their part, no fines, no leagl costs. Of course the association is going to be running up a bill, to be borne by the other owners not in violation of the documents.

Right to a hearing: Homeowner has right, at no cost, to a hearing within 30 days of the notice (or second notice). There's more requirements, ability to postpone, and appeal to the board. The owner, if he loses, has 15 days to fix the issue

Comment: If the owner stops here, the process has now been drawn out up to 108 days. The association will probably have incurred additional costs that it can't recover.
Right to confidential mediation and petition the ombudsman: Owner pays 1/2 the cost, but if the assocaition and owner don't agree on a mediator within 30 days, the owner can contact the ombudsman - which would then extend the period for up to 30 more days or more if the ombudsman requests it. Again, no costs are attached to the owner.
Comment: Now at 138+ days and the association continues to incur additional costss.

Right to extend time to cure: This just says that during the period given to cure or appeal, the association can't incure an attorney fees that would be chargeable to the owner.

Comment: Since they would be respnding to numerous issues and /or ombudsman, the assocaition will, of course, incur legal charges, but under this one, they can't collect them. The rest of the owners get to eat these.

No lawsuit without directors voting - that's the way it usually happens.

Notice before litigation: Puts in another 15 day notice before the association can file suit; describe the basis for the suit, any claims due, who the owner can cure the violation and give otice fo the right to request an installment payment plan for assessments.

Comment: Now at 153+ days and writng the same things to the same owner.
Exceptions for Emergencies: Essentially, if the vioaltion presents a hazard or threat, you can speed things up a little by gettting an injunction or taking temporary enforcement action.
Comment: You still have to go the entire process above, and you get to add the argument of whether it fits the desctiption of an emergency.

Additional right to petition the ombudsman: This one says that if an oner claims his or her statutory rights are being violated, they can petition the ombudsman. However they have to give the directors notice and two weeks to respond. Of course the onwr doesn't have to pay any fee.

Comment: The owner gets 153+ days, the board gets two weeks. . The group behind this would see no unfairness in this.
No additional charges, but additional options allowed: No association may charge homeowners for the exercise of the rights above, but may offer additional options for ADR.
Comment: see below
--

Final comments: The intent of this is consistent with a lot of the advocacy sites (whom AARP relied on for most of their material) opinions about document enforcement and "rogue" boards, who use the threat of expensive litigation to run roughshod over the owners. There is also the belief that somehow owners who fall into the "violations" process are deprived of their constitutional rights, and that the table is unbalanced because of the high cost of litigation which the owner would have to bear, while the association uses everyone's money.

In tilting the table the other way, this would instead punish all of the owners for the actions or inactions of a single member, forcing them to absorb all costs, and there will be costs, and dragging out the process potentially for 5 months or more. This proposed section of their "model statute" would call into question one of the basic tenets of associations, that those moving in can expect certain things. Using the advocay sites own methods, take for example the owner, who upon moving in and not bothering to have read the documents, decides to park his RV on the front lawn. Using the above process, it could remain there for almost a half year, at no cost or penalty to him. The other owners could legitimately ask themselves why they should continue to abide by the documents.

The time involved with this could be substantial, and since it would usually involve mangement and the association's attorney, costs will certainly be accumulating throughout the process. There is no provision for the association to recover those costs, even if they win out in the end. All of the owner lose.

Mediators try to settle things, but if the documents clearly state that no RV's can be parked in front of the home, and that nothing can be parked on the front lawn, and the association has the photos to prove it, what is there to mediate? Yet this proposal would require the association to enter into this process. $$$$

Last, this represents a continuing effort to portray the association as something that has nothing to do with the owners. That it is a separate entity that exists only to irritate them. The association is the owners, and it is run by those they elect. The question becomes, who would want to serve as an unpaid board member, if everytime they wnet to enforce the rules, they ran into this. If you're going to drop this on their backs, at least pay them.

Posted by joewest at 2:32 PM

October 3, 2006

AARP: The Right to Security against Foreclosure

The Right to Security against Foreclosure An association shall not foreclose against a homeowner except for significant unpaid assessments, and any such foreclosure shall require judicial review to ensure fairness.

A lot of web sites make this their anthem, and it has appeared in front of numerous legislatures this year. Those that want to limit or get rid of this "last resort" trot out the same examples of senior citizens who have lost their homes for various reasons, and in doing so, usually leaving out pertinent facts. In 30+ years of dealing with thousands of associations of all types, I've never seen one, not one, that doesn't consider foreclosure a horrible thing to do, and who usually go to great lengths to avoid it, even to the point of putting the association's finances at risk. The question is, and AARP and the others continue to fail to address it - what's a viable alternative?

Don't even bring up money judgments or small claims--all the association ends up with there is a piece of paper saying that they have the right to collect 'X' amount of dollars. It still doens't put any money in the bank account. What are they going to do now, tow the family car, garnish the wages, have someone take him out behind the garage....they just don't work well.

Let's get a few thngs out of the way first - no problem with requiring judicial foreclosure instead of non-judiicial. As long as everyone understands that attorneys are going to handle it, resulting in legal costs. No association is going to start a judicial foreclosure without legal counsel, too many i's to dot and t's to cross. AARP acknowledges the right of the association to continue the foreclosure, even if the assesments are paid up, but the legal fees and other costs aren't. The advocacy groups out there reject this. They seem to think the other owners should shoulder the burden of this owner's failure to pay the assessments he or she agreed to pay.

Right of redemption, and sale at 75% of fair market value---no particular problem with either of these, although I'm sure the percentage will be argued around. It should be noted that this will add administrative and appraisal costs to the amount owed.

Applying any payments first to the assessments owed and then to fees or fines. The only reason for this is to leave the other owners holding the bag if the delinquent owner decides to just continue paying assessments. A fairer way would be to apply payments toward all items owed, based on each item's percentage of the total debt. In that manner, everyone who is owed money at least receives a partial payment, rather than be forced to carry their entire share of the debt.

AARP recommends a right ot cure---that the owner be given a chance to come up with a re-payment program, especially in times of financial hardship, illness etc. No problem again, as long as part of that solution is allowing the asociation to immediately file a lien on the property to protect the association's and other owners interests. Once that is in place the only question becomes what to do if the owner fails to meet the repayment agreement? Also, should the association have the ability to investigate the credit worthiness of the owner. It would probably be a good thing to know if they were making their mortgage payments.

AARP picks up another item pushed by the advocacy groups in setting a base minimum amount that has to be reached before foreclosure would be allowed. The number they use is $2,500 in back assessments. In California, the number is $1,800. The problem here is that don't take a time element or factor in the harm real deadbeats can do with this. In some homeonwer associations, $2,500 could be 20 years worth of assessments -- 20 years of a persons neighbors having to cover someone else's share of the costs. Advocates of this dollar limit like to point out the elderly couple in California whose home was foreclosed on for a few hundred dollars. They never bother mentioning that they hadn't paid in over 3 years because they were in a fight with their association. If you want a dollar limit, also set a time limit - one year should be more than enough. And while you're at it, lets put into state code what the court's have continuously ruled in favor of - that there is no reason to withhold any or part of an assessment. If you have a problem, then use the courts or whatever other form of dispute resolution is available to you (more on that in a later post). A lot of these silly foreclosures would go away if the legislatures more strongly reminded the owners of their self-imposed obligation to pay the assessment.

Last - AARP waffles on the right to foreclose for fines or legal fees, something the other advocacy sites want completely revoked. Just to re-iterate - give the assocaition an alternative that works and in a reasonably short time frame. Otherwise, back off.

The very first foreclosure process I went through was actually a game being played by the owner. He'd skip payments up to the point of receiving the first foreclosure notice, then make a partial payment. He wasn't short of money, he bought his teenage son a new Mercedes while this was going on. He kept this up for over two years, until the association went ahead with the foreclosure, even after a partial payment, because the legal fees had built up to quite a bundle. He miscalculated and ended up losing his home.

The point is, help those who need help, but don't make it easy for people to just screw over their neighbors.

Next up: The Right to Resolve Disputes Without Litigation

Posted by joewest at 11:40 PM