THE RAVAGED LAND

The Legacy of the Davis-Stirling Act

May 22, 2004

By Dan Ackroyd
San Diego, California -

Nobody will ever know the full extent and depth of the damage that the Davis-Stirling Act has inflicted on the citizens of California in the last 19 years. The stolen homes, the homeowners thrown out on the street, the millions sucked from peoples' bank accounts by CAI lawyers, the emotional turmoil and anguish that racked homeowners' nights and haunted their days. None of this can ever be fully calculated

Yet the veil has been partially lifted due to the research spearheaded by Melissa Colburn in San Diego County. She herself woke up one sunny San Diego morning and found out that the condo that she was living in had been sold at a foreclosure sale about 8 months before.

It was the Davis Stirling Act that made this possible.

In 1984, Willie Brown, the all-powerful speaker of the Assembly, wanted to reward Larry Stirling, a Republican member, for supporting him on a piece of legislation. Brown offered Stirling a 'Select Committee' of his choosing. After several suggestions, Brown hit upon the idea of doing homeowner associations.

This necessitated that the bill would eventually go through the Assembly Housing Committee. Gray Davis was its chair. Thus, the Davis Stirling Act was born.

Over the coming months, as homeowners mowed their lawns and kept the noses of their children clean, a small group of lawyers was secretly closeted with Katherine Rosenberry, plotting the legal and financial takeover of peoples' homes. They knew that this was an unprecedented, golden opportunity to take hold of the goose that would lay them the golden eggs.

And Katherine Rosenberry was the perfect choice to lead them into that golden future.

She had been the national president of Community Associations Institute - CAI. This high-sounding name masked a much more down to earth purpose - money, and lots of it. It was akin to appointing the head of Phillip Morris to be in charge of drawing up an anti-smoking campaign.

She and her fellow CAI lawyers went to work with a vengeance. They gave homeowner associations the awesome power of being able to put a lien on a home and then foreclosing on it without ever going near a court of law. Homeowner associations were authorized to fine homeowners for breaking the rules - and the CAI lawyers made sure that there were plenty of rules that a homeowner could trip up on.

Rosenberry and the CAI lawyers made sure that the homeowner was hemmed in on every side, and that the only recourse available to a homeowner for aberrant boards was filing a lawsuit - where, of course, the homeowner would need a lawyer again. The prospect of filing a suit was made even more daunting by including an attorney fee provision in the Davis Stirling Act. The losing party would have to pay the attorney fees of the winning party. Not only did this send shivers up the spine of any homeowner who thought of suing his association, but it ensured the association attorney that he would be paid whether he won or lost the case. If he lost, he knew that the association would be paying his fees. If he won, he knew that he had the homeowner in a vise. If the homeowner did not pay, the attorney would foreclose on his home without ever having to go to court.

Rosenberry and the CAI lawyers knew that a silent revolution in housing was taking place. In California, when Proposition 13 passed (it placed a cap on property taxes), they knew that cities and counties would be drained of revenue. Requiring new homes to be built in homeowner associations would ease - if not solve - the revenue crunch. Homeowner associations would take care of their own streets and lighting, provide recreational areas and take care of acres of common ground. Today, 8 million Californians live in 36,000 homeowner associations. In some areas like south Orange County, it is almost impossible to find a home that is homeowner association-free.

Gray Davis and Larry Stirling got the bill passed into law. They had done a sterling job for the CAI laywers, who made sure to leave a little loose change in their campaign coffers. (Stirling, who was termed out of the legislature for longevity, did a stint as a judge in San Diego, and is now running for the legislature again this year.)

The stories of homeowners who lost their homes in foreclosure for infinitesimal sums began to slowly seep out in the late 1980's and early 1990's. One single lady lost her home for a mere $300. Another became homeless for a similar amount and was forced to sleep in the back seat of her car for several weeks. Another homeowner ended up with lawyer fees of over $50,000 over a parking space for his RV.

The early victims believed that they were alone in their plight - and thus made more vulnerable. But as the American Homeowners Resource Center began to piece together the seemingly disparate parts of the jigsaw puzzle, and publish the stories of homeowners, the victims began to see the broader picture and realize that they were not alone.

And they began to fight back. One striking example is Melissa Colburn.

Not only did she fight successfully to get her condo back, but she started to spend long hours combing public records for information on homeowner association foreclosures in general, and on Peters and Freedman in particular - the law firm who foreclosed on her home. The results paint a very clear picture as to the devastating effect of the Davis Stirling Act on homeowners, and the rewarding effect on CAI lawyers.

In the years 2000, 2001 and 2002, there were 156 Notices of Trustee Sale by homeowner associations posted in San Diego County - almost one a week. 22 homes were actually sold. Almost half the notices were posted by Peters and Freedman - more than 100% higher than their nearest rival. 6 of the sales were conducted by Peters and Freedman, half of which went to one man, Carlos Sosa.

The average amount of the debt for the homes handled by Peters and Freedman was in the $2,000 range. The lowest was $987.08, the highest $10,938.08.

Typically, the bulk of the debt was for lawyers' fees, dwarfing the amount of the unpaid assessment. Indeed, many homeowners caught in these situations complained that it was not the unpaid assessment that they had difficulty paying, but the lawyer's fees that were tacked on. The financial cart was put before the horse.

Homeowners complained that this was the very purpose. The CAI lawyers had set up the Davis Stirling Act precisely for this reason. It is estimated that Peters and Freedman earned at least $150,000 for filing these 75 Notices of Trustee Sale.

Ms. Colburn noticed another curious feature about Peters and Freedman. They were the only major company that acted as the trustee conducting the sale. All other major law firms used a neutral third party. Mr. Epstein of Epstein and Grinnell, explained that his firm did this because he believed it was a conflict of interest to represent the homeowner association and also act as trustee. The homeowner association only sought to obtain the amount of the debt. The trustee has an obligation to sell to the highest bidder.

Trustees can also play games to sell to favored buyers. They can postpone the sale at the last minute, thereby discouraging bona fide buyers from coming again, leaving the field to the favored buyers. Ms. Colburn said that she is investigating the relationship betwen Carlos Sosa and Peters and Freedman.

Ms. Colburn's research may mean that the 75 homeowners who paid thousands to get Peters and Freedman off their backs are entitled to a refund. Civil Code Section 2924(f) requires that the trustee publish the Notice of Trustee Sale for 3 consecutive weeks in a newspaper of general circulation. Peters and Freedman used the Uptown Examiner - a newspaper with about a 150 circulation. However, they only published 3 times in 2 weeks. If true, they would have violated the statute, rendering the Notice of Sale invalid.

The foreclosure business is just one aspect of a homeowner association law firm.

A law firm can stir the litigation pot in a homeowner association and drag it out in order to garner more fees. In one case, Peters and Freedman dragged out a lawsuit until the insurance company caved in and paid the $25,000 in lawyer's fees that Peters and Freedman demanded. The insurance company had already hired an attorney to defend the association. Peters and Freedman, the association lawyer, muscled in and refused to sign a settlement agreement unless they got their $25,000.

Peters and Freedman are currently locked in many association lawsuits. They have already run up over $40,000 in lawyer's fee in the Sonni Bass case over the propriety of a light over a sport court. In the Desert Crest case near Palm Spring, they enabled a developer to change the CCR's so that membership in a golf club became mandatory. Some of the homeowners who are in their 80's and 90's said that they could not physically play golf, and, as they lived off Social Security, could not afford the increased dues. Some may lose their homes over this issue.

Some day, when the definitive history of homeowner associations is written, more of these tragic stories will come to light. The Davis Stirling period in California history represents one of its darkest moments. Homeowners ever since have been struggling to extricate themselves from its industry dominated tentacles.

SB 1682 (Ducheny) has given them a ray of hope. It would forbid non-judicial foreclosure for unpaid assessments less than $2,500. Lawyers' fees are not included in that amount. It passed the California Senate and is waiting action in the Assembly. If the law had been in effect in 2000, there probably would not have been any Notices of Trustee Sale recorded in that year or subsequent years.

The Davis Stirling Act unleashed lawyers on California homes like a hoard of locusts, devouring everything in their path. It created an atmosphere of submissiveness and subservience in homeowner associations. Nobody wanted to get in "trouble" with the board, and everybody knew that the the association's legal dobermans were ready to attack.

The path back has still a long way to go where those in homeowner associations can enjoy their homes in the same way as those outside the guard gates. The path, however, might not be as long as it once was, thanks to the valiant efforts of a host of homeowners across the state - and the country. Hubris has a way of undermining itself - and a lot of homeowner association lawyers have had a lot of hubris. The day of reckoning is getting closer.
posted by Las Vegas at 7:59 AM

News 3 Investigation: Part 2

Missing Money: HOA Managers Accused of Embezzling Funds

May 20, 2004

Sixty percent of all people in the Las Vegas Valley live under the rules of some sort of homeowner's association. The mini-governments watch over developments, collect fees and fines from people who break the rules. But as News 3 Investigator Darcy Spears found, the associations can't always be counted on to manage that money properly.

You might call the subject of our story a property "mis"manager. He's been hired by many associations over the past 14 years, but has essentially operated under the radar screen. He's had some blips here and there, but nothing that sounded the alarm until now. And that may be the root of the problem.

Picture this, a property manager is accused of stealing about $100,000 from a homeowner's association.

"We were pretty clear about what was going on."

When they catch on and threaten legal action, he coughs up the cash, making the case less than interesting for Metro fraud.

"Even though they look at it, I think they see other things as a greater priority."

So what happens to the man caught with his hand in association coffers? So far, nothing, which frustrates Mariposa board member, Aimee Pantea and her husband Romy to no end.

"I think it was fear that made him return it. Is that right that somebody could get caught and then return it and then say, okay, no foul, no crime? it seems ridiculous to me!"

The Panteas filed 3 complaints, which are still under investigation, by the state real estate division.

"Even when they knew the money was missing, they didn't do anything. And now we're 3 or 4 months later and there's still been nothing done. We did this as private homeowners to make this happen and I think that's the part that we're concerned about because if it could happen here, it could happen anywhere."

Senator Mike Schneider sponsored much of the state's homeowner association law. "This isn't one little isolated case. This is going on across the valley in a lot of homeowner associations and it's something that needs to be looked at. And it's been something that has stayed underneath the radar screen for so long."

But has it? Not in the case of the man accused of embezzling from Mariposa. Thomas Wrath of A&A management has been on attorney Jay Hampton's and the real estate division's radar screen for years. "I've dealt with Mr. Wrath on 3 different occasions, and in each instance it was a situation where the association was trying to get information from Mr. Wrath--either records or money or both."

Members of Spanish Villas HOA accused Wrath of ineptitude, incompetence, dishonesty and mishandling money. Paradise Springs, also represented by Jay Hampton, reported missing money too.

"In the end there was $20,000 or $30,000 that they really never could justify where it went and Mr. Wrath never provided an explanation for it."

In all, Wrath had six complaints filed against him with the real estate division before Mariposa's. All were closed for insufficient evidence or lack of jurisdiction. One resulted in a letter of warning. The only time the real estate division took formal disciplinary action against Wrath was when they found he was unlicensed. They sent him a cease and desist order, but he kept operating as a property manager in direct defiance of that order. Even so, the real estate division allowed him to become relicensed after paying fines and taking some classes.

"Just the fact that he's taken money out of an association's reserve fund should be the end of the story. And I don't think he should be managing associations here."

So what does Tom Wrath have to say about all this? He referred us to his attorney who refused to return calls, so we tracked him down with our hidden camera to give it one last try.

"Tom?"

"Hi."

"Hi, I'm Darcy Spears. Your attorney is not returning my phone calls, and I just wanted to come by and see if there was any possibility if we could talk to you since she's not talking."

"Nope. She says to keep my mouth shut."

"There are people that are going on camera that are saying you're stealing money from HOA's."

"It's not true."

"It's not true?"

"No."

"They're saying it on camera, though, and that's why I want to make sure that--you know--I'd like for you to be able to respond."

"They're lying and my attorney will be able to use that in our suit against them."

"You've never embezzled money from anyone?"

"No, not a dime."

It's important to note that Tom Wrath has not been criminally charged with anything at this point in regard to Mariposa's allegations of embezzlement. There is a civil lawsuit in progress. I spoke to members of two other HOA's that have operated under Tom Wrath's management. Casa Vegas homeowners are having an audit due to missing money, and Spanish Villas residents were just informed their dues are going up, because the association is allegedly broke.

There is a Real Estate Commission that was created in the last legislative session to rule on disputes with homeowner associations and property managers. We all pay three dollars a door for that commission to step in in cases like this. They'll begin conducting hearings this summer.
posted by Las Vegas at 12:10 AM

Missing Money: A News 3 Homeowner's Association Investigation Part 1
May 19th, 2004

More than a million people in the Las Vegas valley live in homeowner's associations ... mini-governments who handle millions of dollars. But as News 3 Investigator Darcy Spears found, some associations' money is missing, and one man may be to blame. We've all heard horror stories of associations run amok, foreclosing on homes for petty fines and the like, but how often do you hear about an entire association, including the board, being victims?

Most every month under most every one of these roofs, homeowners cut their checks for dues to homeowner's associations. They're run by elected volunteers who are typically concerned with things like keeping pigeons out of pools, having block parties, and making sure trash cans aren't out for too long.

For the more complicated stuff, like managing money and running the community's business, HOA's often hire professional property managers. Senator Mike Schneider: "Homeowners pay their monthly dues and they expect everything to be handled for them, and they don't want to be involved in it and they just expect everything to be run on the up and up."

But things are not always run that way, as Aimee Pantea found when she joined the board of Mariposa, a community association involved in construction defect litigation. "There's so much money involved in these construction defect cases, that all this money tends to make people a little greedy."

When looking over association records, Aimee's contractor husband, Romy, first noticed this red flag. "He had signed a management contract that offered him a 2% fee for the construction defect reconstruction fund."

Sen. Schneider: "That's blatantly against the law in the State of Nevada." The contractor's board sent Wrath a violation letter, but the Panteas found more serious problems. "We discovered that there was approximately $100,000 in funds that were reported to the board on their financial statement from A & A Management that were not there.

Tom Wrath runs A & A Management. He currently manages Spanish Villas and Duncan Court HOA's. He's also been in charge of Paradise Springs, Casa Vegas, Starfire Condo, Cheyenne Park Villas, Fairway Villas and Mariposa. Mariposa had to hire Attorney Jay Hampton to get at their own records. "Mr. Wrath had refused to provide the records, refused to provide access to the records, he wasn't letting board members go take a look at financial records, and he wouldn't provide information about the association's money, like where it was."

"So they went to the bank to start finding out whether it was there and I think that day was a shock for all of us to find out that five certificates of deposit did not exist." The Panteas say Wrath made up fake financial statements to cover his embezzlement of Mariposa's funds. When they threatened to sue, most of the missing money magically reappeared. Attorney Jay Hampton: "He finally turned over close to $100,000, but interestingly, it came from a personal account. It was money that he had apparently taken out of the Association's bank account."

Under Nevada law, he's not allowed to do that, and he may still be breaking the law by keeping some of the money. His answer to Mariposa's legal complaint states, "many of the funds in question have been returned." What about the rest? The Panteas said they met with brick walls trying to get help. "We went to the Real Estate Division, Attorney General's Office, Police Department and nobody was helping."

Metro says their review of the records shows a crime was committed. Fraud detectives say Wrath did steal the money, but since he returned most ot it, the case would get little or no priority from the district attorney for prosecution. "I think that if you stole something and they catch you and you go, oh, here it is back, you still stole it and you still should pay for it."

Sen. Schneider: "It seems like, in this town, embezzlement is a bigger issue than we all had known in the past. And embezzlement cases seem to be treated very lightly unless it hits a great amount of money, one million dollars or more." So if Metro couldn't help, what about the Real Estate Division? That state agency is charged with overseeing homeowner's associations and property managers. And it's not like this is the first time they've heard allegations of missing money under Tom Wrath's management.

In part two of this story, Darcy takes a look at what the government knows about Wrath, and what they haven't done to protect the public.
posted by Las Vegas at 2:17 AM

STUNNING DEFEAT FOR CAI IN CALIFORNIA SENATE

Ducheny's Non-Judicial Foreclosure Bill Passes 36-0

May 18, 2004

Sacramento, California -

Community Association Institute(CAI)lawyers suffered a major blow today when the California Senate voted unanimously in favor of Senate Bill 1682. This bill prohibits the use of non-judicial foreclosure for unpaid assessments in homeowner associations for amounts less than $2,500.

Homeowner advocates were both happy and cautious. They praised the skill and dedication of the bill's author, Senator Ducheny, in securing passage through the Senate. However, they cautioned that CAI will be waiting for the bill when it goes to the Assembly.

CAI is already on a high state of alert, having sent a newsletter to all its members asking them to buttonhole their representatives. CAI lobbyist, Beth Grimm, and CLAC lobbyist, Skip Daum, have already called the work of the legislators "a feeding frenzy".

Homeowner advocates point out that the bill was triggered by the non-judicial foreclosure sale of Tom Radcliff's home over $120 in unpaid assessments. His house is worth $280,000.

Homeowner advocates are urging all homeowners to contact their assembly person to urge passage of this important piece of legislation. CAI is attempting to amend the bill to death.

The bill represents years of work by many homeowners to bring the issue of non-judicial foreclosure to the attention of legislators. It also represents years of work informing reporters of the significance of this issue. It also took the work of legislative staffers like Mark Stivers who wrote a clear and unbiased legislative analysis of the bill.

But the news out of Sacramento was not all good for homeowners today.

Gov. Schwarzenegger appointed Lucetta Dunn,an industry official to fill the important post of director of the Department of Housing and Community Development. Ms. Dunn has a long history of working to build homeowner associations for such groups as Koll Real Estate. She is a vice president of the California Building Industry Association. She also is a member of the Orange County Privatization Task Force. Privatization often means deprivation for the citizens, and enrichment for the big corporations.

As her appointment requires confirmation by the Senate, homeowner have the opportunity to send their views to their Senate representative.
posted by Las Vegas at 5:15 PM