Judge broadens class-action suit against law firm

Article Courtesy of the Sun Sentinel
By Joe Kollin
Saturday, July 24, 2004

Some 1,176 owners of condos and homes in South Florida will be eligible to join a lawsuit seeking damages from a law firm that threatened them with foreclosure for not paying assessments to their associations.

The lawsuit's impact, however, could be felt by more than 2 million owners in association-ruled communities.

If the plaintiffs win, owners could no longer lose their homes for failing to pay late fees or attorney fees.U.S. District Judge William P. Dimitrouleas in Fort Lauderdale this week granted class-action status in the lawsuit against Katzman & Korr, of Lauderhill, because he said so many people are involved in a similar situation.

Katzman & Korr represents more than 400 associations in South Florida, according to its Web site, and had issued collection letters to 1,176 owners for failure to pay association-related charges.

The firm's attorney, Brian McCarthy of Miami, said Friday that he just received the ruling and couldn't comment except to say, "At first glance, we disagree with certain aspects of it and are looking into the possibility of an appeal."

The suit against the firm was first filed in December by Ramsey Agan, a retired mortgage banker, and his wife, Grace, who own an apartment in the Plaza East Condominium at 4300 N. Ocean Blvd., in Fort Lauderdale.

Their association in 1999 assessed all owners thousands of dollars to replace concrete balconies.

Although the Agans claim that they paid and that the association president admitted they owed nothing, Katzman & Korr in 2000 filed a lien for $1,001.01 on their apartment.The Agans sued, saying the $1,001.01 was to pay the attorneys for trying to collect a debt they didn't owe.

They asked Dimitrouleas to rule the lien violates the federal Fair Debt Collection Practices Act and the Florida Consumer Collection Practices Act.

The suit accuses the firm of making false representations of the "character, amount or legal status of the debt," threatening to take action that cannot legally be taken, using "deceptive means in an attempt to collect a debt," failing to state the correct amount of the alleged debt and claiming or threatening to enforce a debt known to be "not legitimate."

In addition, the Agans asked for an order requiring an end to such practices and an unspecified amount of damages from the firm.

In March, they won their first victory when Dimitrouleas ruled Katzman & Korr can be considered a debt collector. The firm's attorney had argued condo assessments aren't debts so the firm isn't a debt collector and therefore isn't required to comply with debt collection laws.

The Agans' attorney, O. Randolph Bragg of Chicago, said every owner who received a similar collection letter from Katzman & Korr, between approximately December 2001 and December 2003, would be invited to join the suit.He said they'd be notified in the next few months. It won't cost them anything to be part of the suit and each will have the chance to opt out.

Dimitrouleas was the second federal judge in Florida within the past year to rule against attorneys who say they aren't subject to the debt collection laws.

A federal judge in Tampa last year ruled against Becker & Poliakoff, the Fort Lauderdale-based law firm that represents more associations than any other.

Gary Poliakoff, who heads the firm, has said rulings against lawyers could seriously hurt the ability of associations to maintain property values and force honest owners to make up for debts that scofflaws owe.

Attorneys earn their fees only if they win, he said. Not letting them foreclose, he said, would discourage them from aggressively seeking debts. If associations can't get their assessments paid, they won't have the money for pool and lawn maintenance, painting and insurance.

Helio De La Torre, an attorney whose Miami firm collects debts for associations, said foreclosure must remain a tool to be used to threaten owners."Even though it seems harsh, foreclosure is the only vehicle we have for recovering debts," he said.

As a general rule, however, his firm won't seek foreclosure for late fees only. Foreclosure would be considered only for the complete package of late fees, attorneys, fees and the assessments.

posted by Las Vegas at 6:31 PM

Bills May Curb Associations' Ability to Sue Homeowners
One couple's $74,000 legal bill over a parking place illustrates the problem, an advocacy group says.

ZONING, PLANNING AND USE • Jul. 09, 2004
By Linda Rapattoni
Daily Journal Staff Writer

SACRAMENTO - Sanford and MaryJane Madigan's search for a spot to park their daughter's pickup truck near their Scripps Ranch home turned into a $74,000 venture that wasn't resolved until long after their daughter moved away with her truck.

Although they claim victory in their legal battle, they may end up paying for part of their own legal fees.

The Glenwood Springs Homeowners Association, where the couple lives, sued the Madigans in June 2002 for repeatedly parking their vehicle on the street, even though they'd received assurances from the police, fire and traffic engineers' offices that it was perfectly legal.

Now the association is assessing each of its member homeowners $1,000 to meet a court order that the association must pay 85 percent - $60,000 - of the Madigans' legal costs.

Marjorie Murray, chief legislative advocate for common interest development housing for the Congress of California Seniors, said one of the housing bills pending before the Legislature could have prevented the Madigans' fiasco.

The Glenwood Springs association decided to pursue litigation against the Madigans without notifying the other homeowners in the association, Murray said. AB2718 by Assemblyman John Laird, D-Santa Cruz, would require boards to notify all homeowners any time its members are thinking of spending reserve accounts intended for capital improvements on litigation.

"We think if the Glenwood Springs board had told every homeowner that it was planning to use reserve accounts to finance the lawsuit against the Madigans, that cooler heads would have prevailed - especially if the board told the homeowners they would be forced to pay a special assessment to restore the reserve accounts," Murray said.

According to the Madigans, their fellow homeowners voted out the board members who supported the litigation and were furious that the board had the city paint the curbs red and install "no parking" signs on the street outside their homes after the suit was filed.

"This board was the worst board," MaryJane Madigan said. "It was like the Gestapo. Now we have a wonderful board of reasonable people."

Stories such as the Madigans' have been sparking legislation in Sacramento, and this year lawmakers are considering several bills to address the governance of homeowner associations.

Skip Daum, a lobbyist for the Community Associations Institute, a resource center for homeowner associations, said he fears the public is getting the wrong perception of homeowner associations.

"The mystifying thing for me right now is why a limited number of anomalies have exploded the legislative perception that these homeowner associations are all trying to screw the homeowners and take their homes and not accommodate their financial needs," Daum said. "If you name a dozen bad examples I can name a hundred that don't have problems."

Simon Freedman, a partner with Peters & Freedman of Encinitas, which represented Glenwood Springs in the Madigans' dispute, said the association had a duty to enforce its rules. The association and the couple tried alternative dispute resolution and when they still could not agree, the association filed its suit, he said.

He objected to the Madigans' comparison of the homeowners' board to the Gestapo.
"I think it's unfortunate a homeowner would choose to apply the label of one of most infamous units of the Nazi police - responsible for the deaths of thousands of people - to a board of homeowners who volunteer their time," Freedman said.

He noted the California Supreme Court last month reaffirmed the power of homeowner associations to amend and enforce their rules, even requiring a pet owner to move or give up her pet, Villa de las Palmas Homeowners Association v. Paula Terifaj, 2004 DJDAR 7037.

The suit against the Madigans alleged that the couple bought an F-150 pickup truck too big for their garage and parked it in guest parking spots or in driveways, violating rules governing the size of vehicles as well as parking regulations.

Sanford Madigan said he was aware of the rules regarding vehicle size, but he believed the truck would fit when it was purchased. It missed the mark by 18 inches, he said. However, he also figured his daughter could park the vehicle on the street.

Although the Madigans contend there were sufficient guest parking spaces, Freedman said the limited parking required strict enforcement of the association rules to maintain the neighborhood's character.

One in four California homeowners lives in common interest developments that include condominiums and luxury homes with common areas such as golf courses and pools. Disputes often arise. Legislators say they are responding to their constituents' complaints about homeowners associations.

Of the six bills related to homeowners associations the Legislature is considering, AB2598 by Assemblyman Darrell Steinberg, D-Sacramento, and AB1682 by Sen. Denise Ducheny, D-San Diego, have gotten the most attention. They would restrict the use of foreclosures to collect delinquent assessments.

Homeowners have told hair-raising stories about losing their homes - sold for a small fraction of their value - while boards collected debts as small as $120.

The Steinberg and Ducheny bills would allow associations to use small claims court or record a lien to collect debts less than $2,500 - the bulk of assessment disputes. For larger debts, associations could use judicial or nonjudicial foreclosure, but only after participating in alternative dispute resolution. Homes sold in foreclosure would have to be sold for at least 90 percent of their fair market value, and the owners of those homes would have 90 days to try to redeem their property.

The Community Associations Institute opposes the bills. Small claims judgments are too expensive to collect, Daum said, and associations would be forced to wait years to collect small delinquent assessments.

The Executive Council of Homeowners, another group representing homeowner associations, also opposes the bills, favoring a ban on nonjudicial foreclosure for delinquent assessments, said Sandy Bonato, the group's lobbyist and a lawyer for Berding & Weil in Alamo.

Other opponents include trustees who have complained that if they had to sell these properties for 90 percent of their value, they'd find few willing buyers, since the appeal of these deals for the purchasers is the potential for a bargain.

Consumer groups such as the Congress of California Seniors support the legislation, believing it would be fairer for homeowners and result in fewer foreclosure actions, Murray said.

The Steinberg and Ducheny bills would allow homeowners to sue their associations if they are denied access to association records, membership lists and contracts. Inspections of those documents is the only way homeowners can learn how their assessments are being spent, Murray said.

Some homeowners have complained their association boards have held fraudulent elections in which they intimidated homeowners into voting for costly special assessments. Sen. Jim Battin, R-La Quinta, has introduced SB1581 to require secret ballots to decide assessments, board members and changes to governing documents.

The California Law Revision Commission is behind two other bills. AB1836 by Assemblyman Tom Harman, R-Huntington Beach, would expand the mandatory use of alternative dispute resolution before parties could file suit. It would apply the process to assessment disputes if the Steinberg bill passes.

A commission study found associations have the upper hand in alternative dispute resolution because they have greater economic resources than individual homeowners and can assess the homeowners with disputes.

Another bill proposed by the commission, AB2376, would set review standards for associations considering owners' plans for physical changes to their homes. Associations would have to explain any disapproval in writing and reconsider decisions in open meetings. The bill by Assemblywoman Patricia Bates, R-Laguna Niguel, would take effect only if the commission's other bill, AB1836, is approved.


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© 2004 Daily Journal Corporation. All rights reserved.

posted by Las Vegas at 10:10 PM

Nasty Neighbors
THE SCOTTSDALE TIMES

Are HOA boards abusing power?

Powerful homeowners association boards across the Valley are frustrating some of their members, while others enjoy the aesthetics and uniformity of HOA neighborhoods.

But who’s in charge?

The facts are that Scott Carpenter is a well-respected attorney who presents himself well. He has no criminal record. He dresses sharply, and doesn’t speak as slowly as most lawyers.

So why would north Phoenix resident Joe Haggerty call Carpenter part of “a pen-pushing Mafia practicing legalized extortion”?

The answer is part of an even bigger question: Do homeowners associations have too much power? And similarly, who’s in charge of them, and who's making and enforcing the rules?

Haggerty wanted to leave his trashcan in his front yard. After his association and Carpenter’s law firm were finished, it cost him $12,000 to leave the green plastic can behind the bushes. His story ran on the front page of The New York Times last summer in an investigative article about the power of HOAs.

Power Struggle

Homeowners association fines most often deal with code violations for yard maintenance or parking, but when the levies for those rather trivial infractions go ignored, the situation can escalate quickly, sometimes even leading to foreclosure.

The Valley boasts one of the highest concentrations of homeowners associations in the country, especially in cities like Scottsdale and Gilbert.

While HOAs are organized with the best intentions, homeowners are often shocked when they learn just how much power association boards can possess, only becoming aware of their supreme authority after being engaged in a dispute.

Many argue that when the boards become abusive of the power there are few ways to keep them in check.

“ I have people call me, asking who can stop their board. I have to tell them that legally there’s no one to turn to,” said Scottsdale resident George Starpoli, founder of Citizens Against Private Government HOAs.

Due to the high concentration of the associations in the Valley, there are a number of disputes on record that have escalated to dangerous levels, some of them grabbing national headlines.

One such dispute ended in tragedy four years ago when Richard Glassel walked into his homeowners association meeting at Ventana Lakes in the West Valley, and opened fire, killing two board members. He was later handed the death penalty by a jury.

Glassel had gone through a long dispute with the board over the trimming of his shrubs. After the board obtained a $1,000 judgment against him, they foreclosed on his property, ultimately forcing him to leave the neighborhood completely.

Many residents are becoming more and more perplexed by the ultimate power HOAs can wield for seemingly minor neighborhood infractions.

“ How is it that in Arizona, you can walk down Main Street with a six shooter at your side, but you can lose your house over a few fees?” asked one HOA resident who, fearing board repercussions, asked to remain anonymous.

“ If the right board wants, they’ll have you out in two months,” said Starpoli. “Not everyone is like that. But there are too many that are.”

Scott Carpenter and fellow attorney Curtis Ekmark say the way to avoid that kind of abuse is to get involved with the board. “The association is only as good as the people who will put in their time,” Ekmark said.

But critics don't believe the average homebuyer understands what they are committing to when they sign into an association.

Joe Haggerty along with his wife and three children had lived in their association for six years with no problems when, Haggerty says, one board member made the location of his trash can an issue. He says his board never warned him about a lawsuit, yet the board was indeed pursuing legal action. Haggerty was forced to hire an attorney to fight the legal battle with the association. “Here’s the irony: I’m paying my dues, and they’re suing me with my own money.

" It’s like these attorneys set the rules that they have to play by, and then they tell people whether or not what they’re doing is fair,” Haggerty said.

But attorney Scott Carpenter, whose firm represented the association in Haggerty's case, says it’s not that simple. “The thing is that the law of community associations is incredibly complex, a lot of moving parts. It’s not easy to paint HOA reform with a broad brush. No one in my law firm wants to foreclose on anyone,” he said.

Legal Fees Out of Control

Seventy-seven-year-old widow Marie Brown lost her Peoria home over the bushes in her backyard. Ekmark’s firm represented the HOA in her foreclosure.

According to an East Valley Tribune article, Brown did owe about $4,000 in unpaid bills, but was charged more than $20,000 in legal fees, which were then taken from the proceeds of her home’s foreclosure.

Power plays like this motivated Representative Eddie Farnsworth to write House Bill 2402, recently passed by the Arizona State Legislature. The bill forces associations to secure court orders prior to placing liens on homes.

But Carpenter says Brown’s story only reinforces the need for foreclosure power. “What good are rules if the HOA cannot enforce them?” he said.

However, while it's true that Brown was in clear violation of her association’s Covenants, Codes and Restrictions (CC&Rs) when her home was foreclosed upon, court documents confirm that at least $14,218 of her assessed fees, more than double the amount of actual fines and dues, were related to attorneys' fees.

“ I wouldn’t characterize it (the amount) as extravagant, but unusual,” Ekmark said of the attorney fees in the Brown case. “The attorney who handled that spent hours on the phone trying to convince her (Brown) to do the right thing,” he added. The catch, Ekmark says, is that “if the lawyer doesn’t spend all that time and effort trying to help, they’re mean. If they do help and the case loses, they are owed for all the fees.

“ That is an unusual case that needs to be put into perspective,” Ekmark continued. “There are 10,000 planned communities in Maricopa County. Weird things are going to happen.”

Carpenter added that while foreclosure stories are dramatic, they are not very common. “It’s a bit of a myth that associations are foreclosing on people left and right. Every single foreclosure that we file is an unfortunate thing that happens. We never file the foreclosure without giving the person a chance to work out a payment agreement or something,” he said.

Starpoli and other critics believe it could set a dangerous precedent to ignore such cases.

Interpreters of the Law

Carpenter and Ekmark are both members of the Community Associations Institute (CAI), an educational non-profit organization. Some HOA reform seekers believe CAI is looking out for attorneys rather than homeowners.

Starpoli says the organization has effectively declared itself the expert. He said these same attorneys show up every time an Arizona HOA forecloses on a home, and he wants Valley residents to know those same attorneys may work closely with their own neighborhood.

The attorneys who advise association boards also make thousands of dollars on home foreclosures and threatened foreclosures, Starpoli explained. Critics consider that a monopoly. CAI members say it’s only reasonable to be part of a trade association.

“ There is no conspiracy,” Carpenter said, adding that CAI is nothing more than a trade organization. “It’s like saying someone who does patents and trademarks for a living can’t be a member of a trade association.” he said.

Recent Legislation

As for Haggerty’s $12,000 trashcan and 77-year-old Marie Brown’s foreclosed upon home, Carpenter said, “we can’t legislate by anecdote.”

But Rep. Farnsworth thinks the stories are too frequent and too frightening. “The current unregulated system restricts the private property rights of homeowners and leaves many feeling disenfranchised in their own communities,” he said.

Evelyn Lyles, a cancer patient in Gilbert, was only $270 behind on her dues when she was threatened with foreclosure. She says she was not allowed to pay the past due assessments and was told her home was in default and told further that legal fees were being accrued by the association attorney.

In despair, Lyle wrote a letter to Gilbert Mayor Steve Berman, who took up Lyle's cause with the HOA, but was ultimately unable to dissuade the association from charging the legal fees. Taking it a step further, Berman then raised the nearly $2,000 needed to pay the fees and save Lyle's home.

CAI’s History with Foreclosure Legislation

When Farnsworth’s bill hit the House floor, Mayor Berman rallied for it, with CAI actively lobbying against it. That was no surprise.
Before 1996, Arizona HOAs could not foreclose on homes, but in 1996 CAI attorney

Curtis Ekmark was instrumental in passing a bill that effectively removed “Homestead Protection” from association homeowners, paving the way for HOAs to pursue ultimate foreclosure of homes for noncompliance.

CAI solicits Valley associations for funds to fight bills that are “bad for associations and the people who live in them.” CAI says it uses those funds to lobby for bills that allow foreclosure and against bills that would disallow it.

Critics of CAI say the motives of the organization are financial in nature. Joe Haggerty says it seems a little ironic that “these guys are making millions of dollars on foreclosures and threatened foreclosures, but of course they’ll say HOAs need that power.”

The Bottom Line

The question on whether HOA power should be held in check by a governing body is yet to be answered.

In other industries where similar types of conflict exist, regulatory agencies have effectively acted as an unbiased mediator and can often bring a voice of reason to the table.

For now, legislation is afoot that will place limitations on the organizations, at least with regard to foreclosure.


---------
By the numbers:

90 Percentage of Gilbert homes in H.O.A.’s, according to Town of Gilbert Congress of Neighborhoods

$52,000 Approximate foreclosure sales price of H.O.A. resident Marie Brown’s home.

$95,000 Approximate value of homes in Brown’s neighborhood

10,000 Attorney Curtis Ekmark’s estimate of planned neighborhoods in the Valley.

$323 Amount of money John Taylor owed his H.O.A., found in a random search of court records

$3,716.50 Amount John Taylor had to pay his H.O.A.’s attorney when he lost his case.

1973 Year CAI was founded.
0 Number of discovered court H.O.A. foreclosures by non-CAI attorneys.

Terms:

H.O.A. Home Owners Association, traditionally formed to increase home values and neighborhood aesthetics by promoting uniform standards of maintenance and behavior.
CAI Community Associations Institute, a national non-profit organization specializing in H.O.A. litigation.

CC&Rs Covenants, Codes, and Restrictions. The constitutions which define the rules of an H.O.A. Most include a paragraph that exempts “homestead protection” from foreclosure. Most require lawyer interpretation. Many prohibit residents from viewing board correspondence with attorneys.


posted by Las Vegas at 4:25 PM

Real estate dictatorships threaten 'American Dream'
Part 2: Do private residential governments mean the end of homeowner freedom?

Wednesday, July 07, 2004

By Carol Lloyd
Inman News

(This is Part 2 of a two-part series. See Part 1: Homeowners wage war
on real estate dictatorship.)

Last week, I reported on the convoluted and sometimes baffling war over the fate of the Westlake Subdivision Improvement Association, the homeowners association (HOA) for 6,500 homes in Daly City, Calif. At the heart of the struggle was U. Deutsch, an elderly German-born woman who has spent a good portion of the last 30 years working to dismantle an organization she considers fraudulent and unjust.

Although the facts were on her side, I couldn't help but wonder whether Deutsch – after carrying the torch for so long, engaging in countless lawsuits and spending thousands of dollars of her own money to rid her neighborhood of an intrusive HOA – had not become a little, well, too focused. This is the temptation with such stories about homeowners association wars: that one will interpret them as tales of personalities (be they high minded or mean spirited), of people who have a little too much time on their hands.

But Evan McKenzie, author of "Privatopia: Homeowner Associations and the Rise of Residential Private Government," has heard too many such stories to reduce them to quaint battles between obsessed busybodies. As an attorney who spent six years representing HOAs in California, he had a privileged insider's view of a burgeoning and little-understood
industry. And, as an associate professor of political science at the University of Illinois at Chicago, he was one of the first academics to grapple with how the rise of such governing organizations is reshaping our neighborhoods.

His scholarly book, which became the equivalent of "Silent Spring" for homeowners disgruntled with their HOAs, attracted a popular following. Since its publication in 1996, he's received scores of letters from homeowners driven to the brink. "You think, 'Wow, these people are eccentric,'" he said. "They get wrapped up in some petty struggle. It drives them nuts. But it's these issues that make people crazy."

What precisely are "these issues"?

Freedom of expression, the right to privacy, the right to keep the home you worked a lifetime to buy. In other words, the loss of that prize most of these people thought they had already achieved: the American Dream.

Now that property values have risen so much that many hardworking families can't afford a traditional domicile, they buy the closest approximation they can pay for: a condo, a townhouse or a "single-family home" in a new "planned development." If the complex has any shared property, such as landscaped grounds, a pool or even a small strip of trees, then it's by definition a common-interest development (CID).

Sometimes, these homes look no different from the homes down the street, but they exist in a different legal framework: Instead of being governed by local county or city laws enforced by government employees, they follow the laws of their "Covenants, Conditions & Restrictions," which are enforced by their HOAs. Thus, the association may write laws about the sort of flowers you can plant in your front lawn and whether you can remodel your house. According to McKenzie, the rise of HOA-governed CIDs is changing private-property rights, civil rights and the responsibilities of local government everywhere.

What's more ominous, now that more than 80 percent of new housing in the country is being built within CIDs, is the professional industries that have grown around them – complete with their own lobbying groups – eager to make sure government oversight remains at a minimum.

We in the San Francisco Bay Area like to think of ourselves as immune to the afflictions that trouble the rest of America, but McKenzie said that even here, the vast majority of new housing are CIDs. "Anywhere where land prices are high, there will be lots of CIDs," he said. The gated communities of Harbor Bay Island in Alameda, the live/work lofts of San Francisco, and the tract-home prairies of Tracy: All are common-interest developments.

To help me understand how homeowners associations have evolved, McKenzie offers a thumbnail history. "The original reason for all HOAs was to enforce race-restrictive covenants," he said, explaining that such organizations predate the invention of the CID, with its shared responsibility to maintain property. "But in the 1960s and '70s, as land prices were getting more expensive, developers started creating [CIDs] in order to create more density and therefore increase profitability."

In devising CIDs, developers managed to build more houses on less land – avoiding local density codes – through creation of "private communities" with their own roads and utilities infrastructure. "They build a shared infrastructure with common utility lines so the physical infrastructure is a lot cheaper," McKenzie said. "Then they build private streets, which are very narrow and not as deep, so they're cheaper streets. So they need a lot of repairs."

But who will take care of the infrastructure and the roads? Not the city, of course, because these are private communities. Instead, the HOA, run by volunteer homeowners with help from profession property managers and lawyers, must levy assessments from homeowners to pay for the cost of maintaining the property. With such an arrangement, developers get the best of both worlds: an escape from city planning ordinances that restrict their profits, and an entity that inherits the results of their cost cutting.

Sometimes, what looks like a developer's enlightened benevolence reveals itself to be egregious self-interest. Developers maximize useable land, then donate "open space" to the HOA to maintain, marketing it as one of the benefits to the community. Such open space can turn out to be more of a liability than an asset, however. In a famous case in Hillsborough, Calif., "parkland" turned out to be an unstable hillside, requiring expensive maintenance to prevent it from destroying homes. And McKenzie recalls one case in which the "open space" turned out to be, as he describes it, "almost a Superfund site."

With these conditions, why do Americans keep flocking to CIDs? In part, it's because if you want a new home, there is little else to choose from. But it's also because these developments offer a taste of the American Dream that's ideal for a fraction of the cost of a discrete single-family home. "Instead of everyone getting a big yard with a swimming pool, developers figured out how to do the same thing," McKenzie said. "They build amenity-rich developments with golf courses, swimming pools, game rooms – all exclusively for the homeowners."

These features, according to McKenzie, offer the promise of class and racial exclusivity without breaking antidiscriminatory fair-housing laws.

"They can still sell exclusion without being formally racially exclusive," he said. "It's become an important marketing feature for a very lucrative form of housing."

The problems in these private communities tend to erupt a few years down the line, though, after the developers have sold off the last of the houses and the HOA has taken over. Once the statute of limitations for suing the developer – usually one to three years – has expired, the association is on its own. Suddenly, roofs begin to leak, streets break down and the HOA realizes it needs to begin serious repairs.

"When the developers leave, the incoming association directors often find that they're 'underreserved'," McKenzie said. "The developers have almost always set the fees too low – they set them low to sell homes – so the HOA begins raising fees. And sometimes the assessments are huge – $600 a month."

At other times, an expense is so big and so urgent that the HOA must levy a "special assessment" to pay for a new roof or a rotting deck. "So the board votes for a special assessment of, say, $10,000 [per homeowner]. And if you can't pay, they'll slap a lien on your home. The HOA has a fiduciary duty to maintain the property."

Why would cities allow developers to circumvent planning ordinances and create communities that may not be up to the task of maintaining their own infrastructure?

"The cities get something for nothing," McKenzie said. "They still get the property taxes without building or maintaining the infrastructure, the pipes, the streets, the parks. Essentially, it's a form of double taxation." Although New Jersey recently passed a law compelling cities to provide homeowners in private communities with a snow-removal and leaf-removal rebate (since they don't use those city services), most states have been slow to enact legislation acknowledging the double-taxation issue.

In framing the dangers of CIDs, McKenzie is careful not to vilify HOA directors. "Most of them are salt-of-the-earth people. They do it because they know it needs to be done," he said. "But all you need is one or two power-hungry control freaks on a board to create a lot of problems." Such individuals can use a HOA for a number of ulterior reasons: monetary gains (by providing business to close associates and then receiving kickbacks), political power (using their position as a launching pad for positions in city politics) or personal vendettas (suddenly, you have a supposedly valid reason to spy on your neighbors.)

He said that, unlike with city governments, which ostensibly must follow democratic laws of governance, HOAs are woefully unregulated. Sometimes the boards simply vote themselves into perpetual power, since they can prevent opponents from voting or running for election by suggesting that the upstarts are not in good standing with the HOA. Or, as McKenzie put it, "These elections can make Broward County look like the epitome of fair voting."

Even meeting protocol is fraught with improprieties. "I've seen hilarious things," McKenzie said, such as "where the meeting minutes say that the director thanked so and so for his comments, but what actually happened was that the director said, 'Sit down and shut up.' They are banana republics."

Even when an HOA is well run and filled with great people, McKenzie said, "it's only one election away from a disaster."

Sometimes, living in one of these communities means losing certain free-speech rights. Some HOAs prohibit putting political signs in your window or flying the flag. Others curtail privacy rights with ordinances about improper behavior. One book of HOA horror stories tells of an elderly woman being fined for kissing her elderly boyfriend in the car outside her home.

Such petty disputes over flag flying and senior necking can turn serious if the transgression collides with a vindictive HOA member or, worse, an avaricious lawyer. It can even lead to people losing their homes.

According to McKenzie, there is now an entire cottage industry of lawyers and property managers who feed off such liens and fees, offering their services to the generally inexperienced HOAs. As an HOA lawyer, McKenzie watched the industry grow from a small group of specialists to big business. Over the years, he saw that HOA law seemed to attract two kinds of lawyers.

"The first are those that offer general counsel," he said. "They're really good lawyers. The HOAs need the service, and it's a good service.

However, McKenzie added, "The second type is the collections lawyers. They are brought in to collect unpaid assessments. They say to the HOA, 'I will represent you, and you don't have to pay me, just so long as I'm given a free hand in how I do my work.'"

These lawyers take a "collection-agency posture," he said, putting liens on property when homeowners are 10 days late paying an assessment. "Every letter has a price tag – and if the homeowners don't pay, you slap them with a lien." Although the assessment is perhaps for only a few hundred dollars, the lien may total $5,000 or $10,000 – and, in order to clear their title, the homeowners must pay not only the assessment but the lien as well. If they cannot do so, McKenzie said, they could lose their home through a form of foreclosure unmediated by the courts or any local government.

"These lawyers are so rapacious that it's just shocking," said McKenzie, adding that no laws govern their fees – they can basically charge whatever they want. "It's up to the homeowner to file an action with the court, and if you don't file a lawsuit, you are out of your house before you can say 'boo,'" he said.

The worst part about the whole process, said McKenzie, is that it's legal, a fully institutionalized practice: "The bar even offers workshops on the process."

California's state government is reviewing the laws governing CIDs, and McKenzie remains hopeful that states will begin legislating reforms, regulating such issues as how HOAs are governed and how much their lawyers can be paid. But, already, there is a powerful trade association, the Community Association Institute, which tends to resist laws that increase government oversight.

Government might also help prevent some of the limitations on civil rights with a simple declaration. McKenzie said, "We need a more general statement from the states saying that you have basic rights as a homeowner – a bill of rights for owners – that even if we have privatized our neighborhoods, we can't privatize our constitutional rights."

But, for now, many homeowners continue to buy new homes in CIDs without knowing hide nor hair about exactly what they are gaining and what they are losing.

"A lot of times, when people buy homes [with HOAs], they don't know what they are signing away," said McKenzie. "It's all justified by contract. You signed, so you consented to it. But people have not really meaningfully consented to be governed by HOAs. Most haven't read the covenants – they don't know what they mean."

Carol Lloyd's Surreal Estate column appears every Tuesday on sfgate.com. She can be contacted at carol@creatingalifeworthliving.com.
posted by Las Vegas at 10:41 AM

Las Palmas couple fight homeowners group

Conflict emblematic of change in housing rules

July 06, 2004

By LARRY PARSONS

Herald Staff Writer


Amid rolling, golden hills and curving, rock-walled roads bordered by freshly mown grass, life in a spacious, five-bedroom home in the upper reaches of the Las Palmas subdivision near Salinas would appear to be comfortable if not idyllic.

That's what attracted Angie and Loyde Inlow, a health consultant and doctor who bought their 3,700-square foot home about three years ago on a canyon hillside in the Prestancia Ranch section of Las Palmas. But the past few months have been anything but stress-free for the Inlows.

They've butted heads with the development's homeowners association over planting a strip of fresh sod behind their fence and, since March, over plans to add a second, two-car garage and second-floor game room to their two-story home.

"People on the board are very controlling. They believe what they say goes, period," Loyde Inlow said, sitting in the living room while his wife held their 6-month old daughter, Sierra. "Not everyone has been following the rules. It's very hypocritical."

They tell stories of aerial photos being taken of the offending strip of sod, of keeping an eye on neighbors with binoculars, of rules being changed arbitrarily, of hard feelings among neighbors on the block overlooking the Salinas Valley. They've hired a lawyer.

"We don't want purple houses instead of tan and beige. We don't want storage of cars in front yards to make it look like Prunedale," Angie Inlow said. "But when you start enforcing rules for only certain people, it falls apart."

Their neighbor Michael Boylan, a stockbroker and association board member, defends the homeowners association in general, but believes the Inlows are caught in the middle of "a power play and confusion."

"Some people do things without getting permission, and other people get (grief). It's not right," Boylan said.

The flap on Prestancia Circle -- a U-shaped, hillside road with about 30 beige and tan, tile-roofed homes worth about $1 million apiece -- is emblematic of a major change in the way millions of U.S. homeowners find their neighborhoods governed.

Decisions about landscaping, plumbing systems or raising fees to repair roads increasingly are the province of homeowner associations, rather than local city or county governments.

In California, 8 million of the state's 35 million residents -- nearly one-fourth -- live in housing units governed by private, corporation-style homeowner associations. Nationwide, 50 million Americans live under private residential rules, ranging from the setting of appropriate home colors to the size of acceptable pets.

"Practically nothing is being built without common-interest developments," said Oliver Burford, executive director of the Executive Council of Homeowners, a San Jose educational group for homeowner associations. "It is a growing trend."

Residents take up costs|

Many cities push for the creation of housing with homeowner associations to shift the costs of infrastructure and services -- from roads and streetlights to parking enforcement and garbage collection -- to residents rather than general taxpayers, Burford said.

Planned unit developments like Las Palmas, condominiums and cooperatives are the main types of common interest developments, or CIDs, governed by homeowner associations.

CIDs make up only about 16 percent of the housing on the Central Coast -- from Santa Cruz to Santa Barbara County, according to the Public Policy Institute of California. Their heaviest concentrations are in San Diego and Sacramento, where they account for 42 percent of housing. Planned unit developments are the fastest-growing housing type in California, increasing by 84 percent since 1985.

For the most part, homeowner associations work well, Burford said.

"My best estimate is that with 95 percent there is decent dialogue between boards and members, and the members who live in the association are happy as a lark," he said. "There is a scattered 5 percent where things go from bad to worse."

Avoiding 'dictatorships'|

Those isolated associations can produce vivid black eyes, he said, such as when one bans a resident from flying a U.S. flag at the start of the Iraq war, or another forecloses on an elderly couple's home over $120 in overdue association fees.

"There are probably some out there that are dictatorships," Burford said. But the biggest problems facing many associations are finding board volunteers and understanding all the laws on associations.

"In many cases, boards do or don't do things out of complete ignorance," he said. "The last thing most people want to do is become a dictator, whether benevolent or evil."

But in a few cases, homeowner association rules have reached almost absurd levels:

• In Boca Raton, Fla., an association held a court-ordered weigh-in of a resident's dog to make sure the dog didn't exceed a 30-pound limit.

• In Santa Ana, a 51-year-old woman was warned by her condominium board about kissing a friend good night in her driveway.

• A Washington, D.C., condominium board banned the possession or use of "Barry Manilow records, tapes or CDs."

Several bills prompted by negative stories about homeowner associations are pending in the California Legislature. Two would prevent rapid foreclosures for overdue association fees. Another would require secret ballots for all association elections. Another would require associations to make financial records more open to members.

"Probably some of the complaints by homeowners are justified," Burford said. Some associations operate too secretly or violate their own rules. "That leads to dissidence," he said.

Few problems around county|

Judging from a shortage of high-profile disputes, homeowner associations in Monterey County appear to be handling their duties without rubbing too many homeowners the wrong way.

"There has never been a firestorm," said county Supervisor Dave Potter, who represents much of the Monterey Peninsula and Carmel Valley.

Many local associations are potent players in neighborhood land-use debates, but county officials recall only a couple of internal disputes pitting associations against members.

About six years ago, a Carmel-area association fought with a homeowner who had painted his home light blue with decorative designs of white urns. In another case, the county had to pay for a new roof for a Toro Park homeowner whose county-approved roof violated the neighborhood's design rules.

But county planning manager Dale Ellis said such stories are few and far between with local homeowner associations.

"We have seen few of those kinds of problems," he said.

When associations are run well, Ellis said, they provide a real value in keeping neighborhoods up.

"A good one is a tremendous help," Ellis said. "If someone has a problem with a neighbor parking on his lawn, an association might be able to do something. We could never do anything about it."

Sharan Jackson, a Monterey property manager, helps run associations in several Monterey Peninsula communities. Aside from a few flare-ups over the location of satellite television dishes, her associations conduct their affairs in fairly low-key ways, she said.

"They are not aggressive on sending anyone to collection," Jackson said. "All my boards are very concerned about their individual homeowners."

Bill Phillips, a Monterey real estate broker, just finished managing a 140-member condominium association. The biggest problem wasn't a power-hungry board, but filling seats on the board, he said.

"It's a true democracy. Anyone can run for the board," Phillips said. "But people don't want to get involved."

Homeowner association board members must serve without pay, and the job entails a certain amount of grief.

"Any time you are enforcing rules you are going to be the bad guy," Phillips said.

Neighbor vs. neighbor?|

Some people inevitably will chafe under rules set down by a homeowners association, Burford said.

"For a staunch believer in the 'my home is my castle' way of thinking, a homeowner association might not be the right thing," he said.

To the Inlows, the Las Palmas homeowners associations -- there is one master association, and a dozen others for different parts of the subdivision -- amount to a good idea being distorted by petty, personality conflicts.

They agree with rules against cars parking on the streets, barking dogs, basketball hoops left in driveways, and the like. But they can't fathom why their strip of sod ran afoul of rule enforcers, while neighbors have planted trees and other landscaping in similar spots.

"It's not neighborly -- feuding with neighbors," Angie Inlow said. "The association ends up with a little bit of power, and then threatens to put a lien on our property.

"It's supposed to be an association of homeowners, not a vigilante group," she said.

A Las Palmas association official referred a reporter to the group's attorney, who said he wouldn't comment on the Inlow case.
posted by Las Vegas at 6:05 AM

Rebelling Now a Senior Activity at Leisure World
Seal Beach 'dissidents' take their battle with project's management to the courtroom.
By Kimi Yoshino
Times Staff Writer

July 4, 2004

Smiling senior citizens grace the sales brochures for Leisure World in Seal Beach. They're bicycling, painting, relaxing in the 9,000-resident retirement community described as "the best world of all!" — a veritable paradise for seniors.

But inside this gated neighborhood, some residents are waging a battle against what they call an authoritarian leadership that has turned Leisure World into a banana republic.

Critics say the community's elected leaders won't let residents see financial records, detail how their monthly fees are spent or reveal how much hired administrators are paid. Those who ask unwanted questions are labeled "dissidents" whose views are effectively banned from the Leisure World-owned newspaper, they say.

Most residents focus on their own affairs and ignore the controversies. Some, frustrated, have given up and moved.

But others, a group of rebels about 150-strong, are fighting back. And though they have yet to win access to the financial information about Leisure World, they have begun to make headway in the courts.

"We love the neighborhood, the grounds, the atmosphere. The problem is, the longer you're here, the more you realize that's on the surface," said resident David Lyon. "It's one deception after another. You never know what they're going to pull on you next."

For months, Leisure World officials have refused to respond to repeated requests for interviews.

Officials with the advocacy group Congress of California Seniors said they often hear complaints about retirement community homeowners associations. But "this one stands out as very unique because of the dissension," said chief of staff Gary Passmore. "It sounds like [there is] a great deal of management disregard for … member interests."

Opened in 1962, Leisure World was the brainchild of developer Ross W. Cortese, who later opened similar projects in Walnut Creek, what is now Laguna Woods, and Florida and Arizona.

The community's 9,000 residents average 77 years of age. Standard one- and two-bedroom units range in price from about $83,500 to $150,000; expanded and corner units are more. Residents also pay monthly fees averaging $300 to cover management, recreation, maintenance, landscaping and security costs.

Leisure World is divided into 16 geographical areas run by nonprofit "mutual corporations," each headed by elected residents. Representatives from each mutual board are elected in turn to sit on the Golden Rain Foundation Board, an umbrella group that governs the entire community.

Leisure World has churches of almost every denomination, a nine-hole golf course, a library and a full-service post office. And there are dozens of clubs.

A rare instance of public dissension occurred in 2002 when administrators banned dog walking, going so far as to cite offenders and force residents to carry their dogs from their homes to their cars and drive their pets outside Leisure World's boundaries for exercise. Chief administrator Harbir "Bill" Narang said the dogs were noisy and put residents at risk of being knocked down or bitten.

Today, the list of complaints has grown to include more serious charges. Questions about management and Golden Rain's finances have gone unanswered, critics say. In particular, they say Leisure World won't give information to which they are entitled under state law:

• Why monthly fees increased $30 this year and why the fees still cover a mortgage they say has been paid.

• How much Leisure World pays contractors to landscape most of the 533-acre property, including the golf course.

• How much Narang and other top officials are paid.

Ed Loritz, a former Golden Rain Foundation board member who now is a critic of administration, said Narang was paid $160,000 in 1998, and has received — along with other Leisure World employees — at least five pay increases since.

Narang, who has run Leisure World for about 20 years, is the focus of other questions that state law does not require be answered. For example, critics say he has declined to address concerns about a potential conflict of interest. Public records show that Narang owns property jointly with Richard Domasin, owner of Associated Landscape Maintenance Inc. of Glendale, which has the contract to landscape most of Leisure World.

Other times, management simply treats residents callously, critics say. They point to the cases of Hildegard Zeller and Erika Furlong-Swenson.

The two women were moved out of their homes in January 2003 after being told that a fire in an adjacent unit caused theirs to be contaminated with asbestos. Each woman was billed thousands of dollars for the work, and many of their belongings were thrown away.

Later, they learned that the asbestos test results were negative, but neither has received an explanation or a reimbursement.

Zeller wrote a letter to her mutual board. It was returned unopened. Residents lobbied on their behalf, also requesting answers. Instead of answering, board members wrote columns in the Golden Rain News saying that residents are responsible for homeowners insurance to cover personal property.

Kornelia Brewer contemplated selling her house. But instead of moving, Brewer is fighting back. The retired nurse is a member of the rabble-rousing Concerned Shareholders of Leisure World, whose 150 members Golden Rain officials have repeatedly called "dissidents," both in writing and at meetings.

Recently, the rebels have turned to the courts for help. Furlong-Swenson sued Golden Rain last month, alleging fraud and seeking $200,000 in damages. "I'm tired of being treated this way," she said. "Everybody ignored me."

Other residents are following the same tack. Last month, seven took the Golden Rain Foundation to small-claims court for refusing to provide access to its financial records.

Armed with copies of the California Civil Code, the California Corporations Code and Leisure World's bylaws, the band of residents sought financial penalties from Golden Rain Foundation for each violation.

But even in court — and after repeated inquiries from Judge Kirk H. Nakamura — Golden Rain Board President Shirley Burns refused to explain why the board would not comply with legal requirements to provide the information. She first said an attorney did not believe the board was obliged to comply. Later, she suggested that revealing salary information would violate employee privacy.

Speaking from the bench, Nakamura sided with the plaintiffs and described Leisure World's response as a "kiss-off letter."

He said Golden Rain was stonewalling, called it an "unreasonable position" and fined the board $1,400 — $200 for each plaintiff. Then he told residents: Keep requesting the information. If they don't get it, he'd see them back in court.

"I don't think a month is going to go by when we don't sue them," said Loritz, a critic and one of the plaintiffs.

"We are going to hold the board accountable to the law. That's all we're asking. If they do [follow the law], there will be peace and harmony in this community."
posted by Las Vegas at 7:47 AM