Homeowners Should Be Careful With Whom They Associate
Beginning in the early 1960s, at least 6 million people have moved into 30,000 homeowners associations governed by private covenants commonly known as CC&Rs.; Horror stories abound. Numerous bills have been introduced and become law that supplement the already convoluted Davis-Sterling Common Interest Development Act and related California laws.
Not all is well in Eden. It is anticipated that the legislature will soon pass new laws, including the licensing and regulation of management companies. It is important that homeowners understand the issues and not permit the licensing of management companies to be sidetracked, or the proposed regulations watered down by special interests.
While the homeowner sleeps, special interests, including management companies, attorneys, developers, real estate agents and community associations, are relentless in attempting to define the relationship of the homeowner to the association to be that of a private contract, as opposed to that of a “mini-government.”
In a private contract, the homeowner is deemed to have waived his or her constitutional rights. Thus is the legal basis for the stories of home foreclosures by associations over unpaid $5 late charges, arguments over the color of one’s house, the type or size of pets, play equipment and portable basketball hoops, leaving garage doors open, parking, types of trees, shrubs and TV antennas.
As a mini-government, constitutional considerations such as due process, right to quiet and peaceful enjoyment of one’s property, freedom of expression, and those other “pesky” constitutional considerations take precedent over the so-called private agreement.
Special interest would define your relationship to your homeowners association as a form of “private government.” Its constitution that you and your neighbors will live under is now the infamous CC&Rs.;
The argument goes: You agreed to this when you purchased your investment. Whether you actually read the fine print or really understood it all is inconsequential.
The average homeowner did not understand, when purchasing his or her new home, that the CC&Rs; represented a private agreement and as such:
* 1. Elections are private, not under the election code.
* 2. If fraud in the election is suspected, notwithstanding, homeowners and candidates may be precluded from examining the proxies to determine any fraud on the grounds of “privacy.”
* 3. Although the associations now take care of common areas including streets and landscaping, that was historically the obligation of the city or county. No credit or reduction in property taxes is given.
* 4. State law does not provide for any limit in association size. A developer may create an association of only two units, or 5,000. Few 10-20 member associations can afford to hire help. They are noncomplying, typically in violation of corporate and tax codes. Conversely, some associations have budgets larger than small cities, yet, because of politics, are not self-managed, and employ outside management companies.
* 5. A development may have two, three or even four associations. Each is a separate, private corporation. This means multiple management companies, billings, foreclosure proceedings, attorneys, audits, etc.
* 6. Management companies are not regulated and not licensed by any state agency. You need only print business cards.
* 7. Association fees have been found by courts to be the same as property taxes, yet, not under the limitations of Proposition 13.
* 8. Although most associations are audited by CPAs, the management company books are not audited. Nearly every association that suffered theft or loss from management company embezzlement was audited by a CPA.
* 9. Officers and directors rarely ask the CPA for an internal control recommendation letter or for a letter reporting on the management efficiency or what is known as an “operational audit” as opposed to the regular “financial audit.”
* 10. The officers and directors rarely ask for the management company to provide a copy of its own financial statement.
Many of the problems of an association would disappear overnight if there was a guarantee of fair, independent elections, such as under the election code. If there is fraud make it a felony, like any public election, and let the district attorney prosecute.
There are far too many associations. The legislature should pass enabling acts to permit dissolution, mergers and consolidations. The associations should be allowed to create their own mutually owned management cooperatives to manage these associations. This would eliminate the private enterprise profit motive.
Contrary to what the real estate industry may have you believe, your home is not just an “investment.” It is your private sanctuary, your last retreat from the world, a place where money considerations should be in second place.
