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Are H.O.A.s Contracts?

Recently, there was an interesting discussion started by Fred Pilot at The Privatopia Papers blog asserting that "people don't see HOA convenants -- a real property contrivance -- as contracts".    The blog posts resulted in many comments by readers, and follow up blog posts by Evan McKenzie, Tyler Berding, George Staropoli, and Fred Fischer.   The posts, and comments, are a bit on the long side, but worth reading if you're interested in this topic.  

Saturday, December 31, 2011
HOA convenants not generally regarded as contracts
Posted by Fred Pilot at 9:57 AM
Do Americans consider CC&Rs Contracts, Revisited
...Tyler responds that they are contracts, period, because that is what courts universally say they are. This is in large part beyond dispute: like it or not, condo associations, HOAs, and housing cooperatives are recognized by federal and state law, and CC&Rs and other CID governing documents are fully enforceable, subject to a few exceptions, in every court in the nation....
...I agree with Tyler, as I must, that CID governing documents and the decisions based on them are legally enforceable under contract and real property law. This has been true for many decades, even centuries, and in my first book on this topic I relate some of the early legal history that laid the foundation for enforcing these documents.
However, I think that Fred raises an important point. Is it true, as he claims, that these documents and decisions have no legitimacy in the eyes of the public, notwithstanding their enforceability? And if this is true, does it imply that there could conceivably be sufficient opposition to CID regimes to bring about dramatic change, such as local government opposition to CID construction, developer decisions to move toward other ways to build, market rejection of CID housing, judicial rulings that undermine CID power, or state legislative action that would reverse the overwhelming trend in favor of CID construction?

Posted by Evan McKenzie at 1:55 PM
Do owners believe CC&Rs are contracts, part trois...
Tyler Berding tried to comment my long post in response to the
Pilot/Berding exchange, but Blogger rejected it as too long. I am
posting Tyler's response here:
...the real problem which is that community associations are created mostly for the benefit of municipalities and developers, with very little insistence by government on a financial model that can remotely meet the expectations of the eventual homeowners. Community associations are dying financially. Their business model is fundamentally flawed and many will eventually become obsolete and fail...  
...Community associations are a financial disaster in normal times, and when hidden or unexpected damage or expenses arise, most associations lack the financial reserves to meet the demand. The water bill case is just one example. The average association does not have half the financial reserves it needs to properly maintain the expected issues—and they have zero funding for the unexpected...
...Better, all of us should be discussing how to help owners save whatever remaining equity they have, and then second, how to convince government to quit mandating for sale housing that will inevitably become obsolete because it has a form of governance that cannot fund its operations--just for the sake of additional property tax revenues....
Posted by Evan McKenzie at 10:24 PM
While Mr. Berding has long warned about the the economic un-sustainability of so-called "community associations"  -- it has been called "Tyler Berding's death spiral" to those who are familiar with what H.O.A. corporations really are -- this is still a remarkable admission coming from an industry attorney who represents them.

Wednesday, January 04, 2012
George Staropoli on the "Do owners believe CC&Rs are contracts?" debate
From George Staropoli comes this response to the Pilot/Berding discussion:
Posted by Evan McKenzie at 9:48 PM
1 comment
Fred Fischer on the "Do owners believe CC&Rs are contracts?" debate
Fred Fischer weighs in:
...For CID housing to continue to exist into the future and be sustainable will require a major shift away from its present use of adhesion contracts imposed upon property buyers. Therefore a legal shift needs to occur at build-out from the original intent of the developer to manage and sell his properties. To the owner/members so that they can manage and sustain what is then their properties and responsibility....
...Finally at the end of the day no one can say we don’t understand why housing association governance is economically collapsing or so controversial. Because when basic liberty and the use and enjoyment of one’s property becomes absolutely controlled by others, to the point that a door knocker or flower pot can’t be installed without committee approval with the consequence of a fine and foreclosure if disobeyed. We have just created a new form of tyranny masqueraded as a housing association so that others can earn an income or profit over the conflicts and this needs to end NOW. Or CID housing will continue to economically and socially collapse and then tens of millions of property owners will possibly be living on the streets...
Posted by Evan McKenzie at 9:49 PM
at http://privatopia.blogspot.com/2012/01/fred-fischer-on-do-owners-believe-cc.html

In between those blog posts is a story that illustrates my assertion
that "As a corporation, an H.O.A. is a defective product", since the
personal assets of the investors were not protected from the
corporation's debts and liabilities.

Monday, January 02, 2012

$56K water bill could force condo residents out

COLLEGE PARK, Ga. —A longstanding dispute over a water bill in College Park could end up with the Yorktowne Condominiums shutdown and everyone evicted by Tuesday morning. 

The city of College Park said it will shut off water service to the complex at 9 a.m. on Tuesday unless the homeowners association comes up with part of a $336,000 dollar debt the complex has run up in recent years.

Things are so dire the complex is seeking charitable contributions to stay afloat. 

Posted by Fred Pilot at 2:59 PM 


Shortly before the exchange about the perceived legitimacy of H.O.A. contracts, Professor McKenzie wrote about the fine print in adhesion contracts at http://privatopia.blogspot.com/2011/12/fine-print-society.html

Thursday, December 22, 2011

The Fine Print Society

As I go over all the bills and statements and announcements and changes to this or that plan or arrangement or contract that have flooded into my mailbox recently, it occurs to me that this is a form of concerted action. Corporate managers have collectively determined to overwhelm us with fine print. We can't possibly read all this crap, much less meditate like some 18th century aristocrat on the implications of the content. Yet we can't do so much as download an update to Adobe Acrobat without "signing" a contract. We are conclusively presumed to have read, understood, and agreed to every lawyer-drafted word, and yet everybody knows that none of us reads this. Not even Ron Paul--so don't start with me. And the more of these contracts we get, the less likely it is that we will read any of them. So corporations have an incentive to send more of them and make them longer and more verbose. This is a collective decision on their part, and it is working, and they know it.
Nearly all of this stuff is enforceable, as many an HOA or condo unit owner has discovered, and it makes citizens relatively powerless. The private logic of contact law structures the relationship as individual consumer vs. big corporation with government as the enforcer of the contract, instead of citizens vs. powerful private organizations, with government as policy maker holding jurisdiction over the relationship.

The law calls these boilerplate documents "contracts of adhesion," but the days are long past when judges were willing to throw them out because they were drafted by one party and imposed on the other, there was gross inequality of bargaining power, and there was no real assent to the terms. Now they are deemed essential to the free flow of modern commerce. 

My view has always been that policy makers should be willing to step in and reform these relationships if they become predatory or destructive. But there is little stomach for that presently.

Posted by Evan McKenzie  at 8:13 PM 


In 2006, Mark Lemley wrote that

Ten years ago, courts required affirmative evidence of agreement to form a contract. No court had enforced a shrinkwrap license, much less treated a unilateral statement of preferences as a binding agreement. Today, by contrast, it seems widely (though not universally) accepted that if you write a document and call it a contract, courts will enforce it as a contract even if no one agrees to it.

            source:  "Terms of Use"  Minnesota Law Review, Vol. 91, 2006.  Available at SSRN  http://ssrn.com/abstract=917926