You may have heard news
reports recently about an elderly woman in Glendale who
lost her house in a foreclosure by her homeowners' association.
Some people have pointed to that event as a demonstration
for the need for closer government regulation of homeowners'
associations. My own view is that the entire episode provides
a pretty good demonstration of how homeowners' associations
enforce their rules (and how not to respond when you get
into a dispute with your homeowners' association).
The homeowners' association in the Glendale case has
a pretty typical rule stating that each homeowner must
keep their yard up to certain standards and that if
the homeowner fails to do so, the association has the
authority to cure the failure at the homeowners' expense.
The association went through the process of giving the
homeowner notice of the violation as is typically required
under association rules, then having the work done and
sending the homeowner the bill. When the homeowner refused
to pay the bill, the association, again under fairly
standard rules, placed a lien against the property.
When the homeowner continued to refuse to pay the bill,
the association sued the homeowner to foreclose the
lien, got a judgment for foreclosure, and caused the
property to be sold at a Sheriff's sale to satisfy the
lien. The purchaser at the Sheriff's sale paid the amount
of their bid in cash, which went to the association
to pay the homeowner's debt to the association. The
purchaser took title to the property subject to prior
liens, which in this case (as in most cases) consisted
of a bank mortgage and unpaid real property taxes. The
purchaser had to pay those liens to keep the property,
meaning that the purchaser's investment to acquire the
property was not just the amount bid at the Sheriff's
sale, but the amount of that bid plus the amount of
the mortgage and the unpaid property taxes.
Despite the calls for increased government regulation
of homeowners' associations, I have heard nothing to
indicate that the association in the Glendale case did
anything outside of what a typical homeowners' association
can do to enforce its rules. There are state laws that
limit the actions of homeowners' associations in enforcing
liens for unpaid fees. All homeowners' associations
are required by Arizona law to provide a statement of
the amount of any unpaid fees upon the request of the
homeowner. All homeowners' associations are also prohibited
by Arizona law from enforcing any lien more than three
years after the unpaid fees became due. And Arizona
law limits the amount that homeowners' associations
can charge for late payment of fees.
Contrary to the perception that homeowners' associations
are a shadow government foisted on unsuspecting homeowners,
the existence of a homeowners' association, its rules,
and its powers of enforcement, are all disclosed to
a prospective home purchaser when a document commonly
called the CC&Rs (for "Covenants, Conditions
and Restrictions") is provided to the prospective
purchaser with the preliminary title report. The Seller's
Property Disclosure Statement, and the Subdivision Public
Report in new subdivisions, also provide information
about the association and its impact on the property.
Another misconception fostered by the criticism of homeowners'
associations is the notion that they are ubiquitous.
The fact is that very few older subdivisions have associations
with enforcement powers, even those older subdivisions
that have CC&Rs in place. The proliferation of homeowners'
associations is probably more associated with the spread
of subdivision common areas rather than CC&Rs. Subdivision
common areas are those areas found in most new subdivisions
that are not part of any individual lot but that are
not owned by the local government. The common areas
can be as limited as the landscaped area around the
subdivision entrance or as extensive as the streets
throughout the subdivision. Maintaining those common
areas (using the association fees paid by all of the
homeowners in the subdivision) is the primary function
of most associations. The common areas may make the
subdivision more attractive, but having them necessitates
the creation of a governing body to maintain them. If
you buy a house in such a subdivision, you are knowingly
entering into an agreement to live by the rules establishing
the common areas and the association, i.e. the CC&Rs.
Now for the part about how not to respond when you
get into a dispute with your homeowners' association.
By the accounts I have seen, the Glendale woman who
lost her house ignored the association's requests to
clean her yard and the association's notice that they
would have the yard cleaned at her expense. Worse, she
stopped paying her association fees in protest of their
action to have the yard cleaned, refused the association's
offer (after they sued her) to settle the matter for
a fraction of the actual cost of the cleaning, and failed
to respond to court orders leading to the judgment for
foreclosure and Sheriff's sale. Even if the association's
actions were completely unjustified, by essentially
ignoring the association's actions, the homeowner assured
herself of the loss of her home.
Homeowners' associations are here to stay, and do perform
the function of maintaining the common areas that make
many modern residential communities more attractive.
Some homeowners' associations, like the one in Glendale,
will exercise their substantial powers to enforce their
CC&Rs. If you would prefer to be free of the financial
and regulatory burden imposed by a homeowners' association,
you can as a home buyer vote with your feet on the issue
by choosing, as my family did, to buy a house in a neighborhood
with no formal association.
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