Homeowner Groups' Power to Foreclose Is Under Attack
Lawmakers say boards have gone too far by seizing and selling units over minor disputes.
By Daniel Yi
Times Staff Writer
June 7, 2004
Alarmed by a flurry of horror stories, state lawmakers are rushing to resolve a long-standing complaint about homeowners associations: the power that they have to seize properties without going to court.
By law, associations are entitled to foreclose on the homes of members who fail to pay their dues. Though most residents pay their bills before their houses are actually sold, thousands have lost their homes, sometimes over disputes involving a few hundred dollars.
"It's legalized extortion," said Marjorie Murray, a state advocate for senior citizens, many of whom live in condominiums and private communities run by associations. "Why should homeowners associations have such a power?"
Some homeowners association leaders say they need so-called nonjudiciary foreclosure powers, which allow them to take property without seeking a judge's approval, to keep neighborhoods looking tidy and to protect property values. Without such powers, associations would have little ability to require homeowners to pay assessments that cover the costs of such projects as new roofing in a condominium complex or landscaping services and street maintenance in a gated subdivision.
"Unless and until these debts are collected, the remaining homeowners must make up the difference, and that is unfair to them all," said Skip Daum, a lobbyist for the Community Associations Institute, a trade group whose members include homeowners association boards, community managers and lawyers.
But the Assembly and the Senate, responding to recent high-profile cases, are considering two bills this year that would limit homeowners associations' nonjudiciary foreclosure powers.
"One of the doctrines of our laws is that the penalty or remedy should fit the violation," said Assemblyman Darrell Steinberg (D-Sacramento), whose bill banning nonjudiciary foreclosure passed the Assembly at the end of May. "And taking someone's home obviously should be the last resort."
The controversy over nonjudiciary foreclosure stretches beyond California as legislators from Arizona and Texas, among others, have attempted — with mixed results — to limit the power of homeowners associations. Still, associations in many states can simply auction a property after deeming a bill overdue and filing notices with the county.
An estimated 8 million Californians — about one-fourth of the state's population — live in communities governed by homeowners associations. About 2,500 residential developments governed by associations are built in the state each year, the California Research Bureau says. And 40% of new single-family homes sold are in homeowners associations, the Public Policy Institute of California says.
As they grow in numbers, homeowners associations — a form of private government whose elected board members enforce community rules and levy assessments — have come under criticism, even ridicule, over seemingly trivial regulations, including what lawn ornaments residents are allowed to have or what color they can paint a front porch.
But the ability to take someone's home is such an extraordinary power that its use should be limited, even banned, critics of the practice say. Some associations are too quick to resort to foreclosures, sometimes over relatively small amounts, the critics say. And because the associations have little interest besides recovering the dues they are owed, homes are sometimes sold for pennies on the dollar, leading to huge losses for individual homeowners.
In Tom and Anita Radcliff's case, their association sold their home in less than a year over what began as a $120 bill.
Citing financial and health problems, the couple didn't pay the annual dues. Their Copperopolis, Calif., home, which was appraised at $277,432 and had a $30,000 lien on it, was auctioned for $70,000 in December.
The sale left the retired couple with about $68,000 after subtracting the unpaid assessment and collection fees — and without their house.
"It just didn't occur to me that someone would foreclose over $120," said Anita Radcliff, 64. "It was outside the realm of my reality."
Mike Woodbury, an attorney for their homeowners association, Copper Cove at the Lake Tulloch Owners Assn., said the couple were given warnings and opportunities to avoid the sale. "It is the obligation of the homeowner to pay the assessments," he said.
The couple filed a lawsuit in March, alleging among other things that the foreclosure was an abuse of collection laws. They are being allowed to stay in the home until the lawsuit is resolved.
Melissa Colburn of Chula Vista, Calif., sued her homeowners association after it sold her $230,000 two-bedroom townhome for $5,150.
Colburn, an expert on hazardous materials, said she wasn't receiving her homeowners association bills because of a mail mix-up. She got an eviction notice in late 2002 from the man who bought her home, Carlos Sosa.
"I thought it was a joke," she said. "I almost threw the piece of paper away."
Colburn, 35, settled her lawsuit and reclaimed her townhome at the Villas at Eastlake Shores Owners Assn. But in the process of building her case, Colburn found that her association's law firm, Peters & Freedman, had acted as a trustee in other foreclosures in which Sosa had bought properties.
In one case, Sosa paid $2,515 for a house in Escondido and, in another, $2,987 for a condominium in Bonita, according to property records in Colburn's lawsuit.
Colburn accused the law firm and Sosa of colluding to sell foreclosed homes at rock-bottom prices. Sosa and David Peters, of Peters & Freedman, denied the charges in court filings.
Sosa did not return calls, and Peters declined to comment specifically on the case, citing the settlement's confidentiality agreement.
"Foreclosure is a small part of our business," said Peters, whose firm represents nearly 600 associations in Southern California. "It is certainly not a profitable part of our business."
But it would have been a potential windfall for Sosa, who stood to make as much as 20 times his investment. Colburn said her townhome had nearly $100,000 in equity after subtracting the $130,000 in mortgage still owed to her bank.
Experts say such profits are possible in part because auctions held by homeowners associations are not widely advertised, and associations are typically interested only in recovering the dues and collection fees they are owed. By law, the bids start at the amount owed, and any anything above that goes to the original homeowner. The buyer assumes some prior liens, such as the mortgage.
California homeowners associations can auction a property in as little as six months — far more quickly than county tax collectors, for example, who must give homeowners five years to pay. Their power is similar to that of a mortgage bank, which technically owns a home until its loan is paid and can auction a property without a judge's review if the borrower defaults.
Actual sales of homes are rare. About 1% of all foreclosure actions begun by homeowners associations end with the home being sold, according to the Community Associations Institute, which conducted a survey in 2002. Most homeowners faced with the prospect of losing their home at auction pay their debts, the trade group maintains.
But based on the institute's numbers and estimates of the number of California homes that are governed by homeowners associations, that 1% represents several thousand foreclosed homes in recent years.
Hundreds of thousands of others are threatened with the action every year. And because there is no judge reviewing the process, the critics say, those who believe they are being wrongfully targeted have little choice but to pay their associations or file costly lawsuits.
Lawmakers would like to curb the trend and offer some protection for individual homeowners.
A bill introduced by Sen. Denise Ducheny (D-San Diego) would prohibit homeowners associations from foreclosing for debts of less than $2,500 and assure that those who are drawn into foreclosure receive at least a portion of their equity: up to $50,000 for a single adult, $75,000 for a family and $150,000 for senior citizens.
The Senate passed the bill unanimously last month. Ducheny's bill is likely to be combined into a compromise bill with Steinberg's Assembly bill, which passed 69 to 10 and seeks to ban the practice altogether. A final version should reach the governor's desk later this year.
"There is an increasing share of our population who" live in places with homeowners associations, Ducheny said. "And that raises all sorts of question about how they are governed which the Legislature has considered [in the past]…. But nothing is as visceral as someone losing their home."
Copyright 2004 Los Angeles Times
High court ruling backs homeowner
Rocky Mountain News
Man wasn't bound by association's deal, is entitled to legal fees
By Karen Abbott, Rocky Mountain News
May 25, 2004
Erik Krystkowiak didn't want anyone to build a 160-unit apartment complex across the street from his Colorado Springs home.
He said so, repeatedly, in 1998 meetings of the City Council and planning commission, even though his homeowners association signed a deal with the developer to stop fighting the project.
Colorado Springs turned down the apartment complex proposal.
The developer, W.O. Brisben Companies Inc., sued Krystkowiak for interference with a contract, seeking millions of dollars in damages.
Krystkowiak won. The El Paso County District Court threw out the developer's lawsuit, citing a 1984 Colorado Supreme Court ruling that upheld citizens' First Amendment rights to petition their government in opposition to developments.
The district court judge said Brisben's lawsuit was filed in retaliation for Krystkowiak's outspoken opposition to the apartment complex.
But the district court refused to make Brisben pay Krystkowiak's attorneys' fees under technical legal rules having to do with Brisben's claim that, because the homeowners association signed a contract to stop fighting the apartment complex, Krystkowiak was bound by it even though he refused to sign it personally.
The Colorado Supreme Court ruled Monday that Krystkowiak had the right not only to join the home-owners association, but to detach himself from it when it no longer represented his views.
That meant Krystkowiak never signed away his First Amendment rights to petition the government when the homeowners association signed the deal with the developer.
Because Krystkowiak was sued for exercising those rights, he is entitled to attorneys' fees, the court said.
"The right to petition has been characterized as one of the most precious liberties protected by the Bill of Rights," the Supreme Court said.
The high court sent the case back to El Paso County District Court for a determination of Krystkowiak's attorneys' fees.
Copyright 2004, Rocky Mountain News. All Rights Reserved.
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.
Home Owners Association Problems
Michael Geeser, Consumer Editor
(Jun 1) -- Homeowner's associations have become commonplace around the valley. Whether or not your neighborhood has one, it seems everyone has an opinion about them. There is a misconception about HOA's that no one likes them and they create hardships for residents. That may be true in a few cases, but a study from the state ombudsman's office tells a different story.
According to a survey, 92% of the HOA residents they polled in the Valley said they enjoy living in their community. To peacefully co-exist in an association, David Stone of Nevada Association Services says homeowners need to do things -- pay their assessments on time and read the CC&R's. "Most people do like living in a homeowner's association, I know I do, my friends who live in HOAs certainly do. They follow the rules, pay their HOA assessment and they live in a nice clean area. Now there are exceptions, renegade boards that feel like they need to be walking around at night with clipboards, that does happen but its highly, highly unusual," he says.
When those cases arise, the state ombudsman's office now has a five-member commission in place to handle those cases. Disputes among homeowners and associations can usually be traced back to one document, the CC&R's. Those covenants, conditions and restrictions almost always contain the answer. But they aren't helping one homeowner who followed the rules, but received a cease and desist order anyway.
Rebecca Whitlock's home looks like a slice of paradise carved out of the Las Vegas Valley. She lives in the Desert Shores community with a backyard view of cool, blue water. The addition she built adds to the entire setting. But there is one group that doesn't like her patio cover and balcony -- her homeowner's association. In fact, they've asked her to take it down, stating she never received permission to put it up.
The fact is, she did, and has the document to prove it. At the time of construction, Whitlock received permission from the Desert Shores Association. Then after it was up, the board decided she didn't go to a sub association for permission. The reason for that; there was no sub association in place.
"I got an approval letter from Desert Shores," says Whitlock, "Which was running Harbor Cove Association at that time, so I submitted my application and got approval. So I didn't think anything but that I was approved."
Things got progressively worse, eventually winding up in arbitration. And what did the arbitrator, Richard McCall decide? He decided that Rebecca should have to take down the addition. "This is one I would like to not see go this way because it looks like it wasn't a common sense decision," says Nevada State Ombudsman Eldon Hardy.
8 On Your Side asked the association board president to speak with us but we were referred to their attorney Jay Hampton. In a written statement, he said, "We put the facts in front of the arbitrator and let him make the decision."
Whitlock's attorney has since filed an appeal, which means for now the addition will stay up as the case goes to trial. But Whitlock says the past few years have been a living hell, thanks to her association board, vindictive neighbors and an arbitrator's decision that left a few people shaking their heads.
"This is like living in a communist country, these rules are to help us not make enemies out of neighbors," says Whitlock. "It does seem like something went wrong in this whole process, and I would like to see it corrected," Hardy adds. Whitlock and her attorney will get their chance to try and correct it when the case goes before a jury.
