Private Community Governments

An Admin Perspective…

Although much has been spoken and written about the issues confronting community
associations, little progress has been made in achieving a balance between people, property and private community governments. Although planned  communities are corporate in legal structure, they should not be autocratic and corporate in mindset.

In the beginning…

In the early 1900’s Kansas City developer J.C. Nichols was among the first to develop of a series of planned  communities called the Country Club District. For his Mission Hills project, he created a ‘mandatory member ship homeowner’s association’ to ensure he would maintain complet e control over the development as well as those who dwelled within it[1]. Nichols incorporated Mission Hills, and by so doing, he created his own private government with power to enforce his restrictions, maintain property, build infrastructure, contract for utilities and collect assessments from homeowners for upkeep of the common areas. Since then a new body of governance knowledge and experience has evolved, but some of the restrictive covenants from that time period are still in effect for two reasons; (1) many covenants require a super majority vote of the community members to change and (2) they are perpetual and do not have a finite life.

Perception is not reality…

Professor and lawyer Evan McKenzie author of Privatopia:
Homeowner Associations and the Rise of Residential Private Government stated:

“Residents in Common Interest Developments commonly fail to understand the difference between a regime based formally on rights, such as American civil governments, and the HOA regime, which is based on restrictions.”

One can’t help but wonder about the origin of the governing documents in planned communities. Some were written 100 years ago and never changed; they were and are today written in hard-to-decipher legalese for the developers. When they were written, there probably were no permanent residents living in the development and they were a  product of someone’s imagination of how a development should look and behave; a  developer’s dreamland where perception is not reality. When the development build-out was complete, the community members were left with governing documents they had not developed and a method of government they had little or no experience with. It is interesting to observe that probably no one from the developer or the declarant board ever lived in the community they developed! They simply move on and begin the process all over again.

When you buy property in a private, corporate, unregulated planned community you probably have been told or have seen written you should always read the governing documents. I will not disagree with that statement. However, there are two caveats you need to be mindful of:

• Nearly every phrase and paragraph is open to someone’s interpretation. Those who govern and the governed often interpret meanings differently; and even the
  courts cannot agree on the meaning conveyed in a covenant. This is often a source of disagreement within a community but, as we all know, the legal community loves discontented homeowners.
• While the covenants generally cannot be revised without a majority approval of community members, the rules, regulations and design guidelines often can be modified by the board without the consent of the homeowners. Those documents alone can significantly alter the character of the community from an earlier point in time.

Is there an alternative methodology that can be used to further enhance a persons’  evaluation of the covenants? I believe that a simple page count of the governing documents can help determine the degree of control by the planned community over individual and property rights. I use the following:

• Up to 100 total pages A reasonable degree of control
• 101 to 200 total pages A high degree of control
• 201 pages and above A very high degree of control

This methodology provides interested individuals a quick evaluation of a planned community’s capacity for governance. If you want a community with a high  degree of control over your life and that of others, go with the higher page count!

Democracy is no obstacle to tyranny…

The HOA private, corporate government provides no system of checks and balances an  there is no ‘constitution’ to limit their powers. They are the almost invisible government that intrudes into our very personal lives in a way unimagined by any of the other  regulatory agencies of our society. The HOA board members simultaneously occupy the legislative, judicial and executive branches with absolutely no local, state or federal oversight. In disputes with homeowners, the board acts as accuser, prosecutor, judge and jury. There is no appeal process except through the courts[2].

Once on the board, these people often forget who elected them and tend to develop an  adversarial posture towards the other homeowners, imposing on the association their own personal standards of neighborhood appearance and homeowner deportment. They will often micro-manage your property through means of creative interpretation and the drafting of new rules and regulations. Clearly, the adversarial posturing of an HOA board will set the tone for conflicts that are sure to follow. There is a limit to the acceptable extent of control and to its productive results. Evolution must produce a synergy between governance needs and governance capacity.

There are legitimate concerns as to the relationship of the governed to those who govern. Highly regimented, non-community focused developments do not sell as well as those that are less restrictive. Restrictions must have a perceived rationale and benefit. Excessive focus on restrictions takes time and resources away from the more productive activities. In communities where conformity and control are the watchwords, there is little reason for homeowner participation unless a member is “into” control.

Here come the experts…

Without the necessary experience to manage a planned community, the next step for the board is to hire a general manager or a management company to perform those tasks. Good luck, there are no academic requirements, licensing criteria or any governmental regulatory agency that oversees their performance. Then the board needs to retain legal counsel to represent the corporate interests. Interestingly, the residents own the corporation and they pay the dues and assessments to retain legal counsel but they have no access to that individual.

But wait, there is an outside non-profit corporation that has all the management and  legal answers. Their primary mission is legislative advocacy through their lobbyists, and their advocacy does not benefit the homeowners; they advocate to benefit their corporate interests and to restrain the individual and property rights of homeowners. The money flowing into the legislative advocacy corporation comes from three sources and is in the millions of dollars nationally:

• dues paying general managers and property management companies. While board members have a fiduciary duty to the members (as defined by Arizona case law), general managers and property management company personnel have no fiduciary duties to anyone but themselves. These individuals operate without any governmental or regulatory oversight and there are no minimum academic requirements. Property management is a large and lucrative business but not without controversy[3]. Their scale of operations is often large; one management company in the southwest has 320 HOA clients in Arizona and New Mexico; others have over 1,000 clients.
• attorneys who represent the corporate interests in planned communities and who are among the largest financial contributors. The large number of planned communities nationwide has spawned a ‘cottage industry’ of attorneys who limit their practice to this financially lucrative sector.
• vendors who provide services to planned communities. Vendors are actively recruited with advertisements headlined Strike it Rich – a California invitation to other vendors and politicians to come to their trade meetings to learn about financial opportunities available to them in planned communities; and in Illinois in 2007 with an enticing invitation to Hit the Jackpot With Community Living.

The outflowof money goes primarily to the lobbyists who protect the outside corporate  interests, most often against the interests of the homeowners. Remember, in Arizona, they are the people who actively lobbied to eliminate the statutory right of the homeowner’s exemption from anyone living in a planned community and the right that required the sale of property to satisfy a judgment of an association to be sold for at least fair market value.

1. A restriction for Nichols Leawood Estates Home Association read: “Land not to be sold, conveyed, transferred, devised, leased or rented to any person of the Negro blood or by any person who is more than one-fourth of the Semitic race, blood, origin or extraction, including without limitation of said designation, Armenian, Jews, Hebrew, Turks, Persians, Syrians and Arabians, excluding, however, from the application of this paragraph partial occupancy by bone fide domestic servants employed thereon”.

2. In 2008, the Arizona Legislature enacted a law that created a less expensive alternative for the resolution of homeowner/ planned community disputes by giving the Office of Administrative Hearings jurisdiction over those issues. The law, however, was later overturned on appeal by the outside corporate operatives.

3. In 2010, the Broomfield (CO) Enterprise newspaper reported that a management company employee is accused in court documents of stealing money from Broomfield homeowners associations. The amount stolen is too great to be covered by Vista Management’s insurance policy, according to a December letter written by Vista Management President Cindy Combs.

In 2008, the California Law Offices of Gottschalk & Associates announced that it was launching a RICO investigation of lawyers and management companies for homeowners’ associations in California. RICO stands for Racketeer Influenced and Corrupt Organizations Act.

In 2008, The Las Vegas Review-Journal reported that FBI agents were combing through homeowner associations’ records as part of a sweeping investigation into possible corruption on several boards across southern Nevada.