Estrella Bryant was trying hard to keep up with her mortgage payments on her home in San Francisco, California. Like many other struggling homeowners, she thought she could delay a dues payment to her Homeowners Association. Wrong choice. She was unprepared for the nightmare that followed.
The Parkview Heights Homeowners Association told her she owed $560 in dues. The case was turned over to a collection agency, which then tacked on its own fees and attorney’s fees.
The nightmare grew. Bryant said her big mistake was thinking that an HOA was there to help its member homeowners, the exact opposite of what the typical HOA does.
The HOA’s collection firm said it would be glad to arrange a payment plan, as long as she signed an agreement to pay the collection agency’s fee first. (By the way, it’s absolutely illegal in California for collection agencies to make debtors sign such agreements!)
As soon as Bryant signed the agreement she saw the collection fees, the attorney’s fees, HOA dues and interest continue to rise.
Bryant was one of the fortunate few who found an attorney who would take the case pro bono to save her home.
Anyone in California who finds themselves in a similar situation should contact CalHomeLaw.org. The organization has waged a vigorous fight against illegal practices by Homeowner Associations and collection agencies. They also have excellent material on how Homeowners can use Small Claims Court against out-of-control HOAs.
Neighbors At War: The Creepy Case Against Your Homeowners Association
The reason the nightmare never stops is because keeping individuals in debt through the generation of usurious fees is the business model of H.O.A. corporations.
It is well known that other major creditors sell their “delinquent debt…to a debt buyer for pennies on the dollar,” and write-off the losses.
But not H.O.A.s, because your house is forever collateral not only for the regular H.O.A. dues, but any arbitrary fees and fines the HOA generates. The perpetual lien they hold is never released, even after you have paid off the mortgage. This creates an incredible system of perverse incentives and moral hazards. The resulting strife and conflict is inevitable, because the industry vendors who hold your house hostage are driven by the profit-motive. Every fine, every fee, every kickback, every lawsuit is money in their pockets.
As the New York Times story about Ms. Bryant noted,
For collection agencies, however, the foreclosure process can be profitable.
David Swedelson is a partner in Swedelson & Gottlieb, a Southern California law firm that is an affiliate of Association Lien Services. Mr. Swedelson said homeowners associations contracted with collection agencies because the latter could cut through “government red tape and requirements” and resolve cases “a lot faster.”
Mr. Swedelson’s law firm boasts on its Web site that it can collect delinquent assessments, costs and fees in “90 percent of cases,” and said it believed that “foreclosure is the fastest and most effective way to collect overdue assessments.”
Evan McKenzie, a former HOA lawyer and the author of Beyond Privatopia, observed this years before the housing market collapsed.
“What’s really driving this is the dynamics of these collection lawyers who are just out to generate fees and to sell these houses off as fast as they can.” (ABC “20/20”. April 20, 2002).
These lawyers take a “collection-agency posture,” he says, putting liens on property when homeowners are 10 days late paying an assessment. “Every letter has a price tag — and if the homeowners don’t pay, you slap them with a lien.” Although the assessment is perhaps for only a few hundred dollars, the lien may total $5,000 or $10,000 — and, in order to clear their title, the homeowners must pay not only the assessment but the lien as well. If they cannot do so, McKenzie says, they can lose their home through a form of foreclosure unmediated by the courts or any local government.
“These lawyers are so rapacious that it’s just shocking,” says McKenzie, adding that no laws govern their fees — they can basically charge whatever they want. “It’s up to the homeowner to file an action with the court, and if you don’t file a lawsuit, you are out of your house before you can say boo,” he adds.
The worst part about the whole process, says McKenzie, it that it’s legal, a fully institutionalized practice: “The bar even offers workshops on the process.” (“The Myth of Privatopia“. December 17, 2002)
The current market cannot be blamed for the behavior of these rapacious attorneys and their clients.
H.O.A. lawyers are urging their clients to add “late fees (if you don’t already have them) and increasing the amounts you can charge for late fees and interest to the highest amount permitted by law” to use a “bigger hammer” against homeowners, and to “be aggressive with your foreclosure actions.” Because that’s how so-called community associations treat their neighbors when times are hard.
Who profits? The lawyers, of course, who also act as the H.O.A.’s collections agency. As I have learned from personal experience, this arrangement allows the H.O.A. to conveniently claim attorney-client privilege with its collections agency and circumvent the open-records requirements of both the law and the H.O.A.’s own governing documents.
Where are the anti-lawyer crusaders? Where are the conservative activists and pundits who are are busy “chronicling the high cost of our legal system” and producing TV shows about “parasitic tort lawyers“?
Where are the stories on Fox News or Overlawyerd.com about Tom Newton, Donna Berger, David Swedelson, Munk Carter, Robert Tankel, Vinay Patel, Mark DiSanti, Jad Aboul-Jibin, etc? It’s not as though there’s a shortage of these “isolated incidents” of sleazy behavior by H.O.A. lawyers to produce regular reports if they wanted to.
Or do they agree with the ethically-challenged H.O.A. attorney Robert Tankel, who forecloses on the homes of H.O.A. members so he can rent them out for his personal profit while waiting for the bank to foreclose? “Its called capitalism. It’s the free market,” is how Tankel justifies his practice.
This appeal to capitalism and free-markets is used by the industry to justify any type of amoral, immoral, sociopathic, and unconscionable behavior.
And herein lies the problem. Just like the Soviet Union, China, Cuba, North Korea, etc. was the inevitable real-world result of trying to implement Communism, the H.O.A. system is the real-world result of conservative and libertarian socio-economic ideas about unregulated corporations and governance by some-document-called-a-contract. And it has produced a disaster; not just in terms of lost liberties, but an unsustainable economic system that threatens another foreclosure crisis. Even the proponents for H.O.A.s claim that H.O.A. corporations need extreme enforcement powers — up to and including the power to foreclose for trivial amounts and reasons — in order to survive, because H.O.A.s are Too Important To Fail.
Privatizing communism into Communism Inc. doesn’t make communism work any better; your private property is still collectively owned. A few tweaks here and there isn’t going to make H.O.A.s work for the homeowners. It cannot because the structure is too fundamentally flawed.
You already know my solution: give homeowners the freedom to opt-out of their H.O.A. without having to give up their home. I believe that this is the only way H.O.A. corporations will start treating their members as customers, rather than as a product to be farmed out to the property management companies and law firms. If an H.O.A. provides value for what they charge, homeowners will want to freely remain members without the need to hold their homes hostage. Isn’t that how a free-market is supposed to work?