Word to the Wise - The Creation of Artificial Debt
Written by Elaine Roberts Musser Wednesday, 22 July 2009 23:00
by Elaine Roberts Musser -
On July 8, 2009, I had the honor of being interviewed here in Davis by Tom Vacar of KTVU Fox 2, Oakland. The story to be covered is about the growing problem in the homeowner association arena of artificial debt created by subsidiary debt collectors, working in concert with their affiliated law firms and homeowner association industry managers. The reason I was chosen as one of several persons interviewed, was my intimate knowledge of this practice, because of several cases I have worked on as both a volunteer attorney and board member of the Oakland based Center for California Homeowners Association Law.
The homeowner is advised not to speak with any homeowner association board member to settle the dispute and vice versa, a blatantly illegal maneuver. Collection costs and late fees are swiftly tacked on until the amount reaches astronomical levels, e.g. $5000 or more in a matter of weeks on a bogus "debt" of only a few hundred dollars. Most homeowners cough up the money at some point in the process, no matter how unfair. It is either that, or lose their home and/or incur the prohibitive costs of hiring an attorney to represent them in mediation or court. Homes have been lost for as little as $120 owed.
Worse yet, there is a quirk in California homeowners association law, governed by the Davis-Stirling Act. It requires the homeowner to participate in mediation before the matter can be taken to the courthouse. If there is no low cost mediation in the area (Yolo County only has a low cost mediation program in Davis), the low or middle income homeowner is up the creek without a paddle. Private mediation is quite expensive ($10,000 and up in total costs of mediation, including venue, private arbitrator and attorneys fees). Furthermore, private mediators often are friends or colleagues with the homeowner association attorneys and debt collection lawyers - a good 'ol boy network heavily stacked against the homeowner. Yet the courthouse is where the entire slimy process could be put under the strict scrutiny of an unbiased judge. All of these homeowner hurdles are well known to the slick homeowner association industry managers, attorneys and debt collectors.
This outrage of artificially creating debt is furthered by use of some very shady techniques. Homeowner association management works hand in glove with homeowner association attorneys and collection agencies. Debt collectors are unregulated in the state of California. Thus some industry managers are getting in on the swindle and charging their own late fees and collection costs, or becoming debt collectors themselves. There are no caps on collection costs. The sky's the limit!
Industry management companies in concert with debt collectors resort to the following tactics to ensure the homeowners payments are somehow "late":
a) Refuse to sign for certified mail;
b) Won't accept checks at their business office; via mail; or when handed the check by a member of the homeowners association board;
c) Fail to post checks to the homeowners' account;
d) Give an incorrect mailing address;
e) Refuse to tender the correct billing address;
f) Fail to give proper required legal notice of any delinquency in a timely fashion or at all;
g) Impose fines on any homeowner complaining about such practices by management/debt collector.
The homeowner association debt collectors keep "clean hands" by sending "verification" of the debt upon request of the homeowner, as mandated by the Fair Debt Collection Practices Act (federal law). However the "verification" is nothing more than managements' version of events! Thus the homeowner association debt collector, attorney and manager are inextricably intertwined, "partners in crime" if you will. The homeowners association attorney is supposed to be representing the interests of the homeowners, at the same time its subsidiary debt collection agency in concert with industry management is creating artificial debt it collects whopping big collection fees on!
Specifically targeted are senior citizens and ethnic minorities. Both groups are seen as especially vulnerable and easy targets to manipulate. The elderly do not have the physical and/or emotional stamina to withstand the pressures brought to bear by an unscrupulous collection agency. And many homeowners who do not speak English very well or do not speak English at all fail to understand the gravity of what is happening to them.
In a recent case I was involved with, my client kept trying to make payment, but it was repeatedly not accepted. In consequence, this senior was forced into expensive private mediation, for a "delinquency" not of her own making. It was artificially created by homeowner association management working in concert with the subsidiary debt collector and the affiliate attorney representing the homeowner association - using all of the above-mentioned tactics. My client was compelled to settle when the money ran out, unable to financially support going to court. I cannot disclose the terms of the settlement, but beyond that substantial payment, my client had to expend $12,000 in mediation costs and attorneys fees - for an ostensible "debt" she never owed.
LESSON TO BE LEARNED: Beware homeowner associations - avoid them if at all possible. When tangling with a debt collector in the homeowners association setting, don't wait. Immediately pay the debt under written protest, and sue for its return in small claims court (debt cannot be more than statutory limit of $7,500). If you are unable to make payment on the alleged debt owed, which will include collection costs and late fees, suggest a payment plan to the homeowners association board. If you need assistance, go to the Center for California Homeowners Association’s website at: www.cahomelaw.org.
THE STORY ABOUT THE UNSAVORY PRACTICE OF ARTIFICIALLY CREATED DEBT IN HOMEOWNERS ASSOCIATIONS IS SCHEDULED TO BE ON THE KVTU TELEVISION STATION’S WEBSITE AFTER JULY 21 AT: www.ktvu.com. _____________________________________________________________________________________
Elaine Roberts Musser is an attorney who concentrates her efforts on elder law and aging issues, especially in regards to consumer affairs. If you have a comment or particular question or topic you would like to see addressed in this column, please make your observations at the end of this article in the comment section.
"I made sure when buying my house to NOT be in a homeowner's association. I've been happy to live in freedom from those who want to tell me what color to paint my house or how long I can leave open my garage door. This scam solidifies my decision."
Being free from a HOA makes you free from monthly assessments, free from the fear of an out of control HOA Board/management company/affiliated debt collection agency, free from the fear of being scammed by shady HOA management companies/debt collectors, free from the restrictions of Covenants, Conditions and Restrictions, free from shady HOA Board election practices, and the list goes on.
Unfortunately, HOAs are being touted as wonderful things by developers, who bill them as entities that will "take care of everything" for the homeowner. Nothing could be farther from the truth. What HOAs take care of is unloading the homeowner's wallet. This is no exaggeration. Furthermore, if the HOA Board/management do not keep the proper funding reserves, which happens all the time, and the roofs need repair, suddenly homeowners can be slapped with a $20,000 to $30,000 special assessment. Many homeowners lose their homes, bc they can't pay it.
There are certainly examples of poorly run HOA’s or people who have lost their homes due to failure to pay assessments or penalties (penalties due to failure to live by the rule that were fully disclosed to the buyer at the time of purchase). My thoughts:
Having owned and lived in two HOA planned communities in the past 30 years I can attest to their worthiness. Both had active boards of directors and competent management firms which ran the day to day operations. These communities were park like and the individual units only increased in value. They are very desirable communities and the units have even held their value during the housing bust of the last few years.
When one buys a home they are provided with copies of many documents, including CC&R’s and the existence of an HOA. It is a basic matter of due diligence for a home purchaser to review the CC&R’s or other rules of the community they are interested in purchasing into, to understand what they are buying into. Purchasers are free to elect to not buy a home within a particular community if they do not like the rules. CC&R’s are put in place to ensure lasting value of the entire community and benefit and affect all owners equally. To decide after the fact that you do not like to be told what color to paint your house or that you cannot leave your garage door open is akin to the speeder deciding that the 65 MPH speed limit is inconvenient and then being upset with the CHP when they receive a ticket. In the case of common interest subdivision the role of the HOA is to enforce the CC&R’s and ensure that the quiet enjoyment of one’s property is maintained as is the overall value of the neighborhood.
The image of the HOA as being Nazi like enforcement body or a group of bumbling idiots is unfair and overly exaggerated. Again the concern that “someone tells me what I can and cannot do with my property” is somehow un-American totally misses the mark. When you buy a home within an HOA you know what you sign-up for before you buy, but if you do not read the paper work that is not anyone else’s fault but your own. Many people throughout California enjoy living in common interest communities as they are assured that the rules will be enforced, values will be preserved and problems or violations can be dealt with without the need for a neighbor to sue an neighbor to enforce CC&R’s in neighborhoods without an HOA.
It is true that an HOA is only as good as the people who step up to lead and want to be involved in their community. This is true of any governing body. The beauty of the HOA is that if it is not working, you can go door to door to your neighbors and do something about it.
Like bad lawyers or evil politicians, bad HOA’s are the exception not the rule and there are thousands of these throughout the state that are well run and a benefit to the people who live there.
One of Davis’ most celebrated neighborhoods is in fact governed by a homeowner’s association.
Village Homes: http://www.villagehomesdavis.org/public/about
Ditto what "my point of view" states . . . I have lived in the Stonegate community for 20 years. We have a very active HOA with an elected board of directors that manage the finances and CC&R compliance, and they hire a paid management/staff that oversee maintenance of our swimming pools, tennis courts, exercise/weight rooms, clubhouse, locker rooms, 17 acre lake and 2 1/2 acres of lawns/landscape, sailing program, tennis program, etc, etc . . . and we pay $38 bucks a month . . . and our homes maintain their value! Check out our website.
Stonegate: http://members.dcn.org/stoneg8/
This sounds like a problem with regulations and unethical attorneys, rather than HOAs. The HOA board hires an attorney to supply "expert" legal advice when/if they have a CC&R compliance issue, as is it is their responsibility to do. I wish this were the only instance of bottom feeding in the "law" business . . . I think your focus should be on the cause, not the result of the problem. But working it this way does keep you employed . . .
You have a skewed view as a lawyer, you are dealing with cases that involve problems. That's the nature of being a lawyer. The question is whether you can REASONABLY infer from your experience to generality. What percentage of HOA's have these problems? Less than 10% PERHAPS? I think you are being irresponsible here by drawing an overly broad conclusion whether you have only anecdotal and no systematic empirical evidence?
It seems clear that the vast majority of homeowner associations are eithical, well run and a benefit to the cmmmunities they serve. ERM is focused on those associations that are not and/or the unethical lawyers and collection agencies who are hurting people which is to be commended. But ERM uses the broad brush to paint the HOA model as inherently bad. This is a gross generalization, a mischaracterization and misleads the reader.
I will state again, like bad lawyers or evil politicians, bad HOA’s are the exception not the rule and there are thousands of these throughout the state that are well run and a benefit to the people who live there.
While there certainly are HOA boards which are composed of only wise and well meaning directors, I must agree that the system is flawed. When first-time homeowners buy a condo they are often overwhelmed by all the paperwork, and don't read or understand the CC&R's. Coming from apartments, they are used to landlords or managers setting the rules and thus are easily led to believe that the hired management companies know best and can be trusted to run things without oversight. (Our young board president actually asked the manager if she couldn't just be on the board!) Often Law firms and management companies (who live off the HOA dues) are inclined to encourage naive board members to allow the "professionals" to make the decisions, claiming only they can understand the laws, and to do otherwise will leave the volunteers open to being sued. That's O.K - IF the management company is ethical, with the best interest of the homeowners in mind, and their employees are well trained and supervised. CID property management done WELL is far from easy, and yet anyone can hang out a shingle and attempt to do it.
Many boards overspend on administration and needless legal fees for consultations and/or for contrived adversarial action between the board and an owner (or even between board members). If common sense reigned; (and probably does in the HOAs which curious and point of view and farwester are familiar with) small slights would not escalate into legal skirmishes benefitting only the lawyers. And the money spent writing and reading lawyers' letters could go toward roofs and gutters and irrigation-(ever heard of anyone besides a property manager charging an extra two hundred bucks to read a letter?)
Things get really bad when a management company gets a cut of collection agency late fees and thus will actually push owners into delinquencies by failing to notify them of a rate increase, or fabricating a bogus fine or fee or a dozen other tricks that dirty managers get away with when the boards are not watching closely enough, not listening to the other owners, because the management company has said "leave it to us, you're too busy to take calls from the residents." The managers never mentioned those tactics when they were being interviewed for the job and they aren't found in the contract they signed with the Association. Lesson: the time to pay a lawyer is before you sign a new long-term contract. And try to find one who represents homeowners (as opposed to those working exclusively for HOAs, who already have connections with favored property managers, and may be more inclined toward contracts which protect the managers' interests- after all, managers can deliver many HOA clients over time, your HOA is just ONE client.)
Ultimately, apathy among owners is to blame, because the very owners who are wise and mature enough to make good board members are too busy with life to be bothered to volunteer. I would venture to guess that the best run HOAs are in communities with ample retirees, having the time (and experience) to sit on boards, and who recruit their neighbors to take a turn as well. A lot is expected of boards for no pay and scant satisfaction (people will always criticize and complain, but seldom will anyone thank or help the board.) Some kind of training IS needed, and It would be best if it were NOT supplied by the trade groups beholden to the professional managers and HOA law firms- the "HOA Industry" as ERM calls it.
I am thankful for the voluntary efforts of ERM and of the CCHAL who are among those working (for free) to make all HOA boards competent like Stonegate's. Thanks to their efforts, that goal will be reached here in California before other states. I look forward to the day we all can live in happy communities like those described above, because new single family homes get rarer and more costly all the time.
I want to thank Elaine Roberts Musser!! I am currently in the middle of this scam. It started in February and is still on going. I am privileged to have an attorney involved that is looking out for me. I felt like there was a serious scam going on but you confirmed it for me. Your article describes what is happening to me to a T. Now that I read your article I feel enlightened. Thank You so much!!!
