Homes Become Cash Registers for Lawyers and Judges

December 18, 2008

By Kevin McAllister (View author info)

We have seen in Part 4 of this series how the home has been commoditized by the grasping hands of the few. In Part 5, we examined how these same grasping hands have created a legal system whose objective is not justice but the wealthification of the few. In Part 6, I want to examine how both these streams came together in an area of the economy that has not hit the national radar screen yet, but which is destined soon to do so - namely, the homeowner association. We will see how the overall fraud of the aggrandizers is instantiated in this particular area of life.

HOMEOWNER ASSOCIATIONS - THE NEW FORM OF GOVERNMENT

Homeowner associations are a fourth layer of government. Though they come last in line after the federal, state and local governments, they nevertheless are in some ways the most intrusive form of government. They can tell you what flowers to plant, how long you can keep your garage door open, what you can display in your window, whether you can park your car on your driveway, whether you can fly the flag - and a host of other things.

Citizens of other countries are bemused at the sight of Americans proclaiming that it is the land of the free, while simultaneously homeowner associations cite citizens for planting the wrong kind of flower, flying the flag, or putting a basketball hoop on your garage.

Homeowner associations go back to the turn of the early 1900's, but prior to World War II, they were primarily enclaves of the rich, who did not want to associate with what they regarded as their uncouth, unwashed and unshaved fellow countrymen. After World War II, that changed dramatically. A marriage of industry and government for economic reasons was to fuel an explosive growth, where living in a homeowner association for many Americans was to become a necessity - not a choice.

CAUSES OF THE HOMEOWNER ASSOCIATION BOOM

First of all, America had a booming economy. While the other industrialized countries lay in ruins after the war, America's factories had been unscathed.

Second, millions of returning GI's wanted to start families, and they had the money in their pockets to afford decent housing.

Third, ever-obliging developers realized that they could earn more money by applying the mass-production techniques of industry to housing. Instead of building one house, why not build hundreds - or even thousands - simultaneously, using the same layout and design?

Fourth, as there was no vacant land in the inner cities, developers bought vast swaths of land outside the cities, and the suburbs were born. But developers quickly realized that there were no public amenities such as swimming pools, tennis courts, or golf course in these suburban areas. Hence, to make the new developments attractive, developers decided to build them. And, in order to run these facilities, developers created the homeowner association.

Fifth, local governments loved these new developments because not only did they provide a powerful source of new tax revenue to the city, but they decreased the tax obligation of the city, because the roads, lighting etc. were paid for by the homeowner association. Very quickly, many municipalities began to require that new developments have homeowner associations.

Thus, the boom was born. Today, an estimated 55 million Americans live ( 1 in 6 )in a homeowner associations. In some places like California, the percentage is even higher - 1 in 4. In Orange County, California, 75% of all housing is in homeowner associations. The housing stock of all homeowner association is estimated to be worth in excess of $35 trillion, and the annual operating budgets run into the billions each year.

The impact on the economy of the U.S. is massive. In the current economic crisis, for example, while no precise figures are yet available, some estimate that the foreclosure rate in homeowner associations is far higher than the national average. There are reports, for instance, of homeowner associations in Las Vegas where 20-30 homes have been foreclosed on, creating monumental economic problems for those associations.

DEVELOPERS AND GOVERNMENT DEFRAUD HOME BUYERS

Of course, the first task of developers was to get people to buy into this type of housing. The typical marketing scheme stressed that buying into a homeowner association preserved home values. The rules and regulations would keep the grass mown and junk automobiles from sideyards, and prohibit your neighbor from painting his house purple.

The homeowner association was presented as a bunch of friendly neighbors who worked together harmoniously and selflessly for the good of the neighborhood.

In guard-gated communities, the riff-raff of the world would be kept out and one could live in an oasis, free of the crime that inundated the surrounding American society.

The developers did not disclose the reality of these "dream" communities - which for some became a nightmare. The developers did not show the CCRs (Covenant, Conditions and Restrictions) to prospective buyers. These CCRs - often running into over a hundred pages of dense legalese that only a Supreme Court justice could decipher - governed every aspect of life in a homeowner association. The CCRs gave unprecedented power to a board of directors to impose special assessments in the thousands of dollars on top of the regular assessment. The CCRs also invested the homeowner association with the power to foreclose on your home if you did not promptly pay all those assessments, without having to take you to court - so-called "non-judicial foreclosure". They could fine you if you happened to transgress one of the numerous restrictions and foreclose on you if you did not pay the fine.

In California, when a group of homeowner advocates tried to get a bill introduced into the legislature to require that the CCRs be shown to an interested buyer, Jim Antt, commissioner of the California Department of Real Estate at that time, opposed it on the grounds that "it might hinder sales". Barbara Lee, then a member of the California legislature and now a member of Congress, refused to introduce the necessary legislation requiring disclosure.

Prospective buyers were not told that sometimes boards of directors could be composed of vindictive, power-hungry and corrupt members of the homeowner association. They were not informed that they could be fined. No mention was made of the homeowner association lawyers.

HERE COME THE LAWYERS!

As we have seen before, lawyers swarm to money like locusts. They are ever searching for new sources of money - and some of them realized that homeowner associations presented a golden opportunity - literally!

As most homeowner associations are corporations, and as lawyers have made sure that laws were passed that require corporations to be represented by lawyers, homeowner associations were compelled to hire a lawyer. Some lawyers realized that if they could market themselves as "specialists" in homeowner associations, they had a captive market .In California, this captive market became even more captive with the passage of the Davis-Stirling Act in 1985.

Willie Brown, the notoriously powerful speaker of the California Assembly in the 1980's, decided at the urging of some of his lawyer friends to revise and consolidate all of the laws dealing with homeowner associations. To revise and consolidate existing homeowner legislation, he chose Gray Davis - the future governor - but then a member of the California Assembly, along with Larry Stirling. Stirling was chosen as repayment for a favor that he had done for Brown.

Davis, in typical political fashion, selected Katherine Rosenberry to draft the legislation. He also told her - as she would publicly testify in Sacramento a number of years later - to take care of the lobbyists.

And she was uniquely qualified to do so because she had been the chief lobbyist for the homeowner association industry. She had been the national president of Community Associations Institute (CAI) - the main lobbying arm for the lawyers and other vendors across the country. Its innocent sounding name should not fool anybody. It was not an educational institution, but a lobbying group to secure the interests of its members - lawyers and other allied vendors who saw homeowner associations as cash registers for themselves.

And did they create a cash register! As the lawyers huddled with Rosenberry, they loaded the bill with provisions which would guarantee them plenty of cash. The major provision was to invest homeowner associations with the power of non-judicial foreclosure - the ability to take a member's home without any court action. This power could be used to collect on unpaid assessments and fines, no matter how small the amount. A couple in Orange County would have to file a lawsuit to stop a foreclosure for an alleged $5 unpaid assessment. A couple in Northern California would lose their home for an allegedly unpaid assessment of $200. Furthermore, this provision gave lawyers the power to threaten foreclosure for allegedly unpaid assessments, and demand thousands of dollars if an assessment of several hundred was not paid immediately. The cash registers would ring very loudly because of this provision.

BIG BUCKS FOR LAWYERS AND JUDGES

While no detailed study has yet been done on the size, scope and revenue of these law firms, some examples are readily available. For example, in Southern California, the law firm of Peters and Freedman claims to represent more than 700 homeowner associations - a mini-empire of no small dimension. It is unknown how many homes are covered by this law firm, but the estimate is in the thousands, if not tens of thousands. They are reported to charge each homeowner association a flat retainer fee, plus hefty legal fees for any work above the minimal amount covered by the retainer.

They also, as an inducement, offer a no-fee collection service for delinquent assessments, fines etc. to the homeowner association. The fees, of course, are charged to the homeowner and they are mind-boggling. A study done by a homeowner in San Diego whose condo was illegally foreclosed on by Peters and Freedman, showed that the latter was the largest filer of Notices of Default for homeowner associations in San Diego County for the years 1998 - 2002. Typically, a homeowner who had fallen behind in paying his assessments by a few hundred dollars, would be required to pay $3,000 to stop the foreclosure process in order to save his home. David Peters, the lead partner in the firm, is reported to live in a $5 million plus home near San Diego.

Another tactic by homeowner association lawyers is to promote litigation between homeowners and the homeowner association. Why? Because the lawyer gets paid big bucks to defend the homeowner association. In one case, the law firm of Peters and Freedman cost a homeowner association over $140,000 in legal fees over a disputed parking ticket - which the homeowner won. In another more recent case, a jury returned a verdict of more than $2 million against a homeowner association represented by Peters and Freedman.

LAWYERS LIE, JUDGES TURN A BLIND EYE

Across the country, homeowners repeatedly complain that homeowner association lawyers lie and cheat to win. One family in Georgia claim to have documented a whole pattern of deception by a leading lawyer in Georgia, who has influential political ties. They eventually lost all their property and had to leave the state.

Homeowners almost uniformly report that when they bring such deceptions to the attention of courts, judges routinely just ignore them, and rule for the homeowner association. In Orange County, California, homeowners claim that homeowners never win in the courts, and that judges seem to twist legal rulings to arrive at preconceived conclusions. Some homeowners have announced that they intend to file a request for an investigation by the Department of Justice and the FBI. Two homeowners are trying to bring criminal charges against several judges and the lawyers involved.

Once again, ordinary citizens are made into economic pawns by large, powerful interests. The same pattern of fraud exists in the homeowner association market as in other areas of the economy. They are glowingly promised that buying a home in a homeowner association will bring them heaven on earth, where the sun always shines and birds sing merrily in the trees.

The harsh reality is that homeowner associations have produced suicides by despondent homeowners, foreclosures galore, killings by a frustrated homeowner who burst in on a board meeting with guns blazing. and untold millions stolen from homeowners by ruthless and unscrupulous lawyers.

It is not a pretty picture, but it is one replicated across the entire spectrum of American life. And they all flow from that fundamental fraud where it is trumpeted that America is about individual liberty, whereas, in fact, the reality is that this is but a mask for the few to exploit the many.

As shown in previous articles in this series, no nation can long endure on such a foundation. The current economic crisis is dramatic evidence of this. America is now the largest debtor nation in the world. Those who led America into this mess know this, and are trying to paper over the magnitude of it from the ordinary citizen. They claim to be finding a solution - but they are the very ones who are the cause of the problem. It is like asking a thief to solve the rash of burglaries in the neighborhood.

CONCLUSION

The future facing America is truly grim. There maybe temporary palliatives, but unless profound changes are made in the global structure, America is destined to go the way of previous empires. Part 7 in this series will address that issue.