By Deborah Goonan, Independent American Communities
Did you realize that all homeowners’ associations (HOAs) – even single family home communities – are vulnerable to hostile takeover?
My regular readers know that I have been covering the topic of hostile takeovers in the form of forced termination of condominium associations. While the process seems that have started in Florida – where it became a cottage industry to terminate struggling condo associations in the wake of the foreclosure crisis – it then spread to other parts of the US, to include Chicago, Boston, parts of Arizona and other urban centers with an oversupply of condos and shortage of rental apartments. More recently, we’re seeing similar activity in condo (strata) associations in Vancouver, British Columbia.
Another form of hostile takeover has been demonstrated in Las Vegas, Nevada, where a conspiracy involving potentially hundreds of individuals evolved into the largest real estate scam ever investigated by the FBI. Forty two people were ultimately convicted. The scam involved Silver Lining construction company boss Leon Benzer arranging for straw buyers of condos, who would then be elected to condo boards by fraudulent methods, with the help of complicit condo managers and attorneys. In these cases, Benzer’s goal was not to terminate condo associations, but to steer lucrative construction defect repair contracts to his company.
But what’s about to happen in the Estates at Eagle’s Pointe Homeowners’ Association, smack dab in the nation’s heartland, is yet another variation on hostile takeovers.
Take note: Eagle’s Pointe is an HOA, not a condo association; and its location is the site of a former Air Force military base, in a small-town, relatively rural location.
Non-profit Trinity Affordable Housing Corp. is about to purchase nearly half of the 1,100 units in Eagle’s Pointe, thus gaining control over the HOA.
Read the details here:
Eagle’s Pointe residents express concerns about property sale
$22.5 million purchase could give non-profit control of homeowners association
By Carson Gerber Kokomo Tribune 14 hrs ago
BUNKER HILL – A group of residents of The Estates at Eagle’s Pointe say they hope a company purchasing more than half of the 1,125 housing units in the subdivision will turn over control of the homeowners association.
Trinity Affordable Housing Corp., a Chicago-based non-profit group, publicly announced last month the proposed $22.5 million purchase of 585 units in the housing addition.
Philip Guistolise, vice president of the non-profit group, told county officials last month the purchase will give the corporation complete control of the homeowners association. He said the group plans to hire a management company based in Alabama, which will use that control to enforce any property violations and evict residents who don’t follow the rules.
But Dennis McNally, a homeowner who lives in the subdivision, said the company’s total control of the homeowners association is a concern for some residents.
The housing covenant created after the sale would give Trinity three votes per unit in the homeowners association. Other owners receive only one vote.
McNally said some residents now plan to request the non-profit amend the covenant to allow homeowners outside of the sale to have more say in how the subdivision is managed and operated.
“We’d like to get some control back in our neighborhood instead of sending in a management company that doesn’t care about us,” he said.
Guistolise said last month, “The [management company] will take a very proactive, tough approach on rentals.”
“The key is to enforce rules and really be on top of things … If we have to impose harder requirements, we’ll impose them,” he told officials. “There will be no second chances. If you don’t follow the rules, then you’re out.”
Additional information about Eagle’s Pointe
Eagle’s Pointe HOA is a bit different than most HOAs beacause of its history as a former military base. In 1994, when the Department of Defense realigned, Grissom Air Force base ceased daily operations, and the community became a ghost town. However, Grissom Redevelopment Authority breathed new life into the area by tearing down old miliary buildings and bringing in commercial businesses to create a small town. In the process, an HOA was formed to build a new pool and fitness center, and to spruce up the drab, worn appearance of the 1960s-era housing.
So the community was never controlled by a for-profit developer. Control shifted from the US Department of Defense to a non-profit Redevelopment Authority to the current HOA, controlled by homeowners.
Following redevelopment, apparently many of the homes were purchased by investor-landlords. According to one appellate case involving an owner of 28 units, in 2014, assessments were increased from $35 to $50 per month in 2010, due to bad debt and increased costs to maintain the pool and fitness center.
In the December 2008 letter, the HOA informed residents that the HOA had experienced an increase in bad debt and attorney costs associated with the collections and the enforcement of the rules and regulations. In the April 2010 letter, the HOA informed the residents that the HOA dues were due on the first of the month and that on the sixth of the month a late fee of twenty-five dollars per month would be assessed.
Reading the facts in the legal opinion, it’s clear that Eagle’s Pointe has its share of difficulties, including inaccurate or nonexistent bookkeeping and reluctance of landlord-homeowners to pay assessments, complaining of poor maintenance services and a lack of transparency.
However, the looming purchase of 585 units by Trinity Affordable Housing is likely to multiply problems for homeowners and tenants alike. Reading the Kokomo Tribune article, the intentions of new ownership and management are made clear: obey the rules or get out. Looks like residents will be facing heavy-handed fines, lawsuits, eviction of tenants, as well as lien and foreclosure against property owners. And if Trinity is granted weighted voting rights, the non-profit will be able to completely rewrite Convenants, Conditions, and Restrictions (CC&Rs) and ByLaws to its sole advantage. Trinity’s HOA board will be able to raise assessments, enact new onerous rules, create new financial liabilities for homeowners, and wreak all kinds of havoc. And they probably will.
Their ultimate goal could be to force remaining owners to sell at a low price to escape the tyranny. And once that happens, the non-profit is free to redevelop Eagle’s Pointe from the ground up.
All of this is made possible by the non-democratic voting structure of HOAs. Remember, voting interests attach to the property, not to people. The more units you own, the more votes you cast. And in the case of bulk investors or developers, the law allows more than one vote per unit! It becomes mathematically impossible for remaining property owners to elect board members of their choice or to prevent a hostile investor – even a non-profit investor – from enacting harmful amendments to the so-called CC&Rs “contract.”
That spells big trouble for homeowners, including those who own property in Eagle’s Pointe.