By Deborah Goonan, Independent American Communities
Kingman, Arizona, is a small town (population roughly 28,000) along historic Route 66 in the northwestern corner of the state. And although there aren’t many mandatory homeowners’ associations (HOAs) in Kingman, compared to urban areas surrounding Phoenix and Tucson, many of the homes are still bound by Covenants, Codes, and Restrictions (CC&Rs).
And, according to some Realtors in town, buyers are backing out of sale agreements either because those CC&Rs are too restrictive or because there’s no HOA to enforce them.
Draconian rules scare off homebuyers
Story by Hubble Ray Smith
Friday, October 7, 2016
KINGMAN – Selling Kingman is tough enough for local real estate agents. The last thing they need is ridiculously sticky rules driving away business.
Realtor Mike Wagner has come to realize this truth.
Wagner doesn’t expect much sympathy for missing out on commissions because of CC&Rs that have killed three home sales for him in the last few months, but it’s also thwarted the deal for the sellers and people who want to buy a home in Kingman.
That’s happening in a number of Kingman subdivisions, Wagner said, including Rancho Santa Fe, Southern Vista, Ridgeview Ranch, The Ranch at Long Mountain, Walleck Ranch, Hualapai Shadows, Kingman Golf Course Estates, Fountain Hills Estates and The Villas.
They all have CC&Rs, or covenants, codes and restrictions, but they have no homeowners association to enforce them. As a result, the only way to get your neighbor to follow the rules is to sue them, and that pits neighbor against neighbor, Wagner said.
“Being from California, we associate HOAs as neighbors who get power-mad and want to control things, what color you can paint your house, where you can park your boat,” said Wagner, a Realtor with Re/Max Prestige Properties.
“But we always have an HOA to enforce them, and how do you know if you have an HOA? You pay HOA fees. It makes sense that if you have rules, you have a body to enforce them.”
Although you may think that CC&Rs and HOAs go together like two peas in a pod, Hubble Ray Smith reminds us that CC&Rs have existed for well over a century, long before HOAs were created by real estate developers to enforce the rules and standards.
Homebuyers and homeowners often ask, if there’s no HOA, does that mean owners and residents don’t need to comply with the CC&Rs?
Well, not exactly. Legal experts regard CC&Rs as a contract that attaches to real estate, obligating current and future owners to abide by its terms. Technically, that means any one of your neighbors bound by the same CC&Rs can sue you if they believe you have violated the terms of that contract.
Previously, I wrote about a lawsuit in Pennsylvania, where neighbors sued homeowners over installation of a fence, even though there was no HOA. The neighborhood had CC&Rs and a loosely organized architectural control committee. Several owners decided they didn’t like the type of privacy fence the homeowner installed, and they tried to stop the homeowner from installing a pool in the backyard.
In the end, a Judge threw out the lawsuit on the grounds that the committee lacked the authority to enforce architectural standards, and that their enforcement was discriminatory. The homeowners prevailed in that they were able to keep their fence and add a swimming pool despite objections from their neighbors. However, the homeowners had to pay thousands to defend their rights in court, and those costs were not recovered following the trial. Plus, the lawsuit had bred so much animosity and distrust that the owners were considering selling and moving to another home.
Several buyers who are backing out of Kingman home sales are worried about a similar fate, especially because some of the restrictions are quite unreasonable.
Comparing CC&Rs with and without HOA
However, I still want to point out several distinctions between owning a home subject to CC&Rs without an HOA and owning a home governed by an HOA with CC&Rs.
If you violate the terms of your CC&Rs in your HOA, you will likely face an internal process that includes one or two letters of warning, an opportunity to attend a hearing to explain your side of the story, and consequences that include being ordered to pay a fine to the HOA. In lieu of a fine, your HOA might revoke certain rights and privileges, such as access to the Association’s amenities (for example, a pool) until you have complied with the restrictive covenants.
While that sounds somewhat fair and benign in theory, in practice, the internal HOA process often resembles Kangaroo court. After all, it can be difficult to impossible to get a group of impartial association members to listen to your side of the dispute with an open mind. The committee at the hearing – if one can be scheduled at a mutually convenient time – is often an assembly of friends of the HOA board, if not members of the board itself.
If you disagree with the committee’s decision, you can appeal, but that appeal is directed to the very same HOA board that is enforcing the rules in the first place. Predictably, an HOA appeal often goes nowhere.
If you and your HOA become involved in a legal suit – often because you believe your HOA is being unfair and unreasonable – you face a legal system that is stacked against individual homeowners. For one thing, the HOA board has access to the collective financial resources of the entire association. The HOA uses that money to keep an attorney on retainer and to purchase insurance policies that protect board members from personal liability for “errors and omissions,” even if your HOA board wrongfully sanctions you with a fine or other penalty. Your HOA board members rarely have to pay a single penny toward their legal assistance in the dispute.
In the meantime, as an individual homeowner you are paying thousands of dollars of your own money to an attorney, just to get started. Your final tab for legal expenses could easily exceed $10,000, and might even exceed $100,000 if the case drags on for years.
When there’s no HOA to enforce CC&Rs, your neighbor must pay for a lawsuit against you using his or her own money to hire an attorney. There’s no insurance company, no collective funding to provide an attorney to sue you at no cost to your neighbor (or neighbors).
So, in general, neighbor vs. neighbor lawsuits are more rare than HOA against homeowner.
In addition, if there’s no HOA, depending on the specifics of your CC&Rs, your attorney may successfully argue that the terms are unenforceable after many years of not being applied consistently. Even if the case cannot be thrown out, both parties are operating on a more even playing field, because each side is paying for personal legal expenses. Therefore, there’s a greater incentive toward a prompt resolution and an out-of-court settlement (compromise).
The other obvious difference is that the HOA homeowner is obligated to pay assessments for ongoing care and maintenance of common property. A home with CC&Rs but no HOA has no financial obligation or insurance liability for common property.
So what about those CC&Rs?
The bottom line is that a homeowner must be willing to comply with CC&Rs, even if there is no HOA to enforce them. In many cases, those CC&Rs might be ignored for years. But there is a small risk that a future homeowner might make an issue of it.
How do we solve that problem?
Americans need to decide where we draw the line on which CC&Rs should be acceptable and which should be illegal. And no set of CC&Rs should be “forever” and without an expiration date.
If that sounds radical to some readers in the HOA industry, may I remind you that deed restrictions and CC&Rs prohibiting ownership by people of a particular race or religious belief have long been deemed illegal and unenforceable.
No contract is so flawless, so sacred that it cannot be critically judged, rewritten in fairness to all parties, and, in extreme cases, even revoked.
The time has come for Americans to challenge CC&Rs that are onerous and disrespectful of our individual property rights and civil liberties.
No HOA? Restrictions May Still Apply… (By Atty. Mark J. Bainbridge)