Million-dollar HOA lawsuit grabs headlines in WSJ

 

By Deborah Goonan, Independent American Communities

This week the Wall Street Journal published a story about an insanely expensive lawsuit over petty homeowners’ association rules. Many WSJ readers don’t know that the story has been making headlines in the Kansas City Star since 2016.

Advertisements

I’ve been following the story of Jim Hildenbrand and the HOA for Avignon Villa Homes for nearly three years, from the initial report, to Hildenbrand’s court “win” in 2017, to reports of court appeals filed by both parties last October.

The WSJ summarizes the history of conflict between Hildenbrand and Avignon Villa HOA, a planned community of 153 homes designed for older adults, with monthly HOA fees of $185.

The HOA apparently started off with attitude from the day Hildenbrand moved into the community, back in 2012. They cited the homeowner for parking his car in the driveway (rules say all vehicles must be parked in a garage overnight).

They didn’t like his lawn statue of St. Francis either, and ordered the homeowner to remove it from his front yard.

Then the developer-controlled HOA paid its attorney to send a written warning to Hildenbrand over the placement of his satellite dish. The HOA board backed off when the Federal Communications Commission  informed the board that federal law protects a resident’s right to place a satellite dish where it’s needed to ensure a strong signal.

But the big dispute began when Hildenbrand, a retired architectural consultant, installed a low decorative stone retaining wall to support planting beds around the foundation of his home.

Previous reports in the Kansas City Star noted that, before installation began, the HOA Architectural Committee approved the homeowner’s landscape plan. However, Avignon’s attorney says the plans approved did not specifically include the small retaining walls used to raise the plant beds.

Hildenbrand told the KC Star that maximum height of the wall is 18 inches.

We’re not taking about a fortress or a moat.

The kicker is that many of Hildenbrand’s neighbors think his landscape is attractive. The small change in elevation doesn’t encroach on any easements, and it doesn’t alter storm drainage on neighboring properties.

Plus, evidence produced in court by Hildenbrand’s attorney shows that several other homes have similar retaining walls, but the HOA doesn’t seem to care about those.

So it’s absolutely crazy that a dispute over an attractive landscape feature has spun out of control,  creating a 7-year long dispute, and a lawsuit costing $1 million.

But I’m gravely concerned about the sudden national focus on big money, high profile HOA lawsuits. Here’s why.

 

Beyond the $1 million headlines

So far, this week’s media attention on bitter HOA disputes has glossed over several important points.

Uneven playing field

Almost all expensive and lengthy HOA lawsuits begins when a homeowner feels compelled to sue the HOA to defend his or her rights.

Most of the time, it’s not the homeowner who starts the fight.

That usually starts when the HOA threatens or fines a homeowner for not complying with rules and standards. And because most HOA rules are vague, onerous, silly, or petty, a homeowner tends to feel insulted and angry for being “punished” over a minor “offense” against the HOA’s futile quest to maximize property values.

So the homeowner sues the HOA out of righteous anger.

But HOA and its board members are protected by two legal shields of armor: one-sided covenants that favor the association, and community-funded HOA insurance coverage for its legal defense.

 

HOAs fight with Other People’s Money

When the HOA sues first, the insurance attorneys don’t get involved unless the homeowner files a countersuit. Much of the time, that’s the homeowner’s response.

No matter who sues first, HOA board members rarely have to pay out of their own pockets for attorneys. They use Other People’s Money to do that, courtesy of your HOA fees, of course.

Remember, there are only 153 homes in Avignon Villas HOA. Without insurance, if homeowners had to pay out-of-pocket for a half million dollars in HOA attorney fees, each homeowner would be billed almost $3,300.

But consider that a homeowner almost always has to pay up front for attorney fees. And you can bet that a homeowner will pay much more than a few thousand dollars for an attorney. After all, most homeowners can’t buy insurance to protect them from HOA lawsuits.

Only a few homeowners, like Mr. Hildenbrand, have the bankroll to stand up against their HOA on principle.

The problem is, for every $1 million HOA lawsuit, there are thousands of unpublicized legal disputes involving ordinary homeowners, who cannot afford to spend a fortune in a one-sided battle against an out-of-control HOA.

Why doesn’t the public hear about those?

 

The only winners are the lawyers

To a single mother, the working family with children, a disabled Veteran, or the retired couple living on meager Social Security payments, it’s devastating to pay $15,000 to $30,000 in HOA legal fees, over a minor rules enforcement dispute.

And it’s not uncommon for homeowners to lose an HOA battle, and get socked with far more than $30,000 to pay the HOA’s attorney fees.

And what about the social and emotional costs of a protracted HOA lawsuit? How can we measure that cost in terms of dollars and cents?

Related:
Check out more HOA lawsuit stories here.

On occasion, the homeowner “wins.” But rarely is a homeowner reimbursed for many thousands of dollars spent on attorneys, the loss in property value, or moving expenses, if forced to move.

Most of these horrid HOA disputes settle out of court in mediation or arbitration, under a cloud of secrecy. Homeowners can’t talk about their ordeal, and neither can the HOA. So the neighbors, and the general public, never learn the ugly truth.

But, win, lose, or draw, the attorneys get paid. And the longer the lawsuit drags on, the more billable hours the law firms rack up.

HOA boards get an insurance parachute

HOA board members rarely face personal financial accountability. Even when the court rules against the HOA, insurance policies pick up the tab for legal fees.

Then the insurance company either raises its premiums or cancels coverage for the HOA. The next insurance policy the HOA buys comes with much higher premiums, plus a high deductible.

Again, the HOA board uses Other People’s Money to pay for their new shield of armor. HOA assessments rise to cover the cost — or, even worse, the HOA defers maintenance of the common areas to make up the difference.

 

Insurance maxed out?

Here’s another issue that doesn’t get covered in the WSJ. In the case of Avignon Villas HOA, there’s a chance that the HOA’s legal fees could exceed their insurance policy limit.

Believe it or not, it’s possible for an HOA to max out it’s legal fee coverage on its insurance policy. For a classic example, read about an owner’s long-running fair housing dispute with his Illinois condo association. The condo association’s insurer stopped paying legal fees when they hit their $1 million policy limit. So condo owners are paying special assessments to cover more than a half million dollars in continuing legal expenses.

How close is Avignon Villas to their insurance policy limit?

What will policy makers do about runaway HOA litigation?

This is my biggest concern about the publicity over a $1 million lawsuit.

Industry trade groups and corporate investors will argue that a “rogue” homeowner increases costs for all members of the HOA. And they’ll downplay the role of an arrogant or vindictive HOA board in starting and escalating disputes.

In response, state lawmakers might have a knee-jerk reaction to address abuse of the legal system.

And the usual political response is a call to limit the legal rights of consumers, by mandating alternative dispute resolution (ADR).

(Note to readers: ADR includes mediation and arbitration.)

But ADR doesn’t work well, if at all, unless the parties in a legal dispute come to the negotiation table as equals.

That’s almost never the case in homeowner vs. HOA disputes. The HOA tends to hold all the cards in the game: the one-sided HOA Covenants and Bylaws, the collective purse of the association, the big bankroll and political clout of a real estate developer.

It’s the classic David vs. Goliath battle.

An HOA vs. homeowner dispute cannot be handled as if it were a bitter divorce or a family feud over money or property.

 

Three common sense solutions

Lawmakers must not limit power of residents to sue their HOAs, because that would cause further harm to housing consumers. Instead, policy makers must take steps to end or avoid the HOA power struggle.

  1. Limit power of HOAs, whether governed by homeowners or developers.

Start by stripping private associations of the right to impose monetary fines, engage in abusive collection practices, and to foreclose on homes for pennies on the dollar. Limit the purpose of private covenants and restrictions to matters of public health and safety, and nuisances that cause actual damage or hardship. One-sided provisions of the CC&Rs and Bylaws that benefit the developer or the HOA at the expense of members must be declared void and unenforceable.

  1. Protect and uphold individual right of each American, no matter where they choose to live.

Begin with the premise that all American housing consumers are entitled to equal protection of rights under the U.S. Constitution. Private contracts connected to homeownership must not circumvent or undermine these fundamental rights. The HOA must not be allowed to overrule federal, state, and local laws, or to engage in selective enforcement or discrimination by CC&Rs.

  1. Prevent neighborhood conflict.

A good first step: minimize or eliminate common ownership and common interest in new housing development. Second, shift the burden of common infrastructure maintenance and security from private associations back to the public sector. Third, revise housing policy to provide a greater variety of non-HOA, single family housing choices, for people of all ages and income levels.

Sources:

The $1 Million HOA Blowup: It Started With the Misplaced Flower Pots

A resident in a Kansas neighborhood, who says his freedom is being infringed, battles a homeowner association that says it is holding chaos at bay

The Wall Street Journal, By Jim Carlton
March 19, 2019 10:43 a.m. ET

How a homeowner association dispute racked up $1M in legal fees
HOA battles can be long, drawn-out and, for some, expensive

The Real Deal, New York March 23, 2019 12:00PM

HOAs from hell: Homes associations torment residents they’re supposed to support

BY JUDY L. THOMAS JTHOMAS@KCSTAR.COM AUGUST 03, 2016 06:00 AM,
UPDATED AUGUST 06, 2016 05:02 PM
Read more here: https://www.kansascity.com/news/special-reports/hoa/article92502962.html#storylink=cpy