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An HOA Attorney's Reaction to CNBC's Video "How Homeowners Associations Took Over American Neighborhoods"

LS Carlson Law December 20th, 2023

Introduction
We're dissecting CNBC's "How Homeowners Associations Took Over American Neighborhoods," a video highlighting contentious issues surrounding HOAs. While we appreciate the spotlight on HOAs, we found the narrative one-sided, portraying HOAs as overly powerful entities. With this response, we aim to bring a balanced perspective, aided by Jenny Carlson's non-lawyer viewpoint.

HOAs in Modern Housing
CNBC reports that 84% of newly built homes in 2022 were part of HOAs, underscoring their significant role. We agree that well-functioning HOAs can preserve fair market value. However, the downside is that poorly managed HOAs can rapidly devalue properties due to neglect, such as dilapidated common areas.

Addressing the Misconception of Civil Rights
A major point of contention in the video is the claim that joining an HOA equates to signing away civil rights. This is a considerable overstatement. Rights like privacy, freedom of religion, and speech remain intact under HOA agreements. The Constitution always supersedes CC&Rs, debunking the notion of HOAs overpowering individual rights.

Understanding HOA Management and Legalities
Many homeowners express frustration towards management companies. It's crucial to understand that these entities are agents of the HOA, not direct adversaries in legal disputes. If a management company fails in its duties, the legal action is appropriately directed towards the HOA due to the contractual relationship between the homeowner and the HOA.

Financial Obligations and Disputes in HOAs
Discussing the financial aspects, homeowners typically contribute to an operating budget for their HOA, with fees varying across communities. We explored a case where unpaid dues and fines led to significant legal complications, emphasizing the need for clear communication and transparency in financial dealings within HOAs. In situations where fines accrue, new homeowners might unexpectedly inherit these debts, highlighting the importance of thorough property disclosures during sales.

Communication Breakdowns and Legal Recourse
A recurring theme in HOA disputes is the lack of communication, often leading to escalated legal situations such as liens and wage garnishments. We see this as a significant red flag and a common issue in our practice. These scenarios often involve potential breaches requiring skilled legal intervention.

The Role of Homeowners in HOA Governance
An essential aspect of HOA governance is the board of directors, typically composed of volunteer homeowners. The board's decisions, however, should align with the community's best interests. Misalignments and conflicts often arise due to a lack of professional experience among board members, leading to management and operational inefficiencies. It's vital for homeowners to actively participate in board elections and governance to ensure their interests are adequately represented.

HOAs and Property Values
We delved into the debate over whether HOAs positively impact property values. While HOAs can enhance curbside appeal and community amenities, poor management can lead to the opposite effect. This impact varies significantly based on location and the effectiveness of the HOA's management.

Legal Framework and Homeowner Rights
A key takeaway from our discussion is the robust legal framework governing HOAs. Homeowners have substantial rights and avenues for recourse against HOAs acting in breach of their duties. These include informal dispute resolution (IDR), alternative dispute resolution (ADR), and, if necessary, litigation. Understanding the CC&Rs, state-specific laws such as the Davis-Stirling Act in California, and relevant case law is crucial for homeowners to navigate these issues effectively.

Conclusion
Our comprehensive review of CNBC's video and the broader HOA landscape illustrates that homeowners have more power and rights than often perceived. At LS Carlson Law, we're committed to educating and empowering homeowners in their interactions with HOAs. If you're facing HOA-related challenges, our team is here to provide legal support.

You can watch the original CNBC video on YouTube:
https://www.youtube.com/watch?v=fnLMeotB0c0

Full Video Transcript

00:00:00 Host: HOA Attorney, Luke Carlson, Esq.
Hello, I'm Luke Carlson from L .S. Carlson Law. We are a law firm that operates both in California and Florida, and one of our major verticals is HOA Law. And today, we wanted to take some time to review the CNBC video that really focused on HOA. I want to start by applauding them for really highlighting this area that has really been a point of great contention for a lot of homeowners. However, our take is that it was very one -sided, basically painting out the HOA as having all the power, which we strongly disagree with. with. So we're here today. Again, I'm a lawyer, but I also brought my wife, Jenny Carlson on as well.

00:00:36 Guest Host: Homeowner, Jenny Carlson
Hi there.

00:00:36 Host: HOA Attorney, Luke Carlson, Esq.
She's a non-lawyer so I thought it'd be helpful to have both sets of minds looking at this and really dissecting it. Absolutely. Thank you for having me. Anytime. You're always welcome on the show. All right, here we go.

00:00:49 CNBC Video Transcript
84% of newly built single family homes sold in 2022 belong to what's called a homeowners association, which are organizations that oversee properties in a community. Certain local governments require almost all new construction to have an HOA. They're rooted in the desire for municipalities to offload their responsibilities for taking care of things that you would normally associate with paying your taxes. Homeowner's associations provide value to owners...

00:01:18 Host: HOA Attorney, Luke Carlson, Esq.
All right, so far so good. I think that was straightforward. We're aligned. The only caveat I would say is, yes, well -functioning HOAs absolutely preserve fair market value. they drive value however the flip side of that though is if you have a bad HOA that can tank fair market value immediately I mean you have common areas that are dilapidated that's gonna drive the values down so so far so good though.

00:01:44 CNBC Video Transcript
...there's been a backlash to HOAs because of some homeowners negative experiences when I first bought this house I was very excited seemed like it was a very nice cozy close -knit community then it started turning into a horror story. I'm a huge believer that, you know, you do sign away your civil rights when you're signing into an HOA or a condo association. Pause it there. Do you really sign away your civil rights? All right. So that's one of the largest overstatements, I think, in this entire thing. So, you know, what are civil rights? You're looking at right of privacy, right to freedom of religion, you know, freedom of speech. I mean, there's so many civil rights that are so well intact, notwithstanding CC &Rs. So that is a huge misstatement. You're not signing away your civil rights. The Constitution is always going to trump CC &Rs. 100%. Every single day. So that was crazy. It's a matter of personal preference. Some people like anchovies on their pizza and some don't. Some people really like living in homeowners associations. Others don't like it. So why are HOAs so powerful? And do they make homes more valuable? Homeowners associations are run by a board of directors that’s made up of volunteers that own property in the community. The HOA typically handles communal responsibilities which can vary from managing amenities such as swimming pools to making sure property owners follow home maintenance rules. The board may hire a management company which tend to be for-profit to help run the day-to-day operations...

00:03:15 Host: HOA Attorney, Luke Carlson, Esq.
Just a quick clarification on that. A lot of times we have homeowners or clients who come in and they're furious about the management company, right? And they often want to sue the management company. But legally, at least in California, that's an incorrect way of looking at it. The management company is just an agent for the HOA. So the HOA is guiding the management company.

00:03:35 Guest Host: Homeowner, Jenny Carlson
Okay, I think that's a common misconception, so I'm glad you're clarifying that.

00:03:38 Host: HOA Attorney, Luke Carlson, Esq.
If you have a management company that is failing to maintain common area elements, the suit would actually be against the HOA, not the management company. The contractual relationship is between homeowner and HOA, not homeowner and management company, if that makes sense.

00:03:54 CNBC Video Transcript
...homeowners in the community pay into a fund for the HOA to have an operating budget. In the U .S., the typical home in an HOA pays between $200 and $300 per month in fees. HOAs have the authority to hand out fines to residents in the community that the association feels is not following the rules. Those fines may also accrue interest in some cases. The Anastrosis annual dues for their HOA in Noonan, Georgia, is $200 per year, which is lower than the national average. So on paper, their HOA membership doesn't seem like that much of a financial burden, but that's not been their reality. When we moved in in 2008, we found out that there was a balance that was attached to the home because it had been sitting in the community. And they were fining us for that balance and late fees and any other type of fines that they would put on to the home for lawn care or anything...

00:04:48 Guest Host: Homeowner, Jenny Carlson
Yeah. Clarify this because when you buy a home, doesn't it have to be disclosed?

00:04:53 Host: HOA Attorney, Luke Carlson, Esq.
So California, if you were to acquire that property, there would have been a disclosure and really it would have been two disclosures. One, that there was some sort of outstanding balance that wasn't satisfied by the previous or the seller. Okay. The other issue, and she kind of, she says it quickly, she says lawn care. So what I'm betting is that there was some sort of open violation that wasn't addressed. So maybe the lawn was in a state of disrepair. The HOA was levying fines against that homeowner because they failed to maintain the actual landscape.

00:05:26 Guest Host: Homeowner, Jenny Carlson
Okay. And if those fines accrued, the new buyer is responsible.

00:05:29 Host: HOA Attorney, Luke Carlson, Esq.
It would have been disclosed and it could have been dealt with at the time of acquisition. For whatever reason, it wasn't disclosed. Now in California, it's possible she would have had a cause of action against the seller of the property

00:05:42 Guest Host: Homeowner, Jenny Carlson
Okay, and this is in Georgia.

00:05:48 CNBC Video Transcript
...all of that was attached to this home when we moved in. From 2008 to 2014, we tried getting in contact with HOA, and we never had a reply from them. And we just kept trying and no answer...

00:06:00 Host: HOA Attorney, Luke Carlson, Esq.
All right, that's a big red flag right there. HOA failing to communicate with a homeowner. That right there would accrue rights from the homeowner.

00:06:08 Guest Host: Homeowner, Jenny Carlson
And the hope is that that is an atypical scenario.

00:06:12 Host: HOA Attorney, Luke Carlson, Esq.
No, it's very typical. We see it all the time in California.

00:06:14 Guest Host: Homeowner, Jenny Carlson
Hence why we do HOA law.

00:06:17 Host: HOA Attorney, Luke Carlson, Esq.
HOAs are notoriously poor at communicating, and some go so far as to intentionally fail to communicate so they can run some sort of scheme, tp basically levy fines.

00:06:28 Guest Host: Homeowner, Jenny Carlson
That's fascinating.

00:06:29 Host: HOA Attorney, Luke Carlson, Esq.
So we actually do see that quite a bit.

00:06:31 CNBC Video Transcript
...By August 2015, the HOA put a lien on the Anastrosa's home. In the court documents, the HOA said the Anastrosas owed more than $1 ,600. A lien is when a party has a legal claim to an asset, such as a home, which can serve as collateral to satisfy unpaid debt. This can open the door to the HOA escalating to the next level of debt collection, such as foreclosing on the home or, in the Innistros' case, garnishing wages. In mid -2015, they started garnishing my wages. The first time I learned of that was when I got my first paycheck that they garnished...

00:07:05 Guest Host: Homeowner, Jenny Carlson
Please explain that.

00:07:06 Host: HOA Attorney, Luke Carlson, Esq.
Now you're actually kind of outside of HOA law. You're almost into unfair debt collection practices. notices because, again, I'm speaking for California, but there are very specific code required notices that you have to receive before you can even garnish a wage, before you can lien a property. So what it sounds like happening here is that someone, most likely the attorney, is violating those rules if this is accurate.

00:07:31 Guest Host: Homeowner, Jenny Carlson
Okay.

00:07:32 CNBC Video Transcript
...I didn't get any prior notice. I got a notice two weeks after, even though the HOA was collecting...

00:07:40 Guest Host: Homeowner, Jenny Carlson
So if she didn't get any prior notice, We have lots of room for error here.

00:07:45 Host: HOA Attorney, Luke Carlson, Esq.
Yes, room for error. But I think better said, it's they now have power to enforce. Certain rights have been violated. So, again, this is sort of painting them out to be a victim. But, with proper legal counsel, they could have pushed back very hard on this. You know, they're sort of on the receiving end of this. But it sounds like a lot of their rights have been violated by the HOA, by the attorney collecting the debt.

00:08:12 Guest Host: Homeowner, Jenny Carlson
They do have power and justification to go after their HOA at this point.

00:08:15 Host: HOA Attorney, Luke Carlson, Esq.
In this scenario, it looks like they would.

00:08:17 CNBC Video Transcript
...From Jules' paycheck, invoices filed with the court showed they were adding fines rather than deducting from the overall balance by December 26th...

00:08:25 Host: HOA Attorney, Luke Carlson, Esq.
I didn't catch this before, but it's landscape maintenance that keeps getting flagged on this ledger. So I would imagine that there's some sort of outstanding violation potentially. Again, that doesn't negate the fact that they're probably collecting these fines illegally or there was a failure to communicate, but there might be an open outstanding violation.

00:08:45 CNBC Video Transcript
...in 2016, the HOA said the Inostrosas owed more than $4 ,300. In 2016, I decided to go into debtor's court. My attorney and the HOA's attorney came to an agreement that I would pay paid $3 ,200. We paid in installments and we finally paid that off in January of this year. But it seemed like never got to the management or the homeowner associate. Just adding fines and adding interest. That's all they were doing...

00:09:14 Guest Host: Homeowner, Jenny Carlson
Is there a lack of communication between parties?

00:09:16 Host: HOA Attorney, Luke Carlson, Esq.
No, no. This is odd. I think this is one of the more odd parts of this video. Typically, when there's some sort of negotiation amongst attorneys, right? There's an outstanding debt. Their attorney's going to say, well, it's lower. They're going to say it's higher. They meet in the middle, and they find a number. Well, here it sounds like they reached some sort of settlement or resolution and there was a fee schedule.

00:09:37 Guest Host: Homeowner, Jenny Carlson
And they satisfied the fee schedule, it sounds like.

00:09:39 Host: HOA Attorney, Luke Carlson, Esq.
Well, according to them, typically those are in writing. So assuming their lawyer did their job, memorialized this agreement in some sort of written agreement instrument, and the HOA continued to collect after that agreement was entered into, these guys now most likely have a breach of contract claim. They're violating that contract or that resolution that was entered into. So again, there's more to this story. I don't know what's going on here.

00:10:03 Guest Host: Homeowner, Jenny Carlson
There has to be.

00:10:04 CNBC Video Transcript
...So they were still saying that I owed almost $8 ,000 while my attorney and their attorney agreed on $3 ,000 something...

00:10:12 Host: HOA Attorney, Luke Carlson, Esq.
Again, right here, you just send the settlement agreement, have the attorney call their attorney and say, stop collecting on this. We've satisfied it. Go kick rocks. Done. But I don't know why they continue to pay.

00:10:24 CNBC Video Transcript
...The Innistroses estimate that they've paid about $12 ,000 in fines and garnished wages wages to the HOA, along with thousands of dollars in legal fees to their own attorneys. The latest invoice they received on August 18th, 2023, says they still hold a balance. Even after paying $12 ,000, they're still saying that we owe them $8 ,000. After the past, what, 23, after the past 10 years, 10, yeah, about 10 years, yeah. CNBC reached out to Homeowners Management LLC for comment and received automated responses directing us to contact the current management company as of August 2023. 23. A representative from the current management company Sentry Management told CNBC because it just became the management company for this community in the last couple of months, Sentry has little ability to comment on historical facts regarding the Innistrosa's case. The former director of the HOA board, who oversaw the association from 2020 until her resignation in October 2023, declined CNBC's request for comment...

00:11:20 Host: HOA Attorney, Luke Carlson, Esq.
I find it funny who they're reaching out to as well. So you have a former management company. They don't care. They're not going to comment, you have a new management company what they're not going to disclose anything and then you call the former board member who was most likely just some volunteer who was on for a short period of time. Some intern wasted their time reaching out to these people i mean you might as well just reach out to the gardener for comment.

00:11:43 CNBC Video Transcript
…The attorneys representing the hoa board did not respond to cnbc's repeated requests for comment…

00:11:49 Host: HOA Attorney, Luke Carlson, Esq.
All right that also doesn't surprise me i mean if this was accurate that the hoa is trying to go after to this homeowner, illegally assess fines, failed to do notice requirements, I would imagine that the attorney who engaged in that, I mean, if it was California, I mean, they're violating certain rules of professional responsibility. I mean, they could have some exposure there. So it doesn't surprise me that they're not commenting. Why would they?

00:12:13 CNBC Video Transcript
...Jessica Navas and Matt Bazone, who are also homeowners in the subdivision, began investigating their HOA. I started to have this feeling that there was something odd about the HOA during the pandemic. They discovered a history of at least 25 foreclosures in the community over the past 15 years just one house can have a record between two to three foreclosures within that time frame...

00:12:35 Host: HOA Attorney, Luke Carlson, Esq.
So I applaud people like that in a community I mean someone like that is actually seeing something that's wrong

00:12:39 Guest Host: Homeowner, Jenny Carlson
and they're taking action

00:12:40 Host: HOA Attorney, Luke Carlson, Esq.
Yeah they roll up their sleeves and they look under the hood I mean that's powerful that's impactful and I think too if more homeowners did that and actually were a little bit more proactive with their rights you wouldn't see the dumpster fires that we see today in a lot of these communities

00:12:55 CNBC Video Transcript
...If Jessica haddn't just took the initiative to go to everyone in the community that she knew were homeowners. We never would have known any of this because all we did was basically go to work, come home, raise our children, that's it. And we never knew that anybody else was going through this because for the longest I felt like, is it just me? I feel like H .O. could be a positive thing when the community work together, keeping our houses looking good and good for property value. A big part of an HOA sales pitch is that the presence of the organization can help increase property values. The board is responsible for protecting property values. For most people in the United States, the single biggest investment they're ever going to make. There's mixed evidence about whether this is true. A 2019 study found that on average, HOA homes cost at least 4 % more than non -HOA homes. That comes out to an extra $13 ,500. But those property values can vary significantly by location. A different 2019 analysis of three U .S. cities found that the home values in HOA areas were less than those in neighborhoods without them. The Innistrosa's property value has increased between the time they bought it in 2008 following the housing crash to 2023...

00:14:11 Host: HOA Attorney, Luke Carlson, Esq.
I mean, I'd hope so.

00:14:12 Guest Host: Homeowner, Jenny Carlson
Yeah, gosh.

00:14:13 CNBC Video Transcript
...I don't think that HOA has anything to do with that property value going up. I feel with the HOA, the management company don't increase the property value. They use that as a ploy to the community to increase the value of the property. HOAs can also be necessary in order to manage shared amenities or land, which can be a value add for homeowners. There are associations out there that handle all the landscaping. Even though you may own your lot, the association cuts the grass and they do all the landscaping. So is that a cost savings? Sure. Management companies can help a community function...

00:14:46 Host: HOA Attorney, Luke Carlson, Esq.
All right. I find this shot very funny because to me it kind of sums up. I mean, if you're a well -run HOA, you're preserving curbside appeal.

00:14:55 Guest Host: Homeowner, Jenny Carlson
100%. Think of our neighborhood specifically. We have the lawn areas, the park areas, the pool.

00:15:00 Host: HOA Attorney, Luke Carlson, Esq.
And they're very well-maintained. I think they do an exceptional job. If you look at this photo, though, it's interesting because if you look at the street where you drive in, the grass is very green. Everything looks very nice, well -maintained.

00:15:10 Guest Host: Homeowner, Jenny Carlson
You see the lush trees.

00:15:11 Host: HOA Attorney, Luke Carlson, Esq.
And then look at the backyards.

00:15:12 Guest Host: Homeowner, Jenny Carlson
They look like deserts.

00:15:14 Host: HOA Attorney, Luke Carlson, Esq.
So I think that could be a good example. I mean, if people are left to their own devices, yeah, sometimes homes fall into a state of disrepair. if you're living next to a junk home, your property value is going to go down. So again, well -maintained HOAs or those that are abiding by their fiduciary obligations, complying with the CC &Rs, they have massive impact in a positive way.

00:15:34 Guest Host: Homeowner, Jenny Carlson
I'm sure there's a huge differentiation between good HOAs and bad HOAs. And if you have a good HOA, I feel like the curbside appeal and the preserving home values is going to be 100 % a positive thing for you.

00:15:44 Host: HOA Attorney, Luke Carlson, Esq.
I agree.

00:15:45 CNBC Video Transcript
...smoothly, especially when a board of volunteers needs assistance. One large company will manage 20 or 30 or 40 HOAs in a region and they tend to have it down to a science. They know how to deal with trash pickup, they know how to deal with yard maintenance, they know how to deal with complaints, they have their fines and their enforcement down to a science. Relying too much on a property management company is going to cause problems and relying too much on the homeowners to run their own association is also going to cause problems. The management company and the manager are simply a contractor to carry out the board's direction. They may handle all of that routine activity on behalf of the board, but those folks who live in the community and volunteer remain the decision-making authority...

00:16:31 Host: HOA Attorney, Luke Carlson, Esq.
Yeah, that was going back to what I was saying earlier. Management company is just a contracted third party, right? So when you're near the HOA, the HOA ultimately is the final say. So if a management company is malfunctioning, right? They're not doing their job. HOA has a responsibility to cut that management company, to remove them and find one that is capable.

00:16:52 Guest Host: Homeowner, Jenny Carlson
And that is the responsibility of the homeowners or the board?

00:16:54 Host: HOA Attorney, Luke Carlson, Esq.
No, no, the HOA, the board. The board has the power to do that. And again, if the board is failing to do that, now the homeowner has the the right to bring that grievance against the board for failing to act right

00:17:04 Guest Host: Homeowner, Jenny Carlson
and that's something maybe we can get into a little bit later when we dive into this but that's an interesting point so remind me to come back to that

00:17:10 CNBC Video Transcript
...the board in that situation is still responsible they are still the fiduciary they are legally and financially responsible for the decision making in that community...

00:17:22 Host: HOA Attorney, Luke Carlson, Esq.
All right fiduciary is a huge deal and and they don't really harp on that but But when the board steps in or you have a board that's been elected in, they have a fiduciary obligation to the homeowner, a fiduciary to, you know, preserve fair market value, to act in good faith, to comply with the CC &Rs, to ensure that, you know, the community is running properly.

00:17:45 Guest Host: Homeowner, Jenny Carlson
Okay, just in layman's terms, define CC&Rs real quick, just in case people are watching this and need a refresher.

00:17:50 Host: HOA Attorney, Luke Carlson, Esq.
Well, CC &Rs are essentially the, you know, code covenants and rules of the community.

00:17:55 Guest Host: Homeowner, Jenny Carlson
Okay, and that's kind of like what we sign into when we buy the home?

00:17:58 Host: HOA Attorney, Luke Carlson, Esq.
Correct. And it's a contract within the community and it contractually binds not only the homeowner to the HOA, but also neighbors to neighbors.

00:18:06 Guest Host: Homeowner, Jenny Carlson
Okay. So if there is an issue, is that what the first thing I'm going to look at?

00:18:10 Host: HOA Attorney, Luke Carlson, Esq.
That's going to guide the entire analysis, the CC&Rs.

00:18:13 Guest Host: Homeowner, Jenny Carlson
So it's everything.

00:18:14 Host: HOA Attorney, Luke Carlson, Esq.
Now, it gets a little complicated because you have the CC&Rs, then you have state regulation. So in California, you have the Davis-Stirling Act, and then you have case law. So it's really three areas of power to enforce that you have to look at all three. And so you see a lot of real estate attorneys who kind of dabble in HOA law. They often hit tripwires because all three bodies interconnect. You have to triangulate the CC &Rs with the Davis-Stirling Act with relevant case law, which interprets sort of the two. So it becomes a little bit complicated, but yeah, CC&Rs are very powerful.

00:18:48 CNBC Video Transcript
...I think that there are times and places for HOAs, and I think that they could be positive, but the abuse negates that benefit. A lot of people have trouble thinking of community associations as a business even though statutorily in many cases they they are you have to think about it like running a business at the same time you have to think about it from the perspective of a group of investors who all have this shared goal of making sure their investment's safe and nobody's quite sure how to do that and when you bring in an outside advisor to help run your organization those people's goals are not the the same as the goals of the people who made the initial investment...

00:19:32 Host: HOA Attorney, Luke Carlson, Esq.
I don't agree with that. I think he's wrong. And I'll tell you why. Most companies, Fortune 500 companies, bring in advisors. Those advisors come in and they're incentivized to ensure that the company is running well, is well -maintained, is functioning well from a procedural level, from an economic level, from a market level. And why are they incentivized? Because they want to keep their job. They're economically incentivized to do a good job. And if they don't do a good job, they lose their job. So the fact that there's a misalignment there in terms of goals, I tend to disagree. I mean, a good management company wants to do good for the community because they want to stay a contractor of that community. So to say something different as if, you know, the management company has some ulterior motive,

00:20:17 Guest Host: Homeowner, Jenny Carlson
It would benefit no one to have different.

00:20:19 Host: HOA Attorney, Luke Carlson, Esq.
Correct.

00:20:21 CNBC Video Transcript
...Professional involvement in HOAs is increasing with the for-profit homeowner association industry growing to $38 billion. Jessica and Matt have been fighting for more transparency about where their HOA fines are going. We had four months of pulling teeth. We wanted a general ledger, but they gave us a balance sheet and a budget. We contracted a forensic auditor, CPA. It is very concerning to see that the amount of income that they are receiving is coming from this particular aspect, fine, citations, collection, legal fees. And her recommendation was remove the board, freeze the account, get access into the bank account...

00:20:59 Host: HOA Attorney, Luke Carlson, Esq.
Before talking to a CPA, she probably should have spoken with an attorney, whatever that's worth.

00:21:04 CNBC Video Transcript
...The numbers don't align with each other. In most cases, association management companies charge a flat fee for their management services for the association each month. They're not getting a share of the proceeds. That's not how they're compensated. If we didn't have a management company, we wouldn't have to be dealing with these different problems...

00:21:27 Host: HOA Attorney, Luke Carlson, Esq.
I tend to disagree. I mean, listen, yes, it was a poorly run management company, but ultimately the buck stops with the HOA. The HOA could have taken action, could have severed the management company, could have brought in a new management company. I wouldn't say it was, because there was a management company and they were a poor management company.

00:21:45 Guest Host: Homeowner, Jenny Carlson
Right. It's a very general statement.

00:21:46 Host: HOA Attorney, Luke Carlson, Esq.
Yes. And I think there was also some collusion possibly with the attorney. I don't know if the attorney was incentivized to levy those fines and to lien up the property. Surface level doesn't all add up to me.

00:22:00 CNBC Video Transcript
...we're having. Basically, they're just milking the community. The Innistrosa's experience with their HOA highlights some patterns seen across the country when it comes to how much power HOAs have. 57 % of homeowners polled disliked living in an HOA, with more than 3 in 10 homeowners saying they feel like the HOA has too much power. People need to understand how much power a board of directors has. Governments are giving the power of the municipality to these communities. They act as hyper-local governments and in many ways supersede all the other laws that exist when you sign into a covenant that runs with the land...

00:22:37 Host: HOA Attorney, Luke Carlson, Esq.
There's a lot to unpack. And from an attorney's perspective, they are just – I think they're just dead wrong.

00:22:43 Guest Host: Homeowner, Jenny Carlson
From a layman's perspective, it sounds like the HOA has more power, almost in the state there.

00:22:50 Host: HOA Attorney, Luke Carlson, Esq.
I think they're trying to pitch this as, you know, once you sign into a CC &Rs, you're waiving all of your rights. You have no power to enforce. You're powerless. But the reality is when you enter into a homeowner association, your power comes from the CC &Rs, meaning the obligations of all parties are laid out there. When an HOA is in breach of that, you have the right to enforce the CC &Rs against that HOA, right?

00:23:20 Guest Host: Homeowner, Jenny Carlson
And that's not even brought up in this case.

00:23:21 Host: HOA Attorney, Luke Carlson, Esq.
You're right. You're not waiving rights. Let me back up. You're waiving certain rights. You're waiving the right to paint your house fuchsia or zebra or some crazy color scheme. I mean, there are certain standards, yes, that you have to comply with. And you know that going in, though, because you can read the CC &Rs before you acquire it. So there are certain things that you are signing away and you're giving up. You're giving up the right to maybe -

00:23:42 Guest Host: Homeowner, Jenny Carlson
Keep your Christmas lights up year-round.

00:23:44 Host: HOA Attorney, Luke Carlson, Esq.
Correct. You are. But they're seeming to suggest you're giving up - Well, they are not seeming to suggest. They've expressly said civil rights, which is wrong, but they're also painting it as if you have no rights against an HOA who is really acting wrongfully.

00:23:59 Guest Host: Homeowner, Jenny Carlson
That's what we call a bad HOA.

00:24:01 Host: HOA Attorney, Luke Carlson, Esq.
Bad HOA.

00:24:01 CNBC Video Transcript
...Covenants is shorthand for Covenants, Conditions, and Restrictions, or CCNRs. These are documents that outline the HOA board and homeowners' rights and obligations. A homeowners association usually enacts the CC&Rs, as well as the bylaws that outline procedural matters, when it's incorporated by the subdivision developer. The board, in the beginning, is controlled by the developer. So, it starts out as a board of people that are paid on behalf of the developer to operate that community. And it transitions 100% of the time. In some cases, it takes years. In other cases, it might only take one or two years to a set of volunteers. Homeowners who have to...

00:24:38 Guest Host: Homeowner, Jenny Carlson
Wait, that is so interesting because I had no idea.

00:24:41 Host: HOA Attorney, Luke Carlson, Esq.
Well, think about it. I mean, when you first develop land, there's no one living there, right? So it's the developer who comes in, buys the plot of land, subdivides it, builds the homes. homes and then in order to you know create an HOA or an association you have to form an entity a legal entity you register it with the the state and then to govern that community that's when you enact the CC&Rs etc and that's the developer so if you look at most CC&Rs it's typically signed by the developer and once people start buying and acquiring and a board comes in the developer then turns that all over to the board

00:25:15 Guest Host: Homeowner, Jenny Carlson
So they transition to a board of people (homeowners)

00:25:17 Host: HOA Attorney, Luke Carlson, Esq.
Right, because the developer doesn't want to stay intertwined or intermingled with the community. They want to flip it, sell it, and get out. But it does take time sometimes to do that.

00:25:25 Guest Host: Homeowner, Jenny Carlson
It's just interesting because I had no idea. I'm sure most people don't.

00:25:28 Host: HOA Attorney, Luke Carlson, Esq.
It's the genesis or the origin story of HOAs. It starts with the developer. But again, go to the CC &Rs. You'll see the developer typically is the one who signs them

00:25:36 CNBC Video Transcript
...feats with their HOA say they have trouble getting help from official government channels. I have personally contacted the city officials. None of them want to get involved in the HOA. There are only seven states that have an office of HOA ombudsman. Colorado, Delaware, South Carolina, Florida, Illinois, Nevada, and Virginia. However, the ombudsman office is usually not very well funded, and they have limited jurisdiction over the types of complaints they can take. And in some cases, that's all the ombudsman office can do is take your complaint. They can't even take an active role in investigating or resolving the complaint. As far as the regulation goes, I think a lot of that regulation is predetermined. So in other words, there's already laws that are set up in place, and so inherently they're already being regulated that way. And of course you've got the court systems for checks and balances in case you have a disagreement within your homeowners association. I think that education is really key to these communities. I mean, they need to know that there's nobody that's going to help them, that in a lot of cases, civil court is the only answer. So you can't even...

00:26:47 Guest Host: Homeowner, Jenny Carlson
Isn't civil court supposed to be the answer?

00:26:50 Host: HOA Attorney, Luke Carlson, Esq.
Well, OK, so I'll unpack this one as well, because they say a lot of things. And sort of the messaging in my mind is, hey, there's no one who can help us. There's there's nobody. You know, the government's not going to help us.

00:27:00 Guest Host: Homeowner, Jenny Carlson
Explain this, because aren't these private parties?

00:27:01 Host 1: HOA Attorney, Luke Carlson, Esq.
Exactly. So let's say you have a breach of contract claim against somebody. You lend them a million bucks. They don't pay you back. You don't go to your state government and say, hey, this person owes me a million dollars. That's not their function. The branch of government, it's the judicial branch. That's where you get recourse from. And they're acting like that's nothing. That's like saying, I have no weapons other than a nuclear bomb, but other than that, I have nothing. That's insane. Because the redress is by way of the court system. That is a very powerful tool.

00:27:31 Guest Host: Homeowner, Jenny Carlson
It is our tool, right?

00:27:32 Host: HOA Attorney, Luke Carlson, Esq.
They seem to be like, well, other than that powerful tool, we don't have any tools. And the government isn't helping us. Well, that's not really their job to help them, and especially when it's a private matter.

00:27:41 CNBC Video Transcript
...and take some of these communities to small claims court. There's really a very limited number of scenarios where a court can say that something that's binding in your covenants is not valid.

00:27:54 Host: HOA Attorney, Luke Carlson, Esq.
That's also sort of an odd statement. I mean, if something in the CC&Rs violates state or federal regulation, a court can absolutely decree it invalid.

00:28:03 Guest Host: Homeowner, Jenny Carlson
Okay, thank you for clarifying that.

00:28:05 Host 1: HOA Attorney, Luke Carlson, Esq.
So that guy probably isn't a lawyer.

00:28:07 CNBC Video Transcript
...makers in several states, such as Texas, North Carolina, and Florida, have introduced policies to address some of the issues homeowners have been raising. But it's been met with backlash from the professional management industry. There's always going to be a wide variety of perspectives and concerns. So no solution, no bill, no piece of advocacy is ever going to garner 100 % support from everyone. We try to find the best middle ground that makes sure the association runs effectively and people's investments are protected...

00:28:38 Host: HOA Attorney, Luke Carlson, Esq.
So I sort of disagree with that. I don't think we're always looking for middle ground. So this firm right now, we're working on legislation right now that is really to drive deterrence and increase penalties for an HOA that's acting wrongfully. Because if you think about it, if an HOA is well -functioning, abiding by their fiduciary, abiding by the CC&Rs, then if you amplify the penalties of a bad board or a bad association why would a good association care?

00:29:06 Guest Host: Homeowner, Jenny Carlson
it's so true

00:29:07 Host: HOA Attorney, Luke Carlson, Esq.
Right so you penalize, you amplify what you can seek in terms of damages you put in treble damage clauses you just amplify the ramifications of misconduct that in our in our mind that's why we're working on the project right now is to drive a situation where a good HOA is not going to care about that because they're a good HOA.

00:29:27 Guest Host: Homeowner, Jenny Carlson
exactly they're not going to worry about amplifying

00:29:29 Host: HOA Attorney, Luke Carlson, Esq.
Yes the only ones that care are the a bad A choice because they're like, well, we don't want to get hit with trouble damages or punitive damages. I mean, that's insane. Well, good, right?

00:29:38 CNBC Video Transcript
...As of right now, change has to happen at the grassroots level with homeowners fighting through the court system, as well as through voting for a board they feel represents them...

00:29:46 Guest Host: Homeowner, Jenny Carlson
That's the key point, right? Voting for a board that represents you.

00:29:49 Host: HOA Attorney, Luke Carlson, Esq.
Well, I think voting for the right people, I agree. But again, it does involve community involvement. I think that is important. And just finding individuals who aren't out on their own mission, which you see frequently. I mean, you see certain characters over and over again in these disputes where you have the one individual who's just power hungry. You have someone who's a meddler who just wants to meddle in everyone's business. You have someone who has way too much time.

00:30:14 Guest Host: Homeowner, Jenny Carlson
These are not business people on the board.

00:30:16 Host: HOA Attorney, Luke Carlson, Esq.
Typically, no. And that causes a lot of the problems because they're volunteers. They think it's just kind of cool and fun, but they don't realize what they're actually stepping into, again, is a fiduciary role that has contractual obligations around it that's governed by state law right and then case law that is a huge position to undertake and if you're not serious about it you're going to run into problems and i think that's why you see so many problems.

00:30:39 CNBC Video Transcript
...of the board in October 2023 so these are your new officers thank you very much i did the oath when i became a naturalized citizen it was my duty and regardless of my economical condition i have to fight for them I would feel bad, you know, selling this home to someone else, especially if they don't know what's been going on in the neighborhood...

00:31:01 Host: HOA Attorney, Luke Carlson, Esq.
Well, you won't feel bad because you're going to disclose it, hopefully.

00:31:03 CNBC Video Transcript
...And I feel like I would probably just be like, hey, look, I don't think you want to move in this neighborhood. You may want to think about it...

00:31:15 Host: HOA Attorney, Luke Carlson, Esq.
All right. So I think the key takeaway or what we were trying to convey to everyone is that homeowners have much more power than this video makes it seem. And again, I think, it was just sort of the tonality of it, which they wanted to present the HOAs as this big bad wolf that are all powerful. But the reality is, is homeowners have tremendous power. Again, it's by way of the CC&Rs. It's by way of the fiduciary that the board owes the homeowner. It's by way of state law. And it's by way of case law.

00:31:44 Guest Host: Homeowner, Jenny Carlson
OK, so as a homeowner, if you have an issue in your neighborhood, what is the first step that you should take other than looking at your CC&Rs? if you feel like there is negligence or there is some level of misconduct? What should my next step be?

00:31:58 Host: HOA Attorney, Luke Carlson, Esq.
Okay, that's a fair question. I'm going to frame it in California. So two things. One, I mean, if you have a board that you think is just sort of acting wrongfully but unknowingly, they're not necessarily malicious, you may want to start with what's called IDR, which is informal dispute resolution. And under the Davis-Stirling Act, you can just send an email to the board and request IDR, right? Let's say they're failing to maintain a common area element. You send them an email, and what that actually boils down to is just a meeting with the board, typically in a clubhouse or someone's residence, where you can talk about the issue. Now, if they stonewall you and you're not getting any movement or you know in anticipation that sitting down with them is going to be useless, there's other methodologies that you can use to really start enforcing your rights. Typically, it's not litigation. You don't start normally with a lawsuit. A very effective means to enforce your rights is through what's called ADR, which is Alternative Dispute Resolution, and it's a powerful tool because if you have a grievance with the board you can actually demand that they attend mediation with you

00:32:57 Guest Host: Homeowner, Jenny Carlson
Oh interesting

00:32:57 Host: HOA Attorney, Luke Carlson, Esq.
Yeah and mediation tends to be a great way to resolve disputes

00:33:01 Guest Host: Homeowner, Jenny Carlson
Do you need a lawyer?

00:33:03 Host: HOA Attorney, Luke Carlson, Esq.
I would recommend one they're going to have a lawyer okay so if you're going to go to bat you might as well bring an advocate. You don't need one by law but it depends I think on the serious seriousness of the of the violations and what you're going through case by case.

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