I recently had a client come in for a consultation because their condo was being put up for sale.  They hadn’t defaulted on their mortgage (they owned the property outright), nor had they failed to pay a contractor who was now foreclosing on a lien.  Rather, a mix-up had led to them not paying their HOA dues for a period of time that occurred two years earlier.   The HOA had issued them a notice, and then initiated a lawsuit, but all of this occurred while my client was in another country.  Now, my client was facing the prospect of their $5 million condo being sold to satisfy a $50,000 judgment.  This may seem grossly unfair, but it is entirely legal.

First, as a disclaimer, it is extremely important to make sure that even when you are abroad, there is some means for you to receive information about properties that you own, even those that you don’t live in.  For my client, the time between the lawsuit being filed and a judgment being entered was five months.  Two months after that, the Court had awarded the HOA all of their attorneys’ fees for bringing the lawsuit as well as interest on both the fees and those initial missed payments.  The sale of the property had been scheduled for only ten months after the initial lawsuit was filed.  In less than a year, six missed HOA dues payments nearly resulted in the sale of a property that was owned outright for 1% of its value.

What this means is that had I not gotten involved on behalf of my client, a savvy surveyor of Sherriff sales notices could have gotten an excellent deal on a property that would have no debt on it.

The larger lesson is how much power HOAs have in homeowners’ day to day lives.  If you live in a planned community or a condo building – and many people in Orange County do – chances are you have a homeowners’ association that governs everything from the number of speed bumps between the entry and your house to what plants you are allowed to plant in your garden.  I have previously written about the importance of understanding the Covenants, Conditions, and Restrictions (more commonly referred to as CC&Rs) of the community in which you live.  This governing document, along with the board of the HOA, can determine so much about how your community is governed, maintained, and changed.

At my wife’s and my first home, the CC&Rs purported to be able to even govern what plants we planted in our backyard.  Several of our neighbors fought with the HOA Board after submitting plans for landscaping their private backyards and receiving denials or requests for changes to their plans.  On the other hand, when we wanted to change the landscaping in our backyard, we simply hired the contractor, finished the work, and went on with our lives.  When the HOA sent a letter demanding to know why we didn’t comply with their landscaping rules, I was able to point to the clause, in a different section of the CC&Rs, that defined the areas which the HOA had control over, which didn’t include backyards.  For multiple years, and with dozens of homeowners, the HOA board had overstepped its responsibilities in governing how people maintained property that wasn’t under HOA control, and the homeowners just allowed it to happen.

Similar to everything in our governance system, we can control how much power we actually want to cede to those who govern us, based upon a particular governing document.  Had anyone other than the lawyer actually sat down and read the CC&Rs, they could all have saved themselves a lot of time and money by avoiding disputes with the HOA architectural committee and being forced to draw new plans and buy new plants to comply with the committee’s whims. Instead, everyone simply assumed that the HOA had the power to do whatever they pleased and ended up with a large headache because of it.

I realize that telling you to read the fine print on every document would be a fool’s errand.  Looking at anything other than the return policy on the back of your receipts would likely be a waste of your time.  But certain documents that contain the rules about who can tell you what to do, why they get that power, and how they’re allowed to exert that power, are extremely important to making sure that you get to live your life the way you want to.  So, in this new year, dust off your copy of your community’s CC&Rs and give them a read.  And for those who don’t live in a community governed by CC&Rs, read the Constitution – it’s the same idea, but for a much bigger planned community.