CC&Rs, the Loss of Property Rights and the Error of the Courts

One of the more important issues before homeowner rights advocates is the question of the validity of the CC&R binding contract. Reverse or overturn this decision and we have won a major battle in bringing justice to homeowners, as would have been the case with the anti-foreclosure bills.

Harvella Jones of The Texas Home Owners Advocate Group, THAG, wrote eloquently on the topic of the prevalent use of empty liens in CC&Rs that have been incorporated in many state laws. (See on AHRC News Service, "Contractual Liens -- Texas' Dirty Little Secret" http://www.ahrc.com/new/index.php/src/news/sub/article/action/ShowMedia/id/483 ).

The mechanism used by proponents of homeowners associations was the use of covenants running with the land, as she well points out, and then to provide contractual permission to lien the property via these same CC&Rs, backed with the additional legality and propriety of state laws.

While she focused on the Texas issue regarding to the Inwood v. Harris 736 S.W.2d 632 (Tex. 1987) decision, holding that covenants running with the land had precedence over subsequent legal doctrines, the history of the court decisions relating CC&Rs as a contract go way back to old English Law that the courts had to resort to find some basis for its decisions. Here, the use of common law on behalf of a private organization was given preference over the intents of the founders of the State of Texas and Texas Constitution.

In Neponsit Property Owners' Association, Inc. v. Emigrant Industrial Savings Bank 15 N.E.2d 793 (1938), The New York Appeals Court had to decide whether the payment of homeowners assessments were binding as a result of provisions in the CC&Rs. The court said, "[the] lien was a valid and enforceable covenant that ran with the land." The question that had to be first answered was the question of what constituted a valid covenant? The court wrote,

"Regardless of the intention of the parties, a covenant will run with the land and will be enforceable against a subsequent purchaser of the land at the suit of one who claims the benefit of the covenant, only if the covenant complies with certain legal requirements. The age-old essentials of a real covenant, aside from the form of the covenant, may be summarily formulated as follows: (1) it must appear that grantor and grantee intended that the covenant should run with the land; (2) it must appear that the covenant is one "touching" or "concerning" the land with which it runs; (3) it must appear that there is "privity of estate" between the promisee or party claiming the benefit of the covenant and the right to enforce it, and the promisor or party who rests under the burden of the covenant."

The area of special interest is the test for "touching" or "concerning" the use of the land. Here, the court reasoned,

"Does such a covenant 'touch' or 'concern' the land? These terms are not part of a statutory definition, a limitation placed by the State upon the power of the courts to enforce covenants intended to run with the land by the parties who entered into the covenants. Rather they are words used by courts in England in old cases to describe a limitation which the courts themselves created or to formulate a test which the courts have devised and which the courts voluntarily apply. (Cf. Spencer's Case, Coke, vol. 3, part 5, p. 16; Mayor of Congleton v. Pattison, 10 East, 316.)

"In truth the test so formulated is too vague to be of much assistance and judges and academic scholars alike have struggled, not with entire success, to formulate a test at once more satisfactory and more accurate. It has been found impossible to state any absolute tests to determine what covenants touch and concern land and what do not. The question is one for the court to determine in the exercise of its best judgment upon the facts of each case.

"Looking at the problem presented in this case from the same point of view and stressing the intent and substantial effect of the covenant rather than its form, it seems clear that the covenant may properly be said to touch and concern the land of the defendant and its burden should run with the land. True, it calls for payment of a sum of money to be expended for 'public purposes' upon land other than the land conveyed by Neponsit Realty Company to plaintiff's predecessor in title."

This decision set the tone for future decisions, in addition to the Texas Inwood case cited above; such as, DIVIZIO v. KEWIN ENTERPRISES, INC, 666 P.2d 1085; 1983, an Arizona appeals ruling that,

"The interpretation of a contract is a matter of law and not a question of fact. Deed restrictions constitute a covenant running with the land forming a contract between the owners of common areas and individual lot owners. The language in deed restrictions must be given its plain, ordinary meaning. A lot owner is entitled to an accounting if desired and are entitled prospectively to accountings relating to future assessments."

And, in ARIZONA BILTMORE ESTATES ASSOCIATION v. ROBERT AND NANCY TEZAK, 868 P.2d 1030 (1993), where the Arizona Appeals Court followed the Divisio case cited above with respect to contractual meanings within the CC&Rs. The deed restrictions in this case constitute a covenant running with the land and form a contract between the subdivision's property owners as a whole and the individual lot owners. The court said, "The deed restrictions in this case constitute a covenant running with the land and form a contract between the subdivision's property owners as a whole and the individual lot owners. "

The question of whether there was a meeting of the minds of both parties. Did the buyer realize the consequences of his decision -- never entered into the court's decision. The assumption was that the buyers knew all that was necessary to know about HOAs in 1987 and willingly and with full knoweldge agreed to the loss of their frights and freedoms.

So can it can be said that this aspect of contract law was never questioned in any of the above landmark cases relating to CC&Rs as binding contracts. The binding contract view can, in my mind, be easily attacked in a suit by new home buyers who can argue as to misrepresentation by the involved parties, or by a RICO suit against a builder or a particular Realtor association or against CAI, national.

Furthermore, the court rulings can be argued by expert attorneys with respect to good public policy. Why is there a need to place an empty lien on a homeowner's property? What is the reasoning and justification for permitting this provision to stand in a contract? What is the reason and justification allowing covenants running with the land in regard to homeowners associations to stand over the fundamental rights and freedoms in our Constitution and Bill of Rights?

The methodology used above, the analysis of the entire CC&R document and examination of the intent of the one party, the developer, should be applied here to understand the political and social impact of these court decisions. Such an analysis cannot help but arrive at the conclusion that such provisions are unconscionable and contrary to good public policy and favor one party over the other.

In support of such an opinion, I offer a California Appeals Court opinion on this matter. The case concerns the enforcement of a builder's purchase contract for a home, to show how the state legislatures are protecting homeowner associations against the rights of Americans. In Pardee Construction Company v. Ivan Ernesto Rodirguiz et al, California Court of Appeal, 4th District, Div 1, D039273, 2002

"'The term [contract of adhesion] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.'" Villa Milano Homeowners Assn. v. Il Davorge (2000) 84 Cal.App.4th 819, 826;

"If the contract is adhesive, the court must then determine whether 'other factors are present which, under established legal rules — legislative or judicial — operate to render it [unenforceable].'

'Generally speaking, there are two judicially imposed limitations on the enforcement of adhesion contracts or provisions thereof. The first is that such a contract or provision which does not fall within the reasonable expectations of the weaker or "adhering" party will not be enforced against him. The second — a principle of equity applicable to all contracts generally — is that a contract or provision, even if consistent with the reasonable expectations of the parties, will be denied enforcement if, considered in its context, it is unduly oppressive or "unconscionable."'

"Subsequent cases have referred to both the 'reasonable expectations' and the 'oppressive' limitations as being aspects of unconscionability."

These issues need to be revisited and new rulings obtained.

George K. Staropoli

Citizens Against Private Government HOAs

April 2003