Testify before the HOA Rights Task Force

2023-09-18

Task Force Members:

I would like to testify before the Task Force on the basis of the white paper included below.

Rgds, JCD

White Paper:

Re:Home Owners Association Lifecycle Framework

HomeOwners Associations have a 3 stage Lifecycle that may be generallydescribed as:

Stage1: Developer

Stage2: Transition

Stage3: Maturity

DeveloperStage 1: The developer has total ownership interest (subject ofcourse to financing and similar encumbrances) in undeveloped realestate. The developer has a plan that they wish to implement on thereal estate. To execute on that plan, the developer must have theability to set the terms and conditions of what will be developed.Typically these terms and conditions specify who is allowed to buildon the property and the scope and aesthetics of what may be built onthe property. These terms and conditions are determined solely by thedeveloper and are incorporated into the HOA documents. The Developercreates and controls the HOA Board and Documents. The purchaserdetermines if the HOA Documents are acceptable before the purchase isfinalized.

TransitionStage 2: At this point, the developer has sold the majority of thedeveloped properties. Now the control of the HOA Board and HOAdocuments shifts to the purchasers of the developed property. Duringthis transition, any remaining undeveloped properties are developedand sold However, unlike the Developer, this transitional HOA Boardhas no financial interest in the properties being sold and should belimited to maintaining community property and ensuring that the finalundeveloped lots are developed under restrictions compatible withthe original HOA Documents.

MaturityStage 3: This is the final stage in the HOA Lifecycle. Thedevelopment is complete. The only financial interests in thedevelopment are the interests of the individual property owners. Thedeveloper is gone. The HOA Board has no financial interest in thedevelopment. The HOA Board and Documents should be focused strictlyon the maintenance of any community property (parks, out-lots and thelike). Individual properties must comply with the local governmentalregulations but should not be subject to any interference from theHOA Board or Documents. At this stage all the rights of ownership arevested with the property owner.

SuggestedModel Legal Structure:

AutomaticRemoval of Restrictions and Prohibition Against Adding NewRestrictions

Arestriction is anything that requires the property owner to use, notuse, construct or maintain their property in a specific way.Requiring a specific building size, building style, building use,building color, building placement or easements would be example ofrestrictions.

Oncethe property is sold by the Developer to a Purchaser, no furtherrestrictions may be placed on the property sold. This will preventanyone from encumbering a property beyond how it was encumbered atthe time the purchase was made.

Ifby pattern and practice a restriction is not uniformly enforced, itis considered dropped.

After10 years all restrictions related to individual property areconsidered dropped. Restrictions and dues related to communityproperty continue.

Ifa restriction is invalidated by any State or Local statute or finaldetermination by a court, it is considered dropped

Oncea restriction is dropped it is considered removed from any Documentsit may not be reinstated. If the HOA Board tries to enforce arestriction that a property owner is able to show has been dropped,the property owner's costs including legal fees shall be paid by theHOA Board.

Dues,Liens, Fines and Penalties

Theonly property lien that is allowed is for unpaid HOA dues. The lienmay not be foreclosed upon and may only be collected when theproperty is sold or transferred to another party. Interest (at 10%compounded annually) and lien costs would be part of the allowabledues lien amount.

TheHOA Board has no authority to level fines or penalties. Codeviolations or similar issues should be referred to the localgovernment authorities.

PropertyOwners Voting Rights

Anysignificant action of the HOA Board including changes to theDocuments or rules enforcing those Documents must first be approvedat the annual in person public meeting by 2/3 of the total number ofhomeowners present at the meeting for submission to all of theproperty owners. The action must then be approved by 2/3 of theproperty owners within the 60 days following the annual meeting(where the submission was approved) or it fails. These voting rightsmay not be removed, reduced or modified.

HOABoard and Committee Removal

TheHOA Board (and any HOA Committees) may be removed at any annual, inperson meeting, by a vote of 25% +1 of the property owners present orrepresented at any meeting.

TheHOA Board (any any HOA Committees) may be removed by a petition forremoval endorsed by 15% +1 of the property owners.

PublicPolicy

Itis against public policy to restrict property use for a long periodof time (rule against perpetuities) or to enforce ownership orrestrictions when pattern and practice clearly indicate therestriction/ownership has lapsed (adverse possession).

Itis against public policy to take the use of property without justcompensation (lack of consideration), and any additional restrictionsimposed after the property is sold by the Developer is a taking whichlacks consideration.

Asa matter of public policy, the judgment of the property owner whichhas a direct financial interest and incentive should supersede thejudgement of the HOA Board which has no direct financial interest orfinancial risk.

Asa matter of public policy, if the HOA Board through inappropriateaction or inaction negatively impacts the property owners propertyvalue, that loss in value including costs and attorneys fees shouldbe paid by the HOA Board.

Asa matter of public policy, all property rights should vest with theproperty owner after 10 years. After 10 years, only communityproperty should be managed and maintained by the HOA Board.