Exposed?!

What protects an individual homeowner from a catastrophic judgment against her community association?

    There’s a lot of media and blog space being devoted to the question of whether the homeowners in the community where Trayvon Martin was killed could end up personally responsible for a judgment obtained against their association and perhaps lose their homes as a result. This tragedy could certainly result in a lawsuit brought against the association by Martin’s family. If it were, it could be based in part on the fact that the homeowner’s association authorized the “neighborhood watch” program which included the work of George Zimmerman, Martin’s alleged assailant. A verdict of negligent supervision resulting in wrongful death could produce a judgment against the association. Notwithstanding all of the publicity and national attention, the damages in the case, assuming a finding of liability against the association, would likely be an award of general damages—a punitive damage award against the association is unlikely on these facts. But any damages award of a substantial amount against the association could create concern among owners about their own potential responsibility. Are the individual owners exposed to personal liability in that or similar scenarios?

Reform Community Associations?

After all of the rhetoric, what's really at the end of the rainbow? 

          There is a documentary film entitled "HOAX" which, according to the filmmaker,  Rodney Gray, "follows an investigative reporter, homeowners, and HOA reform activists as they reveal shocking evidence of financial and psychological hardships experienced by people throughout Texas and Nevada. A few of these people, including the filmmaker, have been the subject of adverse actions from the very HOAs created to help them."

The blogosphere has picked up this film and especially those sites which champion the rights of individual owners, have trumpeted it as revealing and a blow against injustice. I've looked at  the link to the teaser for the film and it appears that the producer has chosen several large gated communities as his subjects. While not agreeing with the premise of the film (i.e. that there is widespread abuse of owners by management companies and boards of directors) it is clear that there are problems out there. Some of the problems stem from very conservative (or liberal, depending on your point of view) reading of governing documents and the ensuing enforcement. We have all read the accounts of fines and foreclosures over  minor infractions. As the complaints mount and the blogs come alive with indignation over these stories, like everything else, the real question boils down to: "What, if anything, can you do about it?"

Ponzi Scheme?

Cities are going bankrupt because they didn’t  project their funding needs into the future—will community associations be next?

            Vallejo, California declared bankruptcy in 2008. The city of Hercules defaulted on its bond debt repayments. In June, Stockton California filed for Chapter 9 bankruptcy. On July 10, 2012, the city council of the City of San Bernardino, California voted to file for bankruptcy. That's two major California cities seeking bankruptcy protection within the last 30 days. Other U.S. cities and counties have either declared Chapter 9  bankruptcy or are on the brink. Central Falls, R.I.; Harrisburg, Pa; Boise County, Idaho, and Jefferson County, Alabama all share that distinction.[2] Stockton may be the biggest city in the nation to declare bankruptcy.

            Each of these public entities has a unique reason for its financial problems. Base closings. Industry shutdowns. A gradual financial decline. But Stockton’s case is somewhat different and perhaps presages more accurately the fate of many other municipalities—they spent money they didn’t have and failed to determine if they ever would. 

          “The city's fiscal history "has eerie similarities to a Ponzi scheme," says Bob Deis, the city manager Stockton hired in 2010. Over the years, the city promised employees huge—and unfunded—salaries and benefits...”[3]

            Essentially, the Stockton City Council approved ever-higher salaries and pension benefits for public employees without the slightest idea of how these benefits would be funded.

            “Perched precariously atop this mountain of obligations are retiree health benefits. Stockton officials awarded these to city employees in a series of votes in the 1990s but made no effort to fund them, intending simply to pay costs out of their budget as workers retired…Stockton Mayor Ann Johnston voted for these expensive measures when she served on the city council. ‘We didn't have projections into the future what the costs might be…I learned that you don't make decisions without looking into the future’… ‘Nobody gave thought to how it was eventually going to be paid for,’ says Mr. Deis, the city manager. “[4]

               Why would public officials be so shortsighted? Part of the reason was political pressure from public employee unions--pressure that is being applied even today to prevent further job and salary cuts. But part of it is that is just too simple to satisfy present day political demands by borrowing funds from future generations--essentially kicking the funding debt down the road.