July 28, 2017
Freedom of Speech is a Hot Topic in Community Associations
Freedom of speech is a hot topic in community associations. Some of these First Amendment disputes concern the freedom of a property owner to display flags, signs or symbols on their property in the face of board opposition. Conflict between association leadership and members over free speech also spreads into cyberspace. One such case recently made its way up to Florida’s Fifth District Court of Appeals. On July 21, 2017, the appellate judges reversed part of the trial court’s ruling in favor of the association. Howard Adam Fox had a bad relationship with certain directors, managers and other residents of The Hamptons at MetroWest Condominium Association. Several lessons here for anyone who communicates about associations on the internet.
The July 21, 2017 appeals opinion does not describe the social media communications and blog posts that gave rise to the dispute. I imagine that they consisted of personal attacks that may have been alleged to contain slanderous material. The details are left out of the opinion, probably with a sensitivity towards the persons discussed by Mr. Fox online. In general, I do not like the spreading of false, slanderous statements in personal online attacks. To the extent that Fox had legitimate grievances about goings on at the Hamptons at MetroWest, the character of his criticisms seems to have eclipsed any merit. There are usually better ways of solving problems than angrily venting them in online forums.
The board filed a complaint seeking a court order prohibiting Mr. Fox from, “engaging in a continuous course of conduct designed and carried out for purposes of harassing, intimidating, and threatening other residents, the Association, and its representatives.” The association alleged Mr. Fox violated the governing documents of the condominium by his blog posts and social media activity. The court granted an ex parte injunction prohibiting the alleged wrongful conduct. This means that the judge initially considering the case did not wait for Mr. Fox to make a response to the lawsuit. Later, Mr. Fox and the board reached a written settlement wherein Fox agreed to cease certain activities. The final order in the court case incorporated the terms of the settlement. Making terms of the settlement a part of the final order means that the association does not have to start its lawsuit all over again to enforce the deal. They just need to bring a motion for contempt if Fox violates the order. Howard Fox represented himself and did not have an attorney in the trial court and appellate litigation.
Soon thereafter, the association filed a motion for contempt, alleging that Fox violated the settlement and final order. In the contempt proceeding, the trial court went further than simply enforcing the terms of the settlement. The judge forbade Fox from posting or circulating anything online about any residents, directors, managers, employees, contractors or anyone else at the Hamptons. The judge required him to take down all current posts. If someone asked him on social media about his community, and he wanted to respond, he would have to call them on the telephone.
Fox appealed this contempt order on the grounds that it violated his First Amendment rights under the U.S. Constitution. The Fifth District Court of Appeals agreed. The trial court’s ruling was what is called a “prior restraint.” The contempt order did not punish him for past wrongful actions. It looked permanently into his future. Prior restraints against speech are presumptively unconstitutional. Temporary restraining orders and injunctions are “classic examples” of prior restraints.
The appellate court focused on the public nature of the type of speech the lower court order forbade. This makes sense. While an association is private, it is a community nonetheless. There is no real conceptual difference between online communications and other types of speech. Matters of political, religious or public concern do not lose their protected status because the content is insulting, outrageous or emotionally distressing. In a condominium, many matters of community concern could easily be characterized as political, religious or public. Federal, state or local rulemaking may impact the common business within the association. While community associations are “private clubs,” the things that members communicate about are mostly public in the same sense as town or city ward communities. To paraphrase this opinion, “hate speech” is protected by the constitution, unless certain very limited exceptions apply, such as obscenity, defamation, fraud, incitement to violence, true threats, etc.
This Florida appellate court found that the trial court violated Fox’s First Amendment rights when it ordered the “prior restraint” against him making any posting of any kind online related to his community. On appeal, the court preserved the rulings finding contempt for violation of the settlement agreement. So, Fox must still comply with the terms of the settlement. The case will go back down for further proceedings unless there is additional appellate litigation. Nerd-out further on the constitutional law issues in this case by reading the useful Volokh Conspiracy blog post on the Washington Post’s website.
The appeals court did not find that any covenants, bylaws, settlements, or other association agreements violated the First Amendment. This opinion does not mean that people cannot waive their rights in entering a private contractual relationship with each other.
Usually, only “state actors” can be found to violate the Constitution. An association is not a “state actor” because it is not really governmental. Here, the “state actor” in the constitutional violation was the trial-level court and not the association. What difference does it make? Ultimately, the courts, review the validity of board actions, determine property rights and enforce covenants. The association board requested relief that apparently lacked support in the covenants or the settlement agreement. To protect their rights, owners must understand when their board is doing something or asking for relief outside of its contractual authority.
There is one final point that the court opinion and the Volokh Conspiracy blog do not discuss which I want my readers to appreciate. Owners of properties in HOAs do not simply have a right to communicate with each other and the board. They have an obligation. The covenants, bylaws and state statutes provide for the board to be elected by the members. Members can amend governing documents by obtaining a requisite of community support. The non-director membership is supposed to be an essential part of the governance of the association. If the members and directors do not have an effective means to communicate with each other, then the community cannot function properly. Community associations can have thousands of members and residents. The may cover the acreage like that of a town or small city. The internet, in both password protected and public sites provides a convenient way for information and messages to be shared. Limits on an owner’s ability to communicate with her board or other parties to the “contract” prejudices her rights under the governing documents. I do not like covenants or bylaws that limit an owner’s ability to obtain information or communicate concerns within the governance of the association. Donie Vanitzian recently published a column in the LA Times entitled, “Freedom of Speech Doesn’t End Once You Enter a Homeowner Association.” She discusses proposed California legislation to enshrine owners’ rights to assemble and communicate with each other about community concerns. Ms. Vanitzian makes an important point that because speech may be deemed “political” should not justify management suppression. Having rights to participate in the meetings of one’s HOA without the right to talk about what is going on is like owning land deprived of any right of way or easement to the highway. While the new Florida opinion does not discuss this point, it is consistent with the basic values of the First Amendment.
For Further Reading:
Howard Adam Fox v. Hampton at MetroWest Condominium Assoc., Inc., No. 5D16-1822 (Fl. 5th D.C.A. Jul. 21, 2017)
Eugene Volokh, “Court reverses restriction on man’s blogging about his condo association, management company and neighbors” (Wash. Post Jul. 21, 2017)
Donie Vanitzian, “Freedom of Speech Doesn’t End Once You Enter a Homeowner Association” (LA Times Jul. 22, 2017)
torbakhopper pictures in the night : san francisco (2014) via photopin (license)(does not depict anything discussed in article)
March 15, 2017
Should Homeowners Bring Complaints Against Contractors Before Courts or Regulators?
Property owners frequently have complaints about construction contractors. Some of these complaints involve thousands of dollars in damage or serious infringement upon the use or value of property. These property owners (and their attorneys) want to know who to turn to. Should homeowners bring complaints against contractors before courts or regulators? This question raises issues about how the government ought to enforce its laws and resolve disputes. There is a perspective that regulatory boards ought to be a welcome forum for owners threatened or damaged by alleged contractor misconduct. In this blog post I will explain why I believe that, for all its imperfections, the judicial system is the best venue for vindication of legal rights in consumer disputes.
In 2015, the Court of Appeals of Virginia decided an illustrative case arising out of a complaint of a home purchaser about the seller’s contractor. Around 2002, Mark Holmes purchased an Alexandria, Virginia home, including an addition constructed by Culver Design Build, Inc. Mr. Holmes was unhappy about defective construction of the addition. He went to the city government, whom the General Assembly tasked with enforcing the building code in his locality. The City Code Administration found extensive water damage caused by construction defects and issued a Notice of Violation to Culver. Holmes was not satisfied with Culver regarding corrective work, so he filed a complaint with the Virginia State Board of Contractors. Holmes asked the Board to suspend Culver’s license until it corrected the violation. Culver Design Build, Inc. argued that Holmes did not have legal standing to seek judicial review of the Board’s ruling because this was a license disciplinary proceeding. The Holmes case also includes issues about how deferential the courts should be to a licensing agency’s administrative rulings. This case is unusual in that Mark Holmes represented himself in his appeal to the Court of Appeals of Virginia. Mr. Holmes acknowledged that unlike the seller, he lacked the privity of contract with the contractor which potentially could be used to go to court in breach of contract. The Court of Appeals agreed with Culver and the Board for Contractors.
When homeowners conclude that a state-licensed contractor or tradesperson committed a wrongful act depriving them of their home or damaging its value, it is easy to see why the aggrieved party would want a governmental agency to help them. Most people deal with governmental agencies much more than courthouses or law offices. Lawsuits require significant commitments to pursue or defend. Public resources go to supporting various agencies that have apparent subject-matter authority. This may appear to be a taxpayer-financed legal authority to go after the professional. However, this strategy often does little more than aggravate the licensed professional, the agency officials and the consumer. The Holmes v. Culver case illustrates one key weakness with homeowners pursuing consumer complaints through the professional licensure and disciplinary board process.
When consumers are harmed by unprofessional conduct, usually what they want is to have the defect corrected, an award of money or the transaction voided. These kinds of remedies are conventionally handled in the court system. The professional regulatory boards focus on licensure. They consider whether a business is properly licensed, should the license be suspended or revoked, should fines be assessed, and so on. Prominent members of the industry typically dominate these boards. For example, licensed contractors sit on the Board for Contractors. Initiating a professional licensure proceeding is a clumsy means of advancing the specific interests of the consumer having a transactional relationship with the business. It is the judiciary that can grant money damages or other remedies arising out of the formation and any breach of the contract. Regulators focus on whether disciplinary action is warranted regarding the registration or licensure of the business. In the Culver Design Build, Inc. case, the Board for Contractors and the Court of Appeals for Virginia agreed that Mark Holmes did not have standing to contest a regulatory decision in favor of the contractor. The board had authority to punish Culver for failing to abate a regulatory violation. However, the board had no authority to order the contractor to take any specific action at the job site. The board did not deny Homes any right or impose upon him any duty in its decision, because its authority revolves around Culver’s licensure. It is the State Building Code Technical Review Board that has the authority to review appeals of local building code enforcement decisions, not the Board of Contractors. One of the appeals judges suggested that if Holmes’ contentions were taken to a logical conclusion, the new buyer of the house could have greater leverage over a contractor than the previous owner, whose remedies may be limited by the contract. In his oral argument, Mark Holmes admitted that trying to resolve his complaints through the Board of Contractors complaint process was, “cumbersome and very long lasting.”
Even if the consumer unhappy with an adverse decision made by a regulatory agency in response to a complaint has standing, her appeal to the courts may encounter other obstacles. The licensure dispute is unlikely to starts afresh on appeal. The courts tend to be receptive to the agency’s interpretation of the legislature’s statutes. In Virginia, courts accord deference to an agency’s reasonable interpretation of its own regulations (as adopted by the board pursuant to the statutes). A consumer’s ability to raise new factual issues may be strictly limited in her attempts to get the courts to overturn the board’s decision. Judicial deference to agency rulemaking is not without controversy. Judge Neil Gorsuch, whom President Trump nominated for the U.S. Supreme Court is a high-profile critic of judicial deference to agencies. In his August 23, 2016 concurrence to a federal appeals decision Gutierrez-Brizuela v. Lynch, Judge Gorsuch explained that concentration of both legislative and judicial power in regulatory agencies creates constitutional problems. The constitution protects the public from authoritarianism by separating the government by the type of power, not the subject-matter. Under the constitution, the legislature prescribes new laws of general applicability. Taken to its logical conclusion, doctrine that courts should defer to agencies’ quasi-judicial determinations of what the statutes mean unconstitutionally undercuts the independence of the judiciary. The constitutional problems identified by Judge Gorsuch are illustrated in the arena of housing industry occupational regulation.
Where does this leave an owner when property rights are infringed by regulated professionals? Should everyone should go back to renting? Certainly not! This is what the independent judiciary is there for. Usually owners have privity of contract with the contractor and do not need to go to an agency. They can sue for remedies for breach of contract or deceptive practices. Consumer advocates with an interest in legislation should focus on increasing access to the court system and not promoting an administrative process that may not be a good fit for the homeowner. If you find yourself needing to bring or defend a construction claim, contact my office or a qualified attorney in your jurisdiction.
Homes v. Culver Design Build, Inc., No. 2091-13-4 (Va. Ct. App. Jan. 27, 2015) (Alston, J.)
HOMES V. CULVER DESIGN BUILD, INC. APPELLATE ORAL ARGUMENT
Gutierrez-Brizuela v. Lynch, No. 14-9585 (U.S. Ct. App. 10th Cir. Aug. 23, 2016) (Gorsuch, J.)
ehpien Old Town Alexandria via photopin (license)
February 25, 2014
Reel Property: “The Attorney” and the Appearance of Justice
(This post is the second and final part in my blog series about the 2013 South Korean film “The Attorney.” Part I can be found HERE)
“The appearance of justice, I think, is more important than justice itself.”
Tom C. Clark explained in an interview why he resigned as a Justice of the U.S. Supreme Court. President Lyndon Johnson wanted to appoint Clark’s son, Ramsey, as U.S. Attorney General. The Constitution does not forbid a father from sitting on the Supreme Court while his son heads the Department of Justice. Tom Clark observed that although his son may not have anything to do with particular D.O.J. cases before the Supreme Court, the public would associate the outcome of the cases with the father-son relationship. The public develops its perceptions of the justice system more from news reports than personal experience. These perceptions help form the rule of law.
The 2013 Korean film “The Attorney” reminded me of Justice Clark’s interview. This film is loosely based on the 1981 Busan Book Club Trial. In that case, attorney Roh Moo-hyun, the future President of S. Korea, defended a young man against terrorism charges supported by a written confession procured by torture of the defendants. A few days ago, I blogged about the first half of this film which focused on the attorney’s success building a real estate title registration practice. Today’s post explores the court drama at the climax of the movie.
One evening, lawyer Song Woo-seok (pseudonym for Mr. Roh, played by actor Song Kang-ho) entertains his high school classmate alumni at a restaurant managed by his old friend Choi Soon-ae (Kim Young-ae) and her teenage son, Park Jin-woo (Im Siwan). Song gets into a drunken argument with a journalist who defends the motives of student groups protesting the 1979 military coup. Song is a high school graduate who studied for the bar exam at night after working all day on construction sites. He struggles to understand the students’ idealism. Choi and Park are disappointed and angry about the property damage from the fight at their restaurant.
In a later scene, Park Jin-woo attends a book club meeting, where female students flirt with him about romantic content in a novel. The authorities raid the meeting and secretly take the students, including Park, into custody. Mrs. Choi searches for him all over Busan, even visiting the morgue. After many days, the authorities informed her of Park’s pending trial for crimes against national security. Choi begs Song to defend Park. Song’s loyalty to Choi and his journalist classmate overcome his reluctance to accept a perilous, politically-charged criminal case.
1. Personally Investigate the Real Property Before Trial
When attorney Song and Mrs. Choi visit Park in jail, his fatigued body is covered with bruises. Song interviews Park and his co-defendants about their arrest and detention. They describe the sounds of the street they heard from inside the interrogation location. Song locates and explores the mysterious building.
When I started litigating real estate cases, attorney Jim Autry explained to me the importance of a discreet first-hand view of the property at issue, including value comparables supporting an appraisal. Song’s risky investigation of the decrepit building where the police conducted the interrogations reflect his real estate and construction background. This on-site investigation allows him to interpret the documents and witness statements and try the case with confidence.
2. Verdict Preferences Develop Before Conclusion of the Evidence
This trial drama defies a conventional legal analysis because the verdict appears politically predestined. Attorneys going to the theater to see taut repartee under the rules of evidence will be disappointed.
The case is tried without a jury. Beforehand, the judge privately requests that defense counsel refrain from making a lot of objections and motions in front of the news media. The judge makes several early evidentiary rulings against Song and the defendants. Everyone anticipates a show trial imposing the political will of the military junta.
Song bravely transforms the case into more than a show of power. In interrogation, the defendants signed confessions that they read British historian E.W. Carr’s “What is History?” in their book club. The prosecution presents an expert who testifies that this book is revolutionary propaganda. On cross-examination, Song shows that this is required reading in the leading universities in South Korea. Song also tricks the prosecution into admitting that the expert’s offices are in the same building as the government’s intelligence service. This challenges the independence of the expert’s opinions.
3. False Confessions
Song calls Defendant Park to testify. Park explains that he signed the confession after many days of torture by the police. When Song presents photographs supporting the witness’s testimony, the prosecution argues that the wounds were self-inflicted.
Even without torture, false confessions are a common problem in criminal justice. Virginia Lawyers Weekly recently reported that 1/4 of all convicted defendants later exonerated by DNA made false confessions. Feb. 17, 2014, “Untruth or Consequences: Why False Confessions Happen and What To Do.” “Good cop/ bad cop” routines intimidating young, vulnerable defendants often lead to “confession” of details introduced by law enforcement during interrogation. Id.
4. Effect of Visceral Reactions of Courtroom Observers on the Trial Proceedings
Park’s testimony about the torture techniques brings the courtroom audience of family members and local media to tears. The authorities replace the families on the next day with a mob seeking a guilty verdict. Song’s examination of the police detective is a failure. The officer evades Song’s questions and lectures him about the threat of terrorism.
Just as the defense seems to peter out, Song and Park get a big break. Song meets the army medic used by the interrogators to keep Park alive during the interrogation. The medic courageously resolves to testify for the defendants about the nature and extent of the injuries. Song’s journalist classmate agrees to contact international media organizations in a desperate attempt to put pressure on the authorities about the medic’s testimony. The outcome hinges on the admission and credibility of the medic’s testimony.
Hollywood court dramas indulge their audiences with conclusive vindication. “The Attorney” reminded me that a system of justice is always a work in progress. Song evolves from construction laborer to moneymaking genius to litigator. Finally he becomes a civil rights leader motivated and tempered by his training and experience.
Song voice seemed frequently shrill during the trial. Perhaps a Korean speaker can comment on whether this was persuasive or detracting.
When a case turns into an uphill battle, attorneys sometimes rationalize that, “This could be worse.” The defense counsels’ role in the 1981 Burim trial must have been one of these worst-case scenarios. Average trial lawyers succeed for their clients when they can marshal favorable law and facts through in a legal system that works well. “The Attorney” presents an extreme case showing how courage, intelligence, loyalty and tenacity can earn the respect of colleagues, and in rare cases, a nation.
Perhaps Justice Clark would have respected Roh’s commitment. The villains in “The Attorney” see the criminal justice system as a blunt weapon and propaganda medium for use against critics of the military coup. This ultimately undermines the credibility of the legal system and weakens the rule of law. Attorney Song’s courtroom theatrics aren’t to make money or to cloak his personal insecurities. He takes risks out of deep loyalty to his client. Truth, not bullying, enhances the “appearance of justice.”
February 5, 2014
They Might Be Mortgage Giants: Fannie & Freddie’s Tax Breaks
On January 3, 2014, the U.S. Consumer Financial Protection Bureau published a request for input from the public about the home mortgage closing process. 79 F.R. 386, Docket CFPB-2013-0036. The CRPB requested information about consumers’ “pain points” associated with the real estate settlement process and possible remedies. The agency asked about what aspects of closings are confusing or overwhelming and how the process could be improved.
The settlement statement is an explanatory document received by the parties at closing. The statement lists taxes along with other charges. The settlement agent sets aside funds for payment of both (a) the county or city’s property ownership taxes and (b) transfer taxes assessed at the land recording office. The property taxes are a part of a homeowner’s “carrying costs.” The recording taxes are part of the “transaction costs.” Typically, neither the buyer nor the seller qualify for a recording tax exemption.
The federal government advances policies designed to increase consumers’ access to affordable home loans. The Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) provide a government-supported secondary market. They purchase some home mortgages from the lenders that originate them. The Federal Housing Finance Agency regulates these chartered corporations. In 2008, FHFA imposed a conservatorship over Fannie Mae & Freddie Mac.
In the years leading up to the crisis of 2008, Fannie and Freddie used their government sponsorship to purchase some of the higher-rated mortgage-backed securities. See Fannie, Freddie and the Financial Crisis: Phil Angelides, Bloomberg.com. As the secondary-market purchaser of these home loans, Fannie and Freddie have foreclosure rights against defaulting borrowers and distressed properties. These corporations participate in the home mortgage process from origination, through purchase post-closing, and, in many cases, subsequent foreclosure-related sales.
Congress exempts Fannie Mae and Freddie Mac from state and local taxes, “except that any real property of [either Fannie Mae or Freddie Mac] shall be subject to State, territorial, county, municipal, or local taxation to the same extent as other real property is taxed.” 12 U.S.C. sections 1723a(c)(2) & 1452(e). Which local real estate taxes does this exception apply to? The ownership tax, transfer tax, or both? The statute does not specifically distinguish between the two. Fannie and Freddie concede that they are not exempt from the tax on property. However, they decline to pay the transfer taxes assessed for recording deeds and mortgage instruments in land records. This is one advantage they have over non-subsidized mortgage investors. Local governmental entities and officials from all over the U.S. challenge Fannie & Freddie’s interpretation of the exemption statute since it represents a substantial loss of tax revenue. This blog post focuses on two recent opinions of appellate courts having jurisdiction over trial courts sitting within the Commonwealth of Virginia.
Jeffrey Small, Clerk of Fredericksburg Circuit Court, attempted to file a class action against Fannie & Freddie in federal court on behalf of all Virginia Clerks of Court. Small v. Federal Nat. Mortg. Ass’n, 286 Va. 119 (2013). Mr. Small challenged their failure to pay the real estate transfer taxes. The Defendants argued that the Clerk lacked standing to bring the suit for collection of the tax. A Virginia Clerk of Court’s authority is limited by the state constitution as defined by statute. In the ordinary course of recording land instruments, the Clerk’s office collects the transfer tax at the time the document is filed. One half of the transfer taxes go to the state, and the other half goes to the local government.
To resolve the issue, the Supreme Court of Virginia found that if the taxes are not collected at the time of recordation, then the state government has the authority to bring suit for its half, and the local government to pursue the other half. The Virginia clerks do not have the statutory authority to bring a collection suit for unpaid transfer tax liability. Because they lack standing, the court dismissed the clerk’s attempted class action against Fannie and Freddie for the transfer taxes.
Maryland & South Carolina:
Montgomery County, Maryland and Registers of Deeds in South Carolina brought similar federal lawsuits challenging Fannie and Freddie’s non-payment of recording taxes. See Montgomery Co., Md. v. Federal Nat. Mortg. Ass’n, Nos. 13-1691 & 13-1752 (4th Cir. Jan. 27, 2014). The Fourth Circuit also hears appeals from federal Courts in Virginia. This case proceeded further than Mr. Small’s. The Appeals Court found that:
- Property taxes levy against the real estate itself. Recording taxes are imposed on the sale activity. The federal statute allows states to tax Fannie and Freddie’s ownership of real property. The statute exempts Fannie and Freddie from the transfer taxes.
- Congress acted within its constitutional powers when it exempted Fannie and Freddie from the transfer taxes, because this may help these mortgage giants to stabilize the interstate secondary mortgage market.
- The exemption does not “commandeer” state officials to record deeds “free of charge,” because the states are free to abandon their title recording systems. By this analysis, the exemption is not a federal unfunded mandate on state governments because the decision to include a land recording system as a feature of property law is not federally mandated.
Some federal courts in other parts of the country have reached analogous conclusions. e.g., Dekalb Co., IL v. FHFA (7th Cir. Dec. 23, 2013)(Posner, J.). This legal battle wages on in the federal court system, but the results so far favor Fannie and Freddie.
Is abandoning the land recording system a realistic option? In Greece and other countries lacking an effective land recording system, property rights are uncertain and frequently brought before the courts for hearing. See Suzanne Daily, Who Owns This Land? In Greece, Who Knows?, New York Times. Like Fannie & Freddie, land recording systems advance the policy interests of stabilizing private home ownership.
Fannie and Freddie aren’t required to pay locally collected recording taxes. Their “share” of the overhead for maintaining the land recording system come from other sources. This includes the recording fees paid by ordinary parties in real estate closings across the country. Does this give the mortgage giants an unfair competitive advantage over other institutional investors in the re-sale of foreclosed homes?
Are these differing tax treatments properly considered in the CFPB’s discussion about the “pain points” in closings? Settlement statements provide clarity regarding the charges listed. The transfer and property taxes assessed in real estate closings are confusing and overwhelming, in part because they represent hidden costs. These hidden costs include the exemptions afforded Fannie Mae and Freddie Mac. The purpose of these institutions is to help mortgage consumers. Should the tax loophole should be closed or the hidden costs be disclosed to consumers? Perhaps one of these change would advance the CFPB’s “Know Before You Owe” initiative.
photo credit: J.D. Thomas via photopin cc. (not particular to any of the cases discussed herein)