By Robert Holloway
Apparently, those who would like to expand the power of associations felt that they could acquire new powers of foreclosure by simply redefining terms, that is, by calling fines and penalties "Special Individual Assessments" rather than fines and penalties. I suspect that if challanged in court, this device would be struck down but it is also very likely that a board could use this device successfully until it was challenged in a court or before a jury with sufficient reading skills to understand the situation and to understand how contrary it is to the intent of Nevada law. My association board, their attorneys and Laury Phelps, the community manager, recommended this questionable device in proposed new governing documents that were put to a vote in April of 2006. Fortunately the proposed new documents were not approved by the membership after I mounted a vigorous campaign against the documents. Both the community manager and the board seriously misrepresented the proposed new documents in the April election and denied that the documents included new powers of foreclosure even after they were warned about it by my attorney. An attorney for the association board, Mr. John Leach, also defended the proposed changes, although in a 30 minute talk he never expressly denied that the new foreclosure power was in the document. He defended the device by saying that foreclosures were rare in Nevada. My objection of course was not based on the probability of foreclosure but on the fact that the device would have given the board an enormous club to greatly enhance the power of the board. It would have created so much fear of foreclosure that actual foreclosure would not have been necessary.
The device of "Special Individual Assessments" has been proposed and perhaps used in California also with objections similar to the ones I am making here.
If the documents had been approved, the device of "Special Individual Assessments would have been a ticking time bomb that would most likely have been an expensive failure if foreclosure based on this device had ever been attempted. I will let the reader ponder the ethicial problems involved in promoting provisions that conflict with state law. I wrote the following explanation for members of the board of my association. Their response was silence with some of them returning the envelope unopened.
The recently defeated proposed changes to the CC&Rs of Escondido Estates contained the following text on page 53:
(ii) Special Individual Assessments. A monetary fine or penalty imposed by the Association is a Special Individual Assessment enforceable by the sale of the Lot.
And on page 31 of the proposed changes, there is a detailed description of the sort of circumstances that may result in such Special Individual Assessments. This detailed description on page 31 makes it clear that reasonable fines and penalties involved in enforcing member compliance can be treated as Special Individual Assessments. In other words, infractions that are now protected from foreclosure would be fair game for foreclosure under the new documents because assessments are enforceable by sale of the lot under state law. Of course, it might be possible to regain the protection of state law by going to court but this would be an expensive undertaking for the homeowner. Better to have the local rules in compliance with state law in the first place rather than to try to have them overturned in court.
In order to explain with some precision how the above wording conflicts with state law, I will quote below the applicable portion of NRS Chapter 116:
4. The association may not foreclose a lien by sale based on a fine or penalty for a violation of the governing documents of the association unless:
(a) The violation poses an imminent threat of causing a substantial adverse effect on the health, safety or welfare of the units' owners or residents of the common-interest community; or
(b) The penalty is imposed for failure to adhere to a schedule required pursuant to NRS
116.310305.
Part (a) and (b) are not important for our purposes because the circumstances mentioned are not common in Escondido Estates. What is important for Escondido Estates is the general prohibition on foreclosures based on fines and penalties. Part (a) is self-explanatory and Part (b) deals with construction fines and penalties.
This unusual device of "Special Individual Assessments" was defended and apparently written by Mr. William Wright of the law firm of Angius and Terry.
In his letter of April 18th, that was distributed on the night of the election, Mr Wright hotly denied that the proposed changes was an attempt to circumvent state law. However, he did not offer any other explanation for the existence of the device of "Special Individual Assessments." If the device of "Special Individual Assessments" was not an attempt to avoid state law on the subject then what was it for? Mr. Wright did not explain. A few weeks ago, I wrote to Mr. Wright and asked for some alternative explanation but he has not replied.
Mr Wright could have used alternative wording in regard to Special Individual Assessments if there was no need to circumvent state law. Let me suggest some wording that would not involve redefinition of terms and compare that with what was actually written. He could have written as follows:
A monetary fine or penalty imposed by the Association is enforceable by the sale of the Lot.
The above wording is shorter and less complex than what was actually written and shields those involved from the suspicion that the terms were redefined in order to circumvent state law. Notice that it differs from what was actually written by the omission of five words. The five words are: " ..is a Special Individual Assessment" To make the intent of the document certain, the document goes on to say that these are enforceable by sale of the lot. Note that aside from the redefinition of terms, the fact that enforcement can be done by sale of the lot is of itself in conflict with the state law. Nothing could be plainer than that the document intends to allow enforcement by foreclosure and sale for even small violations of the CC&Rs, violations that are exempt from such harsh enforcement when state law is followed. The redefinition of terms is "interesting" and probably could be successfully challenged as being contrary to the intent of state law.
Mr. Wright correctly points out that some fines and penalties are already enforceable by foreclosure and sale but he omits that those types of fines and penalties relate to issues that are not likely to be present in Escondido Estates. They are the types of fines and penalties under categories 4 (a) and 4 (b) above. One must closely and carefully read Mr. Wright's letter and compare it with NRS 116 to understand how his letter is in reality a very weak defense. I can understand how that Mr. Wright's letter, received only a few hours before the April 19th election would have been viewed with some relief by the board. It is always hard to look critically at something that supports one's existing beliefs, especially if the details are complex. But contrary to Mr. Wright's letter and the Board's letter, the provision of "Special Individual Assessments" was a radically new change in the governing documents and I am sure it will be viewed as such by impartial and intelligent persons. Not only does it conflict with state law but the board denied its effects, which I think are obvious.
It has been said that the intent of the lawmaker is the law. There can be no doubt that in NRS 116, the lawmakers intended to give protection to homeowners against foreclosure based on small fines for trivial offenses and to allow foreclosure for the more serious offense of failing to pay the basic assessment that funds associations. Trying to redefine fines and penalties as "Special Individual Assessments" is like trying to avoid the income tax by redefining your paycheck as something other than income. That has been tried and the person who tried it got to sit in prison for awhile to contemplate the effects of his clever gimmick.