This is an important question that, like many other questions of substance concerning private governments,, continues to escape the serious attention it deserves. In my previous Blogcritics article, "Who Lives in Homeowners Associations," I showed that 20% of the population currently lives under these private local governments, and that percentage continues to increase. This question must be addressed and answered in the positive: Yes, they are unconstitutional local governments under private, contractual constitutions,(CC&Rs), not owing allegiance to the US Constitution, or any state constitution.
This is an involved and complicated issue, made so by the arguments of the special interests, in particular, the national lobbying trade group for homeowners associations, Community Associations Institute (CAI). To put the HOA legal scheme in proper perspective, devoid of CAI and developer propaganda, we need to go back to the very beginnings of the current incarnation of the legal concept of a Utopian community. Please understand the difference between a subdivision's real estate "package," the amenities, landscaping, rules, etc. from the entity governing the residents, which is the board of directors as the personification of association.
In the beginning, that's 1964, the FHA went along with real estate interests and funded The Homes Association Handbook, which, as I have written in Part I of The Foundations of Homeowners Associations and the New America, was the bible for the mass merchandising for "the emergence and acceptance of a quiet innovation in housing" (taken from a historical recounting, Community Associations, the printing of which was funded by both CAI and ULI).
The Handbook had something for everyone who would be involved in making this incarnation work as a widely accepted mode of housing: the builder, the local municipality, the mortgage companies, and even the consumer/homebuyer, to whom it promoted "carefree living," "affordable housing," and "maintaining property values," among other benefits. No negatives were given.and no mention, in this 433-page Handbook, of creating a governing body in accordance with public government statutes (see your state's municipality laws on incorporated towns or even on home rule). No mention either, of the requirement to be a public entity and therefore to be subject to the Constitution, nor that the Fourteenth Amendment applied to the HOA. The only hint at providing for a democratic form of government came from the promoter's concern for the legal justification for the HOA to have authority over the private property interests of the homeowners and to impose compulsory assessments: allowing the owners to vote.
Further deviations from a democratic model of government included the need for the covenants to run with the land (pass on from owner to owner) and thereby tie up the profit-seeking developer's view of the American landscape, with its unavoidable impact on society. The free voice of the market, the local voice of the people, were indentured to live under the HOA government for anywhere from 20 to 30 years before the voice of the people could vote to repudiate the CC&Rs constitution. To make it worse from a fair government aspect, the promoters decided against wording the covenant to dissolve the HOA automatically, unless 75% of the members voted for the HOA after this Indenture period, rather than today's common requirement of an automatic continuance unless the members voted otherwise. Indeed, this was not only an innovation in housing, but a marked repudiation of the American system of democratic government.
With the above understanding, the fact is that the Handbook does indeed establish a de facto government, plain and simple. It creates an entity to regulate and control the people within a territory, the subdivision that is governed by an HOA. (Forget about those discussions relating to the services provided by government and by corporations, which do not serve to distinguish one from the other. You will not find any such criteria in the municipality statutes). The proponents seem to have taken steps to avoid being seen as a form of local government, for obvious reasons. In 1994 Evan McKenzie wrote in Privatopia: Homeowner Associations and the Rise of Residential Private Government, that:
HOAs currently engage in many activities that would be prohibited if they were viewed by the courts as the equivalent of local governments . . . The balance of power between the individual and the private government is reversed in HOAs.
In 1967, soon after publication, The Handbook was also criticized by a University of California Public Affairs Report, reprinted in Common Interest Communities: Private Governments and the Public Interest. The Common Interest editors commented on this report by Stanley Scott, writing that HOAs,
weakened citizens' connection with their local government; their exclusivity encouraged economic and racial segregation, thus weakening the fabric of American society; and the central role of the developer and the requirement of property ownership . . . weakened local democracy.
Scott also had concerns about making these "private governments" work responsibly.
Any investigation into this issue of a bona fide government gives immediate rise to a number of questions relating to the right to contract and to associate; that HOAs may be corporations, but the corporation is a de facto government; the application of constitutional protections in private organizations; did member "citizens" freely consent to be bound under covenant law, and not under constitutional or contract law, etc. These are questions that should be easily answered in the affirmative, if it were not for the intrusion of half-truths and misleading notions by CAI with its call for absolute freedom of contract and against government interference: private HOA governments are unconstitutional. The CAI dogmatic ideology is that HOAs are sacrosanct and untouchable, unless approved by CAI, as documented by the positions taken by CAI lobbyists before numerous state legislatures over the years.
A strong example of where CAI stands on the role of the Constitution can be found in its amicus brief to the New Jersey Appellate court in the Twin Rivers free speech lawsuit, where CAI cautions the court about "the unwise extension of constitutional rights to the use of private property by members." CAI implied, but not as part of this lawsuit, that HOAs are truly as democratic as our American system of government, which I also leave to another time, and that the government should not decide in place of the voice of the people. Accepting this argument, the New Jersey Supreme Court decided that no constitutional violations had occurred, and said such things as homeowners may be able to find instances where the constitutional protections applied but not here. But don't worry, the Justices added, the common law business judgment rule, which the New Jersey courts have used extensively, will protect homeowners, and not to worry about constitutional restraints on private governments. One must ask, why then are constitutional protections needed for public entities?
Political scientists Franzese and Siegel provided a review of the Twin Rivers decision, The Twin Rivers Case: Of Homeowners Associations, Free Speech and Privatized Mini-governments, in which they called for more legislation to restore the "full panoply of rights" to homeowners in order to address the increasingly governmental nature of HOAs.
In short, constitutional protections have been replaced by the common law business judgment rule that holds, essentially, that the governing body knows better than we judges as to what's good for the people of the HOA. And that includes, by implication, that private parties can contract to ignore the Constitution. All the reform legislation of substance described in the media is an attempt to restore the rights and privileges taken from citizens by the HOA statutes, in the same manner as civil rights legislation restored lost rights.
I raised the question in my HOA Constitutional Government blog, "Is the delegation of legislative authority to private HOA entities constitutional?" I wrote, "When it comes to delegating governmental power and authority to state agencies, the authority for an agency to make and to enforce laws is subject to the state’s Administrative Procedures Act, with its constitutional law protections."
And, I further asked, "What about the legitimate grant of governmental powers and authorities to private organizations?" I answered, in part, with, "While not officially recognized as a de jure (under law) government, the various state HOA statutes and 'Acts' do grant authority to these private governments to act independently of state laws and local ordinances. Many times in many states, these private government arrangements, not approved or subject to review by the state, have been held to be superior to or supplement state laws, as when we see with, "unless otherwise provided in the governing documents."
The mere fact that a law uses the word may is a declaration that any such discretionary act is not in violation of the law. Otherwise, the law would say may not, or shall not, which is a declaration that any such act would violate the law. HOA acts and statutes are replete with such words, making many, many questionable HOA acts and actions legal. The HOA statutes and acts can be seen as a set of specialized laws working to distinguish the governance of territorial subdivisions under an HOA regime from the governance of those not living under an HOA regime.
So, I ask again:
1. Can we enter into a private contract to avoid the application of constitutional protections?
2. Can individuals contract to establish a governing body that controls and regulates the people within a territory and avoid adherence to the US Constitution?
3. If the answer to the above questions is yes, then what is the purpose of social contract embodied in the US Constitution?