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Tag: Magna Carta for Homeowners

  • Can You Refuse Paying HOA Dues Left Unpaid by the Previous Owner?

    “A person’s enjoyment of ownership may be restricted and limited if to do so the welfare of the community is promoted and attained.”

    – Mr. Justice Gutierrez, Jr., Bel Air Village Association, Inc. V. Dionisio, 174 SCRA 589

    By Realttorney

    After buying a house and lot inside a subdivision, can the Homeowners’ Association (HOA) mandate the payment of all monthly dues unpaid by the previous owner to the new owner?

    Candy P (not her real name) is a novice real estate investor. She purchased a foreclosed property from the Home Development Mutual Fund (popularly known as PAG-IBIG). She reached out to me to inquire on the legality of the HOA requiring her to settle all the unpaid HOA dues for the property she acquired through public auction.

    As a real estate lawyer, I always advocated, as part of a real estate investor’s legal due diligence, to check or verify from the HOA if there are outstanding and unpaid monthly dues by the owner selling the property. This rule also applies when the investor seeks to purchase a property that has been foreclosed by a financial institution or a bank.

    The result of the due diligence will determine if the investor will ask for a discount on the selling price in order to account for the extra expense, if and when payment of the arrears will be mandated by the HOA. By experience, real estate investors will negotiate with the HOAs for the condonation of a portion of the unpaid dues, including the interests and/or surcharges added to the unpaid dues.

    However, it seems that Candy P is dealing with a HOA that plays hardball; a HOA that does not believe in coming up with a WIN-WIN solution to the problem left by the previous owner. She is being forced to pay the arrears amounting to P252,000 with penalties. Like all budget conscious real estate investors, she is resisting this and searching for a Department of Human Settlement and Urban Development (DHSUD) guideline or any law that she can point out to legally oppose the dictates of the HOA.

    Before we answer her question, let us first discuss the legal basis of how and why HOAs compel the payment of unpaid dues, fees and assessment by the current owner, as well as the new owner.

    Section 5 of Republic Act No. 9904 states: “Every homeowner has the right to enjoy the basic community services and facilities: Provided, That he/she pays the necessary fees and other pertinent charges.”

    To emphasize the necessity of the homeowner to pay “the necessary fees and other pertinent charges,” the Magna Carta for Homeowners and Homeowners’ Association provided under Section 8, that a member shall have the duty “to pay membership fees, dues and special assessments.”

    Therefore, if the homeowner-member wishes to enjoy the basic community services and facilities of the HOA then the member is obliged to pay the monthly dues imposed by the Board of Directors/Trustees of the HOA, in accordance with its Bylaws.

    By virtue of Section 10 of Rep. Act No. 9904, the HOA has the power to “impose or collect reasonable fees for the use of open spaces, facilities, and services of the association to defray necessary operational expenses, subject to the limitations and conditions imposed under the law, the regulations of the board and the association’s bylaws” as well as, to “suspend privileges of and services to and/or impose sanctions upon its members for violations and/or noncompliance with the association’s bylaws, and rules and regulations.”

    Meanwhile, it is the duty and responsibility of the Board of Directors or Trustees to “discharge the duties and responsibilities provided for in the association’s bylaws.” Take note of the words “association’s ByLaws” which is key to understanding the next part of this article.

    Unless otherwise provided in the Contract to Sell, Deed of Sale, or other instruments of conveyance, or annotated in the title of the property, membership in the association is optional. Moreover, it should be emphasized that “no lot owner/purchaser may be compelled to join a HOA. Compelling a homeowner to join the HOA is a prohibited act under Section 22 of Rep. Act No. 9904.

    But, most HOAs that were formed in the last 25 years have made it a requirement for all buyers in the subdivision project become automatic members of association by stipulating it in the Contract to Sell, Deed of Sale or the Deed Restrictions which are annotated on the land title of the individual lots.

    Therefore, a purchaser of registered land is bound by the annotations found at the back of the certificate of title covering the subject parcel of land.[1] Hence, when a purchaser voluntarily buys a registered land, it is understood that he/she took the same free of all encumbrances except notations at the back of the certificate of title, among them, that he/she automatically becomes a member of the HOA.[2]

    To repeat, it is the duty of the homeowner-member to pay the monthly dues for the operation and activities of the HOA, which is collected by the Board of Directors or Trustees. In general, the dues collected are intended for garbage collection, salary of security guards, cleaning and maintenance of streets, street lights, parks, playgrounds and other open spaces for the benefit of all the homeowner-members of the HOA. These expenses are necessary, valid and reasonable for the particular gated community.

    The amount to be paid by each lot owner is computed on the basis of the area per square meter of the lot owned by every member. The monthly dues are the share in the common expenses for necessary services. This is now made clear by Section 8 of HLURB Resolution No. 1, Series of 2017, entitled “Guidelines in the Kinds of Dues, Fees and Contributions That May Be Collected by Homeowners Association” approved on March 8, 2017.

    Again, it bears repeating that the amount of monthly dues to be imposed by the HOA should be based on the existing ByLaws of the HOA. Furthermore, under the ByLaws of older HOAs, the non-payment of the monthly dues constitutes a lien on the lots of the owners in the subdivision project. If this is the case, then it should be understood that the lien is not imposed on the person of the lot owner (homeowner-member) but follows the parcel of land whoever is the owner.

    So, it is quite clear that the basis of HOAs in demanding the payment of the arrears in the monthly dues by the new owner is contained in the existing provisions of the HOA ByLaws. Even the imposition of interest and surcharges on top of the unpaid monthly dues should also be indicated in the HOA ByLaws.

    Consequently, if the HOA ByLaws does not provide for the amount of the monthly dues as well as the imposition of interest, surcharge, and the creation of a lien for unpaid monthly dues then any collection of monthly dues and the arrears is without basis in fact and law.

    Hence, Candy P should review the existing ByLaws of the HOA in order to determine if the HOA has legal basis in demanding she pays the arrears of P252,000 left unpaid by the previous owner. This may seem unfair but there have been cases decided by the Supreme Court that upheld this legal principle, pursuant to the existing provisions of the HOA ByLaws.

    Finally, the biggest weapon Candy P could have used to resist paying the unpaid monthly dues of the previous owner of the real property she purchased at public auction is DHSUD Department Order No. 2021-007, Series of 2021 signed by Sec. Eduardo Del Rosario last September 15, 2021. This is the “2021 Revised Implementing Rules and Regulations of Republic Act No. 9904, Otherwise Known as the Magna Carta for Homeowners and Homeowners Associations.”

    We quote herein Section 99(o) of DO Order No. 2021-007, Series of 2021, to wit:

    “Section 99. Prohibited Acts. It shall be prohibited for any person or association:

    x       x       x

    o.   To require a buyer prior to purchasing a property within the subdivision/village, or a subsequent homeowner to pay the dues and other charges left unpaid by the former homeowner/member unless there is a written agreement for the purpose between the former homeowner and buyer/new homeowner exists;”

    Because of this current prohibition, HOAs can no longer require a prospective buyer or a subsequent homeowner to pay the dues and other charges left unpaid by the previous property owner or homeowner-member unless there is a written agreement that deals with who is to pay the arrears in the dues.

    However, there another colatilla for a prospective buyer to be covered by this prohibited act and that is the written agreement for paying the unpaid dues and other charges between the former owner and the prospective buyer should have been executed prior to purchasing the property within the subdivision project.

    As applied to the case of Candy P, it seem that she cannot invoke this provision of the new IRR for Rep. Act No. 9904 since she already purchased the house and lot in the subdivision project without reaching an agreement with the former owner. But, in this case, the former owner is the PAG-IBIG FUND who refused to pay the outstanding arrears of the previous homeowner-member.

    To recap, what is the action of Candy P moving forward. First, she should review the existing HOA ByLaws to determine if the monthly dues collected and the interest and other charges were legally issued pursuant to the rules and regulation indicated in the ByLaws. If the imposition of the monthly dues were not made in accordance with the provisions of the existing HOA ByLaws then she could definitely oppose the payment by her of the arrears in the HOA monthly dues.

    Second, she should read the ByLaws to check if the non-payment of the monthly dues constitutes a lien on the lot of the property owner. Absent this important provision in the existing ByLaws, she could also legally refuse to accept the demand of the HOA to pay the unpaid HOA dues of the previous owner.

    Of course, this dispute will not end quickly until the HOA embraces the opportunity to settle the matter amicably. The worst case scenario for Candy P is for to litigate this issue at the Human Settlement Adjudication Commission of DHSUD. And, understandably, real estate investors are allergic to litigation due to the additional unplanned expenses this entails.

    We hope that the HOA will seek a WIN-WIN solution to this dispute. It is the best case scenario for both parties concerned.

    [1]Tanchoco vs. Aquino, 154 SCRA 1 [1987].

    [2]Bel Air Village Association, Inc. V. Dionisio, G.R. No. L-38354, June 30, 1989.

  • Is Membership in a Homeowners’ Association Voluntary?

    OG emailed me a very interesting question on my birthday last Wednesday. She asked whether membership in a HOA is still voluntary under RA 9904?

    Apparently, like most people living in a gated community (village or subdivision) that is not well maintained and poorly managed, OG does not know where her monthly dues are being spent. She has great mistrust towards the members of the Board of Directors. And if she can have it her way, then she does not want to be a part of the HOA and just pay for the benefit she shares with the HOA, like the operation of street lights. In her opinion, their “subdivision is far from looking like a private subdivision and [she] believe that basic needs like street lights, road improvement, garbage collection must be shouldered by the barangay”

    OG points out that Section 5 of HLURB Resolution No. 770, Series of 2004 (Framework for Governance of Homeowners Association) provides the following:

    “Sec. 5. Nature of Membership. – Membership in an Association should be voluntary unless –
    a. the same is required under the deed restrictions annotated on the title of the property;
    b. is stipulated under the contract for the purchase of a lot in the subdivision project; or
    c. is a requirement for an award under a Community Mortgage Program project or similar tenurial arrangement.”

    Does the passage of RA 9904 change the nature of the membership in HOAs as indicated in the above-quoted Board Resolution of the HLURB?

    To answer this query, we should first look at the basic law that protects the rights of buyers in a subdivision project — Presidential Decree No. 957, otherwise known as “The Subdivision and Condominium Buyers’ Protective Decree.” Section 30 of P.D. 957 introduced us to the concept of “homeowners’ association.” It provides the following:

    “Sec. 30. Organization of Homeowners Association. – The owner or developer of a subdivision project or condominium project shall initiate the organization of a homeowners association among the buyers and residents of the projects for the purpose of promoting and protecting their mutual interest and assist in their community development.”

    Notice the use of the word “shall”. This connotes that the developer of a subdivision project is mandated by law to initiate the formation of a homeowners’ association from “among the buyers and residents of the projects for the purpose of promoting and protecting their mutual interest and assist in their community development.” Note, not only are the lot (or house and lot) buyers to be organized but also RESIDENTS OF THE PROJECT as well. This is why, under certain conditions, lessees are allowed to become members of the HOA. (See Section 6 [Qualification of Member] of RA 9904; and Section 4 of Resolution No. 770, Series of 2004)

    Pursuant to Sec. 30, PD 957, it is very typically for developers to include in their contracts of sale a provision which stipulates that the buyer in a subdivision project automatically becomes a member of the homeowners’ association of the particular subdivision project. Or, the developer places such condition in the deed restriction annotated to the title of the property.

    It must be emphasized that under Section 6 of RA 9904 “a homeowner…shall be qualified to be a member of an association.” All homeowners must first be qualified to become a member of the HOA. However, the presence of contract stipulation or provision in the deed restriction annotated to the title becomes the automatic qualification of the lot buyer to the HOA.

    What does this all mean? Membership in a HOA is still voluntary under RA 9904 with certain exceptions, which are enumerated in Section 5 of HLURB Resolution No. 770, Series of 2004. Remember that membership in organizations or associations will forever be voluntary in nature by reason of the basic constitutional right to freedom of association enshrined in Section 8, Article III of the 1987 Constitution. But, the best evidence we have that memberships in a HOA is voluntary can be found in Section 22(a) of RA 9904. The law makes it unlawful for any person to compel a homeowner to join the association, without prejudice to the exceptions indicated in the said provision.

    Now, what is interesting is that the exceptions mentioned in Resolution No. 770 does not really force an individual to maintain his/her membership in the HOA. Once you have been qualified to become a member then you may opt out as a member, just like what OG wants to do in her case. The next question is can OG opt out as a member of her HOA without fear of being denied the basic community services and facilities? YES, of course she can opt out as a member of her HOA similar to a person who can stop being a member of a labor union. But, unlike a non-union member who becomes “unprotected” and is denied certain benefits, a homeowner is assured his/her “right to enjoy the basic community services and facilities, provided that he/she pays the necessary fees and other pertinent charges.” (Section 5, RA 9904)

    Section 5 assures all homeowners – both members and non-members – that they will not be denied the use and enjoyment of basic community services (like security, garbage collection and water service) and facilities (parks, playgrounds and other community facilities inside the subdivision) PROVIDED that they will pay the fees and charges determined by the HOA’s Board of Directors.

    In Section 5 (c) of HLURB Resolution No. R-771, Series of 2004 (Rules on the Registration and Supervision of Homeowners Association) the powers and attribute of the HOA are those stated in its by-laws which include the following:

    “(c) To impose and collect reasonable fees on members and non-member residents who avail of or benefit from the facilities and services of the associaiton, to defray the necessary operational expenses, subject to the limitations and conditions imposed under the law, regulations of the Board and the association by-laws;” (underscoring mine for emphasis)

    So it is quite clear that the HLURB allows for the presences of non-member residents in a subdivision’s HOA. But, in my experience the fees and charges collected by the HOA are levied on both members and non-members alike. If ever there will be a dichotomy of fees and charges to be collected then I would suppose that the members will have lower and discounted rates vis-a-vis with the fees and charges imposed on non-members. This is but natural in order to encourage membership in the HOA and to show that there are extra benefits when one is a member.

    Without the IRR in place then there is still no clear cut guideline on what has been discussed above, especially opting out of the membership of a HOA. As far as I know, there are no existing guidelines issued by the HLURB that tackles this matter. But, it is safe to say that the nature of the membership will always be voluntary. Because to be otherwise would violate the Bill of Rights, as mentioned earlier.

    Hence, if you are disgusted and totally dissatisfied with the officials of your HOA then you have the choice to become disassociated or opt out of the membership. Or, you could become involve and try to make right the things that are being done wrong by the current officials of the HOA.

    We must recall that HOAs are mandated to be formed for the purpose of promoting and protecting their mutual interest and assist in their community development. The same theme is embodied in the Declaration of Policy (Section 2) of RA 9904. No man is an island. Therefore, it is best to be involved in community affairs. Do your part, however, small or minute it may be to improve your community.

    If our first choice when faced with adversity, poor governance, and mismanagement is to opt out of our membership in a HOA, then what does it say about our choice when it comes to our country?

    Think about it…

    Next time, we will discuss the concept of “ratification” as used in corporations and specifically, by the Board of Directors of a HOA.

  • Magna Carta for Homeowners and Homeowners’ Associations

    Almost a month ago,  Republic Act No. 9904 (An Act Providing for a Magna Carta for Homeowners and Homeowners’ Associations, and for Other Purposes) was signed by the President.

    RA 9904 was designed to be the vehicle to bring peace and comfortable living conditions in many communities. This is according to Senate Majority Floor Leader Juan Miguel Zubiri. He said that this law will benefit all homeowners from the different socio-economic classes. It was made sure that the benefits will be encompassing.  Sen. Zubiri further said that the Magna Carta would “hopefully put an end to the confusion on where to register homeowners’ associations.”

    Under RA 9904, every association of homeowners shall be required to register with the Housing and Land Use Regulatory Board (HLURB). This registration shall serve to grant juridical personality to all such associations that have not previously acquired the same by operation of the General Corporation Law or by any other general law.

    In addition, the existence of associations previously registered with the Home Insurance Guarantee Corporation or the SEC shall be respected, and the said associations shall not be charged a penalty when they register with the HLURB after RA 9904 takes effect.

    As Realtors, I think that we should be well-versed with new laws that affect our clients who want to purchase properties in gated communities – be they high-end or low-end subdivision projects – so that we could give them ample and educated advise should they ask our opinions about it.

    For further information about RA 9904, I have prepared a primer that can be downloaded for future reference.  To get a YOUR FREE COPY of the PRIMER, ENTER your details here.