Coming on the heels of the golf course closing at the nearby Rancho Mirage (Calif.) Country Club, the lawsuit objects to fees designated specifically for marketing support of the club that are imposed on resident non-members, and highlights the issue of how intertwined neighborhoods and courses that are owned and managed separately should co-exist.

 

After 29 residents filed suit in November against the homeowners association (HOA) of The Club at Morningside in Rancho Mirage, Calif., The Desert Sun of Palm Springs, Calif., reported, the case has raised a question for many country clubs tied to residential communities: How should neighborhoods relate to golf courses, which are literally intertwined with their homes, but owned and managed separately?

A recent golf course closure at Rancho Mirage (Calif.) Country Club (http://clubandresortbusiness.com/2015/10/26/shuttered-rancho-mirage-calif-cc-holds-internet-only-auction/) has put residents in golf course communities in the Palm Springs/Coachella Valley region on high alert, The Desert Sun reported. That situation highlighted how many homeowners live along fairways that are managed by companies that have no ties to the neighborhood, so residents have little say in what happens to the courses. And experts agree that the region’s supply of golf courses exceeds demand, The Desert Sun noted, making it likely that more may close.

But when HOAs propose to support golf courses financially, some homeowners object, The Desert Sun noted, by saying they don’t want to be forced to join a club they don’t use, or arguing that clubs need to become profitable on their own.

“You bought the home on the golf course assuming that the course would be there always. But the reality is, you have no control over the course in most cases. The course is not attached to your home, and it could disappear tomorrow,” Mark Dodge, President of Associa Desert Resort Management, a company that manages 165 desert homeowners’ associations, told The Desert Sun.

“If [the HOA] sees impending doom with the club, you could argue that [it has] an obligation to see that doesn’t happen,” Dodge added. “That’s a philosophical discussion, as far as whether the HOA should be responsible or not.”

The case involving The Club at Morningside began in the fall of 2014, The Desert Sun reported, when the Board of that property’s HOA conducted an annual survey of homeowners that included questions about mandatory club membership and joint marketing of the club and the community.

According to the complaint filed in the Riverside (Calif.) County Superior Court in November, The Desert Sun reported, about half of the homeowners who responded to the survey expressed support for taking action to support the club through those and other measures.

Next, in March 2015, the Board announced a proposal to charge every homeowner $250 per month—on top of the $1,050 they already paid in HOA dues—for support of the club. According to Randy Zien, president of Morningside’s HOA Board, 94 percent of the membership cast votes on the proposal and 63 percent of them voted in favor of it, The Desert Sun reported. The HOA’s governing documents were then amended and homeowners began paying the fee.

Later, the plaintiffs in the lawsuit learned that the club had offered its members a $250 credit each month, offsetting the fee. In their complaint, they argue the fee is a burden only on homeowners who aren’t members of the club.

“Now, no homeowner can be sure about their financial future,” one of the lawsuit’s plaintiffs, Ted Schneider, who has lived in Morningside for 11 years, told The Desert Sun. “You build your economic plan on a certain set of assumptions, and one of those assumptions is, I’m going to be treated fairly.”

Morningside’s HOA Board argues that a well-maintained club is critical to maintaining the community’s high property values, The Desert Sun reported. Club President Dick Cantlin described the course as “the community’s backyard,” suggesting that although homeowners might not play golf, they still benefit from the club’s success.

And Zien, the HOA Board President, added that he saw that success threatened when the club membership was slipping and new homeowners weren’t buying memberships. The club was inching toward a “death spiral,” Zien told The Desert Sun, when it would have too few members and too small a budget to attract any new members.

According to court documents, plaintiffs said they wanted to negotiate a different—and cheaper— solution, but the Board shut them out, The Desert Sun reported. Those filing the suit said they weren’t convinced the club was in financial trouble.

Further, they believed that $1,300 per month in HOA fees would dissuade potential homebuyers. Another plaintiff, Hal Asher, who had his home on the market when the fee was imposed, told The Desert Sun he now wants to remove the listing based on advice from his real estate agent, believing the fee is simply too high to attract buyers.

Finally, The Desert Sun reported, the lawsuit’s plantiffs argued that the Board’s duty was to homeowners first, not to the golf club.

But defendants say it’s impossible to separate the two, The Desert Sun reported. “The $250 – it’s not inconsequential,” Zien said. “But if we don’t preserve the club, this isn’t a question of $250 [and] it isn’t a question of whether there’ll be [fewer] prospective buyers. There won’t be any.”

Morningside’s Board members, the defendants in the lawsuit, say the fee seems to have worked, The Desert Sun reported—or at least that the club’s membership has grown and home sales haven’t slowed.

Between November 2014 and October 2015, 54 people joined the golf club at Morningside, according to Zien and Greg Harris, CCM, the club’s General Manager. For comparison, the plaintiffs’ complaint says about 100 people joined in the preceding four years.

Two years ago, 58 percent of homeowners were members; today, 72 percent of owners belong to the club, Zien said.

Further, home sales have not dipped, said on-site sales agent Corinne Zajac, adding that she hasn’t lost any sales due to the jump in monthly HOA fees.

Between November 2013 and October 2014, the community sold 19 homes, averaging prices of $239.50 per square foot, said Zajac, an agent with Bennion Deville Homes. In the following year, community sales agents sold 26 homes at an average of $250 per square foot. That amounts to a 27 percent rise in sales and a 4 percent price increase.

Mark Dodge, of Associa Desert Resort Management, said many communities that surround golf clubs already pay “amenity fees,” which are tacked on to HOA fees to support club landscaping, The Desert Sun reported. And he thinks other neighborhoods might have to get used to the idea of their dues supporting the golf course, even if they don’t belong to the club.

“Most homeowners that live on a club, I don’t think they necessarily understand that probably the single biggest part of their home value is something they have no control over [the golf course],” Dodge said. “Really, the only answer I have seen is what Morningside has done —either forced membership, or an increase in the amenity fee.”

Morningside is one of many communities in the region discussing its relationship with its golf club, The Desert Sun noted. After Rancho Mirage Country Club’s owners closed the course in October, homeowners saw their backyard fairways replaced by brown grass and fences. Earlier this month, a judge ordered owners to water the course, citing the need to protect property values. Now, homeowners are talking about buying the course themselves, The Desert Sun reported.

In the last decade, some golf courses in the region have required homeowners to join at least as social members, which means they can use clubhouse facilities and join in social activities, but not play golf, The Desert Sun reported. At The Club at Morningside, a social membership costs $7,500 per year; by comparison, the $250 per month fee totals $3,000 per year.

Many communities in the region are discussing mandatory membership or fees like Morningside’s, The Desert Sun reported. One has tethered memberships to homes themselves, so if a non-member sells his or her home, the buyer can’t join the club, either.

Andy Vossler, President and CEO of Landmark Golf, an industry consulting firm, told The Desert Sun that shrinking budgets are part of golf’s “new normal.” Residents moving into country club neighborhoods aren’t spending as much money in clubs as they did two decades ago, Vossler noted.

But if courses were to close, he adds, the homes surrounding them would lose 20 to 40 percent of their value.

“I think homeowners are going to have to ask themselves, ‘what can we do to protect our value?'” Vossler said. “The golf operators have got to be looking to see what they can do to make the golf experience the best it can be. If that comes down to purely economics, they’ll have to sit down and discuss how to generate the dollars.”

Greg Harris, The Club at Morningside’s General Manager, told The Desert Sun that many clubs in the Coachella Valley, and elsewhere, have reached out to him to ask whether Morningside’s proprietary fee has righted the club’s downward trends.

“I think this makes this club go from stable to sustainable,” Harris said. “I still think there’s an oversupply of clubs her, so you’re going to have to see some of these clubs go to semi-private or public, and it’s going to hurt home values when they do. There’s a decision on a lot of these higher-end clubs, saying, ‘We don’t want to be one of the ones that don’t make it.’”

Zien, President of the HOA board, described the division between the club and HOA as an “inherent flaw in the design.” The two bodies are symbiotic, he believes: Homeowners benefit from the club whether or not they play golf, because it surrounds their homes. And the club needs homeowners’ financial support to maintain itself.

But Schneider, Asher and 27 other plaintiffs in the lawsuit say that’s not what they signed up for, The Desert Sun reported. They chose not to join the club, and requiring them to support a club they don’t use, regardless of its impact on their property values, nullifies that decision, they contend.

Hal Asher, who wants to take his house off the market, said he wouldn’t buy into an HOA-governed community again.

“I made a decision that I didn’t want to belong [to the club],” said Jay Cooper, another plaintiff in the suit. “I bought the house with that assumption, and I still have that assumption. I don’t want to be railroaded.”

This is the suit’s fundamental disagreement, The Desert Sun noted: Should homeowners, or their HOAs, protect golf courses? They’re not part of the property HOAs control, but every owner can see fairways from their windows. Residents Asher, Cooper and Schneider say no, while the five members of Morningside’s HOA Board say yes.

Dodge and Vossler, who manage HOAs and golf clubs, respectively, believe many neighborhoods will reckon with this debate in coming years. But while Dodge described Rancho Mirage Country Club and its golf course closing as “the tip of the iceberg,” Vossler thinks neighborhoods willing to compromise with golf clubs will survive.

“There’s a lot of stress or conflict out there,” Vossler said. “But those things will get worked through. It’s just going to take a little bit of time to do it. But they have to figure it out.”

To view The Desert Sun’s video report on the situation, go to http://www.desertsun.com/story/money/real-estate/2015/12/28/rancho-mirage-morningside-hoa/77045734/