Can an Unconstitutional Law Force You To Sell Your Home to a Private Investor?

A zombie law, thrown out in court, continues to wreak havoc because it’s referenced in a contract.

Can the law force you to sell your home to other property owners? What if that law was declared unconstitutional after you agreed to be bound by legislation in place at the time? Those questions, along with the security of private property, are at stake in a case before the Arizona Supreme Court.

Outvoted by One Property Owner

In 2018, Jie Cao and Haining Xia purchased a condominium at Dorsey Place in Tempe, Arizona. Over time, PFP Dorsey, an investment company, acquired 90 of the 96 units in the complex. According to the covenants, conditions, and restrictions (CC&Rs) that applied to the complex, owners were subject to state regulations regarding condominiums, and each unit had one vote within the association. That meant that PFP Dorsey controlled 90 out of 96 votes.

At the time, Arizona law (Section 33-1228) allowed an 80 percent supermajority (later increased to 95 percent) to terminate a condominium agreement and to "provide that all the common elements and units of the condominium shall be sold following termination." PFP Dorsey exercised its votes to force the remaining individual owners to sell their units to the investment company.

Outraged, Jie Cao and Haining Xia sued.

"Defenders of Arizona's law say it's necessary to prevent the 'holdout problem'—property owners who supposedly strategically refuse to sell at market price to compel extra compensation. In theory, such holdouts hinder economic development projects and their alleged trickle‐​down effects," comment Anastasia P. Boden and Nathaniel Lawson of the Cato Institute. "The fact that some people would rather see private property go to a supposed 'better use' can't justify confiscating it. The Founders were very worried that private interests might coopt government power for their own ends."

Unconstitutional on Its Face

Arizona, it should be noted, has strong protections for private property. Article 2, Section 17 of the state constitution states, in part: "Private property shall not be taken for private use, except for private ways of necessity, and for drains, flumes, or ditches, on or across the lands of others for mining, agricultural, domestic, or sanitary purposes." That doesn't leave a lot of wiggle room for private parties to use the law to force other people to sell their homes. That's certainly how the courts saw it.

"A statute that authorizes a private party to take another party's property constitutes a taking," the Arizona Court of Appeals ruled last year. "Without an exception to the general rule, A.R.S. §33-1228 is unconstitutional on its face."

So, that means all is A-OK with the world, right? Well, if you're a generic condo owner in Arizona, that's mostly true (N.B.: Condominium associations are for people who think HOAs aren't a big enough pain in the ass). But it's not so great for Jie Cao and Haining Xia because the ruling contained a sting.

"When the Xias bought their unit in January 2018, they agreed to be bound by the Declaration, which grants the Association the 'rights, powers and duties as are prescribed by the Condominium Act,'" argued the court. "A forced termination and sale under the statute is unconstitutional but for an owner's contractual agreement under the declaration."

So, the Xias are out of luck, because they contractually agreed to be bound by the law as it stood when they signed. The law at that time allowed for forced sales, and tough shit for them that the provision was later ruled unconstitutional.

"That ruling violates common sense," argues Timothy Sandefur, vice president for legal affairs of Arizona's Goldwater Institute, which has filed an amicus brief in the appeal to the state's supreme court. "While it's true that contracts are typically interpreted as including whatever law is in existence at the time the contract is made—a principle lawyers call lex loci contractus—that principle does not extend to laws that are unconstitutional. The reason is that an unconstitutional law isn't a law at all—it's a legal nullity."

The Cato Institute filed a separate amicus brief also supporting the plaintiffs.

"Cao has explained why she did not, in fact, agree to these statutory terms by signing the contract," the brief argues. "But even if Cao did agree, that would not make § 33-1228 of the Condominium Act constitutional—it would only mean that there is a separate private contract containing terms identical to those in the statute." And contractually binding people to an unconstitutional law shouldn't put that law into force.

Arizona's Supreme Court Hears the Case

Fortunately, the Arizona Supreme Court sees that there are significant legal questions raised by this case. It agreed to hear oral arguments over the state of the law and whether private contracts can breathe life into statutes that have been found unconstitutional. Of particular interest in this case, the court wants to address the questions:

• Does A.R.S. § 33-1228 authorize the taking of private property for private use in violation of Article 2, § 17 of the Arizona Constitution?
• If a contract incorporates an unconstitutional statute by reference, are the terms of that statute enforceable as to the contracting parties?

In the court's hands are protections for private property—people's homes in particular. The justices will also decide whether zombie laws found to violate constitutional protections continue to lead an undead existence, wreaking havoc, if people sign contracts binding them to statutes in effect at a specific point in time. Also resting on the outcome is the confidence of the plaintiffs, two immigrants from China who sought freedom in the United States.

"This is a country ruled by law, that is why I studied law in the first place, but this gave me some disillusionment," Cao, who has a law degree from New York University, told the Arizona Mirror.

Keep your eye out for the Arizona Supreme Court's ultimate ruling to see just how secure private property is, and just how safely you can dismiss laws ruled unconstitutional. While you're waiting, you might want to dig through the various contracts you've signed and ponder just how many statutes you've agreed to abide by without really knowing what they require or whether they're still in effect for the wider world, and for you in particular.