Homeowner association

A homeowners' association (abbrev. HOA) is the legal entity which manages a common interest development. The association, created by the real estate developer, is given the authority to enforce the covenants, conditions, and restrictions (CC&Rs) and to manage the common amenities of the development. Most homeowners' associations are non-profit corporations, and are subject to state statutes that govern non-profit corporations and homeowners' associations.

The fastest growing form of housing in the United States today is common-interest developments, a category that includes planned-unit developments of single-family homes, condominiums, and cooperative apartments.

Since 1914, builders of common interest developments and firms that sell services to homeowners' associations have said that deed restrictions protect property values. A report published by Harvard University disputes this claim, stating: “Although HOA foreclosures are ostensibly motivated by efforts to improve property values, neither foreclosure activity nor HOAs appear linked with the above average home price growth.”

Since 1964, homeowners' associations have become increasingly common in the USA. The Community Associations Institute trade association estimated that HOAs governed 23 million American homes and 57 million residents in 2006.

Authority

A homeowners' association is incorporated by the developer prior to the initial sale of homes, and the Covenants, Conditions, and Restrictions (CC&Rs) are recorded when the property is subdivided When a homeowner purchases a home governed by an HOA, the CC&Rs are included with the deed.

Powers

Like a city, associations provide services, regulate activities, levy assessments, and impose fines. Unlike a municipal government, homeowner association governance is subject to corporation law, and sometimes specific legislation governing homeowners' associations. As HOAs are considered private corporations, they are not subject to the Constitutional constraints that public government must abide by. A homeowners' association board carries out tasks which would otherwise be performed by local governments. A homeowners' association can only enforce its actions through private legal action under civil law. Boards appoint corporate officers, and may create subcommittees, such as "architectural control committees," pool committees and neighborhood watch committees.

Association boards are comprised of volunteers from the community who are elected by owners at the annual meeting to represent the association and make decisions for all homeowners.

Assessments

Homeowner associations can compel homeowners to pay a share, usually per-unit or based on square footage, of common expenses. These expenses generally arise from common property, which varies dramatically depending on the type of association. Some associations are, quite literally, towns, complete with private roads, services, utilities, amenities, community buildings, pools, and even schools. Others have no common property, but may charge for services or other matters determined to be in the best interests of the membership.

Assessments paid to homeowner associations in the United States amount to billions of dollars a year. Since these funds are spent on repairing, replacing, restoring, and maintaining property of the individual owners, Homeowners Associations are considered to be non-profit entities.

Benefits

The purpose of a homeowners association is to maintain, enhance and protect the common areas and interests of an association (also called a subdivision or neighborhood). This can allow an individual homeowner access to an amenity (pond, pool, clubhouse, etc.) that he may not be able to afford on his own. Each member of a homeowners association pays assessments. The assessments are used to pay the expenses of community. Some examples are entrance monuments, landscaping for the common area, amenities like clubhouses, tennis courts, or walking trails, insurance for commonly-owned structures and areas, mailing costs for newsletters or other correspondence, a management company or on-site manager, or any other item delineated in the governing documents or agreed to by the Board of Directors.

A study by Zogby International reported widespread satisfaction by residents of homeowners' associations: 71% overall were pleased with their experience of the homeowner's association. The majority (63%) said that the existence of a homeowner's association did not affect their choice when buying or renting; of the remainder, an HOA was a positive influence 3 times as often as it was a negative influence (28% to 9%). The same study reported that while fewer than one in four residents had ever brought a complaint to their HOA board, three in four of those who did were satisfied with the resolution. Just over 3 in ten residents in homeowners' associations have served on an HOA board.

There is pending legislation in several states to mandate licensure of community managers. Management companies are in favor of the legislation because it will narrow the field of potential management companies to those who are licensed.

Criticisms

Undemocratic

Some scholars and the AARP charge that in a variety of ways CIDs violate public policy by suppressing the rights of their residents . Specifically, HOA boards of directors are not bound by constitutional restrictions on governments, although critics claim that they are a de-facto level of government. A board of directors can be sued if it breaches its duties, but board members risk nothing financially in these suits. Association insurance provides not only for a board member's legal expense, but any judgment attained against them. Homeowners must pay out of pocket for any case they bring to court and risk being personally liable for any judgment and/or Association's legal fees as well as their own.

Corporation and homeowner association laws provide a limited role for HOA homeowners.The structure of corporate governance fashioned by corporation laws is essentially a "top down," oligarchical structure. Unless either statutory law or the corporation's governing documents reserve a particular issue or action for approval by the members, corporation laws provide that the activities and affairs of a corporation shall be conducted and all corporate powers shall be exercised by or under the direction of the board of directors. Thus, unless member approval is specifically required either by some statute or by the association's governing documents, members who are not directors or officers have little or no role to play in the day-to-day management of their development, except, however that members have the ultimate authority to elect and/or remove officers and directors, often with a simple majority vote.

Voting

Critics argue that homeowner associations establish a new community as a municipal corporation without ensuring that the residents governed will have a voice in the decision-making process. Voting in a homeowner association is based on property ownership, per the by-laws and covenants of each association. Only property owners are eligible to vote in elections, and voting by renters is prohibited, since the association has contractual agreements solely with owners. Additionally, only one vote per unit may be cast, rather than one vote per adult occupant, so that voting representation is equal to the proportion of ownership, and cannot be influenced unfairly by packing a unit to or beyond capacity with multiple residents. In the case of partially built out subdivisions in resort areas with a homeowners association, the majority of property owners may not live in the community, but they still bear the costs of running the association.

Lack of checks and balances

The US Bill of Rights guarantees its citizens certain protections against abusive or intrusive government; however, these protections do not extend to private contracts which have been entered into voluntarily. Homeowners' associations can function as governments, but structurally and operationally they are private corporations. Many state statutes now require HOAs to provide certain basic protections to its members.

The New Jersey Department of Community Affairs reported these observations of Association Board conduct:

“It is obvious from the complaints [to DCA] that that [home]owners did not realize the extent association rules could govern their lives.”

"Curiously, with rare exceptions, when the State has notified boards of minimal association legal obligation to owners, they dispute compliance. In a disturbing number of instances, those owners with board positions use their influence to punish other owners with whom they disagree. The complete absence of even minimally required standards, training or even orientations for those sitting on boards and the lack of independent oversight is readily apparent in the way boards exercise control"

Overwhelmingly ... the frustrations posed by the duplicative complainants or by the complainants’ misunderstandings are dwarfed by the pictures they reveal of the undemocratic life faced by owners in many associations. Letters routinely express a frustration and outrage easily explainable by the inability to secure the attention of boards or property managers, to acknowledge no less address their complaints. Perhaps most alarming is the revelation that boards, or board presidents desirous of acting contrary to law, their governing documents or to fundamental democratic principles, are unstoppable without extreme owner effort and often costly litigation.

Certain states are pushing for more checks and balances in homeowners' associations. The North Carolina Planned Community Act , for example, requires a due process hearing to be held before any homeowner may be fined for a covenant violation. It also limits the amount of the fine and sets other restrictions.

Double taxation

All homeowners pay property taxes. These taxes are used to maintain roads, street lighting, parks, etc. Planned unit development owners pay association assessments that are used to maintain the 'private' roads, street lighting and parks of their developments. Local governments have saved money and reduced the community wide tax burden by requiring developers build 'public improvements' such as parks, passing the cost of maintenance of the improvements to the common-interest owners. However, homeowners association assessments pay for private amenities which are not maintained by state or local governments.

Some states (including Maryland, Missouri, New Jersey, and Texas), however, give citizens who are also residents of community associations specific tax breaks in recognition of the principle that they should not be double-taxed for services already provided to them.

Financial Risk for Homeowners

In some U.S. states, including California and Texas, a homeowners association can foreclose a member's house without any judicial procedure in order to collect special assessments, fees and even a fine. Other states, like Florida, require a judicial hearing. Foreclosure without a judicial hearing can occur when a power of sale clause exists in a mortgage or deed of trust.

Homeowners association boards can also collect special assessments from its members in addition to set fees, sometimes without the homeowners' direct vote on the matter, though most states place restrictions on an association's ability to do so. Special assessments often require a homeowner vote if the amount exceeds a prescribed limit established in the Association's by-laws. In California, for example, a special assessment can be imposed by a Board, without a membership vote, only when the TOTAL assessment is 5% or less of the association's annual budget. Therefore in the case of a 25 unit association with a $100,000 annual operating budget, the Board could only impose a $5,000 assessment on the entire population ($5,000 divided by 25 units equal $200 per unit). A larger assessment would require a majority vote of the members. In some exceptional cases, particularly in matters of public health or safety, the amount of special assessments may be at the board's discretion. If, for example there is a ruptured sewer line, the Board could vote a substantial assessment immediately, arguing that the matter impacts public health and safety. In practice, however, most Boards prefer that owners have a chance to voice opinions and vote on assessments.

Increasingly, homeowner associations handle large amounts of money. Embezzlement from associations has occurred, as a result of dishonest board members or community managers. Losses have been in the millions of dollars.[1] Again, California's Davis-Stirling Act, which was designed to protect owners, requires that Boards carry appropriate liability insurance to indemnify the association from any wrong-doing. The large budgets and expertise required to run such groups are a part of the arguments behind mandating manager certification (through Community Association Institute, state real estate boards, or other agencies).

The AARP has recently voiced concern that homeowners associations pose a risk to the financial welfare of their members. They have proposed that a homeowners "Bill Of Rights" be adopted by all 50 states to protect seniors from rogue Homeowner Associations.

Constitutional Challenges

Homeowners have challenged political speech restrictions in Associations that federal or state constitutional guarantees as rights, claiming that certain private associations are subject to the same constitutional restrictions as municipal governments. However, in general, courts have held that private actors may restrict individuals' exercise of their rights on private property. A recent decision in New Jersey held that private residential communities had the right to place reasonable limitations on political speech, and that in doing so, they were not acting as municipal governments.

With few exceptions, courts have held private 'actors' are not subject to constitutional limitations -- that is, enforcers of private contracts are not subject to the same constitutional limitations as police officers or courts. In 2002 the 11th Circuit Court of Appeals, in in Loren v. Sasser, declined to extend Shelley beyond racial discrimination, and disallowed a challenge to an association's prohibition of "for sale" signs. In Loren, the court ruled that outside the racial covenant context, it would not view judicial enforcement of a private contract as state action, but as private action, and accordingly would disallow any First Amendment relief.

In the Twin Rivers case, a group of homeowners collectively called "The Committee for a Better Twin Rivers" sued the Association, for a mandatory injunction permitting homeowners to post political signs and strike down the political signage restrictions by the association as unconstitutional. The appeals court held the restrictions on political signs unconstitutional and void, but the appeals court was reversed by the New Jersey Supreme Court overturned the Appellate courts decision in 2007 and reinstated the decision of the Trial Court. The Court determined that even in light of New Jersey’s broad interpretation of its constitutional free speech provisions, the "nature, purposes, and primary use of Twin Rivers property is for private purposes and does not favor a finding that the Association’s rules and regulations violated plaintiffs’ constitutional rights." Moreover, the Court found that "plaintiffs’ expressional activities are not unreasonably restricted" by the Association’s rules and regulations. Finally, the Court held that "the minor restrictions on plaintiffs’ expressional activities are not unreasonable or oppressive, and the Association is not acting as a municipality."

See also

• Gated community
• Housing society
• Business Improvement District

Further reading

• David T. Beito, Peter Gordon, and Alexander Tabarrok, eds., The Voluntary City: Choice, Community, and Civil Society, University of Michigan Press, ISBN 0-472-08837-8/
• Ronald M. Sandgrund and Joseph F. Smith, "When the Developer Controls the Homeowner Association Board: The Benevolent Dictator?" The Colorado Lawyer, January 2002, p. 91.
• Robert H. Nelson, Private Neighborhoods: And the Transformation of Local Government Urban Institute Press (Washington, DC): 2005. ISBN 0877667519/ ISBN 978-0877667513/

External links

• What is an HOA?
• HOA Information to Know Before you Buy

Original references

The original article was based on an article first published at Internet-encyclopedia.org.