Homeowners' association

A homeowners' association (abbrev. HOA) may be:

* A legal entity created by a real estate developer for the purpose of developing, managing and selling a community of homes. It is given the authority to enforce the covenants, conditions, and restrictions (CC&Rs) and to manage the common amenities of the development. It allows the developer to end his responsibility over the community, typically by transferring ownership of the association to the homeowners after selling off a predetermined number of lots. This article covers this type of HOA.

* A voluntary association of homeowners gathered together to protect their property values and to improve the neighborhood. "For a discussion of such nonprofit, voluntary neighborhood advocacy groups, see neighborhood association or voluntary association."

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 (CIDs), a category that includes planned-unit developments of single-family homes, condominiums, and cooperative apartments. [cite book| first=Evan| last= McKenzie| title=Privatopia: Homeowner Associations and the Rise of Residential Private Governments| publisher= Yale University Press| id= ISBN 0-300-06638-4| pages= 7] 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. [cite web|title=Industry Data - National Statistics|publisher=Community Associations Institute|url=http://www.caionline.org/about/facts.cfm]

An alternative to CIDs is the multiple-tenant income property, or MTIP, known in the United Kingdom as housing estates. CIDs and MTIPs have fundamentally different forms of governance. In a CID, dues are paid to a nonprofit association, whose members vote on how to spend the money. In an MTIP, ground rents are paid to a landowner, who decides how to spend it. In both cases, certain guidelines are set out by the covenant or the lease contract; but in the latter scenario, the landowner has a stronger incentive to maximum the value of all the governed property in the long term (because he is the residual claimant of it all) and to keep the residents happy, since his income is dependent on their continued patronage. These factors are cited as arguments in favor of MTIPs.

History

The CID's origins can be traced back to a publication by the Urban Land Institute in 1964, also known as TB 50. [ cite book| title=Community Associations: The Emergence and Acceptance of a Quiet Innovation in Housing| first=Donald R.| last=Stabile| publisher=Greenwood Press (2000)| id=ISBN 0-313-31571-X] This technical bulletin was funded by The National Association of Home Builders and by certain federal agencies: the FHA, U.S. Public Health Service, Office of Civil Defense, the Veterans Administration and the Urban Renewal Administration. [cite book| title=The Homes Association Handbook| publisher= Urban Land Institute| id= ISBN 0-87420-050-4| pages=433]

The Federal Housing Administration in 1963 authorized federal home mortgage insurance exclusively for condominiums or for homes in subdivisions where there was a qualifying homeowners' association. The rationale was that homes in tracts where there was a homeowners association would be more likely to maintain their value. The effect, however, was to divert investment from multifamily housing and home construction or renovation in the inner cities, speeding a middle-class exodus to the suburbs and into common-interest housing. The federal highways program further facilitated the process. In the 1970s, a growing scarcity of land for suburban development resulted in escalating land costs, prompting developers to increase the density of homes on the land. In order to do this while still retaining a suburban look, they clustered homes around green open areas managed by associations. These associations provided services that formerly had been provided by municipal agencies funded by property taxes; yet, the residents were still required to pay those taxes. Accordingly, local governments began promoting subdivision development as a means of improving their cash flow.cite book|title=The Voluntary City|pages=373-374|author=MacCallum, Spencer Heath|chapter=The Case for Land Lease versus Subdivision]

In 1973, Community Associations Institute (CAI) was formed to deal with problems with association management. It was an educational organization then, but as problems continued CAI made substantial changes in 1992 to its structure and became a business trade group primarily to lobby state legislatures. [Stabile, ch. 6 and 7 ] In 2005, CAI dropped its membership category for HOAs.

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 not subject to the Constitutional constraints that public government must abide by. [Privatopia, p. 142] Some of the tasks which HOAs carry out would otherwise be performed by local governments. A homeowners' association can enforce its actions through private legal action under civil law.

Association boards appoint corporate officers, and may create subcommittees, such as "architectural control committees," pool committees and neighborhood watch committees. Association boards are made up 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 of common expenses, usually per-unit or based on square footage. 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. Many condominium associations consider the roofs and exteriors of the structures as the responsibility of the association. Other associations have no common property, but may charge for services or other matters. Assessments paid to homeowner associations in the United States amount to billions of dollars a year. [ [http://www.ocregister.com/ocregister/money/homepage/article_1351300.php "Educating Homeowners", Orange County Register, Nov. 12, 2006] ]

Benefits

An HOA provides people with shared neighborhood values an opportunity to enforce regulations, consistent with overriding statutory constraints, to achieve a community representative of such values. In doing so, an HOA inherently restricts the freedoms that would otherwise exist for its members based on municipal codes. For instance, a degree of conformity is often required in exterior appearance of single family homes and there are often time limits and/or restrictions to activities generating noise. There are pre-existing rules in the form of CC&Rs and bylaws that a buyer has a right and an obligation to view before entering such a community, that also prescribe methods for modification of these regulations.

These bylaws are largely limited in various degrees by state laws, with some overriding federal judicial or statutory limits. In every association, board members and officers are chosen by election from its property owner-members, with the ability in some states for the membership to remove board members even during term.

Many homeowners' associations include management of a community's recreational amenities, maintained for exclusive use of its members. This can allow an individual homeowner access to a maintained pool, clubhouse, gym, tennis court or walking trail that they may not be able to otherwise afford or desire to maintain on their own.

Each member of a homeowners' association pays assessments that are used to cover the expenses of the community at large. Some examples are landscaping for the common areas, maintenance and upkeep of community amenities, insurance for commonly-owned structures and areas, mailing costs for newsletters and other correspondence, employment of a management company or on-site manager, security personnel and gate maintenance, and any other item delineated in the governing documents or agreed to by the Board of Directors.

Some residents are happy to have a governing body in place to enforce shared values and community standards. A survey of 709 people by Zogby International showed that for every owner-member who rated the overall experience of living in a community association as negative, seven saw it as positive. [ [http://www.caicalif.org/sub_category_list.asp?category=18&title=Zogby+Poll+Results CAICalif - Zogby Poll Results ] ] [What Americans Say About Their Community Association, Foundation for Community Associations Research (2007) [http://www.cairf.org/research/survey.pdf] ] [2007 National Survey, Foundation for Community Associations Research [http://www.cairf.org/research/survey_homeowner.aspx] ]

But another survey of 3,000 people living in homeowners associations found that two-thirds of them found their HOAs were "annoying" or worse. [Two thirds "annoyed" with HOA survey says, Los Angeles Times blogs: Pardon Our Dust: Home Improvement Tales with Kathy Price-Robinson (September 2007) [http://latimesblogs.latimes.com/pardonourdust/2007/09/two-thirds-anno.html] ] At least 19 percent had been in a "war" with their HOA. Fifty-four percent of the respondents said they would rather live with a sloppy neighbor than deal with an HOA. Twenty-four percent responded positively about an HOA.

Advocates often maintain that people choose to live in HOAs, but some note that "choice" is misleading. In reality HOAs have been mandated by municipalities for decades either directly or indirectly. This is often accomplished by conditioning plat or other approval on the creation of amenities such as roads, open areas, greenbelts, retention basins, etc. and an obligation to maintain them. Certainly a large percentage of the population has no choice but to live in an HOA. Finding a non-HOA neighborhood of homes built in the last several decades is virtually impossible. The choice for most buyers seeking a newer home is not HOA or non-HOA but which HOA.

The imposition of an HOA accomplishes several benefits for the municipality. First, these amenities may be burdened with property taxes which would not be the case if the amenities were owned by the municipality. Thus the mandated private amenities are cash generators for the municipalities. Second, the municipalities bear no obligation to maintain the amenities given that they are owned by the HOA.

In "The Voluntary City", Donald J. Boudreaux and Randall G. Holcombe argue in favor of homeowners associations, citing the advantages they have over traditional governments. These include the fact that the association's creator, e.g. a developer, has an incentive to set up a government structured in such a way as to maximize value and thus increasing the selling price of the property. If a certain decision would increase the value of certain parcels and decrease the value of others, he will choose the option with the highest net value. Moreover, as experience demonstrates which rules produce the highest values, entrepreneurs will seek to emulate successful rules and abandon unsuccessful ones; thus, the quality of contractual government should increase over time.

Criticisms

Onerous regulations

Homeowners' associations are often criticized for having restrictive rules and regulations on how homeowners are allowed to conduct themselves and use their property. Board members and professional managers must enforce the rules aggressively and inflexibly in order to protect themselves from personal liability under the good business judgment rule. Moreover, homeowners' association leaders have little financial incentive to avoid indulging in rigid and arbitrary behavior that is needlessly offensive to residents; unless people begin to leave in droves, it will have little effect on the value of a board member's home.

Undemocratic

Some scholars and the AARP charge that in a variety of ways HOAs suppress the rights of their residents. [Harvnb | Barton | Silverman | 1994 | p=xii| Ref=none.] Due to their nature as non-profit corporations, HOA boards of directors are not bound by constitutional restrictions on governments, although some critics claim that they are a de-facto level of government. [Professor McKenzie, Privatopia, 21]

At their own expense, a homeowner-member may sue a board of directors for perceived breach of duty,. Association insurance provides not only for a board member's legal expense, but any judgment attained against them.Fact|date=October 2007 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 the prevailing party being responsible for liability and legal expenses when judgement rendered.

Corporation and homeowner association laws provide a limited role for HOA homeowners.Harvard reference | Surname=Sproul | Given=Curtis | Year= 1994 | Chapter=The Many Faces of Community Associations under California Law | Editor=Stephen E. Barton & Carol J. Silverman | Title=Common Interest Communities: Private Governments and the Public Interest | Publisher=Institute of Governmental Studies | Place=Berkeley, CA |Pages=73 | ISBN=0-87772-359-1 | URL=http://www-dcrp.ced.berkeley.edu/bpj/pdf/bidl1009.pdf ] 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.

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. [Hugh Mields, Jr., "Federally Assisted New Communities: New Dimensions in Urban Development" (Washington, D.C.: Urban Land Institute, 1973), 54.] Voting in a homeowner association is based on property ownership, [Harvnb | Barton | Silverman | 1994 | p=36| Ref=none] 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. [Harvnb | McKenzie | 1994 | p=128| Ref=none] 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. 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, especially considering that individuals are under no obligation to build or purchase private property in a planned unit development governed by a homeowners' association. Any individual considering such a purchase has not only the right but the obligation to read associated governing documents carefully. 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.cite court|litigants=Committee for a Better Twin Rivers v. Twin Rivers Homeowners' Assoc.|reporter=N.J. Supreme Court|date=2007-07-26|url=http://www.judiciary.state.nj.us/opinions/supreme/A-118%20-%20122-05%20Twin%20Rivers.pdf] 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. [cite court|litigants=Loren v. Sasser|reporter=11th Cir.|date=2002|url=http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=search&case=/data2/circs/11th/0211090opn.html&friend=nytimes/] 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."

The developer typically retains three votes for each property he retains, while the homeowners get one vote apiece. This has been justified on the grounds that it allows residents to avoid decision costs until major questions about the development process already have been answered, and that as the residual claimant, the developer has the incentive to maximize the value of the property. [The Voluntary City, p. 297]

Board misconduct

The New Jersey Department of Community Affairs reported [http://www.ccfj.net/twinriversAARPAmicus.htm Battle at Twin Rivers - AARP AMICUS BRIEF ] ] 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, [cite web|title=Chapter 47F - North Carolina Planned Community Act|publisher=North Carolina Statutes|url=http://www.ncleg.net/EnactedLegislation/Statutes/HTML/ByChapter/Chapter_47F.html] 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.

California has severely limited the prerogatives of boards by requiring hearings before fines can be levied and then limiting the size of such fines even if the owner-members do not appear. Any rule change made by the board is subject to a majority affirmation by the membership if as few as five percent of the membership demand a vote. This part of the civil code [http://www.leginfo.ca.gov/cgi-bin/displaycode?section=civ&group=01001-02000&file=1363.810-1363.850 "Davis Stirling Act"] also ensures that any dissenting individual who seeks a director position must be fully represented to the membership and that all meetings be opened and agenda items publicized in advance.

Double taxation

Most homeowners are subject to property taxation, whether or not said property is located in a planned unit development governed by a homeowners' association. Such taxes are used by local municipalities to maintain roads, street lighting, parks, etc. In addition to municipal property taxes, individuals who own private property located within planned unit developments are subject to association assessments that are used by the development to maintain the private roads, street lighting, landscaping, security, and amenitites located within the planned unit development. The proliferation of planned unit developments has resulted in a cost savings to local governments in two ways. One, by requiring developers to build 'public improvements' such as parks, passing the cost of maintenance of the improvements to the common-interest owners, and two, by planned unit developments being responsible for the cost of maintaining infrastructures that would normally be maintained by the municipality.Katherine N. Rosenberry, "The Legislature Addresses Problems in the Law of Condominiums, Planned Development and Other Common Interest Projects," 3 "California Real Property Journal" p. 27 (Winter 1985).]

Financial risk for homeowners

In some U.S. states, including Texas, a homeowners association can foreclose a member's house without any judicial procedure in order to collect special assessments, fees and fines. 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. [cite web|title=Texas Foreclosure Law|publisher=StopForeclosure.com|url=http://stopforeclosure.com/Texas_Foreclosure_Law.htm|accessdate=2007-05-07]

A report self-published by a professor at Washington University disputes the claim that HOAs protect property values, stating, based on a survey of Harris County, Texas (which had an unusual legal regime regarding foreclosures): “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.” [cite web|last=Adolph|first=Christopher|title=Homeowner Association Foreclosures and Property Values in Harris County, 1985–2001|url=http://faculty.washington.edu/cadolph/homepage/Adolph_hoas.pdf|date=21 October 2002]

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 percent 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 occasionally, as a result of dishonest board members or community managers, with losses up to millions of dollars. [ [http://www.ccfj.net/JK4arrests.html 4 arrests spur hope for other condo cases ] ] 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. [http://www.ccfj.net/HOAAARPbillart.htm AARP: Homeowner Bill of Rights] ]

ee also

* Gated community
* Housing society
* Business Improvement District

References

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/
* George K. Staropoli,"The Case Against State Protection of Homeowners Associations" Infinity Press 2003. ISBN 0741416204 / 978-0741416209/

External links

* [http://www.regenesis.net/WhatIs.htm What is an HOA?]
* [http://www.regenesis.net/community_matters.pdf HOA Information to Know Before you Buy]
* [http://www.thehoaprimer.org/ The HOA Primer]
* [http://www.echo-ca.org/ The Executive Council of Homeowners]

Original references

The [http://en.wikipedia.org/w/index.php?title=Homeowners_association&diff=prev&oldid=2819123 original article] was based on an article first published at [http://www.internet-encyclopedia.org/wiki.phtml?title=Homeowners_association Internet-encyclopedia.org] .