Let’s dispel some myths about the “contractual” nature of HOAs and Condos

By Deborah Goonan

In a recent lengthy online discussion forum, on the topic of an Association’s rules regarding display of flags, there was some vigorous back and forth about the fact that Association-controlled communities are controlled primarily by the CC&Rs contract (or Declaration of Condominium), rather than Constitutional law. The classic HOA industry argument is that the governing documents are contractual agreements to which property owners “agree,” and that the Constitution forbids “impairment” of contracts.

One CAM’s comment on the thread reads as follows:

“My interpretation isn’t with what is said on a flag but what is agreed to, by contract, upon the purchase of a home in an Association. When I look at buying a home in an Association. I love everything about it and I’m going to mortgage my life upon this purchase. My actions after purchase and contrary to the Governing Documents, however well intentioned, are in violation of the contracts that I freely signed. How can this be in concordance with the contract that I signed? I took no action to change the governing documents, I received no concordance with my neighbors. I simply took it ‘to the streets.’ My neighbors wouldn’t appreciate this lens on their neighborhood for a personal issue.

To call this a patriotic issue is fatuous at best. The number of ‘patriotic’ issues can bury an HOA or Condo with beliefs of how to showcase them. The ‘freedom’ is to make the changes in an organized fashion. If your neighbors agree, then change the docs. If not, agree to conform or sell and move on. No one is forcing you to live where you, and only you chose to live where you live.”

This comment is based upon several untrue premises and faulty assumptions.

First of all, a buyer, or someone otherwise acquiring title to an Association-controlled property, has absolutely no control over the contents of this contract to which one supposedly agrees without full disclosure.

Even if true full disclosure were provided, the contract is subject to change significantly after purchase or transfer of title to a new owner. On the day you purchase, your 55 pound dog is acceptable, and you can smoke in your unit. Next month or next year, the Board could change the rules, perhaps without a vote of the members, depending upon the latitude spelled out in the governing documents.

The entire process of amending documents is most often undemocratic. The only title holders that have the power to amend the terms of the contract are the majority shareholders, usually represented by the Developer, affiliated investors, or a voting bloc represented by a handful of persons who either own multiple units or hold most of the proxies. These same individuals also often have the power to unilaterally amend By-Laws without a vote of membership.

If governing documents are contractual agreements, then title holders should have the right to withhold payment of assessments for non-delivery of services or non-performance of HOA duties. The HOA should not use title holder funds to settle disputes with unit-owners in court. The HOA should not have the power to foreclose upon property to collect its lien.

And finally, when 80% of new construction is burdened by Association control, then millions of buyers in the fastest-growing real estate markets do not freely choose to participate. If one wants to own a home in many markets, one is forced to hold one’s nose and take the bitter HOA pill. A free market for housing would include a much, much smaller percentage of common interest communities with mandatory Association.

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