Can HOAs be reformed or should they be abolished?

By Deborah Goonan, Independent American Communities

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An interesting editorial written by David Sobotta in The News & Observer, entitled My descent into HOA hell in North Carolina, is both eye-opening and provocative.

Sobotta explains how, after eight years of uneventful living in his HOA, everything quickly spiraled downward when the developer abruptly decided to hand over control to a volunteer homeowner board. Well, the way Sobotta describes it, it was more like dumping a lot of problems and financial liability onto unsuspecting homeowners. Billing had not been done properly and portions of the common property had been uninsured. Homeowners became divided over covenant enforcement. A management company was hired, but they were of little help.

Three years after the transition, the developer still owns 20 lots, and has used proxies to vote family members and allies onto the HOA’s overwhelmed, floundering board. Now there’s no transparency at all.

Sobotta calls for various reforms to include:

  • A state HOA commission to answer legal questions of HOA members
  • Training board members
  • Licensing HOA management and HOA developers
  • State sanctioned way to report assessment delinquencies to credit bureaus in leiu of liens and foreclosures
  • Independence from developer control of HOAs
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But, can we actually reform HOAs or – for that matter – their close cousins, Condominium Associations?

Although I agree with Sobotta’s general assessment of some basic problems with HOAs, I seriously doubt that any of his suggestions for reform – other than breaking free from developer control – will significantly improve on fundamentally-flawed Association Governance.

For one thing, several of Sobotta’s suggestions have already been attempted in other states such as Florida, California, Virginia, Illinois, Arizona, Colorado, Nevada, and others.

State level HOA commissions, regulatory agencies, and state Ombudsman offices have utterly failed to reduce the prevalence of conflict and abuse. And the agencies have weak or non-existent authority to investigate problems or resolve disputes.

The only board members that are willing to obtain training are the ones that least need it. Let’s face it. Board members with ethical challenges, superiority complexes, narcissistic tendencies, and those that get a kick out of their bully pulpit flatly refuse to be trained or educated. Furthermore, the content and quality of HOA education tends to be skewed toward indoctrination of the industry trade group’s self-serving vision of how a community ought to be governed – with the services of its own professional management companies and attorney firms.

Nine states already license community managers, yet those states remain poster children for the most dysfunctional and corrupt associations in the nation. There’s absolutely no convincing evidence that licensing has  increased Community Association Managers’ accountability for the role they play in financial mismanagement, theft and embezzlement, or creating or exacerbating internal conflict in Association-Governed Housing.

Homeowners are already being reported to credit bureaus. That happens after the HOA sells its delinquent account portfolio to debt collectors. Guess what? Many of these owners will eventually lose their homes to foreclosure anyway, because that makes more money for the debt collectors. Management companies and boards don’t report to credit bureaus because that might make them legally responsible to comply with the Fair Debt Collection Practices Act. (FDCPA)

And breaking away from developer control is exceedingly difficult to impossible as long as votes are tied to lots or units owned. A corporate voting structure based on share of ownership in the Association guarantees that regular owner-occupants will remain vulnerable to being outvoted by developer-owned interests or predatory real estate investor groups.

Efforts to reform Association-style governance can only go so far toward restoring democratic local government that upholds Constitutional, Civil, and property rights of the individual resident. Collective corporate ownership is, at its heart, incompatible with individual freedom and democratic process.

HOA Reformers vs. Abolitionists

Just to get an idea of what my readers think, I created a short poll, and posted it on this blog and my social media pages.

What should be done about HOAs?


When it comes to HOAs, which of the following changes would you most like to see?
(polls)

 

Click to review the results of my unscientific poll! A lot of people think HOAs should be abolished. And that’s not surprising, if you have ever read comment threads following online posts of HOA horror stories and conflict on multiple media websites.

Yet, industry experts and academic scholars have repeated the mantra: HOAs are here to stay. This rhetoric serves the industry well, and it has been repeated often enough that the general public accepts it as true.

But, at one time, Coal was King, railroad travel was the norm, and cameras relied on Kodak and Polaroid film.

No one in the industry at the time dared to consider their own demise, or to acknowledge that the passage of time and the human desire for making life better changes everything.

Why should our real estate and housing industry be immune to structural change, technological advancements, and social innovation?

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Is it possible to abolish HOAs or phase them out of existence?

Of course, we cannot force people who want to keep their HOAs to abolish them, and, for some people, a well-managed association (rare as that is) may serve their needs.

At the same time, members of aging and failing Associations need a way to phase out or opt out entirely, depending on the specific circumstances of the community. This is a complex and sticky process that industry and governments have been trying to avoid. Problems with deterioration of community infrastructure and entire condo projects are also not going away. And no one wants to lead a sinking ship. Alternatives must be forthcoming, and we cannot simply rely on developers to purchase and redevelop entire communities as new Associations, essentially recreating the same fundamental problems. The truth is, developers don’t want to invest in the worst-off communities — they only want the ones that are still in relatively good condition and well located.

I believe real solutions require structural change, shifting the way responsibilities are shared between owners/residents and local and state governments, and rethinking the role that developers should or should not play in creating safe, affordable housing and viable communities.

When maintaining infrastructure and community safety once again becomes a matter of public interest, a responsibility most appropriately shared by all through tax dollars, then millions of people living in HOAs will be free to opt out of the nonessential services: architectural control standards enforcement, membership in recreational clubs and amenities. HOAs can once again become voluntary civic organizations rather than unaccountable substitutes for local governance.

Of course, it’s high time to reduce the over supply of mandatory Association Governed Housing through attrition. Stop creating more of the same. Return to governance models that work by emulating successful municipalities that practice good government. Improve municipalities that we already have, rather than abandoning them in favor of developer-centric profit centers and rampant speculation in real estate. Restore property rights to individuals.

Fundamentally, home ownership must no longer be all about “property values” – ie. increasing the property tax base and real estate industry profitability – at the expense of social values, individual rights, and long-term, stable equity growth for property owners.

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8 Replies to “Can HOAs be reformed or should they be abolished?”

  1. How about “Optional ” As a choice Let those that want to be Ruled have a place to live Give everyone a Choice

    Jim Lane 704-451-1543

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    1. Yes, Jim, I agrees. As I stated, “optional” HOA membersip is the same as making an HOA “voluntary.” That can easily be done once there are alternate arrangements made for funding ongoing maintenance of essential infrastructure.

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  2. Over the years these so called planning departments mandated homeowners association that were to relieve the counties/cities of maintained services that have been costly to some HOAs. On the other hand these so called HOAs have in fact created organized crime. Until the Justice Department and each state’s Attorney General wake up to combat these crimes against citizens who have no recourse to even fight due to lack of state laws or even federal laws that has created an open market to racketeering at its highest level. I would stand to say it has now become the most profitable industry, it is no different than US versus the Drug cartel. It does not work and never has. Our laws are not tough enough to deter HOA crimes. It is getting harder and harder to detect these crimes especially for an uneducated board of directors or a Board director who is embedded to profit without the knowledge of the very people they are to safeguard against these very crimes. These HOAs are not at the same level as a city, county and state of transparency and budget. It is time to abolish homeowners association, as they don’t work and never did.

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  3. What are the real viable alternatives? That is the problem. I live in a condo complex. Someone must be charge of the buildings, land, and parking lots. Who’s going to do it? What is the viable alternative to a condo board and property management company? Clearly most condos are dysfunctional, but what can any of us do other than never buy a condo again? Other than converting existing condos to apartment complexes where everyone rents what is the alternative model? Same goes with townhouses or any “multi-family” type buildings. I’ve racked my brain thinking of what might work better, and all I can think of is massive federal and/or state legislative reform to protect owners, a so called owner “bill of rights.”

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    1. First of all, townhouses can be individually owned! Rowhouses – as they have been known for over a century in northern and midwestern US – were exclusively individually owned homes on small lots up until the 1990s. Then some builders started developing townhouses with common rooflines, siding, and utilities. It was poor planning from day one.

      Multifamily apartment style buildings are being deconverted from condominiums to apartments all over the U.S.- especially older complexes in prime rental locations.

      Some alternatives that might work for people who enjoy communal living are cohousing or cooperative housing. Google some of the European and Asian models using those key words, and also look up “social housing.” Most of these arrangements put residents/owners in charge instead of developers or manageement companies. There is never a period of developer control – the owners/cooperative tenants invest the money up front and write their own contracts and rules.

      These communal complexes tend to be relatively small — no larger than 40-50 homes sharing common areas. The units may be attached or detached, or a combination. Attached unit arrangements tend to consist of smaller groups to keep things manageable. Instead of electing a board of directors, cohousing seeks a concensus on group decisions. Most smaller communities find they do not need a management company, although the owners might decide to hire an accountant or an attorney as the need arises.

      Key to these shared housing arrangements is the fact that the By Laws stipulate that no one member can hold a disproportionately large share of the corporation. That prevents speculation by investors and discourages absentee landlords. New members are generally fully informed of the benefits and disadvantages, have a chance to meet their future neighbors and get to know them before making a commitment to become a part of the group. They are free to sell/leave at any time.

      Theoretically, many smaller condo arrangments could convert to one of these alternative forms of governance, with proper legal and administrative support, if the owners desired to do so.

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  4. You pose good questions. Your wonderful website is educating me on the many differences between HOAs (IACs) and the many different problems that arise in them. I doubt that they will disappear from the scene. They seem to offer us protection for our homes – both financially and quality of life – yet they can become the source of unexpected problems that destroy both. While nothing is perfect, I hope that through your website efforts and others, we can establish statutes and oversight options to curtail the abuse of power that seems to be the fuel for so many problems. As it now stands, homeowners are unable to meet the HOA on equal footing, and the only “solution” in egregious situations is to give up or move.

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