Critical need for consumer-friendly HOA disclosure

By Deborah Goonan, Independent American Communities

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Yesterday I read two very important articles on the subject of disclosure documentation and information made available to home buyers of property in Association Governed residential communities. (Homeowners, condominium, and cooperative associations.)

Both articles addressed the need for home buyers to perform due diligence when evaluating not just the home itself, but also the association governed common interest community.

The Washington Post article by Ilyce Glilnk and Samuel J. Tamkin focuses on one particular issue brought up by a reader in the midst of considering a home purchase – the very real possibility of a $2,500 increase in annual assessments to repair the community’s privately maintained roads. The home buyer is frustrated to learn that standard disclosure documents required by law in the state of Virginia provide few details on the issue. The authors recommend knocking on doors and talking to current homeowners and even the HOA Board President.

John Cowherd’s article delves into the specific requirements of Virginia disclosure law, and his personal experience representing homeowners in real estate transactions and HOA disputes. From his perspective, Virginia’s state disclosure requirements are weak: the required documents fail to tell the whole story, are written in complex legalese that a lay person may find difficult to decipher, and the three-day window to review disclosure documents and cancel a sales contract is far too short to allow for thorough and professional review of the facts.

My own personal experience confirms Attorney Cowherd’s assessment of reality.

Several years ago, when our family moved to another state, we purchased a home in an HOA. Having never lived in an HOA prior to that time, we did ask to see a copy of “the rules” as a condition of the sales contract, to be certain we could live with them.

You see, most home buyers don’t even know what they should be asking to see, in terms of disclosure documents, particularly if they have never lived in an HOA.

At the time, the state in question (not Virginia) had no disclosure statutes. I recall that it took several days for the seller’s agent to provide our buyer’s agent with a copy of the governing documents. I was stunned to receive a thick stack of paper – more than 100 pages in all. And at that point, we had less than 48 hours to review said document before the sale recision deadline.

I recall reading the 4th or 5th generation photocopy and thinking it must have been written by an attorney. It was  not written in what I would call plain language. Although I scanned the remainder of the document, I was only able to glean a cursory understanding of what I was reading. There was no time for a full legal review. After skimming through the headings I finally found the section on covenants and restrictions. Reading through those, my spouse and I agreed we could live with those, so we went through with the sale and purchased the home.

However, after about a year of living in the home, we noticed that some of the common areas adjacent to our home were not being properly maintained. When we contacted the management office about it, our inquiries were repeatedly ignored. Our neighbors had similar experiences. When we collectively reported the problem to the HOA Board, we were barely acknowledged, and encountered great resistance to addressing the problems.

It was as this point in time that I and other homeowners realized a fact that is never disclosed to buyers: although a homeowner is absolutely required to pay assessments in full and on time No Matter What, the HOA is not similarly required to actually deliver the services ostensibly promised in the Declaration of Covenants and Restrictions (CC&Rs).

The next step was to consider getting some new volunteers on the HOA Board. However, upon reading about membership voting rights and election procedures in the governing documents, it became clear that the system was convoluted and rigged in favor of keeping the incumbent board in control. Only like-minded allies of the current HOA Board were likely to be successfully elected by a handful of Voting Representatives at the Master HOA level. We compared the governing documents with current state laws on voting and elections in HOAs, and found that, in our case, state law deferred to procedures set forth in the governing documents. It was another dead end.

The documents were so confusing on the issue of allocation of voting rights to the developer that, at one time, the matter had to be decided in Arbitration by the state regulatory board. The State agency found in favor of the developer.

My story illustrates that current HOA disclosure laws – to the extent they exist, and considering they vary from state to state – are woefully inadequate in terms of educating home buyers as to the complexities of Association Governance.

What’s more, most state disclosure laws do not even require that the buyer be provided with a reference to current state laws governing homeowners, condominium, or cooperative associations.

Furthermore, to the extent that financial documents are provided at the time of purchase, the buyer is merely getting a snapshot of current conditions in the Association – and one that may be incomplete.

Following purchase, most state laws provide no mandates for regular financial disclosure of the Association. While there may be a general right for homeowners to request access to financial records, there’s no requirement for the HOA to proactively provide regular reports, with the possible exception of providing an annual budget summary and occasional audit.

There are few states that require HOAs to maintain timely and accurate minutes for board meetings. Because few homeowners attend board meetings, it’s even more critical that homeowners receive regular communication from their Association, so that they are not later shocked when they receive a letter demanding thousands of dollars for a special assessment,  or an announcement of a major increase in monthly, quarterly, or annual assessments.

In our own HOA, residents were not even informed about the candidates running for the Master HOA board. Not that it mattered, because the incumbents always “won” anyway. New blood was only elected to the Board if an incumbent decided to step down. In fact, I recall getting a newsletter announcing the “retirement” of one of our long-time Board members. What does that tell you?

Of course, none of these realities were disclosed to us prior to purchasing our home.

Recognizing this critical need for Consumer Protection, I founded the IAC blog in 2014. Slowly, along with other like-minded, consumer-focused bloggers, we are educating housing consumers, one reader at a time.

Thanks for reading Independent American Communities, and please keep on sharing this “full disclosure” HOA blog. 

 

References:

Why you should look carefully at an HOA’s plans for that community before buying a home there

By Ilyce Glink and Samuel J. Tamkin September 14, 2016 (Washington Post)

 

Does an HOA Disclosure Packet Effectively Protect a Home Buyer?

BY JOHN COLBY COWHERD September 14, 2016 (Words of Conveyance blog written by a Virginia Attorney)

 

 

 

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2 Replies to “Critical need for consumer-friendly HOA disclosure”

  1. Just call me Anonymous….

    VA Disclosure Packages are more detailed now than ever, many things have been added to the list. One issue is many HOA presidents and managers will list what they want to list as “facts” when they certify them, even when lying. I can’t list all the Code sections here on disclosure packages and rights because it would take up too much room. There is the §55-509.3:2. Statement of lot owner rights under the Virginia Property Owners Act that specifies some of the rights given to property owners. The Condominium Owners Act is very similar. There are many other rights given in other parts of the codes.

    One problem is that despite what any governing document states or laws detail, HOA boards did what they want, they think they aren’t accountable to anyone. In VA that is far from true. The DPOR CIC will only rule on matters dealing with statutes and the application of those statutes, not governing documents. It pretty much takes lawsuits to deal with governing documents, sometimes homeowners can ban together and get changes or a court can rule on issues if homeowner votes aren’t enough to change governing documents.

    A governing document can be complete trash, even sloppily put together by homeowners without legal knowledge, mean absolutely nothing but conflicting nonsense, not adopted per the governing rules of the Association (or anyone else), be completely in conflict with statutes, and try to get the Association to change them! HOA and other attorneys representing the board can tell them for over 30 years they need new documents and the board will do anything but…but they will also pass makeup addendum and amendments that totally conflict with law or the governing documents and so mean nothing. If they have it voted on correctly, which is a big issue, with proper documentation, which is a big issue, then it was a total wasted vote and money spent recording the documents because they aren’t worth the paper they are written on.

    There are statutes that take the place of some provisions in governing documents, depending on whether the statute states something like “unless otherwise in governing documents.” Even then, certain things overrule governing documents completely.

    The biggest problem is the gag order many board presidents and boards place on anything and everything. They don’t care if the laws state something, they are going to do it their way. Board members who know better and complaint or rally for truth and transparency are either intimidated to the point they leave the board and forever are blacklisted as an owner, or are stubborn and stay on the board utterly frustrating everyone else. The boards want to dictate “their HOAs” as where they have authoritarian rule and rally against anyone in their way. I cannot begin to list what Boards do because they want it that way.

    Board presidents and directors also lie to management companies about what is going on. The management companies have community managers that oversee 30 communities or more and they get sick of all the politics they hear and don’t know who to listen to. In reality it doesn’t matter (even to the detriment of their licensing) because they want to stay employed.

    Many boards do control their positions to the extent they don’t run elections the way they are supposed to be run in the governing documents, they don’t put themselves up for re-election because they aren’t giving up their seat (believe me, seat is the word….they don’t want to do anything) and if you tell them the HOA still has an election whether the board wants one or not, you will be fought and overruled through vote. A board had a sham addendum to the By-Laws that allowed the number of directors to be reduced to a significantly lower number. They had people sign the proxies and ballots based on it was to help the Association because we can never get enough voters. The proxies and ballots were all counted even though some of them should have been tossed out of the vote, but it had to be that way in order to get the passage. The addendum was worthless because the Articles of Incorporation is the overruling governing document for the HOA on this matter, and when there is a conflict on that issue, the Articles win. Totally trash. The president later admitted they only wanted certain board members on the board and that was the only way to carry on business without dissent. Obviously.

    How do I know all of this and tons more I could and should write a book about? I am one of those battling directors for truth, legality and transparency, and a former paralegal in everything real estate, including managing 80 HOAs in a law firm. I am a board’s worst nightmare.

    Like

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