Don’t rely on a Realtor to explain HOAs

By Deborah Goonan, Independent American Communities

If you’re house hunting, weekends are a good time to research home listings and home buying tips. Quite a bit of information is available online these days. Unfortunately, information written about homeowners and condominium associations tends to be woefully inadequate and downright inaccurate.

Today I’ll highlight some of the most common half-truths and blatant lies that you’ll read about HOA life on the internet. These examples are based upon real, published content.

From a TEXAS Ask a Realtor column:

The Realtor explains that an HOA is a “volunteer group of neighbors charged with enforcing the covenants, conditions, and restrictions” of a neighborhood. 

Wrong. The Realtor is referring to the HOA board, and only mentions one part of an Association board’s duties. The HOA board’s primary duties also include creating an operating budget and reserve fund necessary for ongoing maintenance and repair of common areas and elements; making sure that the association is adequately insured against liabilities, hiring and supervising property managers and/or various maintenance, construction, and landscape contractors; managing security systems in place, if any.

The HOA is actually a private organization – usually a non-profit corporation, sometimes a mutual benefit corporation – that provides for collective governance of its members and management of common property. Responsibility and liability for ongoing operation and maintenance of common property is almost always a mandatory obligation of each member-owner (or shareholder in the case of a cooperative), tied directly to the title or deed of each property within the boundaries of the HOA. Most HOAs are established by a real estate developer, prior to construction, in conjunction with local governments that issue applicable construction permits.

It is important to understand that the developer (also known as the Declarant) appoints the majority of HOA board members during construction phases, until most of the of units or parcels have been sold to non-developer affiliated owners. As long as the developer or affiliates fill a majority of HOA board positions, members of the association have very limited control over the management of the association. Developer-appointed board members cannot be recalled or elected by members.

 

According to the same Realtor: HOA rules are “ordinances” or “mandates.” The Realtor goes onto explain that the HOA has the authority to fine its members for noncompliance with the CC&Rs, and then says that “HOA has the authority to apply fees to your property tax liability.”

 

False. HOA rules are not ordinances or mandates, because HOAs are not publicly-administered governments. The CC&Rs, Bylaws, and Articles of Incorporation generally make up the Association’s governing documents.

CC&Rs are viewed by US Courts as a legally-binding contract between and among property owners within the Association. (And, technically, CC&Rs can exist with an HOA to enforce them.) So when a member-owner-shareholder violates any terms of the contract, the Association does indeed have legal authority to fine or otherwise penalize its members, within limitations of the CC&Rs and state laws.

While a government could theoretically arrest you and throw you in jail for certain serious offenses, an HOA’s authority does not reach this level.

Assessments, and often unpaid fines, are considered a lien on a member’s private property. If unpaid, the HOA can foreclose on that lien. Beware: In most states, the HOA can sell your property at a foreclosure auction for a very small percentage of the assessed value of the property.

But this has absolutely nothing to do with property tax liability, an obligation the owner has to local government, not the HOA. If your property taxes are in arrears, the local government can foreclose with a tax sale, too.

 

Incredibly, even Realtor.com publishes articles about HOAs that are inaccurate.

In an article entitled What Is an HOA? Homeowners Associations—Explained, the author briefly summarizes how HOAs work.

 

HOA rules: What to expect

All HOAs have boards, made up of homeowners in the complex who are typically elected by all homeowners. These board members will set up regular meetings where owners can gather and discuss major decisions and issues with their community. For major expenditures, all members of the HOA usually vote.

 

No, that is not how “all” HOAs work. In my personal experience, and that of many, many Association members I hear from on a daily basis, quite a few HOAs fail to hold regular meetings. And in many cases, owners cannot discuss major decisions at board meetings. In fact, in some states, state law does not even require that board meetings be open to members.

There may be limited discussion at the annual membership meeting. That doesn’t mean the discourse is friendly. It may be downright contentious, because you and your neighbors will rarely share the same perspectives and financial priorities.

In some states, and in some HOA governing documents, there may be a requirement for members to vote on “major expenditures,” but this is hardly a common policy. And it depends on how one defines a “major” expenditure. In practice, your HOA Board will generally make financial decisions without any discussion of members.

And, as mentioned above, the Association may remain under the control of a developer-appointed board. In that case, members usually have no say in how their assessment dollars are spent.

 

Buyer Beware

Keep in mind that a Realtor’s job is to sell homes. Many of those homes happen to be located in Association Governed Communities. With that in mind, some of the finer details about HOA life are often glossed over, or not even mentioned during the sales process.

So consider today’s blog a bit of Buyer Beware advice. If you buy into an HOA, don’t count on friendly and civil interaction with like-minded neighbors, or having control of what happens to your assessment money after it leaves your bank account.

For a more realistic picture of HOAs, check out this article (9 Things You Need to Know About Homeowners’ Associations) on Investopedia.