Does HOA legislation work for owners, residents?

Legislation is often crafted by the industry, not the people who live with HOAs

Blue door


By Deborah Goonan, Independent American Communities

I’m hearing from people all over the U.S. about various legislative proposals involving Association Governed Communities.

Establishment of an Ombudsman. Improving disclosure for home and condo buyers. Creating a “Homeowners Bill of Rights.” Requiring “education” for homeowner board members. Requiring a license for community managers and management companies. Revising association election rules and procedures. Construction defects legislation “reform.”

Will any of these bills, if they become law, actually help housing consumers make informed buying decisions? Will they offer any meaningful protection of rights? Will opportunists that exploit homeowners and residents be held accountable?

If history is any indication of the effectiveness of HOA legislation, I must say I remain highly skeptical that more laws will solve pervasive problems and offer anything of value for 98% of owners and residents of common interest, association governed housing.

For the reader who is new to the concept of HOA reform or advocacy for homeowners living under the rule of mandatory associations, allow me to explain the HOA Facts of Life.

What are HOAs and where do they come from?

HOAs are private legal organizations – usually some type of nonprofit corporation. Nearly all HOAs established in the past 5 decades have been created by real estate developers, in conjunction with local government zoning and planning policies. Very few have been initiated by and created specifically for homeowners or neighborhood residents.

Nearly all HOAs in the U.S. are mandatory membership associations established to maintain common property, provide various levels of maintenance services, and oversee and enforce Covenants and Restrictions for a neighborhood. Those associations are governed by a board of directors/trustees that have broad power over private property rights, practically unlimited rights to charge and collect assessments and fees, and almost zero accountability.

Keep in mind that nearly all HOAs are governed by a developer or homebuilder while construction is ongoing, and sometimes indefinitely, as long as the developer manages to hold onto one or a handful of parcels or units. In other words, HOAs start life as monarchies led by developer-kings. Homeowners and residents are subjects of the  Association, and have practically no say regarding how assessments are spent, how the rules are enforced, and how overall development of the community progresses.

A side note: There are a few voluntary HOAs still in existence, mainly in older communities, but these organizations tend to be either civic groups or social recreational clubs. Do not confuse the two different types of organizations, because it is like comparing apples to oranges. And be aware that, in some parts of the country, homeowners living in areas with voluntary HOAs face increasing pressure and legal challenges to force them into a mandatory HOA.


What is CAI and why should you care?

In the 1960s and 1970s, the National Association of Home Builders (NAHB) and the Urban Land Institute (ULI) created the concept of common interest or planned unit development. CAI was created in 1973 with seed money from these two organizations, along with mortgage lenders, and with the cooperation of the U.S. Department of Housing and Urban Development (HUD).

According to CAI, several industry stakeholders and government agencies pulled together to create the organization:

In 1964, the Urban Land Institute (ULI) published Technical Bulletin No. 50: The Homes Association Handbook, the first systematic study of planned communities. The principal author was Byron Hanke, one of CAI’s eventual founders. The document called for the creation of a national organization to provide education and act as a clearinghouse of ideas and practices for the community association housing market.

In 1965, ULI and the National Association of Home Builders (NAHB) wrote a model planned-unit development statute.

In 1973, CAI was organized through the joint efforts of the ULI, NAHB, the U.S. League of Savings and Loan Associations, the Veterans Administration, the U.S. Department of Housing and Urban Development, 23 builder/developers and a number of leading community association professionals.


So…CAI was always intended to be the front organization promoting the interests of stakeholders that invest in and build common interest, association governed communities. In other words, the group advocates for mandatory community associations, which is not the same thing as advocating for homeowners and residents living under the management and governance of these associations.

For nearly 5 decades, Community Associations Institute (CAI), has promoted its standard rhetoric – HOA governing documents, most notably Covenants, Conditions & Restrictions (CC&Rs), are legal contracts between and among homeowners and their mandatory membership associations. CAI argues that, under the U.S. Constitution, Americans have the right to engage in HOA private neighborhood contracts, and that our Constitution specifies that “no contract shall be impaired.”

Therefore, CAI officially opposes any government regulation that modifies, restricts, or invalidates provisions written into those CC&Rs.

And that makes sense, when you consider that CC&Rs are nearly always written for the benefit of residential community developers. Of course, planned community developers have created CAI and a multibillion dollar industry that perpetuates the need for association managers, attorneys, insurance companies, home finance institutions, and a host of other service providers for association governed housing.

Non-impairment of private contracts is not an absolute constraint on government

It’s important to recognize that the right to prohibit impairment of private contracts is not absolute. If it were, then any private party could argue for reinstatement of discriminatory deed restrictions against sale of homes to people on the basis of race, religious affiliation, ethnic background, disability, or familial status.

Obviously, the U.S. Constitution contains specific limitations and constraints on contracts. Specifically, no contract can overrule or waive one party’s right to sell their home to anyone who is able and willing to buy at a mutually agreeable price.

Constitutional constraints should generally apply to HOA governing documents, particularly CC&Rs written to establish HOAs to manage communities and enforce restrictive covenants. If any provision in a contract is contrary to the public interest, and it violates inalienable rights under the U.S. Constitution, that provision should be deemed unenforceable.

But CAI, backed by industry stakeholders and the tacit agreement of government housing agencies and many U.S. Courts, continues to insist that because Homeowners, Condominium, and Cooperative Associations are private organizations and not state actors, the U.S. Constitution can not and must not govern CC&R “contracts.”



HOA contractual agreements are skewed in favor of the industry

The problem is, because virtually all mandatory HOA community “contracts” are written by attorneys for the benefit of real estate developers and community investment stakeholders, long before the first lots are sold to homebuyers, the so-called contractual HOA agreement is both one-sided and non-negotiable.

Written into HOA documents is a hierarchy of rights. A builder of a planned community (known as the Declarant in legal parlance) controls and operates the HOA during construction. As construction nears completion, most Declarant rights are relinquished, as management of the HOA passes to an elected homeowner board. However, a Homeowners Association, as a legal entity (usually a corporation), is granted greater rights than its individual members – the homeowners.

Keep in mind that non-owner residents, including tenants, have virtually no legal rights with respect to the HOA.

In fact, over the past 20 years or so, special interest groups, led by CAI, have gradually amended state legislation to grant even greater rights to HOAs and their home builders, and have allowed for the creation of increasingly one-sided and complex CC&Rs.


CAI’s legislative role: advocacy for members of the trade group

It’s clear that CAI supports legislation that results in contract impairments that benefit the HOA and industry service providers, while opposing legislation that might benefit individual homeowners and residents.

For instance, HOAs established prior to the mid 1990s typically did not have the legal right to fine property owners without first taking the matter to court, where a Judge or Magistrate would listen to both sides and make an appropriate ruling. The right to fine or otherwise unilaterally penalize members was simply not written into the original CC&Rs “contract.”

Today, nearly all states have enacted enabling legislation – written and vigorously supported by CAI – that grants Association Governed Community boards the authority to fine or otherwise penalize homeowner members for violations of restrictive covenants, even for minor offenses such as allowing your grass to grow an inch too long, or painting your front door an unapproved color.

Those enabling statutes have virtually eliminated due process rights of individual property owners, and, at the same time, have failed to provide for accountability of HOA board members who would abuse their powers.

The result: quite often, an HOA punishment is way out of proportion with the HOA “crime.” In too many cases, HOA boards selectively enforce the rules and sometimes even create new rules to manufacture bogus violation notices targeting specific residents. Sadly, some of those fines result in lien and foreclosure of homes by the HOA.

But that’s not the only harm done by CAI.

Over the years, CAI has written and lobbied in favor of legislation that permits management companies to charge fees for access to association records, to provide real estate disclosure documents to homebuyers, and to charge transfer fees at the time of sale. The result is that consumers collectively pay millions of dollars for critical information to which they are absolutely entitled.

CAI has promoted state legislative amendments that permit HOAs to recover “reasonable” attorney fees when it prevails in a lawsuit involving one of its association members, serving as a deterrent to defense of homeowner rights.

CAI has lobbied for legislation to make it easier and less expensive for the association to pursue foreclosure on its liens. In 22 states, CAI has also lobbied for a super priority lien, creating the current financial crisis whereby an HOA foreclosure for a few thousand dollars can wipe out the lender’s first mortgage, creating a windfall for opportunistic investors, at the expense of homeowners and future borrowers.

None of these so-called advocacy efforts benefit individual property owners or consumers of housing.

Furthermore, many of these legislative efforts have impaired older CC&Rs contracts that did not originally include these additional legal rights for HOAs, forcing millions of homeowners to “agree” to new contract terms, like it or not.



What happens when homeowner rights advocates push for legislation?

As soon as CAI becomes aware of any legislation their organization has not instigated, their legislative action committees swarm upon state Legislators, and begins to lobby to either kill the bill or amend it in order to neutralize its intended effects.

I hear from frustrated homeowners all over the U.S., disenchanted with the Legislative process. I have been following consumer protection legislative attempts for several years. I blog about these bills at their initial proposal, and when those bills die before they are even discussed by Legislators.

Advocates around the country relate to me how CAI attorneys literally destroy potentially beneficial HOA legislation, lobbying for amendments to create loopholes and advantages for their own industry.

And whenever I get the opportunity, I explain, in detail, exactly what’s wrong with those amendments. Sadly, many of those bills ultimately become law, giving the illusion of a victory for homeowners. In reality, many of these laws make matters worse.

Of course, sometimes, a CAI attorney will convince a naive group of advocates that they represent homeowners, and that they can help their cause.

Don’t believe it.

Is there any hope?

Don’t get me wrong. I am certainly not trying to talk housing advocates out of trying to improve conditions in common interest, association governed communities.

But I am saying this: get well-educated on the issues. And, whatever you do, do not obtain your education from CAI!

Read your current statutes. Read current case law. Talk to advocates in other states, in different types of communities. Find out what works for them and what does not.

Find out who contributes to the campaigns of your local and state representatives. That is eye opening!

In short, know who you’re dealing with and what you’re up against.

Recognize that advocacy of HOAs is not the same as advocacy for individual homeowners and residents. Anticipate lobby efforts by the industry – not only CAI, but also home builders – and be prepared to destroy their weak, self-serving arguments.

Most importantly, look beyond the Legislative process to the big picture. Look for support from local government officials to enforce laws that already exist. Promote widespread awareness of the problems that exist. Seek ways to tranform local Zoning laws and convince local governing officials to promote better alternatives to common interest, planned unit development.

Instead of seeking to enact new HOA laws or amend existing ones, why not seek to repeal the most harmful statutes? Why not shift control of our communities back to the people?

After all, isn’t is time to deregulate the communities we call home?






1 thought on “Does HOA legislation work for owners, residents?

  1. Well written Deborah! Thank you for all of the time you spend educating us on HOA legislation, ideas, and rights..

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