What is the root cause of HOA dysfunction?

By Deborah Goonan, Independent American Communities

 

To solve any problem, it helps to identify its cause or causes.

So as we attempt to tackle social and economic problems plaguing many of our association-governed, common interest communities, we need to look beyond the increasingly obvious abuse and HOA horror stories, and recognize that we have built this model of community housing on a false foundation.

What are the building blocks in that foundation? What is causing instability in HOAs of all types and sizes?

 

Is it apathy?

It has been said by experts in the industry, as well as some homeowner advocates, that apathy is at the root of all HOA problems. And, yes, apathy is a problem. But, in my personal opinion it is not the root cause of HOA dysfunction and corruption.

Apathy is merely a symtpom, and, in fact, it is deliberately cultivated by the industry.

For the most part, Developers and HOA boards and managers do not want active owner participation in the affairs of the corporate association – they view questions and suggestions from membership as second-guessing and a nuisance.

As far as most developers are concerned, homeowners and tenants are sources of revenue, and each home is nothing more than a commodity.

Owner-controlled boards and property managers, while they may give lip service to the concept of owner involvement, are rarely confident enough in their leadership to operate transparently and democratically. Most would prefer to lead with minimal interference from the common members, and certainly do not want to hear from non-owners and tenants.

It’s not that owners do not care about their communities. It’s just that the majority of them don’t have the time, energy, or personal finances to fight against their rogue HOAs, nor to engage in often futile attempts to improve living conditions. Residents have jobs to do and families to take care of. Some have chronic health problems or other personal struggles. No one moves into their home expecting to have to carefully watch over their HOA board members to prevent abuse of power or theft. No one anticipates being fined or dragged into court by a group of their neighbors over minor aesthetic issues or inconveniences.

I listen to homeowners from all regions of the U.S., and, although the finer details of their stories differ, it’s really the same story over and over. Their board is out of control – often backed up or egged on by the manager or HOA attorney – and yet, try as they might, the board will not step down, even after one or more attempts at recall. Or the developer still controls the HOA, and he has much deeper pockets than homeowners.

So most homeowners give up, and many sell and walk away from their homes. Others keep a low profile, as a matter of self-preservation.

The less that owners and residents pay attention to how their HOA is managed, the worse it seems to get.

Nevertheless, apathy is a symptom of a “sick” association, not the cause of the illness.

 

Flawed governance model

So, what is causes apathy to run rampant in so many association-governed communities?

In my opinion, the root cause of HOA problems is a governance model that is structurally flawed, because it was never designed to benefit the people who live in HOAs.

Think about it. An association-governed community is a legal concept  – created out of thin air – that primarily benefits real estate developers.  Restrictive covenants (CC&Rs) mandate the Association, and those legal documents are designed to:

  • protect the financial interests of builders and affiliated construction companies,
  • retain maximum control over the appearance of the community to potential home buyers, and
  • shield the developer from liability.

The governing documents of nearly every modern Association are written before the very first house or condo is built and sold. Future owners and residents have no say in the contents of governing documents, and yet some legal experts tell us that CC&Rs represent our sacred, one-sided contractual obligation to abide by their terms.

 

Subdivisions based on cost-shifting

For local government, the mandatory association-governed community serves as a cost-shifting mechanism for construction of infrastructure and multifamily housing, as well as ongoing maintenance and preservation of the subdivision or condominium.

Over the decades, most local governments adopted more complex land use requirements and zoning ordinances, designed to maximize tax revenue from new construction. This objective was accomplished by minimizing public investment in infrastructure. However, cost-shifting has also created unsustainable financial burdens for all but the most affluent of private homeowner and condo associations.

Local politicians were able to sell this cost-shifting concept by claiming to keep property taxes low. But of course, taxes from all sources have continued to rise, even for owners of property in HOAs.

In addition, Americans continue to bear steep increases in their HOA assessments. And, as collective owners of improved land and infrastructure, they face many other unpredictable financial risks.

HOAs under stress

At some point, many – if not most – association-governed communities face overwhelming economic stress, and a financial crisis that is next to impossible to overcome. When Association members face stress and uncertainty, arguments over the money are inevitable. That creates social discord, which only complicates matters even more.

When this happens, the HOA typically doubles down on assessment collections, and strict enforcement of covenants, rules, and standards, in a desperate attempt to increase revenue. But these attempts often backfire, especially if done harshly or carelessly, and without regard for individual rights. Social trust breaks down even further, breeding even more conflict.

Those that can afford to do so, sell and move elsewhere, cutting their losses if necessary. In order to escape, some will turn their former home into a rental property. Those that remain are further burdened and, in some cases, literally trapped with homes they cannot sell.

Tenants of limited means often find themselves stuck in poor quality housing in troubled communities,  because of the lack of decent, affordable alternatives.

Pre-HOA era

Before HOAs became corporate entities obsessed with the real estate industry’s shallow pursuit of property values, HOAs used to be called “neighborhood associations” or “civic associations.” Those groups were voluntarily created of, by, and for the people. Their purpose was to engage with local elected officials on key issues affecting their neighborhoods. Some associations were social groups that would organize block parties or annual picnics. Others dedicated their time to neighborhood beautification or annual clean ups. There was, and still is, value in that kind of social interaction.

But civic involvement in mandatory, developer-created HOAs is very rarely seen.

Yes, in some master planned communities, there may be a variety of sports and social clubs, but these exist entirely independently of the mandatory association(s) that fund operation and maintenance of services. Therefore, even if the HOAs were dissolved tomorrow, voluntary groups could continue to exist.

The HOA is neither the community, nor its people

Earlier in this article I referred to the association of owners or shareholders as a governance model and an abstract legal concept.

It is important to recognize that an HOA is a form of quasi-governance, usually a corporation. The HOA it is not the community itself – neither its physical structure nor its people.

The industry that invests in, builds, sells, and provides services to association-governed communities deliberately confuses consumers into thinking that the mandatory association is a community of like-minded people. But, with the exception of some small, resident-centered cooperative associations, the people who live in association-governed housing are virtual strangers who happen to be sharing costs and liabilities as well as common living or recreational spaces.

The basis for any true community comes from the shared values of its people, not from the shared value of property owned by the members of the association.

The root cause of HOA dysfunction is the pervasive misconception that properties build communities rather than the people who live there.

What to do? That’s a subject for a future blog or two.

 

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6 Replies to “What is the root cause of HOA dysfunction?”

  1. I agree with most of what you say.

    Associations are corporations, without a profit motive, and without competitive forces that would lead to customer service. Worse they are a government or quasi government without oversight, enforcement and accountability. The model invites misuse.

    Also, as you say, some boards are between a rock and a hard place. They need to collect enough money to pay the bills. It wouldn’t be fair to let some not pay as the others would have to make it up.

    Another problem I see is the complexity of the law and the legaleeze used in the documents and statutes. You can get plenty of information on the internet, but you can never be sure if it applies to your situation and you risk your home if you are wrong.

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  2. Excellent article and analysis. In Phoenix, AZ, metro area, HOAs are the prevalent governance of new communities built in the last 20 years.

    Deborah, you witness a wide variety of serious problems for HOAs as evident in the recent posts: abandoned golf courses, sink holes, condo rentals. And everyone has experienced enforcement problems when Boards adopt an aggressive, inconsistent and hostile process. However, on the opposite side of the issue, it is also a problem when Boards choose it ignore CCR requirements that were accepted by homeowners and Boards do not use the CCR process to change requirements with input from homeowners.

    In either case, your description of trying to work with a dysfunctional Board is so powerful and right on. Yes, the minute homeowners attempt to engage with such a Board, they are seen and treated as “the enemy,” even as the same Board complains about apathy.

    I look forward to your coming article about ways to restore a proper level of governance and community civility and sharing.

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  3. You make, as usual several interesting observations. I agree with many observations you make. The privatization of local government and double dipping of taxes is never going to stop. People are apathetic at all levels of government; what percentage of people over 128 are registered to vote (set aside for now, the ongoing voter suppression efforts by some politicians); then see who votes in municipal elections. Contrary to popular belief it’s those local people who have the most impact on voter’s day to day lives than the President, and on down, yet we often t\see well south of 30% of registered voters voting in municipal elections. in LA Eric Garcetti was elected with 20% of the vote, and this is not a new or unique trend.http://www.governing.com/topics/politics/gov-voter-turnout-municipal-elections.html.

    Where we disagree is that you confuse cause and effect; correlation does not necessarily mean causation. Given that participation in all kinds of civic activities including elections, is way down, your conclusions are with all due respect not backed by the facts. Until the most recent presidential election where “alternative facts” came to be part of the political jargon, Daniel Patrick Moynihan famously said: “Everyone is entitled to his own opinion, but not his own facts.” The facts are what they are. Apathy is a culture wide issue, and not related to your conclusions to the reason any more than lack of voter turnout at the government level is related to bribes and suppression of rights.

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    1. Robert Tankel, I would argue that the proliferation of private association governed communities has had the unintended consequence of making local government less relevant. And many owners who would likely be more engaged in civic participation at the local level are instead volunteering for their HOA or COA boards, or are being prevented from serving by certain incumbent board members. In other words the pool of qualified leaders has been spread too thin, leaving many voids filled by unqualified leaders.

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