What can be done about HOA dysfunction?

By Deborah Goonan, Independent American Communities

After listening to residents, and reading and learning about issues affecting association-governed common interest communities for more than five years, as well as writing about them for almost three years, something very important is happening.
Finally, people are starting to discuss possible solutions to problems and alternative housing models.

When I first began participating in HOA discussion forums, most of the conversations were either an exercise in self-promotion, gripe sessions, or downright adversarial exchange. None of it was productive conversation.

A few years ago, the only news reports about HOAs, condominiums, and cooperatives were either press releases (advertising) or “horror” stories about displays of the American flag, holiday decorations, or houses painted blue. These days, the media is paying attention to more important issues such as theft and embezzlement, fraud, crime and blight in failing associations, fair housing violations and discrimination, HOA foreclosures, and more.

But now the discussion has reached the next level. What can be done about HOA dysfunction?

As more consumers request “No HOA, please!” Or seek to put an end to their HOAs,  the question becomes, where and what are the alternatives?

Several readers have asked me these questions over the past few months. Many have offered concrete ideas and suggestions on private forums.

The following list combines many good ideas discussed with knowledgeable readers. See what you think about it.

Feel free to add your ideas and suggestions in the comment section below.

1. Repeal and outlaw the power of the Association to fine or otherwise penalize association members. Require the Association to resolve disputes or enforce governing documents by filing complaints with the appropriate judiciary court or mediation board. Allow a truly neutral third party to decide on the resolution. Remember, this was the process before management companies and HOA attorneys lobbied for the HOA’s right to fine and otherwise penalize members via the Association’s internal kangaroo court. In other words, bring back true due process and separation of powers.

2. End local government mandates for common interest development and HOAs. Require that at least half of all new construction be fee simple with NO common interest, and that local governments build a diverse array of housing sizes and types to match local demand. (For example modest ranch or Cape Cod or bungalow style houses on manageable lots OR separately owned row houses that do not share facades and roof lines.) This may require local governments to rewrite their land use and development regulations and requirements, potentially reducing construction costs in the long run.

3. Create an expiration date for all HOAs – so that they cannot be perpetual. If homeowners want to renew the mandatory HOA, they must vote unanimously to do so. Otherwise, participation becomes voluntary, and the association becomes more like a civic group or a social club.

4. Abolish developer control of common interest communities – restore private property rights of homeowners for their own units and parcels. Create an owner-resident controlled co-op to manage common property or a membership club to manage common recreational amenities. Homeowners should not have to subsidize the developer’s investment risks, especially since they cannot share in any future profits. And they should have the right to use and maintain their private property with the least possible restriction.

5. Phase out private association funding of construction, maintenance and management of “public works” infrastructure. Untrained, uneducated volunteers have no clue about what is necessary and developers have inherent conflicts of interest. (Private roads, storm water management, water and sewer utilities, etc.) Most homeowners discover that long term infrastructure costs are unaffordable – especially in small associations. Spread out the cost in the public sector to achieve economies of scale. This could include establishment of special tax districts, phased-in annexation to a nearby municipality, or, for very large scale communities, incorporation as a city, dissolving the mandatory HOA.

6. Curb speculation and investor ownership of housing–set limits on the number of units or percentage of association interests any one person or entity can own. Also…limit foreign (non-citizen) investment. Too much investment and speculation artificially inflates prices, makes homeownership unaffordable for remaining home buyers, and increases the risk of hostile takeovers of mandatory associations.

7. Police, fire, and emergency services need to be fully integrated within all communities, and forget about private security guards and gated entries. Private security guards, especially armed guards, are simply a bad idea. Gated entries offer little – if any – additional security, are costly to staff or maintain, and only serve to divide HOAs from the community at large.

8. All CC&Rs and ByLaws should be subject to state review and Constitutional laws (for residential housing) prior to being adopted and filed. Right now these documents serve as community “constitutions,” but they are written to benefit developers and/or are often misused to get around Fair Housing laws.

9. Separate recreational amenities from property deeds. For new development, either manage these by public tax districts or allow for purchase by private commercial investors who will sell private memberships. Existing communities all over the U.S. currently struggle with how to dispose of or redevelop underused amenities.

What are some practical solutions and alternatives for developer-built “modern” condominium and cooperative associations?

Some people are comfortable with living in a multifamily setting. Residents of heavily populated urban areas often have no other alternative.

Solving or preventing chaos or adversity in common interest development in the form of condos or co-ops is very challenging. But here are some thoughts to consider.

1. Owners-shareholders need simple, explicit disclosure that lets them know it is a collective arrangement where all share in costs and liabilities. Too often, associations members do not understand or even buy into this very basic concept of common interest housing. In general, however, most condominium associations will probably struggle financially unless units are owned by fairly affluent people who can afford maintenance and improvement costs as they escalate over time.

2. To maximize the chances for social cohesion, communities should be kept small – perhaps less than 50 units. And if you’re sharing costs for living space, it only makes sense that you should know your co-owners or co-investors before they purchase and become members of the Association. Cooperatives already pre-screen new residents, but condominium associations rarely do. The big challenge here is how to pre-screen new buyers for a good fit, without engaging in housing discrimination.

3. Do away with the strict management hierarchy that dominates over remaining members. Co-owners, shareholders should be free to work directly with all of their neighbors on shared projects, rather than allowing a small group of their neighbors on the board make all the decisions with little or no input. And members should not be forced by law to allow a developer or – after turnover, opt to allow a community manager or attorney – to call all the shots. Owners need to take a much more active role in making financial decisions, rather than acting as silent investors. For example, some co-ops manage by consensus and without a Board of Directors. The model does require a high level of participation and commitment. Another possible solution would be to require that each owner take turns serving on a board or on various work committees. In this way, everyone plays a role in the decision-making process, and no one clique becomes entrenched, entitled, or corrupted.

4. Planners and developers need to decide on a single use for multifamily housing. Will the condominium or cooperative be built for owner-occupants or for other purposes such as seasonal housing, vacation housing, or real estate investment? The key is to have one clearly-defined land use plan, and then govern and manage accordingly. An owner-occupied condo association is more of a shared housing arrangement, as opposed to second homes or resort properties where ownership is more of a business relationship. Different, laws, rules, and tax policies should apply, according to the designated type of property ownership.

The common theme in these proposals:

Consumer-focused housing policies that reduce financial costs, risks and liabilities for owners, shareholders, and residents, while also upholding equal rights of individuals.

 

What are your ideas? Please share in the comment section below. 

 


8 thoughts on “What can be done about HOA dysfunction?

  1. It’s about time that Americans finally get the truth for a change. Where I live (in Henderson, NV) the HOA’s have far too much political “Influence” and even when HOA’s break the laws they are never punished. Henderson is a close neighbor to Las Vegas where they have a “Mob Museum”. I hope someday to see some exhibits of the most influential HOA culprits included.

    ________________________________

    Liked by 1 person

  2. In Ontario, condo corporations are not allowed to fine owners. That is something the provincial government would not allow. Good thing too.

    We will have a Condo Authority that will have powers to decide most condo disputes. This should work out well for us.

    Our judges now understand that there is an unequal balance of power between condo corporations and owners and many decisions are favourable to the owners. I am impressed with how hard our judges work to balance the competing interests.

    We do not have HOAs just condos and some co-ops. We have Private Owned Tied Lands (POTL)which are a few detached houses or townhouses but they have very few units and are not yet popular or well understood. They are small-time HOAs.

    In may ways, Ontario’s provincial legislation is, in my opinion, better than what most states have but it too could use improvements.

    On Tue, Apr 11, 2017 at 1:37 PM, Independent American Communities wrote:

    > deborahgoonan posted: “By Deborah Goonan, Independent American Communities > After listening to residents, and reading and learning about issues > affecting association-governed common interest communities for more than > five years, as well as writing about them for almost thre” >

    Like

    1. Thank you, Holland. It is fascinating and informative to learn about housing policy in other countries. Perhaps the U.S. can consider a Condo Authority or Tribunal system to handle disputes between onwers and their associations. Would you be so kind as to provide a web link with information about Ontario Condo Authority?

      Like

  3. I agree with your assessment of HOA forum discussions to date- gripe sessions a far cry from productive conversations. Undoubtedly issues persist, but I would not go so far as to declare “HOA’s dysfunctional.” What is too often lost in blogs like this is that most associations do well protecting residents’ interests, despite the motives of their creators.

    Opting not to engage in the HOA system is already an option. Calls for dissolution provide no alternatives. Any fix of the system will require a blending of ideas like the ones you present.

    Most important, all stake holders, in particular the homeowners, in large part absent and the reason real progress has been so slow, must engage in the discussion. Homeowner participation, if accelerating (in my assessment TBD), would be something to celebrate.

    Like

    1. Thank you, Michael. Appreciate your comments. I respectfully disagree with your view that most associations do well protecting residents’ interests. A typical group of owners and residents has diverse interests, needs, and preferences. In every association there are winners and losers because of this. I believe that most owners are blissfully unaware of how their association fails to serve their best interests. For example, as you aptly point out, few understand how their money is spent, and how the annual budget is established. The vast majority of associations are insufficiently funded and haphazardly and sporadically maintained. And many deal with poor condition of infrastructure as the community ages. In fact, too many developers cut corners on construction in the beginning, only compounding problems. By the time most owner figure out that the system is deeply flawed, it is generally too late.

      And most owners and residents are unaware of HOA disputes with their neighbors, as well as any potenntially abusive fines, assessment collection fees, etc. that occur behind the scenes.

      Also, in some parts of the country, it is nearly impossible to avoid HOAs. I realize some readers find that hard to believe, but, in some metro areas more than 90% of active real estate listings are HOA, condo, or co-op. So, yes, a blending of solutions is required.

      Like

  4. Thanks Deborah for a great article!!!

    Mike, you wrote, “… but I would not go so far as to declare “HOA’s dysfunctional.” I pretty much see the opposite–members “think” they are being protected and by the time they learn how dysfunctional they association is, like Deborah said, “it’s too late.” In one small county in Utah there are 50 lawsuits at any given time going through the system. The courts are clogged with housing disputes and the county attorney rolls his eyes and says inane things like, “If I hear one more time about double taxation….” People seldom know how bad it is–thinking it’s the rabble-rouser, rebel, troublemaker that the board complains about that is the problem when the real problem is the HOA system. You are probably looking at how the board defines the trouble–as a rebellious homeowner, instead of seeing it as a dysfunctional system–just my guess. Most associations have their “troublemakers” and blame it on them–when in reality, it is the system itself that breeds the trouble.

    Deborah–I agree wholeheartedly with all your assessments except number 6. “Curb speculation and investor ownership of housing–set limits on the number of units or percentage of association interests any one person or entity can own.” I don’t like interfering in the free market–too much government control of freedom is just as bad as none. I can envision all kinds of rights being taken if we won’t allow people to invest.

    I would add another solution to your list. We did it Sanpete county in Utah. We created a bylaw that the board cannot sue any member or vendor without a vote of the members (assessment liens excluded). That accomplishes two things–would cut down on punitive suits by board members (neighbors would not likely vote to sue their neighbors) and it would force the board into full disclosure and transparency because you can’t vote on something without having enough information to make an informed decision.

    thanks for your diligence!

    Like

    1. Thanks for your comments, Shelly. Let me explain the rationale behind curbing speculation and investor-owned units. This would eliminate the possibility of hostile takeover of a corporate association board. Those takeovers often result in a complete change in the nature of the association or a forced termination that displaces owner occupants — often at a financial loss for the owner. Cooperatives commonly include these restrictions in their governing documents for that reason. Some condo associations do also limit either the share of units owned or the total number of votes one owner can cast, regardless of the number of units owned.

      Don’t forget that it was market speculation that led to securitization of toxic mortgages loans leading up to the most recent real estate crash and subsequent economic recession. HOA and COA properties involve two types of ownership and investment — real estate and the shared assets and obligations of the corporation itself.

      What we have right now in real estate is NOT a free market. It is a supply-side driven market in many areas of the US, where buyers have virtually no option to choose non-HOA, non-COA housing. If there is a market for real estate as investment vs. real estate for owner-occupancy, then the market will continue to create COAs or HOAs of resort or vacation properties. (With corresponding financial risks) But if the goal is to create opportunities for affordable, stable homeownership, we need to remove rampant speculation and prevent opportunistic investors from exploiting neighborhoods designed for use by owner-occupants.

      If owner-occupants truly desire to sell in bulk to an investor (to terminate the condo association) then they should be the ones to initiate the process (following a vote of member) — rather than leaving each association vulnerable to takeover against their will.

      And this goal need not be mandated by legislation. But association members could amend their documents to limit speculation and the influence of developers. And new associations can be established for owner-occupancy as the primary use, with safeguards against what amounts to a hostile corporate takeover.

      Like

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