Two keys to ending HOA abuse

By Deborah Goonan, Independent American Communities

 

Several months ago, inspired by offline discussions about the root causes of dysfunction and abuse in association-governed communities, I published Recipe for HOA abuse: too much power, no accountability here on IAC.

At the time, several states were considering numerous legislative proposals aimed at holding homeowner, condominium, and cooperative associations more accountable.

A few of those efforts produced new laws with some promise for housing consumers. One of the most notable is a condominium law in Florida that has created criminal penalties for willful destruction of association records in an attempt to cover up fraud, as well as tampering with election ballots, among other things.

But most consumer protection bills focusing on accountability failed to gain traction, died after passing only one chamber of a divided legislature, or were amended by industry lobby groups to neutralize any beneficial effects for consumers.

So perhaps it’s time for advocates across the country to consider the other key ingredient for HOA abuse – excessive power.

 

How to rein in abuse of power in HOAs

I believe the keys to reining in unchecked power and abuse of association boards are:

1) to remove any and all police powers from association boards (because they are, after all, “private” or “collective” organizations, mostly corporations) and

2) to shift public services back to local governing entities where those duties belong (road maintenance, storm water management, traffic control, parking on public streets, crime monitoring and prevention, and even code enforcement).

 

Police Power in HOAs

To clarify – See here for the legal definition of “police power,” which does not refer solely to law enforcement.

Source link defining “police power”

Excerpt: (emphasis added)

Police power describes the basic right of governments to make laws and regulations for the benefit of their communities. Under the system of government in the United States, only states have the right to make laws based on their police power. The lawmaking power of the federal government is limited to the specific grants of power found in the Constitution.

The right of states to make laws governing safety, health, welfare, and morals is derived from the Tenth Amendment, which states, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the States respectively, or to the people.” State legislatures exercise their police power by enacting statutes, and they also delegate much of their police power to counties, cities, towns, villages, and large boroughs within the state.

Police power does not specifically refer to the right of state and local government to create police forces, although the police power does include that right. Police power is also used as the basis for enacting a variety of substantive laws in such areas as Zoning, land use, fire and Building Codes, gambling, discrimination, parking, crime, licensing of professionals, liquor, motor vehicles, bicycles, nuisances, schooling, and sanitation.

If a law enacted pursuant to the police power does not promote the health, safety, or welfare of the community, it is likely to be an unconstitutional deprivation of life, liberty, or property. The most common challenge to a statute enacted pursuant to the police power is that it constitutes a taking. A taking occurs when the government deprives a person of property or directly interferes with or substantially disturbs a person’s use and enjoyment of his or her property.

 

So, according to the legal definition above, police powers of association boards include the power to impose fines, issuance of traffic tickets, the authority to file liens or foreclose on private property (especially without judicial process, as is allowed in some states), removal of voting rights in the association, collecting rent from a unit owner’s tenant in order to collect on purported assessment delinquencies, and other punitive actions by association-governed communities.

Because HOAs lack meaningful division of power, it is arguably difficult or impossible to fulfill the requirement of due process before the board authorizes its penalty for noncompliance.

Enacting rules and regulations is another police power. There are few constraints on the type of rules a board can enact, because boards often have broad authority to decide what they consider to be aesthetically pleasing, what is and is not a nuisance, what will or will not affect property values.

 

No division of powers in an HOA

Consider this: the same people making the rules (the HOA board members) also decide if and when to enforce those rules, and how to do so. So when an association board decides to place a lien and then foreclose on that lien, they are exercising police power, even though they are not officially elected or appointed government officials, nor are HOAs considered state actors, with the exception of some affordable housing projects made possible, at least in part, by public funding.

Of course, this is where most abuse of power originates, in the wrongful delegation of police powers to private – or collective – organizations known as “community associations. ”

By removing and prohibiting various police powers from the hands of association-governed community boards, many disputes and legal controversies, and the abuse that often results, could be prevented.

De-privatization of public services

It is now common knowledge that a large part of the reason that HOAs are mandatory participation organizations is because most communities are physically and financially responsible for managing their own infrastructure and services.

For instance, nearly all community associations have storm water infrastructure to maintain, gated communities and others with limited access to the public must maintain their own roads. Due to limited service from municipal and county police departments, many association-governed communities also rely on private security staff, equipment such as surveillance cameras, and secure access infrastructure.

In essence, the HOA industry and local governments have created a situation that compels associations to collect mandatory assessments to pay for essential services that, at one time, were almost always provided as a matter public interest, and  funded by tax dollars.

For this reason, it becomes difficult, if not impossible, to either dissolve unwanted HOAs or convert them to voluntary membership organizations.

However, if public policy were to shift away from almost exclusive privatization of public services for all new or recent construction, then HOAs would no longer need to be mandatory organizations. They could become voluntary associations.

Voluntary residential community associations rarely amass large sums of money, because they have a limited scope of duties, and they cannot force anyone to pay dues. That presents far less opportunity for fiscal mismanagement. Likewise, there is a reduced likelihood of wasteful spending, because members can and will walk away if they are dissatisfied with any service or policy of their voluntary HOA.

And isn’t that how free enterprise is supposed to work?

Multifamily stacked condos, of course, can only dissolve their association by a membership vote to either sell the entire property to an investor, or convert the project to rental apartments. That trend is already happening now, as it has become difficult for condo buyers to obtain mortgage financing, and for developers to obtain construction financing. These days, most new condos are high-end, luxury real estate dominated by cash buyers.

The vast majority of new construction multifamily housing is for rental apartments only.
So do not believe for one minute when the industry tells you that “HOAs are here to stay.” With sufficient market demand for non-HOA housing and strong political pressure at the state and local levels, a wholesale transformation of the housing sector is possible, even inevitable. ♦