Should neighborhood covenants and HOAs last forever?

Across the U.S., a disturbing trend is taking place. The HOA industry is quietly making it possible to preserve CC&Rs — or revive them after expiration — without consent of all homeowners.

 

Correction (March 12, 2018): a previous version of this post noted that a majority of affected parcel owners attending a meeting could vote to revitalize CC&Rs. A closer reading of the amendment and Florida Statue 720.306 indicates that a majority of total voting interests — or all affected parcel owners — would still be necessary to revitalize expired covenants. 

A small number of well-funded real estate developers and attorneys are amending state laws, all in an effort to ensure that association-governed communities can never be eliminated.

And that’s not all.

Some members of covenant-restricted communities are asking the courts to grant various property owners’ associations “implied rights” to collect mandatory assessments, even if the CC&Rs for the association have technically expired.

For examples, see the link posted below about Diamondhead, Mississippi, as well as my previous post involving a NJ Lake Association.

Is this wise? What effect will these trends have on private property rights in the U.S.?

Let’s explore.

Outdated covenants, restrictions, and rules

Think about it.

Should your neighbors have the absolute and perpetual right to enforce 30, 40, or 50 year old covenants? Should future homeowners have the right to enforce already outdated architectural standards 20 years from today?

It’s doubtful that younger buyers appreciate the value of CC&Rs dictating the exact placement of their trash and recycling containers. Nor do most young parents see the point in rules that forbid their children to enjoy their toys and play equipment in view of their neighbors.

And, as residents age and experience limited mobility, they don’t appreciate meeting onerous standards for installing wheelchair access ramps. Likewise, many residents don’t appreciate restrictions against parking their vehicles in their own driveways, or on public streets in front of their homes.

Why in the world would any civilized society wish to perpetuate this madness?

And what about architectural standards?

No one has given a moment’s thought as to who will regularly review standards and requirements to meet modern building design tastes and preferences.

For example, today’s homeowners are increasingly demanding the right to incorporate solar energy and electric car chargers. Tomorrow’s homeowners will want to renovate their properties with long-lasting, low maintenance building materials and up-to-date “smart home” technology.

How will CC&Rs be amended to meet ever-changing community standards and to meet the desires of residents several decades from now?

As many homeowners have discovered, the process of amending CC&Rs can be difficult, if not practically impossible, especially in large common interest communities.

Therefore, it becomes necessary to enact state laws to override certain restrictions written into the CC&Rs.

The problem is, each state law tends to muddy the waters with a half-baked compromise. Or state governments hand over even more unchecked power to corporate association governing boards.

And many homeowners also learn too late that most CC&Rs crafted after 1990 create a bias of property rights, to the benefit of developers or the interests of a few major investors or stakeholders, who manage to acquire a controlling interest of property in a community.

 

Master planned communities with private amenities

Should CC&Rs require homeowners’ or property owners’ associations to continue to maintain aging and outdated recreational amenities for future generations?

Will the majority of future homeowners want to pay for common amenities, particularly if they don’t use them? How many residents of master planned or resort communities will still want to play golf or tennis in 2040?

Will Gen-Xers and Millennials be able to afford to renovate or completely rebuild private recreational facilities, such as swimming pools, and will they be willing to do so, especially as their children grow up and move away from home?

Let’s look at a real life example. Check out this Facebook post from Diamondhead, Mississippi, a maturing master planned community — this one happens to be incorporated as a city — with CC&Rs and a mandatory membership Property Owners’ Association (POA) set to expire in 2020.

 

In Diamondhead, infrastructure is maintained and services are provided by the City. The POA exists to maintain a golf course and various other recreational facilities that few regularly use. The POA is also tasked with enforcing architectural standards and aesthetic rules, a non-essential service. Important health and safety building codes and zoning ordinances are already enforced by local government, not the POA.

Therefore, a growing number of Diamondhead homeowners thinks it’s time for the POA to fade off into the sunset. They don’t think that the majority of property owners should be forced to subsidize the operation of the golf course for a small minority of avid golfers.

It’s a valid argument, not only in Diamondhead, but in thousands of planned communities across the U.S.

Planned communities without fancy amenities

More importantly, will homeowners be willing and able to pay for rising HOA assessments to adequately fund common infrastructure (private roads, storm water management systems, private utility services, and more) to preserve it for future generations, simply because the CC&Rs obligate owners to do so?

It’s doubtful, given that the majority of association-governed communities lack sufficient reserve funds, and most American homeowners don’t have enough money saved for retirement, let alone a rainy day fund.

The trend of de-privatizing essential services, shifting responsibility to special tax districts or local governments, is likely to continue, as more and more homeowners discover their HOA is incapable of fulfilling its essential maintenance and security duties.

 

What about non-owners?

Will tenants be willing and able to pay much higher monthly rent, in order to cover the landlord’s rising HOA costs, thereby ensuring a positive cash flow on the owner’s investment?

At the same time, should the U.S. continue to disenfranchise non-owners with CC&Rs that restrict the rights of all residents, yet only allow property owners to vote on amending those restrictions?

As owner-occupancy levels continue to decline in association-governed communities, tenants are likely to demand more political influence in their own neighborhoods.

How the industry is preventing CC&Rs from expiring

Right now in the U.S. there are thousands of 30-50 year old association governed communities with CC&Rs nearing expiration.

Additionally, some covenant restricted communities have no active HOA, but a property owner can enforce CC&Rs against a neighboring homeowner in civil court.

But did you know that most newer CC&Rs — as well as amended CC&Rs — are quietly being written with no expiration date, or with a perpetual renewal clause?

And then there’s a behind the scenes effort by special interests to create new enabling state legislation that will override those so-called “contractual” CC&Rs, and take away most of your private property rights in the process.

Community Association law firm Becker & Poliakoff is leading the charge with amendments to two Florida’s statutes:

MARKETABLE RECORD TITLES TO REAL PROPERTY (Ch. 712) and

HOMEOWNERS’ ASSOCIATION ACT (Ch. 720)

In Florida, the Legislature just passed HB 617, which amends state law to provide for homeowners’ association boards to perpetuate CC&Rs forever, without any advance notice, meeting, or vote of the entire membership.

You can read a summary of the bill here:

 

The full engrossed text of HB 617 (substituted for SB 266) can be viewed here.

In essence, unless HB 617 is vetoed by Governor Rick Scott, an HOA board will be enabled to continue the “contractual” CC&Rs that mandate the governing entity’s existence indefinitely, even if the HOA and its underlying CC&Rs are not needed or wanted by a substantial number of owners and residents.

Property owners will not have an opportunity to vote on the issue of whether or not to continue the CC&Rs or the HOA.

And, if that’s not already a frightening prospect, consider this: if a covenant-restricted community no longer has an active association, or never had an HOA to enforce the covenants, a handful of neighborhood residents can preserve the CC&Rs in a similar manner — without any vote or written consent of owners affected by the covenants.

Furthermore, even if CC&Rs for your property have already expired, Florida laws allows three of your neighbors to form a group to “revitalize” them by organizing a petition or a meeting of affected homeowners. It only takes a majority of parcel owners in the neighborhood to re-activate the CC&Rs — with or without an HOA. It’s somewhat unclear, but it appears that proxies can be used to collect the needed votes to attain a majority of affected parcel owners. (See FL Statute 720.306)

In short, a simple majority of your neighbors can force you to abide by CC&Rs and pay assessments to an HOA, even if you purchased or moved into your home specifically because, at the time of purchase, it was not burdened by restrictive-covenants or a homeowners’ association.

Here’s the exact wording of HB 617 that makes this possible: (emphasis added)

A majority of the affected parcel owners must agree in writing to the revived declaration of covenants and governing documents of the homeowners’ association or approve the revived declaration and governing documents by a vote at a meeting of the affected parcel owners noticed and conducted in the manner prescribed by s. 720.306. Proof of notice of the meeting to all affected owners of the meeting and the minutes of the meeting recording the votes of the property owners shall be certified by a court reporter or an attorney licensed to practice in the state.

Source: http://www.flsenate.gov/Session/Bill/2018/617/BillText/er/PDF

Is this Constitutional? Is it in the public interest? Is it prudent and wise to allow a minority of property owners to take away the private property rights of individual owners in their neighborhood?

These are questions that warrant serious consideration.

 

Double standard makes it difficult to kill an HOA or unwanted CC&RS

And here’s the biggest irony.

Special interests are pushing hard to make it legal, simple, and easy for private organizations to preserve and impose CC&R “contracts” upon entire residential neighborhoods.

But state laws don’t make it easy for homeowners to dissolve an HOA and, more importantly, repeal offending CC&Rs. Those actions still require a supermajority of all affected property owners to vote in favor of amendment or dissolution.

The industry’s motive is obvious: the goal is to forever obligate homeowners to pay assessments, without ever requiring individual consent or explicit agreement to perpetuate or revive the CC&Rs “contract.”

After all, there are billions of dollars in revenue involved for industry stakeholders.

The HOA industry’s profit is made possible by convincing policy makers and judges that association-governed communities and CC&Rs need not live up to Constitutional standards of governance, because — according to their twisted logic — associations are “private” organizations, and CC&Rs are “private contracts.”

Of course, state legislators in Florida and other HOA-heavy states are likely to play along in this game of political cronyism, for fear of what might happen if constituents were to revolt and make their mass exodus from HOA-burdened communities.

In the case of Florida, that mass exodus would inevitably lead home buyers to other states where HOAs are less common.

But state lawmakers seem to ignore the fact that traditional American communities continue to exist without HOAs and without CC&Rs.

So this the current state of affairs:

It’s far easier for a few of your bossy or politically-connected neighbors to force you to live with restrictive covenants and mandatory HOA assessments, than it is for you and most of your neighbors to organize and collect enough votes to de-regulate the community by repealing CC&Rs and dissolving the HOA.

Which leads to the obvious conclusion:

In order to preserve private property rights in the U.S., existing CC&Rs must be allowed  — even required — to expire. Each owner must then be free to choose whether to continue or amend those restrictive covenants, with or without voluntary membership in a property owners’ association.

If necessary, local ordinances can be enacted to address public health and safety issues, with plenty of flexibility for governments to amend or repeal as necessary.

Governor Rick Scott should veto HB 617, because it violates the Constitutional rights of property owners, and enables the creation of invalid contractual relationships due to lack of consent by private property owners.

The values we place upon individual liberty, freedom, and property rights in the U.S. must take priority over preserving property values for a small minority of stakeholders in the HOA industry.