By Deborah Goonan, Independent American Communities
Homeowners frequently debate whether homeonwers’ associations are “real” government, or merely private organizations. So the topic of incorporation — creation of a new town or city — is often misunderstood.
Many readers assume that, if an HOA decides to become a city, the HOA ceases to exist. Usually, that’s not the case.
There’s no legal requirement for an HOA (or POA) to disband or dissolve once a city or town is formed. Quite often the HOA will continue to provide certain community services, such as enforcement of deed restrictions or even maintenance of private roads or water supply.
So homeowners can still expect their HOAs to enforce covenants, conditions, and restrictions (CC&Rs), as well as rules and regulations, even after the community becomes its own city.
Additionally, after incorporation, homeowners are obligated to pay various City taxes (property, sales tax, and income tax) as well as fees to their HOA or POA.
What about fees and taxes?
One might assume that HOA fees will go down if services are transferred to the newly incorporated city. It’s certainly possible that HOA assessment will decrease. However, dollar for dollar, it might not make up for the additional taxes paid by homeowners.
It’s also possible that, with passing time, homeowners could lose interest in the HOA, and vote to dissolve it entirely. But homeowners should not assume they can easily get rid of the HOA.
Even if the HOA or POA is officially dissolved, CC&Rs will remain in effect and enforceable by any individual neighbor in a court of law. Instead of the association using collective fees to go after a homeowner, deed restriction disputes must be resolved between individual property owners.
Some CC&Rs expire after 30 to 50 years, but many automatically renew unless a supermajority of members (property owners) votes to amend or repeal them.
Voting before and after incorporation
When HOAs decide to turn their planned community into a town or city (commonly referred to as incorporation), only property owners are entitled to vote, with voting rights subject to membership qualifications in HOA governing documents.
Generally, in planned subdivisions, property owners get one vote per lot or home owned.
In other words, non-owners who happen to live in a planned community under the governance of a homeowners or property owners association do NOT get to vote on the issue.
typically, the County (where the subdivision is located) will distribute ballots to HOA members, and then collect and count the votes. If a majority of votes are in favor of incorporation, a new City will be chartered.
Once the city or town is chartered, all registered voters are entitled to elect its governing council, regardless of homeownership status. As in all other elections for public office, each registered voter may cast a single vote.
The same applies to any referendum requiring a vote of city residents.
Generally, a city government has higher standards of accountability than an HOA or POA.
For instance, a new city must abide by the same open meeting and records policies as all other public units of government in the state. Additionally, city council members are required to solicit competitive bids for contracts. And state laws forbid conflicts of interest such as kickbacks and “pay-to-play” schemes, subject to Attorney General investigation and even criminal penalty.
Three examples in North Carolina
Carolina Shores – a golf community with POA formed in 1974, Carolina Shores was annexed by Calabash in 1989. But in 1998s, the POA organized to de-annex itself from Calabash and become its own town. The city has since grown to inlcude seven different neighborhoods, each with its own POA.
Since 1999, the town of St. James consists of the gated, master planned development, St. James Plantation. Each homeowner of the town is also a member of the POA.
St. James has 660 residents, and the town provides services that POA could not: garbage collection, water distribution, and police and fire departments.
See also, Bermuda Run, a gated community of mostly retirees, outside of Winston-Salem. Visit the town’s website, where you can read about the growing small town.
Another example from Texas
In Double Horn Creek, a subdivision near Spicewood Texas, a homeowner group called Spicewood Equity Protection Alliance, Texas (SEPATX) organized an incorporation vote in order to prevent quality of life disruptions by Spicewood Crushed Stone LLC, a rock quarry.
Homeowner concerns center around noise and air pollution as a result of the quarry’s normal business operations.
The vote to form a Type B city was close, 75-65. Double HOA will still take care of the community’s streets and water.
The new city of 220 residents will soon vote to elect a Mayor and Council. Then the work of creating zoning regulations and ordinances will begin, in hopes of keeping the rock quarry far away from residential properties.
Beyond an HOA: How, and why, some Homeowners Associations became towns
How do developments run by HOAs — sometimes accessible only via a gated entrance — become full-fledged towns? By Johanna Ferebee, Port City Daily – December 16, 2018
Double Horn residents vote to incorporate; now the real business begins, Posted on 07 December 2018, by Jared Fields, DailyTrib.com