Don’t rely on a Realtor to explain Homeowners Associations (HOAs)

By Deborah Goonan, Independent American Communities

Updated Jan. 22, 2019

Are you house hunting? Want to know more about homeowners associations? Unfortunately, many Realtor articles about HOAs are woefully inadequate and downright inaccurate.

Today I’ll highlight some half-truths that you’ll read about HOA life on the internet. These examples are based upon actual published content.

 

Who’s in charge of the HOA?

According to one agent from Texas,  The Community Impact Newspaper, Ask a Realtor column:

The Realtor, Kathy Montes, explains that an HOA is a “volunteer group of neighbors charged with enforcing the covenants, conditions, and restrictions townhomes, condos and single-family homes.” 

The Realtor is referring to the HOA board, and only mentions one part of an Association board’s duties.

The HOA board’s primary duties also include creating an operating budget and reserve fund necessary for ongoing maintenance and repair of common areas and elements; making sure that the association is adequately insured against liabilities, hiring and supervising property managers and/or various maintenance, construction, and landscape contractors; managing security systems in place, if any.

The HOA is actually a private organization – usually a non-profit corporation, sometimes a mutual benefit corporation – that provides for collective governance of its community and management of common property.

Responsibility and liability for ongoing operation and maintenance of common property is almost always a mandatory obligation of each member-owner (or shareholder in the case of a cooperative), tied directly to the title or deed of each property within the boundaries of the HOA.

Real estate developers establish most HOAs prior to construction. In many cases, local government requires an HOA to pay for community services, before they will issue construction permits.

Home buyers need to know that the developer (referred to as the Declarant in official deed restrictions) appoints the majority of HOA board members during construction of new homes. So the developer remains in control of the community association until most of the of units or parcels have been sold to non-developer affiliated owners.

Developer-appointed board members cannot be recalled or elected by homeowner members. Therefore, as long as the developer and affiliates fill a majority of HOA board positions, homeowner members of the association have very limited control over the management of the association.

HOA homes sidewalk

The power of HOAs

According to the same Realtor: HOA rules are “ordinances” or “mandates.” The Realtor goes onto explain that the HOA has the authority to fine its members for noncompliance with the CC&Rs, and then says that “HOA has the authority to apply fees to your property tax liability.”

These statements are inaccurate.

HOA rules are not ordinances or mandates, because HOAs are not publicly administered governments. Rather than ordinances and mandates, a homeowners association is governed by a set of legal documents — CC&Rs, Bylaws, and Articles of Incorporation .

CC&Rs are viewed by US Courts as a legally-binding contract between and among property owners within the Association. (And, technically, CC&Rs can exist with an HOA to enforce them.) So when a member-owner or shareholder violates any terms of the contract, the Association often has the legal authority to fine or otherwise penalize its members, within limitations of the CC&Rs and state laws.

By contrast, government has the authority to arrest you and even throw you in jail for breaking the law, subject to due process court.  Thankfully, HOA’s don’t have that much power.

HOA assessments and fees, sometimes including unpaid fines, are considered a lien on a member’s private property.  And HOA can foreclose on unpaid liens. Beware: In most states, the HOA can sell your property at a foreclosure auction for a very small percentage of the assessed value of the property.

But and HOA lien has absolutely nothing to do with property tax liability. Property taxes are an obligation of the owner to local government, not the HOA. (By the way, if you don’t pay your property taxes, the local government can foreclose on your home with a tax sale.)

 

What to expect from your HOA

Incredibly, even Realtor.com publishes inaccurate articles about HOAs.

In an article entitled What Is an HOA? Homeowners Associations—Explained, the author briefly summarizes how HOAs work.

HOA rules: What to expect

All HOAs have boards, made up of homeowners in the complex who are typically elected by all homeowners. These board members will set up regular meetings where owners can gather and discuss major decisions and issues with their community. For major expenditures, all members of the HOA usually vote.

Unfortunately, that is not how “all” HOAs work.

In my personal experience, and that of many homeowners who contact me, quite a few HOAs do not hold regular meetings.

And the truth is, homeowners cannot discuss major decisions at board meetings. In fact, the law in some states does not even require board meetings to be open to members.

There may be limited discussion at the annual membership meeting. That doesn’t mean the discourse is friendly. Because you and your neighbors will rarely share the same perspectives and financial priorities, HOA meetings can be downright hostile.

Some state laws, and some HOA governing documents, may require members to vote on “major expenditures,” but this is hardly a common policy. Furthermore, your ability to participate in financial decisions depends on how the HOA board defines a “major” expenditure. In practice, your HOA Board will make most financial decisions without any discussion of members.

And remember, as mentioned above, the Association may remain under the control of a developer-appointed board for years, even decades. In that case, members don’t get to decide how assessment dollars are spent.

Real-estate-home-buyer-house-house-keys
(Pixabay.com free image)

 

Buyer Beware

The bottom line is that many real estate agents lack comprehensive knowledge of common ownership, HOAs, and underlying CC&Rs — especially if the Realtor has never owned a home or resided in a deed-restricted, common interest, private community.

Also, keep in mind that a Realtor’s job is to sell homes. Many of those homes happen to be located in Association Governed Communities. With that in mind, some of the finer details about HOA life will be glossed over, or not even mentioned during the sales process.

You may also interact with real estate agents who work exclusively for one developer, selling brand new homes. Or, a Realtor may only list resale homes in one or two established HOA-governed communities. While these Realtors probably understand the purpose and pitfalls of HOAs, they aren’t quick to share all the gory details with home buyers.

So consider today’s post a bit of Buyer Beware advice.

Recognize that the sales pitch about “property values,” and democratic communities, may not reflect reality.

If you buy into an HOA, don’t count on friendly and civil interaction with like-minded neighbors. And understand that you won’t have direct control over the HOA budget, rule-making process, or management decisions.

 

 

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