By Deborah Goonan, Independent American Communities
Today, let’s have a bit of fun with a game of “what the heck is it?”
Check out the video and references below, and try to figure out what your HOA is: a business or a government. And if it’s a government, what kind is it?
Which form of government does your HOA most resemble?
Let’s see. HOAs, particularly cooperatives and condominiums, limit ownership of private property. And they tend to have more central control. Does that make them Communist forms of government?
Most HOAs aren’t really welfare states, because they rarely share wealth among all members. But HOAs certainly share liabilities. Does that make HOAs socialist?
Is your HOA rules by man or by law?
Unquestionably, a Declarant-controlled community, where the developer appoints the HOA board, is a government ruled by man.
Some might argue that governing documents, such as Declarations of Covenants and Restrictions (CC&Rs), and Bylaws, create “rule by law.” But that’s a bit of a stretch, when we consider that governing documents are typically written by and for the benefit of Declarant/Developers!
Obviously, the “people” of the community — current and future home buyers — have no say in either creating or amending the governing documents during the years’ or decades’ long period of developer control.
As long as the Declarant controls the HOA board and the content of its governing documents, the community is essentially a Monarchy, Aristocracy, or Autocracy/Dictatorship.
Many would say that Declarant rule can be benevolent, promoting good will in order to sell homes.
But sometimes a developer simply exploits homeowners for personal gain. Examples: running up bond debt to pass onto future homeowners, failing to complete construction or cutting costs with shoddy workmanship, or even declaring bankruptcy without warning.
Types of Government
Is a homeowner-controlled HOA really a democracy?
The industry trade groups claim HOAs are democracies.
But, the most basic definition of a Democracy is a government ruled by the people — sometimes referred to as the “consent of the governed.”
Theoretically, after the Declarant-developer hands over at least majority control of the HOA board to homeowners, the people have the right and ability to elect their board and amend their governing documents.
In practice, the rights and abilities of homeowners to cast meaningful votes or influence the HOA board may be severely limited.
In some cases, the developer retains voting rights for many unsold parcels of land, or retains certain rights and powers even after turnover, especially if the developer continues to own recreational amenities. (Such as a golf course)
In many communities, the HOA board holds considerably more power than its members, and with very limited accountability to the people.
Depending on the size of a common interest community, the HOA may be a direct democracy, where each member casts votes on all decisions, or a representative democracy, where the members elect a HOA board members who, in turn, make decisions on their behalf.
In the case of very large common interest communities, the representative democracy can quickly evolve into an oligarchy, or rule by a few.
But one thing is certain. The vast majority of HOAs are, at best, limted democracies, because the only residents with voting rights are property owners.
What Is a Democracy?
Do HOAs hold true to Democratic values of liberty, equality, and justice?
Reading the following description, I’m sure readers can point to many examples of owner-controlled HOAs that are unenlightened and unbalanced forms of government. IAC documents thousands of examples of HOAs that undermine the delicate balance between liberty, equality, and justice.
Depending on the community, your HOA’s board may be considered repressive (excessively restricting liberty and personal freedom) or libertarian (capitalizing on personal gain of board members, management companies, or HOA attorneys, thereby eliminating the possibility of equality or justice).
Are HOAs businesses?
Plenty of people say HOAs are businesses. But, are they really?
Take a look at this definition of a business:
An organization or economic system where goods and services are exchanged for one another or for money.
Every business requires some form of investment and enough customers to whom its output can be sold on a consistent basis in order to make a profit.
Businesses can be privately owned, not-for-profit or state-owned. An example of a corporate business is PepsiCo, while a mom-and-pop catering business is a private enterprise.
Well, in an HOA, there’s definitely an exchange of goods or services for money.
But, unlike any other business we can imagine, a mandatory membership HOA requires homeowners to pay dues or assessments No Matter What. Even if the HOA provides poor service or no service at all, each of its members is required, per the Declarations, to pay assessments in full and on time.
Homeowners cannot withhold payment for any reason. If they do, the HOA slaps a lien on the owner’s property and proceeds to obtain a money judgment or a foreclosure sale.
Sounds more akin to a government that collects taxes, No Matter What, with the right to sell your home at a tax sale if you don’t pay your property taxes.
On the other hand, most mandatory membership HOAs are corporations. And most of them distribute voting rights to property owned, not to the actual people who reside in the community.
Like most corporations, the more “shares” of property one owns, the more voting power one has! On this basis, an HOA behaves like a business and not a government.
Some HOAs operate as de facto rental communities with multiple landlords. Others consist of multiple owners of condos or villas offered for short-term vacation rentals. Still others combine businesses on the ground floor with condo units above.
Owners of property in these kinds of communities are more likely to view the association as a commercial venture than a residential community.
So, what’s the answer to What the heck is an HOA?
Basically, it depends. Hopefully this post illustrates that an HOA can be a business, or one of several forms of government, or both.
Perhaps this little game explains why so many HOAs suffer from instability of leadership. It might also explain why state laws vary considerably, and why advocates and stakeholders can never seem to agree on Legislative intent or even federal housing policy.