Debunking HOA ads and press releases

By Deborah Goonan, Independent American Communities

The HOA industry often bombards home buyers with articles that appear as helpful home buying advice.

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But a careful reader will spot (dozens) of misleading statements in press releases that double as cleverly disguised advertising and political propaganda.

For example…

Are HOAs really popular with home buyers?

Industry-promoted articles brag that millions of homes, condos, and co-ops are sold each year in the U.S. Community Associations Institute, an HOA trade group, claims that more than 26 million housing units are HOA-governed, compared to 0.7 million in 1970.

But this fact doesn’t tell us why so many HOAs exist or why consumers buy and rent homes in common interest communities.

Thanks to decades of local development policies favoring privatization of public services and double taxation of homeowners, the majority of new homes built since 1970 are burdened by with common ownership, Covenants and Restrictions, and mandatory HOA membership obligations.

Developers build communities that require HOAs simply to enhance their profit potential. In exchange for creating an HOA, local governments allow developers to build more housing units per acre of land. Developers and builder also benefit by passing the cost of new construction and ongoing maintenance to home buyers and future homeowners.

An HOA limits a developer’s upfront personal investment in a project. It also shields home builders from liability for shoddy construction. And since developers tend to self-manage the HOA during construction phases, they also benefit from homeowner-funded management and maintenance contracts.

Translating the hype

So it’s far more accurate to say that HOAs are popular with housing developers and city tax collectors for two simple reasons: higher profits for home builders and higher tax revenue for local governments.

In other words, consumers buy and rent homes in HOA-governed communities mainly because they represent the bulk of homes available.

And CAI’s own statistics support my assertion: in six of it’s self-funded surveys (2005-2016) of community association residents, only 26%-32% said that the existence of an HOA made them more interested in buying or leasing their current home.

Two-thirds of housing consumers can either take or leave HOAs (57- 64%) or they would prefer to avoid them (7-14%).

Furthermore, according to data collected by the U.S. Census Survey of Construction (SOC), the nationwide percentage share of new single family detached homes sold has remained steady, in the range of 71-73%, since 2013. The data appear to indicate that HOAs have reached the point of market saturation.

Taken together, the facts hardly prove that HOAs are “popular.”

How are HOAs really governed?

Another misleading claim made by CAI is that HOAs are groups of homeowners that freely elect their board of directors, giving them a voice in community decisions.

This claim is at best a half-truth, but in many cases, it’s outright false.

First of all, HOAs are not “homeowners,” they are distinct legal entities. Although homeowners or shareholders in the association are its members, HOAs are actually private organizations, which may or may not be incorporated. They are usually set up as non-profit organizations.

In practice, an HOA and its members are often at odds over how to budget and spend money and how to enforce rules and standards.

The truth is, developer-controlled HOAs manage communities with little to no input from homeowners. So it’s blatantly false that HOA members “in all cases” have a voice in decision-making.

Homeowner elected boards may or may not give homeowners a voice in decision-making. Although CAI’s Best Practices report suggests owner input is important for HOA-governed communities, the trade group also supports Uniform Act legislation that bestows the HOA board with broad powers and virtually no accountability.

Indeed, this website is chock full of documented examples of homeowners and residents who do not have a voice in their community’s budget or rule-making decisions. And many homeowners object to undemocratic elections in their communities.

Are CC&Rs a “binding contract?”

Another common claim by the industry trade group is that CC&Rs (Covenants, Conditions, & Restrictions) make up a legal contract, that you agree to by accepting the deed of your property.

Some legal experts agree with this viewpoint, but others see the CC&Rs as a constitution, the basis for a quasi governmental HOA.

Related: HOAs, condos, & co-ops: Quasi-governments or ‘contractual communities’?

Note that CC&Rs can and do exist independent of an HOA governing body to enforce them. An HOA is not absolutely necessary to enforce rules and standards.

Who makes up the rules?

CAI tells us that rules of CC&Rs are created by developers, property owners or a combination of both.

This claim can mislead homeowners. It’s important to note that CC&Rs are almost always written by and for real estate developers long before the project breaks ground. Future homeowners do not participate in writing the CC&Rs.

And HOA boards, whether controlled by developers or homeowners, get their rule making authority from the CC&Rs. An HOA board cannot make up rules, unless the CC&Rs grant them that right.

In most states, homeowners don’t have the legal right to actively participate in rule-making, and they have limited power to veto board enacted rules they don’t like.

Is an HOA democratic?

A common misleading claim is that HOAs are democratic.

See my previous posts debunking this ridiculous claim:

Are HOAs actually “a form of local democracy with leaders elected by their neighbors?”

Homeowners’ Associations: 3 facts vs. myths

Can you avoid problems with due diligence?

In response to bad press about the failure of HOAs to disclose important facts to home buyers, the trade group is now recommending that buyers do their “due diligence.”

They recommend reviewing HOA meeting minutes and reviewing financial documentation such as the HOA’s budget and reserve fund, prior to buying a home.

Reviewing key documents might help a buyer avoid poorly run HOAs. But don’t count on it.

First of all, good luck obtaining these documents from an HOA, as a home buyer. In many HOAs, current homeowners cannot obtain access to official records of the association.

And, even if an HOA willingly provided these details, they offer a snapshot in time, not necessarily a true picture of the health of the HOA, let alone its condition in the future.

A change in HOA board leadership, an economic recession, a costly lawsuit, a natural disaster, or a structure fire can quickly devastate a community and burden homeowners with onerous rules and a spike in HOA fees.

References:

5 questions to ask before you buy a home in an HOA By Natalie Campisi (Bankrate)

What to know before buying a condo for retirement By Deb Hipp, MarketWatch
Published: Feb 12, 2019 7:12 a.m. ET

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