What is the root cause of HOA dysfunction?

By Deborah Goonan, Independent American Communities

To solve any problem, it helps to identify its cause or causes.

So as we attempt to tackle social and economic problems plaguing many of our association-governed, common interest communities, let’s look beyond the increasingly obvious abuse and HOA horror stories, and recognize that we have built this model of community housing on a false foundation.

What are the building blocks in that foundation? What is causing instability in HOAs of all types and sizes?

Is it apathy?

Some HOA industry experts andhomeowner advocates insist that apathy is at the root of all HOA problems. And, yes, apathy is a problem. But, in my opinion, it is not the root cause of HOA dysfunction and corruption.

Apathy is merely a symptom, and, in fact, it is deliberately cultivated by the industry.

For the most part, Developers and HOA boards and managers do not want active owner participation in the affairs of the corporate association – they view questions and suggestions from membership as second-guessing and a nuisance.

As far as most developers are concerned, homeowners and tenants are sources of revenue, and each home is nothing more than a commodity.

Owner-controlled boards and property managers, while they may give lip service to the concept of owner involvement, are rarely confident enough to lead transparently and democratically. Most would prefer to lead with minimal interference from the common members, and certainly do not want to hear from non-owners and tenants.

Is it true that no one cares about their HOA?

It’s not that owners do not care about their communities. It’s just that the majority of them don’t have the time, energy, or personal finances to fight against their rogue HOAs, nor to engage in often futile attempts to improve living conditions.

Residents have jobs to do and families to take care of. Some have chronic health problems or other personal struggles.

Let’s face it. No one moves into their home expecting to have to carefully watch over their HOA board members to prevent abuse of power or theft. No one anticipates being fined or dragged into court by a group of their neighbors over minor aesthetic issues or inconveniences.

I listen to homeowners from all regions of the U.S., and, although the finer details of their stories differ, it’s really the same story over and over.

Their board is out of control – often backed up or egged on by the manager or HOA attorney. And yet, try as they might, the board will not step down, even after one or more attempts at recall. Or the developer still controls the HOA, and he has deeper pockets than homeowners.

So most homeowners give up, and many sell and walk away from their homes. Others keep a low profile, as a matter of self-preservation.

The less that owners and residents pay attention to how their HOA manages the community, the worse it seems to get.

Nevertheless, apathy is a symptom of a “sick” association, not the cause of the illness.

Flawed governance model

So, what is causes apathy to run rampant in so many association-governed communities?

In my opinion, the root cause of HOA problems is a governance model that is structurally flawed, because it was never designed to benefit the people who live in HOAs.

Think about it. An association-governed community is a legal concept  – created out of thin air – that primarily benefits real estate developers.  Restrictive covenants (CC&Rs) mandate the Association, and those legal documents are designed to:

• protect the financial interests of builders and affiliated construction companies,
• retain maximum control over the appearance of the community to potential home buyers, and
• shield the developer from liability.

The governing documents of nearly every modern Association are written before the very first house or condo is built and sold. Future owners and residents have no say in the contents of governing documents, and yet some legal experts tell us that CC&Rs represent our sacred, one-sided contractual obligation to abide by their terms.

Subdivisions based on cost-shifting

For local government, the mandatory association-governed community serves as a cost-shifting mechanism for construction of infrastructure and multifamily housing, as well as ongoing maintenance and preservation of the subdivision or condominium.

Over the decades, most local governments adopted more complex land use requirements and zoning ordinances, designed to maximize tax revenue from new construction. This objective was accomplished by minimizing public investment in infrastructure. However, cost-shifting has also created unsustainable financial burdens for all but the most affluent of private homeowner and condo associations.

Local politicians were able to sell this cost-shifting concept by claiming to keep property taxes low. But of course, taxes from all sources have continued to rise, even for owners of property in HOAs.

In addition, Americans continue to bear steep increases in their HOA assessments. And, as collective owners of improved land and infrastructure, they face many other unpredictable financial risks.

HOAs under stress

At some point, many – if not most – association-governed communities face overwhelming economic stress, and a financial crisis that is next to impossible to overcome. When Association members face stress and uncertainty, arguments over the money are inevitable. That creates social discord, which only complicates matters even more.

When this happens, the HOA typically doubles down on assessment collections, and strict enforcement of covenants, rules, and standards, in a desperate attempt to increase revenue. But these attempts often backfire, especially if done harshly or carelessly, and without regard for individual rights. Social trust breaks down even further, breeding even more conflict.

Those who can afford to do so, sell and move elsewhere, cutting their losses if necessary. In order to escape, some will turn their former home into a rental property. Those who stay in the community are further burdened and, sometimes, literally trapped with homes they cannot sell.

Tenants of limited means often find themselves stuck in poor quality housing in troubled communities,  because of the lack of decent, affordable alternatives.

Pre-HOA era

Before HOAs became corporate entities obsessed with the real estate industry’s shallow pursuit of property values, HOAs used to be called “neighborhood associations” or “civic associations.” Those groups were voluntarily created of, by, and for the people.

Their purpose was to engage with local elected officials on key issues affecting their neighborhoods. Some associations were social groups that would organize block parties or annual picnics. Others dedicated their time to neighborhood beautification or annual clean ups. There was, and still is, value in that kind of social interaction.

But civic involvement in mandatory, developer-created HOAs is very rarely seen.

Yes, in some master planned communities, there may be a variety of sports and social clubs, but these exist entirely independently of the mandatory association(s) that fund operation and maintenance of services. Therefore, even if the HOAs were dissolved tomorrow, voluntary groups could continue to exist.

The HOA is neither the community, nor its people

Earlier in this article I referred to the association of owners or shareholders as a governance model and an abstract legal concept.

It is important to recognize that an HOA is a form of quasi-governance, usually a corporation. The HOA it is not the community itself – neither its physical structure nor its people.

The industry invests in, builds, sells, and provides services to association-governed communities. Stakeholders benefit by deliberately confusing consumers into thinking that the mandatory association is a community of like-minded people.

But, with the exception of some small, resident-centered cooperative associations, the people who live in association-governed housing are virtual strangers. And they happen to be sharing costs and liabilities as well as common living or recreational spaces.

The basis for any true community comes from the shared values of its people, not from the shared value of property owned by the members of the association.

The root cause of HOA dysfunction is the pervasive misconception that properties build communities rather than the people who live there.

What to do?

Check out What can be done about HOA dysfunction?