Across the U.S., homeowner advocates are preparing to file various bills in 2021 legislative sessions. Advocates hope to improve accountability of all types of mandatory-membership homeowners’ associations (HOAs).
HOAs can be classified into three different types: homeowners’ or property owners’ associations in planned communities, condominium associations, and housing cooperative associations.
For many years, homeowner and housing advocated have proposed legislation to address some of the most common concerns of housing consumers:
- corruption and fraud prevention
- over-reaching rules and restrictions
- abusive HOA practices by board members and management
- prolonged or onerous developer control
- construction defects
- unfair collections practices
- deferred maintenance, health and safety issues
The goals of concerned homeowners are admirable. But they face a daunting challenge: how to overcome the political influence of powerful trade groups, in order to obtain solid support from their state Legislators and Governors.
It’s a well-documented fact that state leaders tend to resist serious regulation of HOAs, due to opposition from community developers, institutional investors, and the HOA management industry.
In many cases, it’s hard to get a state legislator to even consider sponsoring an HOA-related bill.
This article is part one of a three part series that explains why state government often avoids regulation of HOAs. Part 2 summarizes specific challenges faced by advocates working toward legislative reform. Part 3 explores out-of-the-box housing policy solutions and alternatives to traditional regulatory legislation.
Industry sells the HOA product with false advertising
Have you ever noticed that HOA-governed communities are advertised to the public in the same way new used cars are sold?
Homes, apartments and planned communities are beautifully-staged to exaggerate desirable features. These include new, modern features in homes, convenience or “low-maintenance” lifestyles, playing up status symbols like exclusive amenities, and emphasizing attractive finishes and landscapes.
Price-conscious homebuyers are sold on a “low” monthly payment for various HOA “services” and promises of an “easy, low-maintenance” lifestyle.
The downsides of HOA life
There are many disadvantages to HOA-living, most of which are well hidden at the time of purchase. A buyer rarely discovers these pitfalls until after becoming a homeowner.
Based upon communications with thousands of homeowners over the past seven years, I’ll summarize my observations.
People don’t know what they’re buying
To many homebuyers, the HOA is presented as an invisible third party that promises to protect property values and perhaps provide desirable services or amenities.
While most people are vaguely aware that HOAs enforce restrictions and rules, they often assume these limitations are minor inconveniences.
But the true nature of HOA living is far more complex. A homeowner must comply with a myriad of rules and restrictions, and must pay dearly for “private” community services. No owner can escape responsibility in these collectively-financed housing schemes.
Homebuyers and homeowners generally assume that, if they pay their HOA assessments (fees) regularly, the HOA-governed community will continue to function well for many years. Most members don’t understand that HOA boards are comprised of people with considerable power over their property rights. There’s no guarantee that HOA board members will manage the community well and serve the best interests of all members.
It’s true that some communities may function without problems for years. It’s also true that most homeowners pay little attention to how the HOA is managed, until problems become painfully obvious.
Most common HOA problems
For example, deferred maintenance and poor budget planning are common problems in many HOA-governed communities. This toxic combination quickly leads to decline of the community and reduced property values.
Likewise, when members of an HOA-governed community encounter an economic crisis, natural disaster, or when they experience a change in HOA board leadership, owners often discover that their HOA is neither stable nor resilient.
Contrary to HOA-industry claims of “democratic” governance fostering “a sense of community,” HOA governance is actually quite fragile. That’s because any mandatory-membership HOA depends on a strong foundation. Namely, the good will and competence of a few board members, supported by the active involvement of knowledgeable, reasonable homeowners.
However, many HOA boards don’t manage transparently. One of the most common complaints I hear is from homeowners is that their HOA operates under a veil of secrecy.In fact, most HOAs aren’t receptive to homeowner comments, nor are they responsive to homeowner concerns.
When a homeowner dares to request access to financial records and official HOA documents, the board and manager often respond by stonewalling.
It’s well documented here on Independent American Communities. The “modern” HOA-governance system lacks meaningful checks and balances. And, all too often, an HOA serves as the ideal incubator for corruption, fraud, and abuse of power.
Don’t count on help from state government
Nearly every day, home and condo owners contact me looking for information, insights, and help with HOA problems.
Most of them are surprised — well, actually dismayed — to learn that their state’s Attorney General or Consumer Protection Division will not offer much, if any, help.
In fact, most states don’t provide any consumer protection to handle HOA complaints. Instead, states loosely regulate HOA-governed communities under corporate or non-profit organization statutes.
And, due to apathetic legislatures and strong opposition to regulation from the HOA industry, it’s notoriously difficult to enact HOA consumer protection laws. Concerned homeowners and advocates must fight extremely hard for even minor protections for housing consumers.
Where it exists, HOA regulation is weak
At first glance, the apathy of state government is surprising, considering the number of voters who live under the rule of an HOA.
Several U.S. states have an exceptionally large number of HOA-governed communities. The five states with the most HOAs are Florida, California, Texas, Illinois, and North Carolina, according a Property Management industry trade group, Community Associations Institute (CAI).
Leaders of these five states and several others — such as Pennsylvania, Delaware, Colorado, Arizona, and Virginia — claim to regulate homeowners, condominium, and cooperative associations. In some states, there are dozens, even hundreds of pages of laws on the books governing HOAs.
Yet HOA problems persist. In fact, in the past two decades, community conflict and HOA litigation has increased, despite scores of state laws meant to regulate the industry.
On IAC, you can read dozens of posts about HOA state laws, regulatory agencies, and ombudsman offices across the country. When you explore these posts, you’ll discover that homeowners are very often disappointed when state agencies dismiss their complaints. The truth is, a state government’s role in resolving HOA complaints is still severely limited by statute.
As a result, homeowners often conclude that the only way to protect their rights is to engage in a costly and years-long legal battle.
Regulatory window dressing
The problem: state agencies accept only a narrow set of specific complaints related to HOAs.
For example, let’s say your HOA isn’t holding an annual meeting. Or maybe your HOA avoids the annual election for board members. Perhaps your HOA won’t provide access to board meeting minutes or financial records, such as the community’s annual budget.
For these limited issues, you may be able to file a complaint, under certain conditions.
But, then what?
Generally speaking, state agencies have little, if any, obligation to take action on consumer complaints against HOAs. Most likely, your state agency — if it exists — will take your written complaint, forward it to your HOA, and await their response.
A state agency has little or no power to force an HOA to comply with the law. And, except for extreme cases, no state agency is obligated to investigate your complaint, let alone help you to resolve it.
I call it regulatory window dressing.
In many cases, and HOA board or management agent will respond with one or more excuses for not complying with state law.
Your HOA may say you’re “not in good standing,” because you cannot afford to pay a huge special assessment, or you are disputing a fine due to a violation of the covenants. Sometimes the state will accept this unsatisfactory response as a good faith effort of the HOA to reach an agreement with a homeowner. Then they’ll dismiss your complaint.
The growing trend in the HOA-industry is a legislative requirement that owners complete a dispute resolution process before they can even file a complaint.
State & local governments avoid involvement in many of the most common HOA complaints.
The existence of a state Ombudsman or official complaint process makes it appear that elected officials actually care about HOA abuse, negligence, or corruption. But, to be blunt, in my observation, most state and local legislators and governors aren’t that interested in getting deeply involved in HOA disputes on behalf of homeowners or community association residents.
Homeowner activists across the U.S. think “there ought to be a law” to hold their HOA accountable. But they underestimate just how difficult it is to get lawmakers to buy into the idea that states should play a more active role in governing HOAs.
But, while state law designates HOAs as private organizations, it also enables HOA boards with special powers normally reserved for government. These powers include rule-making, enforcement of property restrictions through the use of fines, and collection of HOA fees and assessments (akin to taxes). And HOAs can legally exert their authority through lien and foreclosure.
Ultimately, an HOA can take away your home or condo, even when your dispute starts with a relatively minor rule violation or small past-due HOA account balance.
HOA regulations don’t help with many common HOA complaints and problems
FIRST AMENDMENT RIGHTS:
Many homeowners are shocked to discover that state laws don’t necessarily guarantee protection of their First Amendment rights in HOA-governed communities.
Since HOAs are technically private organizations, to some extent, HOA board members have the right to enforce rules and restrictions against political signs, and to set reasonable limitations on the display the American flag or religious symbols. And HOA’s don’t have to allow residents to post complaints or criticism of the board or management on the community’s official social media page.
Of course, HOA legal disputes involving freedom of speech, assembly, or religious expression are highly controversial. And homeowners have scored some legal victories in the past few years.
But the truth is, most homeowners don’t expect to have to fight with their HOA to uphold their basic Constitutional rights.
The Department of Housing and Urban Development (HUD) receives thousands of complaints against HOAs each year.
From racial and ethnic discrimination to refusal to accommodate residents with disabilities, HOAs often choose to ignore their legal obligations to comply with Fair Housing Acts.
Apparently some HOA board members are more concerned about protecting property values than human values.
Surprisingly, state and local agencies tend to delay enforcement of building codes against HOAs, including many multifamily condominium properties. Likewise, state government agencies won’t enforce the terms of Covenants and Restrictions that obligate the Association to maintain its common property.
For example, suppose your complaint is that your condo or co-op association isn’t repairing leaky roofs or plumbing. Or perhaps your HOA isn’t maintaining community roads or the swimming pool.
Where can a homeowner file a complaint?
First of all, don’t expect your state’s Attorney General or Consumer Protection agency to do anything about it. You’ll likely be told that you live in a “private” community, and such disputes are a “civil matter.”
In other words, when the HOA fails to perform its duties, prepare to lawyer up and sue your HOA, condo, or co-op association, its board members, and/or management agent.
If you have a major health and safety hazard in your community, you might have better luck convincing the local building code officer or environmental protection agency to investigate your complaints.
But, except for extreme cases, don’t count on strict enforcement against your HOA or its developer. Most likely, they’ll receive a written warning letter, and no one will force the HOA to make repairs or take care of deferred maintenance.
Why government is so uninvolved in resolving HOA complaints
Frankly, government leaders aren’t motivated to regulate HOAs, because they have nothing to gain by doing so.
Think about it.
Local government is the primary reason that most new housing development is HOA-governed. Municipalities and counties rely on property tax revenue from millions of homes located in more than 340,000 community associations across the U.S.
Your city council and county commissioners have come to rely heavily on HOA-governed communities to maintain and manage their own infrastructure and services.
HOAs are property tax cash cows, but they create less work for local government
At a minimum, most homeowners, condominium, and co-op associations are required to maintain neighborhood stormwater systems, trash collection, and common areas such as parks and green spaces. Some HOA-governed communities also manage their own swimming pools, recreational amenities such as club houses or private lakes.
Gated communities must also maintain their neighborhood’s private roads.
In addition to maintaining exterior facades and common areas, multifamily condo associations and co-ops are also responsible for maintaining exterior grounds and parking areas.
Most larger communities provide private security gates and sometimes even private security guards.
HOAs help enforce their own strict local codes
Most notably, HOAs of all kinds enforce their own rules and restrictions — akin to local codes and ordinances. So, in theory, your city or country rarely has to intervene when the grass grows too high, exterior paints starts peeling, or a neighbor creates some sort of nuisance or disturbance.
Offloading all of these public services to private community organizations allows local governments to increase economic growth while minimizing increases in staff and payroll. In general, owners of HOA-governed properties pay more tax dollars for less service than owners of homes and businesses in older non-HOA locations.
Government sees each HOA as a “private” regulator of its properties and people
State government clearly benefits by enabling HOAs to tax homeowners by way of HOA fees. And local governments benefit, when HOAs regulate their communities and property owners by enforcing restrictive covenants.
That’s why, for nearly five decades, government has shown a clear preference for requiring developers and home builders to provide and pay for all new infrastructure. It’s why the majority of new development plans impose Covenants and Restrictions that mandate the creation of an HOA to pay for ongoing community services. It’s why local governments prefer that HOAs enforce their own community rules and restrictions.
When constituents request (or insist upon) regulation of HOAs, state Legislators may hesitate to support meaningful legislation. State leaders often fear that regulating the HOA-industry, including real estate developers, might discourage future economic investment.
Lawmakers and Governors may also oppose creation or expansion of state regulatory agencies. They would rather take credit for supporting more popular or trendy political initiatives. They often prefer to avoid any new law that might be unpopular with city and county leaders.
To put it bluntly, local elected officials don’t want to bite the HOA-industry hand that feeds them, particularly real estate developers.
These are several compelling reasons why state Legislators and Governors will resist meaningful regulation of HOAs.
Working with the rare sympathetic state legislator
If you’re fortunate enough to connect with a state legislator that actually cares about HOA problems, and truly wants to help, you’ve won the first battle. But, don’t expect swift and sweeping changes. Even if you’re successful at introducing a promising bill, one that is designed to HOAs accountable, be prepared to face additional obstacles and challenges.
Read more about that in Part 2.