How to avoid HOA problems? Stop building new HOAs

By Deborah Goonan, Independent American Communities deborahgoonan@gmail.com

In this post, I take a bold, Big Picture view of HOA problems. I define HOA problems broadly, to include any combination of the following:

• HOA abuse of power,
• HOA community dysfunction,
• years of inadequate or deferred maintenance,
• financial mismanagement or insolvency,
• HOA corruption,
• lack of transparency,
• a litigious environment,
• pervasive internal conflict among neighbors or
• an “us vs. them” dynamic between residents and HOA authorities.

I know this may sound radical to some readers. But, the ultimate solution to HOA problems, in my view, is gradually eliminating and replacing HOAs with independent ownership in traditional neighborhoods.

Why?

Because many legislative reform solutions have been attempted. But, have you noticed that not one of them has eliminated or reduced HOA problems?

In fact, legislation often creates new HOA problems. That’s because legislators are not truly committed to regulating HOAs. Most reform proposals require new administrative procedures for existing HOAs.

They either create new complications for HOA boards or set up new barriers for homeowners. HOA regulatory reform usually includes loopholes for developers, HOA management companies, and HOA board members to get around the intent of the law.

It’s often not feasible for a property owner to assert their rights, because there is no meaningful or affordable method of enforcement.

(Unless an owner wants to lawyer up and spend a fortune on legal fees, with a low chance of success.)

Real HOA reform requires attacking the root of HOA problems. Tweaking around the edges of our current lopsided HOA laws won’t help property owners or housing consumers.

Several of my HOA legislative reform suggestions follow.

HOA Legislative regulation and reform

In 2023, I posted an article outlining the top 5 legislative reforms needed to prevent HOA problems.

To summarize, these are the 5 legislative reforms I believe are essential for HOA and condo association (COA) housing consumers in the U.S.

1. HOA authority to fine homeowners and foreclose liens. HOAs should never have the power to impose fines. Period. HOA foreclosure should only be allowed by a court order for truly abandoned properties, following ample notice. In all other cases, court-approved liens remain on the property until it is sold/transferred. 
2. HOA covenants, restrictions and rules. HOAs should not have the authority to regulate private property. In most single family home HOAs, private property includes the owner’s home and lot. HOA restrictions and rules should apply only to common areas. Regulation of the common property in condominium communities, while necessary, should be strictly limited to matters of health, safety, and prevention of nuisance and disturbing the peace. For example, HOAs should not be dictating what kind of window coverings you can hang or how you can decorate your front door.
3. Voting and elections. Voting interests in an HOA or COA should be limited to ONE equally weighted vote per member, regardless of number of lots and units owned. This reform alone would prevent unequal distribution of power in HOA communities.
4. Developer control of communities. Developers should never control HOAs. By extension, developers should also never control Special Districts associated with a common interest ownership housing development.
5. Transparency of the board and management. Owners of HOA property should be legally entitled to full transparency, including unfettered access to financial records, HOA governing documents, and a historical record of covenant enforcement. The key legislative reform needed to ensure transparency is a dedicated state agency or HOA court system that will meaningfully enforce HOA compliance with transparency requirements, at little or no cost to housing consumers.

With thoughtfully written legislation and consistent, workable enforcement, some (but not all) HOA problems can be prevented, as detailed in my previous post.

You can read why these reforms are needed in the full article, posted here:

Prevent HOA problems with these 5 legislative reforms

But…Legislative HOA regulation and reform alone won’t solve HOA problems

Many homeowner rights and housing advocates assume that common interest ownership communities managed by HOAs would be good — or at least a bit better — if only they were adequately regulated.

However, after nearly three decades of legislative reform, HOA problems are still with us and getting worse.

HOA and especially condo fees are rising faster than the cost of living, deferred maintenance is a chronic safety concern, and mismanagement is leading to a higher likelihood of special assessments and debt in the form of HOA loans.

Reports of unreasonable enforcement of rules and covenants make national headlines. HOA embezzlement and fraud are on the rise.

An ever-increasing number of homeowners are being forced to give up their homes for a number of reasons.

Here are a few of the more common HOA problems that force owners to sell or give up their homes:

• increasingly unaffordable HOA fees,
• HOA lawsuits involving bitter disputes over covenants, restrictions, and rules
• punitive HOA fines, coupled with shady collection practices
• threats of HOA foreclosure, and
• predatory investor takeovers of distressed communities.

I am convinced that systemic change is necessary to address systemic HOA problems.

Big Picture View of HOA problems, and how to avoid them

Expanding on my previous post, I will now address the very roots of HOA problems. Then perhaps housing advocates can be more strategic about preventing HOA disputes, abuse, and dysfunction before it begins.

There are very few limitations on the scope of CCRs and HOA rules

Most HOAs include dozens of restrictions and rules about aesthetic matters. The governing documents tend to arbitrarily limit personal style and lifestyle choices in order to keep up appearances — forcing residents to live in a perpetually pristine environment.

But let’s be honest. Who really wants to keep their property “show ready” 100% of the time, as if their homes are always on the market for sale to the highest bidder?

Almost no one.

It’s no secret that many HOAs are far too restrictive, exercising way too much control over how you can use your property.

Proposed solutions:

Under no circumstances should CCRs (Covenants, Conditions, and Restrictions) or HOA-enacted rules ever override Constitutional law.

Furthermore, a property owner should not have to sue to protect their property rights. A state judicial review board should be the final authority to settle disputes at no cost to owners.

Ideally, CCRs and new HOA rules should undergo a Constitutional review BEFORE they are officially approved and recorded by the County. This commonsense measure would prevent most HOA disputes and lawsuits involving a homeowner’s property rights.

In addition, HOA boards should not have unilateral rule-making authoritative power, a power that is often used to circumvent the more democratic CCR amendment process.

Owners don’t have enough say over community finance decisions

The current institutional model of HOAs gives HOA boards too much power, and not enough accountability. Owner-members have little to no input on setting the annual budget, let alone long-term financial planning.

Proposed Solutions:

HOA members should have the absolute right to vote on major HOA budget decisions. For example, owners should collectively decide when to dip into reserve fund allocations and how to finance big-ticket maintenance projects.

Before they vote on financial decisions, HOAs must fully inform members of their options: regular fee increases, special assessments, financing through HOA loans, or some combination of funding sources.

State law must not provide gaping loopholes for HOAs to circumvent owner participation in budget decision-making by declaring non-existent ‘emergencies.’

Members should also be able to vote on whether or not their HOA should initiate costly and divisive legal disputes.

HOAs hold property owners captive

A property owner must pay HOA fees in full and on time, even when the HOA fails to uphold its duties under the CCRs. That’s akin to taxation without representation, and with zero accountability.

Proposed solutions:

That’s why I believe that CCRs pertaining to HOAs in planned communities and single-family neighborhoods should be decoupled from a home’s title or deed. This policy change would make HOA membership voluntary — a concept that used to be common prior to the 1970s.

In a voluntary membership HOA, property owners can freely choose to pay fees for HOA amenities and services. They are also free to NOT pay if they no longer want or need HOA amenities and services.

If the HOA wants to survive, it has to provide real value to homeowners. What a novel concept!

Condominiums are a failing (failed) housing experiment

The core conflict in condominium communities is that co-owners rarely agree on financial priorities and house rules. The primary reason for disagreement is that co-owners they often pursue conflicting interests.

Owner occupants are constantly at odds with investor-owners. Neat freaks squabble with free spirits that don’t value cleanliness. Quiet residents don’t appreciate livelier neighbors who like to entertain guests until the wee hours of the morning.

Proposed solutions:

This is why I think this condominiums should be phased out entirely by attrition.

There are good alternatives to condo associations such as co-ops, co-housing arrangements, and traditional rental communities.

People who choose to share ownership in a co-op or cohousing arrangement are able to interview, vet, and approve buyers. Why? In order to choose new co-owners that share a set of common social values.

Owners of co-op or co-housing property make intentional living commitments. They know they are committing to active participation with neighbors that share common priorities.

In a condominium association, units are sold to whoever makes the best offer, and unit owners buy with the expectation that someone else will take care of management and maintenance without any active involvement on their part.

Additionally, prescreening co-owners ensures that each owner is financially qualified to participate in ongoing upkeep of the community. 

Anyone who balks at the idea of sharing responsibility for community maintenance should opt to rent instead. (There, I said it.)

This leads to my next point.

Deferred maintenance is a chronic problem for condo communities

As I said, in a condominium, you don’t get to choose your neighbors, even though you live close together and collectively bear serious financial obligations. Also, as previously mentioned, multiple owners with different life goals and priorities don’t cooperate well.

And if a vocal group of co-owners cares primarily about keeping condo fees low, then deferred maintenance becomes a problem. (And a potentially hazardous one, at that.)

Another common issue is that condo boards usually lack construction and management knowledge and expertise. They don’t know what they don’t know.

Proposed solution:

There is a commonsense solution. Multifamily properties should have to follow (by state law) a professionally-designed and regularly-updated maintenance schedule. All co-owners must also be legally obligated to follow said plan and pay for it.

A clearly written and easy to implement plan would ensure co-owners are spreading out the maintenance costs over time, while keeping monthly fees stable and more affordable.

This solution would also greatly reduce the need for owners to hire expensive community association managers.

Which leads to the next point.

Professional HOA management is expensive, often unreliable, and tends to be self-interested.

The HOA and condo management industry is poorly regulated. Quality of service is highly variable. Unscrupulous managers can become predatory. Rampant reports of conflicts of interest and embezzlement schemes sully the industry’s reputation.

From steering HOAs to affiliated service providers to charging referral fees (kickbacks) and various miscellaneous fees for ‘extra’ services, property owners feel the pinch in the form of high administrative costs and bloated maintenance contracts.

Dishonest accounting schemes and fraud occur when HOA board members are too busy or too apathetic to monitor management agents.

Proposed solutions:

Local and state governments should support establishment and independent review of disinterested service providers to objectively assist communities in keeping their properties safe and livable.

Owners associations should have a choice of multiple providers/vendors in a competitive market, without the management middleman steering boards to specific providers. The local housing market should support small businesses instead of a handful of mega management corporations.

Create a robust market for private providers in a competitive market, or alternatively, property service provider co-ops to fill the needs of HOA and condo communities. This solution would empower owners to hire the best, most reliable help on their own terms.

As outlined in this article, there are several commonsense solutions to help prevent problems for homeowners existing HOAs and COAs.

But none of these solutions address THE primary problem of mismatched housing supply and demand.

In many US real estate markets, there simply aren’t enough non-HOA, non-condo housing options

The ultimate solution to preventing HOA problems is to reduce the number of home and condo owners’ associations.

As long as buyers cannot easily avoid HOAs and COAs, there is no incentive for the industry to be held accountable. HOA industry lobbies will continue to milk housing consumer cash cow as long as possible, even if that means running communities into the ground.

When home buyers have more choice, many will opt for non-HOA housing. That will put pressure on HOAs to address problems by becoming kinder and gentler, more transparent and cooperative. If HOAs don’t improve, dissolutions and terminations will be necessary.

Proposed solutions:

To achieve this objective, public policy needs to gradually phase out all existing future common interest development (HOAs).

There are several paths to phasing out HOA housing communities.

How can government achieve the goal of reducing HOAs while increasing non-HOA housing options?

Here’s a particularly bold idea: Just stop creating new HOAs altogether. Period. Set a moratorium on new common interest developments. In most real estate markets, there are already more than enough HOA housing schemes to meet demand.

At a minimum, government must create lucrative tax and financial incentives to encourage developers to AVOID common ownership/maintenance HOAs.

So I say plainly to local and state lawmakers: Stop incentivizing common interest ownership housing schemes with density bonuses and concessions for developers.

Recognize that HOAs do not save local government money in the long run. They simply fragment the tax base and create siloes of deferred maintenance, social isolation and exclusion from your county, town or city at large.

If a full moratorium on HOAs seems too bold at this time, take incremental steps on that path.

At a minimum, existing CCRs that have created HOAs should institute definite expiration dates, so that the HOA becomes a voluntary participation association beyond that date. If owners truly value the HOA, they can support it. If not, the HOA will starve out of existence due to lack of funds.

Create new zoning ordinances that forbid tying home deeds and titles to mandatory HOA membership.

Stop requiring unconditional payment of HOA fees under threat of lien and foreclosure. Owners should be entitled to withhold fees when the HOA or COA is not fulfilling its duty to maintain the common property or not managing its finances responsibly.

There must be some expedient, practical, easy to implement recourse for home and condo owners to hold HOAs accountable. In cases of dispute, the HOA and COA fees should be held in escrow until the dispute is resolved.

Stop treating the HOA as a hyper-local government taxing its constituents for services. Treat HOAs and COAs more like equal parties of a contractual agreement.

Don’t create new HOA problems with Missing Middle housing

Advocates and elected officials: Get ahead of the Missing Middle Housing movement, which could potentially result in creation of hundreds of thousands of new (albeit small) HOAs and COAs.

Understand that Missing Middle housing types can and should be designed and built to avoid common ownership and maintenance of shared property.

Examples: Townhouses do not have to have common rooflines and facades. Shared driveways can be avoided. Townhome developments do not have to include a shared maintenance contract for the neighborhood.

Pocket neighborhoods of cottages or tiny homes do not need a common courtyard or shared parking area. Each home can have its own private lot that touches a neighbor’s lot, a street, sidewalk or alley. These developments also do not have to include a shared maintenance contract for the neighborhood.

Stacked multifamily housing should be built for rent, not for sale. The financial services sector rarely supports new condominium development, due to much higher risk of loss. Why won’t policymakers take the hint? Stop approving development plans by a segment of the industry that keeps pushing condos as affordable housing.

A final word

This article outlines bold solutions to increasingly pervasive HOA problems.

I humbly suggest each of these proposed solutions be implemented simultaneously, perhaps over the course of 5-10 years.

I do not work in or profit from the HOA industry, and I am not a real estate investor. I hold no hidden motives!

Furthermore, I am convinced that even if there is no effort at policy reform, HOAs (especially COAs) will continue to fail under the weight of their problems. Others will fade away into oblivion. The common interest housing model is rapidly approaching obsolescence.

HOAs will one day become extinct, like the housing dinosaurs they are.

I only appeal to policymakers to stop prolonging the inevitable, slow, painful death of HOAs. And stop making matters worse by creating new HOA problems.