The core conflict in HOAs

By Deborah Goonan, Independent American Communities

Common Interest Developments in the U.S. are governed by one or more of the following:

• Homeowner Associations, also known as Homes Associations or HOAs
• Condominium Associations (Condos)
• Cooperative Associations (Co-ops)
• Property Owner Associations, Master Associations, or Community Associations
• Community Development Districts (CDDs)
• Municipal Utility Districts  (MUDs) or similar multifunction Special Districts
• Various types of Improvement, Park, or Recreation Districts

The term HOA is used generically by most consumers in the U.S. to refer to all types of owner associations based on a set of recorded Covenants, Conditions, & Restrictions (CC&Rs), binding all parcel or unit owners to comply.

While various types of Special Districts are chartered as “public” units of local government, HOAs are primarily organized as “private” legal corporations, usually some type of non-profit.

The core conflict in many shared ownership communities is the fact that members of the common interest corporation often hold opposing goals and values.

An owner occupant‘s perspective is that a home should be a place to live, not a speculative real estate commodity, and that a community should be a place for people to nurture, grow, and thrive, not primarily a profit center for real estate industry stakeholders.

The owner of a second home that serves mainly as a vacation property, or as a real estate investment with rental income, tends to be more concerned about good fiscal management and consistently good property maintenance of the association. Their primary concern is the bottom line, maintaining a positive cash flow from rental properties, and ensuring that their equity position and sale prices increase over time.

Institutional investors, real estate brokers, and developers, on the other hand, seek to obtain or retain majority control over the corporate association, for the purposes of protecting their financial investments over the short or long term, depending on the nature of the community. Unfortunately, their interests often clash with the interests of non-affiliated homeowners.

6 obstacles to peace, tranquility, and happiness in association-governed housing communities

1. Unreasonable, unconstitutional, or harmful deed restrictions. (CC&Rs or Declarations)
2. Developer creation and control of communities.
3. Corporate governance structure and statutes that place too much power in the hands of Association boards.
4. Consumer exploitation by trade groups serving the industry.
5. Double taxation, and absence of public administrative support.
6. Lack of national standards, prevalence of corruption, and lack of accountability.

Undisclosed Liabilities of Association-Governed Communities (HOAs) and Common Interest Development

Rights of property owners and residents, including tenants, are significantly restricted.

• Residents are exposed to additional layers of regulation, imposed by multiple layers of hyper-local governance, including Special Development, Utility, or Improvement Districts as well as Association Governance.
• Property owners have limited control over their living spaces, and must seek permission from the Association and/or the District before making any improvements or modifications. In multifamily housing, limited control extends to interior as well as exterior spaces.
• Residents are legally obligated to compromise many of their personal rights, freedoms, and preferences, theoretically for the “good” of the association.
• CID residents commonly report that their Associations and/or Districts fail to govern with transparency and openness.
• Selective enforcement of covenants, restrictions, and rules (CC&Rs) is common, with little recourse for owners and residents in the event of a dispute.
• Property owners have very limited control over the policy decisions of their Association or District boards, and tenants typically have no control whatsoever. Yet all residents are legally obligated to comply with those policies at all times.
• Property owners of single family homes or condos are subject to punitive fines, lien, and foreclosure if financial obligations to the Association are not met. Likewise, shareholders in a cooperative are subject to eviction in lieu of foreclosure.  Often, the Associations claim of financial delinquencies are relatively minuscule in comparison to the value of property or shares owned.
• Other punitive actions may be imposed upon property owners / co-op share holders including, but not limited to the following: prohibiting access to recreational amenities; revoking voting rights; association collecting rent directly from the owner’s tenants; garnishment of wages.

Property owners are exposed to increased financial, health, and safety risks and liabilities in connection with joint ownership of assets, and joint responsibility for community services.

• Construction standards for community infrastructure are commonly relaxed in order to keep sale prices “affordable,” resulting in roads, storm water management components, utilities, and other essential amenities that do not necessarily meet current local building codes applicable to public infrastructure. As a result, property owners are often saddled with infrastructure that is poorly designed, subject to premature deterioration and obsolescence, and that tends to require more costly ongoing maintenance and repair than publicly maintained infrastructure.
• Multifamily housing residents are also exposed to increased financial and health risks related to failure of the building envelope or other common infrastructure, including elevators, common plumbing and electrical components, stairways and corridors, fire and life safety systems, or shared common spaces such as laundry facilities or pools.
• Security of the community is often privately managed and funded by the association. Examples include paid security staff, entry gates, surveillance cameras, and restricted entry systems. Public services of local law enforcement can be limited, unless the association is willing to arrange additional monitoring by way of contract with local police departments.
• Costs for all lawsuits, whether involving owners, residents, or third parties, is the shared obligation of all property owners.
• Property owners are responsible for the cost of insuring the association against various types of losses, as well as covering the cost of uninsured or under-insured risks.
• Because corporate associations tend to be unregulated or poorly regulated, costly litigation or arbitration is often the owner or resident’s only recourse for resolving disputes.
• In most states, current laws tend to favor the interests of the corporate association – whether controlled by real estate developers or a board of volunteer homeowners.