Why in the World are there HOAs?
Community associations have not always existed. They are relatively new to the way humans organize their living. They have always been political. In the United States, they were a product of builders not wanting to integrate their communities racially or religiously. In Pasadena, California, the Arroyo Seco Improvement Association was established in 1905 to establish an “upscale” community(1). Associations have continued to grow in numbers, size and influence. Community associations govern millions of people worldwide. Associations were and continue to be legally incorporated; their existence is codified by law. They self-fund their existence through dues paid by owners within the community. They have evolved in various forms to serve various purposes.
Overview
Community associations have not always existed. They are relatively new to the way humans organize their living. They have always been political. In the United States, they were a product of builders not wanting to integrate their communities racially or religiously. In Pasadena, California, the Arroyo Seco Improvement Association was established in 1905 to establish an “upscale” community(1). Associations have continued to grow in numbers, size and influence. Community associations govern millions of people worldwide. Associations were and continue to be legally incorporated; their existence is codified by law. They self-fund their existence through dues paid by owners within the community. They have evolved in various forms to serve various purposes.
Purpose
Not only do community associations exist for a few reasons, they go by many different names. Names like Community Association (CA), Homeowners’ Association (HOA), or Property Owners’ Association (POA) come to mind. The name points to the purpose. Tromler (2023) points out that HOAs tend to be family homes where POAs tend to be mixed use communities including residential, commercial and business entities(2). Regardless of the name, they all identify their purpose when they first organize. For a residential community that often starts with the builder of the community. Generalizing, the purposes are based on improving property values, maintaining amenities and communicating to owners and residents. Builders identify the lots (or plats) that comprise the community. They identify what initial amenities will be offered. They communicate with new owners as the lots are transferred from the builder to the owner.
Increase Property Values
Community associations should create an environment that maximizes property values by establishing a set of rules, regulations and guidelines often referred to as covenants, conditions and restrictions (CC&Rs) on which every owner agrees before taking possession of their property.
Manage Community Amenities
Community associations should create, manage and protect community resources for every owner/resident to enjoy. Also see the section above about increasing property values.
Communicate between Associations and Owners
Community associations should serve as a source for information. Community associations should communicate expectations and issues consistently, timely and transparently.
Authority
Owners Associations obtain their authority to exist from a variety of sources. Most are created as a non-profit organization dedicated to identified purposes. Their authority includes financial considerations for maintaining an operating budget that includes sufficient reserves for future expenses. Associations proscribe a process for changing the amount each owner pays based on a documented process. They can also levy monetary penalties against owners found in violations of CC&Rs based on a documented process. Ultimately, since there is a contractual relationship, the association or the owner can seek remedy in the courts system.
Current State
Most associations operate with 20 th century processes and 20 th century tools. While some associations provide their services using some technology, they follow very paper-intensive, point-in-time procedures. The technology used is often borrowed from another industry that does not always meet the needs of the association or its owners. There is no one platform designed for all three purposes of supporting increasing property values, maintaining amenities and communicating between the association and its owners/residents.
United States
Interestingly, the US real estate market is currently hot and cold, based on location. As such, owners’ associations are either sitting pretty or bearing the disappointment of owners’ who cannot sell their property for its perceived value. Consistently applying CC&Rs to owners equally ensures that all properties within the community meet community expectations. This should allow for the maximum property value to be realized.
While amenities are an important selling factor, their upkeep can be daunting. Community associations have to do the day-to-day maintenance as well as prepare for future expenses. Roads, outdoor lighting, parkland, playgrounds, swimming pools, gyms, and community rooms are a few things associations establish, maintain and improve. There is an ongoing cost as well as future costs that need to be considered for useability and safety concerns. Associations include these costs in their monthly, quarterly or annual dues. Documenting and reporting on expenditures goes a long way to help owners understand the state of the community’s amenities.
In the US, the relationship between owners and community associations is contentious and litigious. Email blasts and snail mail letters do not allow for real- time communication. The Cedar Management Group (2023) states “All homeowners associations will encounter some form of dispute or another. While disputes can be a pain to deal with, they are a normal part of community living.”(3). Communication is challenging and inconsistent. Remedying that through the use of 21 st century technology is a huge step in preventing and minimizing negative relationships.
Global
Globally, community associations exist as they do in the US for similar reasons. They are growing in numbers. They tend to be organized around condominiums. Dillingham (2023) noted “Homeowners associations are becoming increasingly common among new real estate communities and while their purpose is certainly good for property owners and the overall community, in practice they can often come with their own unique problems.” (4) The growth of the industry would indicate there is value in organizing community governance. Regardless of location, all community associations face similar issues.
The Future
The future of community associations is consistency and transparency through automation and artificial intelligence. Through predictable and repeatable processes, associations can help their communities increase property values, maintain amenities and communicate effectively. GoodFences is positioned to provide a platform that is user-friendly, cost effective and furthers the purpose of the communities it serves.
References
1. Revelation Community Management. History of HOAs and Management Companies in the U.S.A. https://my-rcm.com/the-history-of-hoas-and- management-companies-in-the-usa/. Retrieved 10/3/2023.
2. Cody Tromler. HOA vs. POA vs. COA: What’s the Difference https://www.upnest.com/1/post/hoa-vs-poa-vs-coa/. Retrieved 10/3/2023.
3. Cedar Management Group. Dispute Resolution In HOA: Resolving Conflicts The Right Way. https://www.cedarmanagementgroup.com/dispute-resolution-in-hoa/ Retrieved 10/3/2023.
4. Scott Dillingham. What is a Homeowners Association? Are They The Best Idea For Investors in 2023? https://canadianrealestatenetwork.com/homeowners-association/ Retrieved 10/3/2023.
Acronyms
The table below lists the acronyms used in this document and their meanings.
Acronym | Meaning |. Description
CA | Community Association | Entity established around a residential community
CC&R | Covenants, Conditions and Restrictions | The set of rules that govern a residential community
HOA | Homeowners Association | Entity established around a residential community
POA | Property Owners Association | Entity established to manage a development of business, commercial, and residential dwellings
How Do We Go From Neighbors To Litigants?
Why is it when you mention Homeowners’ Associations (HOA’s) people get angry? There is almost a collective hatred among homeowners regarding the existence of HOAs. It is hard to reconcile when the owners knew of the HOA’s existence prior to moving into their home, but understandable given the litigious nature of the industry. Edmonson (2024) noted a Rocket Mortgage study that discovered 37% of homeowners in the study do not like living in an HOA community and 31% believe their HOA has too much power(1). Statistically, one in three neighbors are not happy with their HOA.
How do HOA’s go from a group of neighbors volunteering to support the community to an Orwellian dystopia of abuse of power, rampant favoritism and criminal fraud, willing to sue their neighbors to further their own gains? Conversely, how does homeowner anger at their HOA turn into litigation? The answers are as complicated as the diversity of HOA’s, neighborhoods, and families.
An Overview of the Litigious Nature of Community Associations and Their Members
Overview
Why is it when you mention Homeowners’ Associations (HOA’s) people get angry? There is almost a collective hatred among homeowners regarding the existence of HOAs. It is hard to reconcile when the owners knew of the HOA’s existence prior to moving into their home, but understandable given the litigious nature of the industry. Edmonson (2024) noted a Rocket Mortgage study that discovered 37% of homeowners in the study do not like living in an HOA community and 31% believe their HOA has too much power(1). Statistically, one in three neighbors are not happy with their HOA.
How do HOA’s go from a group of neighbors volunteering to support the community to an Orwellian dystopia of abuse of power, rampant favoritism and criminal fraud, willing to sue their neighbors to further their own gains? Conversely, how does homeowner anger at their HOA turn into litigation? The answers are as complicated as the diversity of HOA’s, neighborhoods, and families.
Role of HOA’s
There are many types of HOA’s around the world, but they share similar purposes and functions. Broadly, HOAs are established to improve the lives of their owners and the neighborhood within them. HOA’s exist for three primary reasons: to increase the value of the neighborhood, to ensure the safety and availability of amenities, and to provide a forum for community communication and engagement. They provide valuable services like maintaining common areas and processing modification requests.
HOA’s are set up based on local, state and federal laws, regulations and requirements. They are organized and follow processes to elect leaders (Board of Directors), hire managers and contract service providers. They are all internally funded; homeowners pay dues to fund activities performed by and for the HOA. They act on behalf of the collective homeowners to better the neighborhood following specific guidelines, rules and laws.
Role of Homeowners
Homeowners agree to abide by the rules of the HOA when they purchase the property. They agree to follow the processes currently in place to pay their dues, request modifications, vote for and run for positions on the Board of Directors, request a resale package, and communicate an issue with an amenity or within the common areas. They agree to follow the HOA’s Covenants, Conditions and Restrictions (CC&Rs). They also agree to the processes in place for affecting change including changing processes, adjusting fees, and modifying rules including CC&Rs and the rules that govern Board of Directors elections.
When the Relationship Breaks Down
There is a contractual relationship between HOA’s and homeowners. It is solidified at closing when the owners receive information about the HOA, the CC&Rs that govern the property, and the property’s current status regarding those rules according to the HOA. This resale package is one part of a lengthy legal process to purchase a home governed by an HOA.
Choosing a property to purchase is based on a multitude of factors. For many homeowners, the existence of an HOA is either an inconvenience or a slight benefit. At the extreme, there are owners who will never purchase a home in an area governed by an HOA. Some people seek out a home within a HOA. Some people reluctantly purchase a home governed by an HOA. Regardless of their feelings on the existence of an HOA, most owners do not digest all the information they receive at closing, including the resale package. Many homeowners are unaware of the consequences for non-compliance with HOA CC&R’s.
HOA’s currently operate in a paper-centric, point-in-time environment that limits real-time communication. They are usually limited in their use of technology to complete tasks and provide transparency to their homeowners. They are comprised of neighbors who are elected to volunteer. Their motivations for serving on the HOA vary from civic duty to opportunity be a ruler. There are multiple reasons why communications breakdown and why that breakdown often leads to litigation.
HOA’s Sue Homeowners
Businesses sue each other and their customers often. HOA’s are no different. There are many reasons why HOA’s sue their homeowners. Saad (2021) points out a major reason is when homeowners fail to pay dues(2). Financial considerations contribute to HOA’s deciding to sue a homeowner. Many HOA’s can assess fines on owners for failure to follow CC&R’s. HOA’s see litigation as a reasonable means to collect dues or fines. CC&R’s can outline the process to compliance to include when the HOA can or will sue the homeowner.
Homeowners Sue HOA’s
The relationship can go both ways. HOA’s may be sued by its homeowners. Dornish (2022) confirms the three primary reasons HOA’s are sued: make a claim of negligence by the Board of Directors, make a claim of favoritism by the Board of Directors and prevent some action by the Board of Directors(3). As noted earlier, there is a perception of misfeasance, malfeasance and nonfeasance on the part of the HOA. The reality is regardless of motivation behind the action or non-action, HOA decisions will not always be welcomed or accepted by homeowners. Homeowners who have exhausted all existing processes to right a wrong have the final option of suing their HOA.
Conclusion
At its core, homeownership is personal. At its core, an HOA is a business. It is challenging to make business personal and to treat personal things as a business. The conflict is real and understandable, but it does not have to happen. Well written CC&R’s that are easy to access are a start. Repeatable processes that are equally applied can lessen the conflict. Transparent, accurate and timely communication are key factors to building trust between homeowners and their HOA. Lawsuits are the result of a complete breakdown of the relationship between HOA’s and their homeowners. It is not a matter of whether an HOA will be involved in a lawsuit, but a matter of when. The reality is homeowners will always take things related to their property personally and for the HOA’s it is just business: nothing personal.
Terms & Acronyms
The tables below list the terms and acronyms used in this article. The terms used in this article are defined in the table below.
The table below is a list of common acronyms used in this article.
References
1. Jessica Edmonson. HOAs: Beneficial Or A Bane? March 2024. https://www.rocketmortgage.com/learn/assessing-the-association. Retrieved 4/22/2024.
2. Samuel J. Saad III. The Three Primary Reasons Why a Homeowners Association may Sue You. March 2021. https://www.saadlegal.com/blog/2021/03/the-3-primary-reasons-why-a-homeowners-association-may-sue-you/#:~:text=Common%20reasons%20homeowners'%20associations%20sue%20residents&text=The%20bylaws%20of%20many%20HOAs,to%20pay%20any%20assessed%20penalties. Retrieved 4/23/2023.
3. Dornish Law Offices. Three Common Reasons Why HOAs are Sued. October 2022. https://www.dornish.net/blog/2022/10/3-of-the-common-reasons-why-hoas-are-sued/. Retrieved 4/23/2024.