Homeowners Associations

On behalf of Kaplin Stewart Meloff Reiter & Stein, P.C. posted in on Oct 25, 2016.

Homeowners and community associations are becoming increasingly more popular among developers as a response to local government’s concern with assuming ownership and maintenance responsibility to infrastructure. However, the creation of an association is no guarantee that the developer or local government will be free from future responsibility. While many residents are happy in their common-interest communities or developments, homeowners associations and their myriad of covenants, codes, and restrictions, often generate disputes based upon perceived violations of residents’ rights. To ensure that these disputes do not result in the developer and municipality becoming parties, association documents must not be mere “forms” but must be carefully tailored to meet the unique needs of a development and municipality.

For planners and local decision makers, a common-interest approach to development has its merits, primarily because it reduces the costs of new development to the municipality. But there can be problems. Short-term issues revolve around the rights of individual homeowners, “double taxation” (association fees and local taxes), and contradictions between municipal codes and the homeowners associations’ covenants, codes, and restrictions. And over the long haul, local governments may have to face the fact that poorly capitalized or managed associations cannot maintain aging developments.

In the most extreme cases, developers took responsibility for putting in and maintaining infrastructure and common facilities. Rather than providing the services themselves, developers created homeowners associations to do so. Today, homeowners associations are typically governed by a volunteer board of directors. Property management is carried out by a mixture of management companies, HOA-employed managers, and volunteers. Municipalities benefit by receiving tax revenues from these residents while delivering less than the full menu of services.

Despite the benefits, there can be problems. Short-term issues revolve around the rights of individual homeowners, “double taxation” (association fees and local taxes), and contradictions between municipal or county codes and the homeowners associations’ covenants, codes, and restrictions. And over the long haul, local governments may have to face the fact that poorly capitalized or managed associations cannot maintain aging developments.

This situation is ripe for controversy. The battles fit into four broad categories:

Financial: Homeowners complain about double taxation. They pay fees to their association and taxes to their municipal government. Although their tax rates are similar to or even higher than those of homeowners living in other types of developments, they do not receive the same public services.

Rights: The covenants, codes, and restrictions are frequently more restrictive than city ordinances, and, because they are private contracts that are considered voluntary, they can prohibit acts that would otherwise be constitutionally protected; for example, flying a flag or posting a political sign in the front yard.

Governance: The quality and nature of governance varies from association to association. Some homeowners associations are well run, others verge on bankruptcy; many HOA officers take their fiduciary responsibilities very seriously and respect their members; others don’t. Although Procedures: Approving changes to covenants, codes, and restrictions (CC&Rs) often requires a super-majority, and sometimes can be stymied by mortgage agreements. On the other hand, increasing fees, levying special assessments, fining residents for violations of the rules, entering litigation, and starting foreclosure proceedings for failure to pay fines can be instigated by a simple board majority.

All homeowners associations serve property owners within a specific common-interest development rather than an entire municipality. But homeowners associations and common-interest communities have a broader impact on local finances and land use.

“If there is new commercial development after a walled community is built, we will ask for a pedestrian link, but in many cases the residents don’t want it; they don’t want to invite outsiders into their community,” says Greg Toth, AICP, a member of Henderson’s current planning team.

ut HOAs are here for the foreseeable future. More oversight from the states is likely, as is more professional management. Weaker associations face the danger of bankruptcy, particularly as their communities’ age. Schneider suggests that these associations ultimately may have to be absorbed by their surrounding jurisdictions.