Homeowners association

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A homeowners' association, (or, as they are known in the industry, community association^[1]) is an organization comprised of all owners of units^[2] in a common interest development, and is given authority to enforce the covenants, conditions, and restrictions and managing the common amenities of the development. Most homeowners' associations are now non-profit corporations, and are subject to state statutes that govern non-profit corporations and homeowner associations.

Contents 1 United States 1.1 Proliferation of Homeowners' Associations 1.2 Powers 1.3 Assessments 2 Controversies and criticisms 2.1 Constitutional Challenges 2.2 Undemocratic 2.3 Lack of checks and balances 2.4 Double taxation 2.5 Financial Risk for Homeowners 3 See also 4 References 5 Further reading 6 External links 7 Original references

United States

The fastest growing form of housing in the United States today are common-interest developments, a category that includes planned-unit developments of single-family homes, condominiums, and cooperative apartments.^[3] Before the first unit is sold in one of these developments, the developer records restrictive covenants on all of the properties. Restrictive covenants limit the property rights of individual homeowners, by contractual agreement.

Covenants and deed restrictions are exclusionary by nature, and in the first half of the 20th century most were racially motivated. For example, a racial covenant in a Seattle, Washington neighborhood stated, "No part of said property hereby conveyed shall ever be used or occupied by any Hebrew or by any person of the Ethiopian, Malay or any Asiatic race."^[4] In 1948, the United States Supreme Court ruled such covenants valid, but unenforceable, in Shelley v. Kramer. However, private contracts kept them alive until The Fair Housing Act of 1968 banned them. These racial restrictions are often still found on deeds throughout the United States.^[5]

Since 1914 builders of common interest developements and firms and companies that sell services to homeowner associations have said that deed restrictions protect property values — a rationale that remains the most common justification for the loss of freedom inherent in a development run under a regime of restrictive covenants.^[6] For example, these covenants may authorize the board or a designated committee to approve the color a house is painted, or the types of flowers and shrubbery planted, and even regulate the conduct of homeowners. Restrictive covenants run with the land, meaning that they bind subsequent purchasers.

Proliferation of Homeowners' Associations

Since 1964, homeowner associations have become increasingly common in the USA. The Community Associations Institute trade association estimated that HOAs governed 23 million American homes and 57 million residents in 2006.^[7]

Powers

Like a city, associations provide services, regulate activities, levy taxes (assessments), and impose fines. Unlike a municipal government, however, most homeowners associations are incorporated as non-profit corporations, and are therefore governed by a board of directors.^[8] The board carries out tasks which would otherwise be performed by local governments or require private legal action under civil law. Boards appoint corporate officers, and may create subcommittees, such as "architectural control committees", pool committees and neighborhood watch committees.

Association boards are almost always comprised of volunteers from the community, which sometimes do not have any formal training, certification or credentials in business.^[9] During the construction and development phase of a new community, the developer of the property occupies seats on the board of directors until there are enough homeowners within the community to sustain the responsibility of filling all seats on the board. Some association boards hire property management companies and association law firms to assist them in conducting association business.

Assessments

Homeowner associations can compel homeowners to pay a share, usually per-unit or based on square footage, of common expenses. These expenses generally arise from common property, which varies dramatically depending on the type of association. Some associations are, quite literally, towns, complete with private roads, services, utilities, amenities, community buildings, pools, and even schools. Others have no common property, but may charge for services or other matters determined to be in the best interests of the membership. For example, an association can bring legal challenges against other entities as determined by the board of directors, or membership vote if the governing documents so require. In states such as Colorado and others that have adopted the Uniform Common Interest Ownership Act, homeowners associations may have standing to represent their members in an action against the subdivisions' builder for negligence or other causes of action.^[10]

Assessments paid to homeowner associations have mushroomed to tens of billions of dollars a year.^[11]

Controversies and criticisms

Constitutional Challenges

Homeowners chafing under political speech restrictions imposed by modern associations sometimes rely on federal or state constitutional guarantees for rights that most Americans living outside of association areas take for granted. These rights include the freedom of speech, due process, and the right to peaceably assemble. However, these are rights that protect individuals against governmental abuse, and the associations argue that they are not governmental but private contractual entities.

Traditionally, courts have held private 'actors' are not subject to constitutional limitations -- that is, enforcers of private contracts are not subject to the same constitutional limitations as police officers or courts. In joining an association, homeowners can "contract out" of their constitutional rights, because boards of directors are private actors, and not government agents. Unhappy homeowners have argued that state judicial enforcement of restrictive covenants is state action, citing Shelley v. Kraemer. In Shelly private racially-restrictive covenants prevented whites from selling their houses to non-white buyers. These covenants were breached, and an attempt was made to enforce the private covenant in the state courts. The U.S. Supreme Court held that the action of the state judges was sufficient state action to bring the covenants under the prohibition of the 14th Amendment to the U.S. constitution, which provides that "No state shall ... deny to any person ... the equal protection of the laws." The racial covenants were repugnant to this provision, and hence were unenforceable in state courts under the United States Bill of Rights. However, in 2002 one appeals court, the 11th Circuit, declined to extend Shelley beyond racial discrimination, and so disallowed a challenge to an association's prohibition of "for sale" signs in Loren v. Sasser. In Loren, the court ruled that outside the racial covenant context, it would not view judicial enforcement of a private contract as state action, but as private action, and accordingly would disallow any First Amendment relief.^[12]

In a more recent 2002 case, after trial in the New Jersey Superior Court the trial judge ordered that the homeowners' association would not be subject to prohibitions against interfering with free speech of the New Jersy constitution, provisions that parallel the First Amendment but are more broadly applied. Committee for a Better Twin Rivers v. Twin Rivers Homeowners’ Association. This trial judge's order was reversed on appeal, and the associations' restrictions on free speech were struck down, in Committee for a Better Twin Rivers v. Twin Rivers Homeowners' Assoc. (N.J. Superior Court, 2006).^[13] In the Twin Rivers case, a group of homeowners collectively called "The Committee for a Better Twin Rivers" sued the Association, for a mandatory injunction permitting homeowners to post political signs and strike down the political signage restrictions by the association as unconstitutional. The appeals court held the restrictions on political signs unconstitutional and void, relying on a 1946 United States Supreme Court case, Marsh v. Alabama. In Marsh, the Court held that a company-owned town that functioned like a government should be treated like one. Accordingly, the company town was subject to the First Amendment and could not abridge the employees' freedom of speech. Similarly, the New Jersey appeals court found the Twin Rivers Homeowners' Association was open to the public, contained public schools within its boundaries, and provided many traditionally public services and amenities such as roads. The court concluded the association had assumed many governmental functions, and therefore the New Jersey state constitution would apply to protect fundamental liberties from excessive abridgment by those who set and administered that Associations' "standards of the community." The residents' free speech liberties were excessively abridged by provisions in the standards that sought to prohibit them from even posting political signs; such prohibitions were therefore void.

Undemocratic

Critics charge that in a variety of ways, CID private governments are illiberal and profoundly^[14] undemocratic. Most significantly, HOA boards of directors are not generally bound by constitutional restrictions on governments because the law views them as business entities, and accepts that all the owners have voluntarily agreed to be bound by the covenants by virtue of having bought a unit in the development.^[15] Defenders of HOAs point out that the master deed and bylaws create a set of rules for the community which is a voluntary agreement made when a buyer purchases the property in the community. A board of directors can be sued if it breaches its duties under the contract. However, critics argue that lawsuits are expensive and even if the homeowner is in the right, the deck is stacked - he must pay both his own attorneys' fees as well as those of his opponent, through assessments.

Corporation and homeowner association laws contemplate a rather limited role for HOA homeowners.^[16]The structure of corporate governance fashioned by corporation laws is essentially a "top down," oligarchical structure. Unless either statutory law or the corporation's governing documents reserve a particular issue or action for approval by the members, corporation laws provide that the activities and affairs of a corporation shall be conducted and all corporate powers shall be exercised by or under the direction of the board of directors. Thus, unless member approval is specifically required either by some statute or by the association's governing documents, members who are not directors or officers have little or no role to play in the day-to-day management of their development. The authority of homeowner association management over mundane aspects of daily life is superimposed over the residents' absence of any meaningful opportunity to participate in the course and direction of their association.^[16]

Voting in a homeowner association is based on property ownership.^[17]Only property owners are eligible to vote in elections, so renters are disenfranchised, but still subject to the board's authority.^[18] Additionally, only one vote per unit may be cast, rather than one vote per adult occupant.^[19] Critics argue that homeowner associations establish a new community as a municipal corporation without ensuring that the residents governed will have a voice in the decision-making process. ^[20]

Lack of checks and balances

Critics argue that homeowners' associations wield the power of a government without having to submit to the checks and balances and other responsibilities of one.

Some homeowners are victimized without due process or appeal.^{[citation needed]} The US Bill of Rights guarantees its citizens certain protections against abusive or intrusive government; however, these protections do not extend to private contracts. Homeowners' associations can function as governments, but structurally and operationally they are private corporations. Many state statutes now require HOAs to provide certain basic protections to its members; however, directors may not read or comply with state laws.

The Bureau of Homeowner Protection of the New Jersey Department of Community Affairs reported these disturbing observations of association conduct:

"Curiously, with rare exceptions, when the State has notified boards of minimal association legal obligation to owners, they dispute compliance. In a disturbing number of instances, those owners with board positions use their influence to punish other owners with whom they disagree." "Perhaps most alarming is the revelation that boards, or board presidents desirous of acting contrary to law, their governing documents or to fundamental democratic principles, are unstoppable without extreme owner effort and often costly litigation."

Many of the problems affecting Homeowner Associations today may be explained by another statement taken from the "Hannaman Report":

"The complete absence of even minimally required standards, training or even orientations for those sitting on boards and the lack of independent oversight is readily apparent in the way boards exercise control."

Double taxation

All homeowners pay property taxes. These taxes are used to maintain roads, street lighting, parks, etc. Planned unit development owners pay association assessments that are used to maintain the 'private' roads, street lighting and parks of their developments. Local governments have saved money and reduced the community wide tax burden by requiring developers build 'public improvements' such as parks, passing the cost of maintenance of the improvements to the common-interest owners.^[21]

Some states (including Maryland, Missouri, New Jersey, and Texas), however, give citizens who are also residents of community associations specific tax breaks in recognition of the principle that they should not be double-taxed for services already provided to them.^[22]

Financial Risk for Homeowners

The AARP has recently voiced concern that homeowners associations pose a risk to the financial welfare of their members. They have proposed that a homeowners "Bill Of Rights" be adopted by all 50 states to protect seniors from rogue Homeowner Associations. ^[23]

In some U.S. states, California or Texas for instance, a homeowners association can foreclose a member's house without any judicial procedure in order to collect special assessments, fees and even a fine. Other states, like Florida, require a judicial hearing.

Homeowners association boards can also collect special assessments from its members in addition to set fees, often without homeowners' vote. Special assessments sometimes require a homeowner vote if the amount exceeds a prescribed limit established in the Association's by-laws. In other cases, the amount of special assessments is completely at the board's discretion.

Increasingly, homeowner associations handle large amounts of money. Homeowners often do not pay attention to the business of their association. Embezzlement from associations has occurred, as a result of inattention and dishonest board members or property managers. This has been a difficult problem, and losses can (and have) been in the millions of dollars.

See also

• Gated community
• Jesse Clyde Nichols
• Housing society
• Business Improvement District

References

1. ^ Alexander, Gregory (1994), "Conditions of 'Voice': Passivity, Disappointment, and Democracy in Homeowner Associations", in Stephen E. Barton & Carol J. Silverman, Common Interest Communities: Private Governments and the Public Interest, Berkeley, CA: Institute of Governmental Studies, ISBN 0-87772-359-1
2. ^ James Foley v. Osborne Court Condominium, et al.; C.A. No. 96-360; Superior Court of Rhode Island, Newport; 1999 R.I. Super. Lexis 50
3. ^ McKenzie, Evan. Privatopia: Homeowner Associations and the Rise of Residential Private Governments. Yale University Press, 7. ISBN 0-300-06638-4. 
4. ^ Racial covenants
5. ^ Michaels, Christopher. "Racial covenants still on deeds in Dane County", The Capital Times, reprinted at Madison Commons, 2006. Retrieved on March 21, 2007. |
6. ^ McKenzie, Evan. Privatopia: Homeowner Associations and the Rise of Residential Private Governments. Yale University Press, 41-43. ISBN 0-300-06638-4. 
7. ^ CAI
8. ^ Privatopia, p. 142
9. ^ AARP
10. ^ See, e.g., Heritage Vill. Owners Ass'n Inc. v. Golden Heritage Investors Ltd., 89 P.3d 513 (Colo. Ct. App. 2004).
11. ^ Educating Homeowners, Orange County Register, Nov. 12, 2006
12. ^ [1] Loren v. Sasser (11th Cir. 2002).
13. ^ http://www.aclu-nj.org/downloads/TwinRiverDecision.pdf
14. ^ Barton & Silverman 1994, p. xii.
15. ^ Professor McKenzie, Privatopia, 21
16. ^ ^{a b} Sproul, Curtis (1994), "The Many Faces of Community Associations under California Law", in Stephen E. Barton & Carol J. Silverman, Common Interest Communities: Private Governments and the Public Interest, Berkeley, CA: Institute of Governmental Studies, ISBN 0-87772-359-1
17. ^ Barton & Silverman 1994, p. 36.
18. ^ Professor McKenzie 1994, p. 20.
19. ^ McKenzie 1994, p. 128.
20. ^ Hugh Mields, Jr., Federally Assisted New Communities: New Dimensions in Urban Development (Washington, D.C.: Urban Land Institute, 1973), 54.
21. ^ Katherine N. Rosenberry, "The Legislature Addresses Problems in the Law of Condominiums, Planned Development and Other Common Interest Projects," 3 California Real Property Journal p. 27 (Winter 1985).
22. ^ Sheryll D. Cashin, Privatized Communities and the “Secession of the Successful”: Democracy and Fairness Beyond the Gate, 28 Fordham Urb. L.J. 1675, 1677 (2001)(citations omitted).
23. ^ AARP: Homeowner Bill of RIghts

Further reading

• David T. Beito, Peter Gordon, and Alexander Tabarrok, eds., The Voluntary City: Choice, Community, and Civil Society, University of Michigan Press, ISBN 0-472-08837-8/
• Ronald M. Sandgrund and Joseph F. Smith, "When the Developer Controls the Homeowner Association Board: The Benevolent Dictator?" The Colorado Lawyer, January 2002, p. 91.
• Robert H. Nelson, Private Neighborhoods: And the Transformation of Local Government Urban Institute Press (Washington, DC): 2005. ISBN 0877667519/ ISBN 978-0877667513/

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