Homeowners Associations: Things To Know About HOAs
Homeowners association, or HOA, is a community for all homeowners living in a single residential area. HOAs are established to behave like a private association for the buildings, or cul-de-sacs, with multiple owner-occupancies. HOAs are established by the law itself and can also be put in place for marketing, management, and sale by the real estate developer.
Typically, the real estate developer will establish an HOA for managing the property and its sale. In a developer-established HOA, the members are appointed by the developer and they stay in power until a certain number of units are sold. Once this criterion is met, the control of the HOA is transferred to the homeowners via elections.
Once the HOA is properly established, anybody who buys a home in the neighborhood must become a member of the association. As a member, they must follow all the regulations, Articles Of Incorporation, CC&Rs (Covenants, Conditions and Restrictions), and By-Laws.
All of the rules and regulations placed by the HOA may limit the homeowner’s ability to modify the exterior of their house. However, these associations are very active in urban planning, quality of life, the pace of growth, zoning, land use, and level of taxation in the community.
Unless stated otherwise, most homeowners associations are subject to statutes of the state law that govern non-profit corporations and HOAs. However, state governments have minimal oversight on HOAs and it varies from state to state. While some states have very restrictive and extensive laws pertaining to HOAs, some of them have virtually no existence in the functioning of one.
History Of Homeowners Association
The very first version of an HOA in the US was seen in Pasadena in 1905 by the name of Arroyo Seco Improvement Association. After a while, Los Angeles also established an association for homeowners under the banner of the Los Feliz Improvement Association.
Both of these associations were a result of new deed restrictions in a new planned subdivision. However, given the time of their establishment, they were highly influenced by the norms of that time and restricted all non-Caucasians, and in some cases non-Catholics, from buying houses in these areas.
After the Second World War, a lot of regulations came in from the Federal Housing Authority (FHA) for the Homeowners Association. They included multiple types of housing and abolished laws refusing any community or group of people from buying houses.
Through the 1960s and 1970s, more changes happened to the structure of an HOA. In the 1960s, the FHA pushed land developers to build more multi-family housing in the inner cities as the construction of interstates had made migration easy. In the 1970s, there was a noticeable scarcity in the land available for housing. This prompted the land developers to increase the density of housing on any piece of land.
In order to maintain a unified look in the neighborhoods that had seen an increase in the density of homes, associations were established that provided services formerly provided by the municipalities. In the same decade, the US Clean Water Act of 1977 required all new land developments to ensure that the water runoff from these developed lands was on par with the runoff that was seen before any development.
With many more nuances, homeowners associations took the form that is seen today. The thing is, nowadays HOAs have authority over a lot more than runoff water retention areas and colors of the houses’ fascia. HOAs are also in charge of regulating changes to the residences, maintenance requirements, landscaping, etc. Developers and homeowners also use the jurisdiction of an HOA to increase and maintain the value of housing in a neighborhood.
Operations Of HOAs
In some cases, the membership to an HOA is voluntary. However, a majority of subdivisions make it mandatory for every new homeowner to become a member of the HOA. Once a house is bought, its owner becomes a member of the HOA and has to abide by its rules.
In return, the homeowner is awarded all amenities offered by the HOA and is also permitted to the governance of the HOA. The rules and regulations of the HOA run with the land, meaning the households the rules and laws, regardless of a change in ownership.
Governance Of HOAs
Typically, HOAs are private entities that are set up to be either corporations or unincorporated associations that are non-profit. They’re governed by state statutes and federal laws directed towards corporations or unincorporated associations, depending upon the way a particular HOA is set up.
The governing policies of an HOA are specific to the land unless the development changes entirely. Until then, these policies include:
- The covenants, conditions, and restrictions (CC&Rs) of the subdivision. These are regulatory documents created when the development is initially formed and contain the rules and regulations enforced by the HOA.
- The Articles Of Incorporation and the By-laws.
- If the CC&Rs lead to the formation of some new rules, they also become a part of the governing documents.
The CC&Rs of a subdivision are enforceable by law and include regulations that tell the residents what can and cannot be placed on a lot or any other property restrictions that affect the aesthetic, or safety, of a subdivision.
However, there have been cases when some clauses, or the entire document of CC&Rs, were rendered illegal by the court of law. However, this is only possible because the HOAs are filed as private corporations, making it possible for homeowners to file a lawsuit if they feel like they have been wronged in any way, shape, or form.
Board Of Directors
When the developer is done with the construction of a residential area, they appoint a board of directors to maintain the HOA and uphold the desired character of the community. After a certain number of units is sold, the developer tends to pass responsibilities to the members of the HOA that are homeowners elected to be in the HOA.
The number of responsibilities given to the homeowners depends on the number of units sold or the number of homeowners that are active members of the HOA. This transfer of responsibilities and powers happens gradually until the HOA solely consists of homeowner-elected members.
Until the HOA is completely handed over to the members, the board of directors is in charge of making decisions about finances, assets, and liabilities of the HOA as well as enforcing the governing documents.
The board of directors hold a legally and/or ethically binding duty towards the members of the HOA. The board is responsible for making legal and financial decisions that are for the good of the members of the HOA. Any failure to adhere to this duty will result in consequences to the members of the board.
A lot of the bigger HOAs, that are upscale in nature and have amenities that are of a similar nature, hire companies to manage the responsibilities of the association. The services required by these companies are generally of three kinds: financial only, full management, and on-site management.
This typically covers all duties pertaining to the income and expenditures of the HOA. These include administration of bank accounts, assessment collection, bookkeeping, and overlooking the HOA budget.
This includes the services provided for financial services and the organization, administration, and management of board meetings, elections, and maintenance duties. Board meetings might call for tasks like keeping minutes and agendas. On the other hand, the maintenance duties require the management company to contact contractors, acquire estimates, call maintenance teams, etc.
On-site management is the biggest contract an HOA can sign with a management company. An on-site contract includes all the services of full management services with the addition of direct assistance to the members of the HOA and the appointment of an assigned manager to the HOA.
There are certain criteria that need to be met by the managers in order to legally acquire a contract with an HOA. Since these criteria are not enforced by the FHA, the certifications required by the managers differ from state to state.
Powers Of The HOA
The fundamental power of the HOA is to provide the members of the community with a few, selective amenities. What amenities are provided will differ vastly between every association. Other than that, an HOA is also responsible for regulating activities, levy assessments, and impose fines if needed and authorized by CC&Rs.
The homeowners associations also have the authority to create and manage committees like a pool committee, neighborhood watch committee, architectural control committee, etc. The HOA also has the power to dismantle any committee once the job is done, or if it is deemed inefficient.
In some states, the HOAs also get the authority to place a lien on any property in the subdivision. They can do this for any sort of noncompliance with CC&Rs or non-payment of assessments owed to the HOA. In some cases, the HOA might also be able to foreclose on a property.
However, homeowners also have the ability to defend themselves against any action taken by the HOA. In fact, a homeowner can effectively sue the HOA if the actions of the association are in violation of contractual or statutory clauses or for the determination of the legitimacy of a provisional governing document.
The biggest power that an HOA has is the ability to compel the homeowners to partake in the expenses for the maintenance of the HOA and the amenities provided in the subdivision. Generally, all expenses made by the HOA are in proportion to the ownership interests and operation and maintenance of common property. However, all of these factors differ dramatically for each HOA, depending upon the number of members and the type of association. In addition, the HOA is allowed to have a special assessment for unexpected expenses.
Talking about the assessment, it’s the amount of money that the HOA holds in order to make any necessary expenses. This assessment has to be paid by the members of the HOA and can be paid monthly, quarterly, or annually. Typically, the more amenities are provided by the HOA, the more frequently the assessment has to be paid.
The assessment is determined when the HOA is formed and revised with the changes in amenities and/or in the assumed services. There are supposed to be a minimum of two types of funds: an operating fund and a reserve fund.
The operating fund is used by the HOA for its operational costs and the reserve fund is kept for the infrequent and expensive expenses that might have to be made for the maintenance, repair, and replacement of the common area assets. The availability of a reserve fund ensures that the HOA won’t have to call for a special assessment.
Advantages And Disadvantages Of The HOA
The most obvious advantage for homeowners is the availability of maintenance and management services. Moreover, the homeowners also have access to recreational amenities, insurance coverage, a guarantee of community appearance, and increased property value. The best part is that the members of the HOA can plan the development of the community in accordance with the values of the members.
The disadvantages of an HOA for the homeowners is that they have to deal with the associative fees, punitive fines, restrictions on property use, and loss of complete autonomy. Moreover, if the members of the committees are problematic, there is a potential for mismanagement and the possibility of enforcement of arbitral rules.
For The Municipality
The HOAs take care of developing and maintaining amenities inside the community like roads, parks, and other services within the development. Due to these, HOAs are seen as a great asset by the local governments as they can help the local government gain revenue as the HOA takes care of the amenities in the community, decreasing the expenditure of the local government.
However, there’s a definite disadvantage. While the HOA does offset the expenditure that the city government has to bear, they also reduce the tax revenues. The members of an HOA are insulated from the problems of the rest of the city and tend to refuse the bills of taxes required by the local government to fund all the services. Consequently, it adversely affected the citizens not residing in an HOA.
Now that you might have a pretty clear idea of what a homeowners association is, you can decide whether you want to buy into one or not. Ultimately, an HOA is responsible for the upkeep of a neighborhood. You can research the rules and regulations of any HOA that you’re interested in and decide which one you want to live in.
The best part is now you know the basics of how an HOA functions. You can make sure that the HOA aligns with your wants and needs. That being said, do your due diligence before selecting one and understand the payments and restrictions of the one you select.
FAQs On Homeowners Associations
What Is The Purpose Of An HOA?
Homeowners associations are a great tool that is used to manage shared property, protect owners’ property values, provide services to residents, and maintain a feeling of community.
Is It Worth To Pay HOA?
Yes. If you research to make sure you’re getting a fair deal, the HOA can be a great asset to your homeowning experience.
Can I Write Off HOA Fees On My Taxes?
If you purchase property as a primary residence, you won’t be able to write it off. However, if you use your property as a rental, you can legally deduct HOA fees from the IRS.
See Also: How Property Taxes are Collected?