North Carolina is certainly a state where the HOA system has gotten way out of control. Fortunately, outspoken advocates like Ole Madsen (HEAR4NC.org) are articulating the insanity that’s disrupting the lives of so many homeowners around the country.
When you buy into an HOA, you’re essentially pledging all your personal assets to a group of partners, most of whom you’ve never met. Your assets become the de facto assets of a non-profit corporation which is potentially subject to liability lawsuits, damage from natural disasters, poor workmanship by developers, frivolous legal actions by overreaching board members, embezzlement by board officers and management companies. That’s a crazy kind of partnership, but it’s one that tens of millions of Americans have blindly accepted. And it’s one where HOA law firms are bathing in the mythical pot-of-gold.
In many HOAs homeowners are beginning to realize that they’ve entered a vortex that is spinning downwards, threatening property values and life savings.
The TV story linked below is worth watching. But as you do so, just be aware this isn’t an isolated incident. The HOA system in America is so badly broken it can never be fixed. It’s built to reward criminal behavior and those who bully their way to the top. When there’s a record of bad behavior by HOA officials and management companies, how do you persuade a potential buyer to take over your mortgage?
(link to WWAY TV story on missing HOA money)
Good blog, Ward. Thank you. In addition to http://www.hear4nc.org, there is another incredible Norh Carolina HOA homeowner advocacy group organized and run by Jim Lane. This group is http://www.hoaowners.org, or http://www.nchoalaws.org. Jim has followed the NC Select Committee on HOAs hearings and recommendations from these hearings and set up an advocacy that supports implementing the HOA homeowner protections that are absent in NC law so the range of horrific HOA homeowner abuses and property thefts will end. Jim has a personal “unthinkable to most” HOA homeowner abuse ordeal he was forced to endure. Hopefully, in the future, you will consider a blog about him. Jim also tries to help other HOA victims in NC, and states across the nation. His website(s) is excellent and I believe you and your readers may want to take the time to take a look at it. Contact information information for Jim Lane, http://www.hoaowners.org, or http://www.nchoalaws.org is:
Founder, Center for Natural Leadership
Small Business Management & Homeowner Association Consultant
Most North Carolina HOA homeowners have absolutely no idea of how fortunate they are to have people like Jim Lane and Ole Madsen organizing advocacy’s to speak up and out, about the HOA reforms and homeowner protections so desperately needed and deserving for North Carolina HOA homeowners and future home buyers.
I’d like to suggest a subtle yet lethal distinction to the above statement: “When you buy into an HOA, you’re essentially pledging all your personal assets to a group of partners.”
People buy “property” not an “interest in the HOA” as that statement appears to suggest. It is nearly impossible to buy an interest in the HOA itself, therefore that statement appears to be somewhat misleading. The issue in my view, and that I write of often, is more complex. If it wasn’t more complex, people would learn the truth quickly and walk away, as my book Villa Appalling! points out.
Here’s the distinction in my view: Owners do not knowingly “pledge” anything. A pledge is a promise, a “declaration” a “gift” of sorts, of a future expectation that an individual will or will not “do something.” Rather than, as stated, “pledging all your personal assets,” I believe the buyer is pledging “nothing” (1) because to “pledge” one must have knowledge of what they are pledging, as pledging is an intentional and volitional act, (2) a pledge is definite by nature, and (3) one is “not” pledging “all” one’s personal assets.”
What is occurring here in my opinion is twofold: First, because of the nondisclosure of risks associated with these types of property purchases, the buyer places the EQUITY in their property at greater risk than say, someone who buys a property without a homeowners association, and second, the buyer’s property is subject to (depending in which state one buys) covenants, conditions, and restrictions, and/or equitable servitudes running with the land which statutorily override protections otherwise at law meant to help that property owner keep his or her real property. These issues weigh against the argument of a “pledge.”
When a buyer purchases that so-called property (an argument on its own, i.e., what did I purchase?) s/he is NOT given an interest in the HOA as might be suggested. The interest is in the property, i.e., the development, the land. The homeowner association is merely a figurehead for operations by convenience in most states, it is usually a non-profit mutual benefit corporation the state by statute typically requires of the subdivider or developer in the permit documents. If, owners were able to purchase an interest in the HOA, they would by law have greater control. No owner can “purchase” that interest. The fact that an interest in the development (fractional interest – not even a guaranteed “use”) is part of that so-called property purchase in that development, is ancillary to the actual real property purchase and laden with contingencies. The proof of this occurs when that owner sells and moves. He cannot take ANY of those so-called INTERESTS with him. Why? Because he never owned them.
What these buyers are purchasing is simple: 1. Nothing. 2. Liabilities. The fact that “air” and “liability” are hidden behind four walls and dressed-up as an attractive “dream” depends on how gullible a person is who wants to buy a “dream.” These developers aim for the “least sophisticated consumer standard” (discussed at length in Villa Appalling!). That “dreamer” is their target, lured in usually by non-existent amenities or what the buyer “THINKS” he’s getting.
Buyers are led to believe they are “partners” in this purchase. They are not. They are subject to a “homeowner association board of directors functioning by hyprocrisy of majority rule and with unlimited funds at their disposal to make life for anyone not on the board a living hell.”
Far more lethal for owners in these environments, is the risk of holding onto their equity while they devise an exit strategy. “The success of the modern-day deed-restricted residential commons depends on the constant replacement of those who can no longer afford to stay and pay.”
I get what Ward is saying, although Donie makes some important distinctions. Owners in an HOA are really taking on a mandatory obligation to a shared maintenance (and maybe security) agreement. That “contract”is non-negotiable, and slanted to the advantage of the developer and his/her successor Board. When you buy, you basically sign up to pay for ongoing maintenance and improvement of whatever is “included” in your assessments. This can vary by “community.” You might just have an entry wall with some flowers and green space, or maybe a single retention pond. Or you might live in one of those Master Planned Communities with gates, private roads, street lights, an elaborate storm water drainage system consisting of multiple ponds and canals, a golf course, tennis courts, fitness facilities, boat docks, bocce ball, private beach front, movie viewing rooms, billiards tables, etc. In a condo you also have the “envelopes” of the buildings and anything that’s not part of your air space. The more infrastructure, the more bells and whistles, the more you will pay for them, whether you use them or not.
You also (often unknowingly) agree to share liabilities, insurance costs, legal expenses, losses not covered by insurance, etc. But you don’t get a dime back on your investment in the Commons when you sell and move on. There are no dividends paid. After all, it’s a non-profit operation. The local government sees HOAs as “mini-governments” because they handle some of the duties your public government has assigned to your HOA. When you sell, you’re lucky if you make money on your “unit,” if you happened to buy low and sell high. But don’t count on it.
But don’t dare fail to pay assessments for any reason, or you might lose your home to HOA foreclosure. The HOA will come after your home faster than the County Tax Collector and your lender.
And the Board of Directors makes all financial decisions, generally without input from owners, other than their collected assessments. If they waste the money and fail to do required maintenance, you generally have no recourse unless you want to sue the HOA, which amounts to suing yourself. If the Board files frivolous lawsuits and loses, you pay. If the Board hires uninsured contractors and then has to pay fines for code violations, you pay. If money disappears into a black hole, well, go hire a forensic accountant to PROVE something is amiss before the Attorney General or the local police will bother to investigate.
Respectfully, I have to disagree with Ole Madsen’s comparison of an HOA to a democracy. The HOA is almost always a corporation, and corporations are not democratic. Although buyers and owners are given the impression of democratic process, and told they can vote for their Board and amendments to the Declarations, in reality, there are so many ways to rig or skew the vote — if and when annual meetings occur — the owner might as well vote in Cuba or Russia.
HOAs tie voting “interests” to the amount of property owned – just as any for-profit corporation ties voting interests to the amount of stock owned. Ironic, since the HOA is supposed to be not-for-profit. As in any corporation, the person or people who own the most “shares” (Units in the HOA) control the votes. That’s how hostile takeovers occur. That’s how the self-dealers, the investors hoping to redevelop for profit, get on the Board and start to remake the Association to their own benefit.
Where no bulk owners or majority owners exist, often nobody wants to serve on the Board. The ones drawn to the Board tend to be opportunists, control freaks, or bullies. Not always, of course, but inevitably, when no one wants the job anymore, the HOA ends up with any owner with a pulse that is willing to volunteer.
I bought a house in 2009 with normal covenant restrictions that allow campers, boats, tables to the rear of the home.
The development was sold in 2012 and a HOA was formed. They have sent me notices that I owe them HOA fees, they have sent me violation notices and have harassed me for years.
I have nothing in my home owner deed, paperwork that there is, or to ever be a HOA.
Last nights HOA meeting stated that all lots are part of the HOA and will be regulated accordingly.
I thought I was grandfathered.
Am I part of the HOA.
From what I have read an HOA must be in place before the first lot is sold. Not sell 10 lots then forc them to join.
I bought the house on the lack of an HOA.
There have been cases like this before. The HOAs lost. If the house was not in an HOA when you bought, they cannot suddenly make it part of the HOA. Consult with an attorney. Be sure to take all of your closing documents with you for the attorney’s review.
Also, check with the title company that did the title search. They will be able to tell you if there was an HOA in place. Plus, you would have signed the documents for the HOA at closing. At least that is the way it is in my state.
Good Luck! Keep us posted.