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Should There Be Federal Standards & Regulations For HOAs?

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guest blog by Deborah Goonan

My colleagues and I have posed this question on several occasions in HOA discussion forums frequented by Community Associations Institute (CAI) members – mostly community managers and attorneys, with an occasional Board member.

Of course, the knee-jerk HOA industry reply is “NOOOOO!” The standard mantra is that HOAs do not want or need more government control. Why would Association members want some bureaucrats in far-off Washington DC telling communities how they ought to govern themselves? They reason that members of HOAs are quite capable of choosing their own destinies, within their own “form of democracy.”

In theory, perhaps. In reality, perhaps not.

I find it curious that, while HOA cheerleaders abhor government interference in any form, they see nothing wrong about the excessive and often petty interference of HOAs over the property and lives of its owners and residents.
Typical HOA-manager/attorney/developer reasoning is along these lines, “We all know how very important it is to establish rules about what you can put in a flowerpot, how long your dog’s leash can be, where your children are NOT allowed to play, and what colors are acceptable for your front door. For these types of decisions, you, American HOA resident, are incapable of clear thinking and sound judgment. Therefore, the developer’s attorneys have crafted a legal contract detailing every aspect of your limited rights to dwell in your HOA, subject to swift and sure penalty should you fail to conform.” In practice, you may be subject to swift and sure penalty simply in order to keep you in line.

For the official party line on government regulation of HOAs, see page 47 of CAI’s Public Policies (emphasis added in italics):

“Community Associations Institute supports effective state legislation–when it is deemed necessary for consumer protection, conversion limitations, protections for ongoing operations or other additions to existing statutes or common law to ensure that community association housing is developed and maintained consistent with legitimate public policy objectives and standards that protect individual consumers, balancing the legitimate rights of the development industry.

Local legislation concerning the creation or governance of community associations is antithetical to a balanced, well-considered assessment of all issues and interests affecting community associations. It also encourages a patchwork of regulations within an individual state and is, therefore, better dealt with at the state level.”

According to CAI, if you live in an HOA, your legitimate rights are secondary to the rights of the corporate HOA – which is, in fact, the creation of a Developer.

Read this policy between the lines: municipal level legislation would make the HOA’s job too inconvenient, potentially limiting where and how HOAs can be built. However, at the state level, developers can pretty much call the shots to “balance” their legitimate rights.

And how does CAI justify its encouragement of “a patchwork of regulations” within the US, on a state-by-state basis, when their own public policy strongly discourages differing regulations within each state? That stance defies logic. Why is it that owners and residents find vastly different HOA laws in each state? The HOA industry lacks federal consumer protection standards that exist for virtually ever other major market sector in America.

What makes the HOA (i.e. Development) industry so special, that it should be deserving of less scrutiny and oversight than, for example, insurance, banking and financial services, healthcare, or public and private education?

By now it’s old news: HOAs are obviously vulnerable to financial mismanagement, corruption, and white-collar crime. Money crosses state lines and with over 65 million taxpaying residents nationwide, these issues certainly rise to the level of general public interest.

Therefore, there most certainly is a need for federal level legislation and regulation of HOAs.

(link to CAI Public Policy)

 

Texas Judge to Decide Meaning of ‘Family’ in HOA

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guest blog by Deborah Goonan

This is an update to an earlier blog about the Plantation Resort 2 in Frisco, Texas. The PR2 HOA is filing a lawsuit against City House, to block use of a home they recently purchased and renovated for use as transitional living for homeless youths.

The local CBS affiliate has been covering the story, and the link to their video is below.

While PR2 HOA has allowed two young women to move into the home owned by City House, they have made it clear they do not want any more residents to join them. The house was originally intended for transitional living for 6-8 youths. Public records indicate that PR2 homes are good-sized, most with 4 bedrooms and between 2500 – 3000 square feet, with an average sale price hovering around $270,000.

This is the part that really sticks in my craw. A statement made by PR2 HOA Attorney Chad Robinson, Riddle & Williams:

“City House is a great cause. But, on the flip side, we can’t pick and choose which rules we enforce.”

To put this statement into perspective, let’s consider that the real estate industry has had a long history of creating all sorts of deed restrictions and business practices intentionally designed to homogenize neighborhoods in the interest of protecting home values. Up until Fair Housing and Civil rights legislation was enacted in the 1960s, federal housing and lending policies explicitly aided and abetted segregation between the haves and the have-nots, along racial lines.

Since the late 1960s, the real estate industry has created hundreds of thousands of HOAs, many of which continue similar, less explicit homogenizing practices by way of carefully crafted CC&Rs. And because the Rules are considered “contractual agreements,” and HOAs are not acknowledged as de facto governing entities or state actors, a lot of ambiguous and petty restrictions escape federal scrutiny.

In other words, you can agree to any rules and restrictions you want, even if they happen to be petty, socially reprehensible, un-American, or unconstitutional. Remember folks, in HOAs, The Bill of Rights Need Not Apply.

At issue in this dispute is whether a transitional living arrangement fits the definition of “family,” as specified in the governing documents for PR2 HOA. City House believes that their non-commercial use of the home as a stable living environment falls within the definition, but PR2 HOA Attorney Robinson does not.

But in 21st century America, what, exactly, constitutes a family? Gone are the days when most family households consisted of mom and dad with a couple of children. We have single-parent households, same-sex partners with children, families blended following remarriage after divorce or death of a spouse, unmarried couples with or without children, extended families that include grandparents and adult children. And what if you rent the home you own to unrelated roommates? Which of these falls into PR2 HOA’s narrow definition of “single family use?” How many of these variations already exist in PR2?

Next week a judge will hear the case and decide whether City House can continue their great work with homeless youths, and create transitional families in PR2.

(link to CBS-local coverage of Frisco HOA dispute with City House)

 

Another Insignificant HOA Embezzlement?

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guest blog by Deborah Goonan

Another isolated incident?

It seems like there are several reports of HOA theft and embezzlement each week. Sometimes it’s a rogue Board member writing checks to herself or buying himself a new car. But sometimes it’s the Community Association Manager skimming funds, as in this case in Georgia. Atlanta, Dunwoody, and Chamblee police departments are currently investigating up to twelve HOAs where Michael Sisson was hired to manage the communities’ operations and finances.

Yes, up to one dozen.

So far, Dunwoody police have filed charges against Sisson involving $180,000 in missing funds from two separate HOAs.  Hopefully, these HOAs had adequate insurance policies and were paid in full. No doubt they were relying on Sisson to pay the bills.

Anyone care to guess how much this investigation is going to cost taxpayers, including the ones who are fortunate enough not to live in one of these HOAs?

(link to news report about GA HOA embezzlements)

Beach Erosion Threatens SC Condominium

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guest blog by Deborah Goonan

Stories like this one never cease to amaze me. Some people will do just about anything for an ocean view. An illegal sea wall and some sand bags are the only thing stopping the Ocean Club condominium from washing out into the Atlantic on the coast of South Carolina.

The million dollar unasked question is why was a construction permit issued on this site nearly 30 years ago? The resort sits at the mouth of the Dewees inlet, where waves batter the fragile coastline.  Adjacent to the condo building of 150 units, part of the beachside golf course had to be closed, slowly eroding into the ocean.

Condo owners face a hefty $750,000 fine from the state environmental protection agency for erecting the illegal seawall in 2013. Even after spending nearly $3 million trying to keep beach erosion in check, owners must once again replenish the beach next month, just as they did in 2008.

It’s a battle with Mother Nature that they are eventually going to lose – if the regulatory fees don’t bankrupt the Association first.

(link to news article about Ocean Club Condominium) 

Open Letter On HOAs To All Policy Makers

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guest blog by Deborah Goonan

Although HOA horror stories and reports of financial failures of common interest developments are reported daily in the media, industry proponents claim these are “isolated” incidents, that most people are happy under government by CC&Rs, and that buyers actually want more of the same.

When I or others attempt to discuss realities from the HOA resident’s perspective, we hear “HOAs aren’t for everyone,” “move if you don’t like it,” and “stop whining and complaining.”We are told our democratic proposals for reform are “fantasy” and “unrealistic.” Tell me, when did Democracy become taboo?

Today, in response to this arrogant drivel, I was inspired to write the following Open letter to CAI, State, and Federal Policy makers:

For more than a decade, HOA homeowner advocates have proposed many solutions to problems that vex HOAs: one vote per resident, ballot voting for elections, increased government oversight, better buyer disclosure, reforming laws that are skewed in FAVOR of the HOA corporate entity to eliminate the power imbalance it creates for owners. But we have faced consistent opposition every step of the way, not from fellow owners but from special interest groups: notably developers, real estate investors, Real Estate BARs, and management companies – including CAI. In all fairness, it is becoming increasingly apparent that even CAI members and attorneys disagree on policy matters, to include “eminent domain for condos.”

You may think that dismissing those of us that have the audacity to speak out against injustice and bad policy as “whiners” is an effective strategy to silence us. But all that does is prove the arrogant, dismissive attitude that prevails in the industry and our state Legislature that backs the special interests.

I recognize that Florida’s condo takeovers – a seven-year-old practice that is just beginning to get national attention – are a result of their financial failures. I do not object to their dissolution. What I object to is the injustice that results – kicking folks out of their homes, often forcing them to take huge financial losses, and with no effort to make these people whole. It was an injustice to sell those condos at artificially inflated prices in the first place, not to mention all the bad mortgages that resulted in many thousands of foreclosures and personal family tragedies. It was bad policy and greed that led to the failure of many condo and HOA communities.

And at the same time in Florida, millions of dollars are being invested in brand new high-end luxury condos. The folks in the middle and lower income ranges are merely collateral damage. And you can bet that the loans for all those displaced condo owners will become non-performing mortgages. No wonder the banks balk at financing for condos.

Other states also experience similarly owner-unfriendly issues, including local elected officials that seek to relax building codes, and reduce construction defect liability for Developers.

Furthermore, the financial and social model of common interest developments is unsustainable, which will ultimately lead to increased costs for local and state governments as these HOA communities mature. We are already seeing increased evidence of condemnations and HOAs that must appoint receivers because no one wants to serve on the Board of a failing community.

I am thoroughly disheartened by discussing HOA issues with people who refuse to acknowledge the truth and simply do not care about homeowners, tenants, or taxpaying citizens that do not toe the line and conform to the HOA corporate agenda.

I call upon reasonable, responsible, and compassionate State and Federal leaders to recognize that corporate communities are incompatible with American values of Democracy and Equality, and that HOAs exist primarily for the benefits of Real Estate interests. Americans must not be expected to relinquish their rights, freedoms, and financial stability for the sake of increasing the property tax base with high-density development.

Thank you.