HOAs vs Homeowners - Potential Victims of Corruption
It's All About the Board of Directors
An HOA (Homeowners Association) is only as good as the values and priorities of the people who serve on the board. It’s a thankless job, and why anyone would want to do it is reason enough to question their agenda. My reason was to stop the bleeding of an old community and try to maintain, if not bring up the value of my home – my investment.
There are different types of HOAs; single-family homes, townhouses, condos and/or co-ops. The townhomes in my 433-unit community have a sales price ranging from $145,000, to $175,000 at the present time. So, basically, the homeowners that purchase these properties are working people, like myself. We have a mixture of retirees, first family home buyers, and renters. They live paycheck to paycheck.
Sometimes, I believe the lack of a business background can equate to making some poor financial decisions or money mismanagement. But when I was elected to the board at my association, the discovery of corruption was mind-blowing. I suppose former board members may resent doing this “job” as a volunteer and feel they may deserve or are owed something, or opportunists – which is what I believe corrupted our association.
70 Million Americans Now Living in Community Associations
...according to 2018 statistics by the Foundation for Community Association Research
Growth of HOA Residents Over the Years
Corruption, Embezzlement & Ego
As stated, an association is only as good as the Board of Directors – all volunteers. I ran for the board when I found my requests for maintenance going unanswered; the property starting to look ill-maintained and questionable activity taking place.
The first time I was elected, I discovered embezzlement. Yep. I know so many associations and homeowners suspect or accuse Board Members or management companies of “stealing” but I actually found the evidence. The community manager, at that time, ended up being sentenced to six years in prison. A lot easier said than done.
Meanwhile, a couple of the previous board members were suspected of getting “kickbacks” at the same time. So, no one noticed the Reserve money being wire transferred out of the account each month – as long as everyone was getting their fair share or they just never bothered to look at the bank statements.
There are also board members who serve on the board as an ego power trip. Our last President rode around in his electric cart all day – doing favors for those he liked and causing problems for those he didn’t like - called selective enforcement.
That’s why I ran for the board this second time. To stop the favoritism that was so apparent. It's hard to overcome the irresponsible actions and wasteful spending (of our money) without a majority board vote. However, even if you’re just one voice on the board, you do become privy to internal actions and decisions made by such.
It can be time-consuming, and stressful at times. This is also why many retirees volunteer as HOA Board Members because they have the time to devote to properly running the association – and, mine, being 433 townhouses is considered the high end of a medium-sized property. It keeps me busy.
The number of U.S. community associations in 2018 is between 346,000 and 348,000.
Starting With The Basics
Because HOAs are corporations, most are governed under State law, and they can all differ. But the one constant is the governing documents, which usually include the CCRs (Covenants, Conditions & Restrictions), Bylaws, and Rules & Regulations.
Some associations will strictly enforce all the governing documents, and others will be a little less stringent. Hopefully, board members will make decisions based on enhancing the value of your home, and not on personal relationships.
"We Take Direction From The Board"
That's the Motto of Community Management Companies. It alleviates any responsibility they may have in managing the community. However, they are held responsible for bookkeeping and accounting – to a certain extent.
When you purchase property in an HOA, you are agreeing to restrictions on how you can use that property. These restrictions are outlined in the “Declaration of Covenants, Conditions and Restrictions” (CC&Rs). It doesn’t matter if you’ve read them or not, they are legally binding and you, as a home buyer, are expected to abide by them.
Board members are also under a fiduciary responsibility to follow and enforce the CC&Rs. There’s very little wiggle room there. Think of it as the “Constitution.” The only way to make changes is usually by a majority vote of homeowners, and then the “Amendment” needs to be legally recorded as well. It will affect certain freedoms, so do your due diligence before buying into such restrictions.
Bylaws are more for outlining the structure of operating the (usually non-profit) organization, including the guideline for electing the board of directors and their stated terms and duties of each.
Rules & Regulations are usually up to the Board members to create and vote into policy, adjusting them to the individual needs of the association (i.e. pool hours and conduct, parking & towing enforcement, landscape requirements, etc.)
Assessments & Your Legal Obligation
As a homeowner in an HOA, you will have the legal obligation to pay an assessment. Although based on the yearly budget, these are usually broken down into monthly payments. These assessments pay for the operation of maintaining the property called “common areas.” These are areas that all homeowners have access to, such as landscaping, amenities, water & power bills, etc.
There is no getting around this financial responsibility, whether you agree with how the money is being spent or not. The Board Members also have the power to raise the assessments (based on the yearly budget).
Within the budget will be an item of Reserve Account funding. Money is transferred each month into the Reserve Account to cover major components of the common elements. This may include roofs, private roads, A/C units on clubhouses, or whatever your particular major replacements may be.
If the money is not managed well or fails to provide adequate funding for the Reserve Account (sometimes based on a Reserve Study), the Board may impose a Special Assessment for such expense.
You are legally responsible to pay all Assessments, including a Special Assessment (should it arise), and if you do not, you can lose your home. The Association has the power to send you to collections, put a lien on your home, and in many cases foreclose on the property.
HOA Satisfaction Survey
Would you say your "Overall Experience" has been -
Before You Buy Into an HOA
It is so important for you to understand the restrictions of the Governing Documents, the monthly assessment amount, and what it covers. The Reserve Fund – is it fully funded or at what percentage is it funded. Ask about the last time the Assessments were raised, and how much. Was there ever a Special Assessment – for what, how much, and how long ago.
As a prospective homebuyer, all of this information is your legal right to obtain. If it is not voluntarily given to you – ASK FOR IT. As these elements can and will dictate your responsibilities and obligations as a homeowner.
In addition, you have the right to be informed if there are any pending lawsuits or outstanding judgments against the HOA.
If there is anything you don’t understand, ask your realtor or seek legal counsel to explain the issues.
Have an Outstanding Issue?
Should you already be living in an HOA, and there is an issue; the first step is to address it right away. Do not let matters go unattended. They can escalate. Everything is usually very timely when it comes to a dispute. So, don’t hesitate
Put your grievance in writing as soon as possible; whether by email or letter. You must keep documentation. So if you mail it, either do it by Certified Return Receipt or the very least, proof of mailing.
Cite any/all infractions according to the governing documents that you may be disputing.
Attend a meeting. Most Board meetings are open to the members, and minutes of the meetings are kept. You can speak or submit documentation for the record, if necessary, to refer back to putting the Board and/or the Association on notice.
Become Familiar With Your State's Law
If your particular State has legislated statutes and laws for governing associations, then they will typically supersede any of your governing documents should there be a conflict.