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What is a Homeowner’s Association?

A homeowners' association, (or, as they are known in the industry, community association) is an organization comprised of all owners of units 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.
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. Before the first unit is sold in one of these developments, the developer records restrictive covenants on all of the properties.
Covenants and deed restrictions were exclusionary in origin, 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." In 1948, the United States Supreme Court ruled such covenants unenforceable, in Shelley v. Kraemer. However, private contracts kept them alive until The Fair Housing Act of 1968 banned them. Racial restrictions are often still found on deeds throughout the United States because it is so complicated to change covenants, often requiring notarized signatures of 2/3 or 3/4 of all homeowners. However, the fact that covenants are difficult to change is a protection for the homeowner.
Since 1914 builders of common interest developments 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. 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, who are notified before purchase that doing so will make them a member of the HOA.
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.


Authority

A homeowners association gets its authority from the legal documents of the articles of incorporation, by-laws, and covenants(called protective covenants, restrictive covenants, the declaration of restrictive covenants, and CC&Rs). These documents are created and filed prior to development and building of any homes. When a homeowner purchases a home in an HOA, he signs a rider on his deed which states he acknowledges that he will be a member of an HOA and that he will pay the assessments and abide by the regulations of the community.

Powers

Like a city, associations provide services, regulate activities, levy taxes (assessments), and impose fines. Unlike a municipal government, however, homeowners associations are not subject to the Constitutional constraints that public government must abide by. 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 always comprised of volunteers from the community who are elected by homeowners at the annual meeting to represent the association and make decisions for all homeowners. These volunteers are not required to have any formal training, certification, or credentials in business. They are bound by the "business judgment" rule and are required to show that they used good business judgment in any decision made for the community. 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. A community's by-laws will state at which point an association will be "turned over" to the homeowners- it is generally after a percentage of the homes or lots have been sold. Some association boards hire [[Community_Management_Company] companies and 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.

Assessments paid to homeowner associations in the United States amount to billions of dollars a year. Homeowners Associations are non-profit entities. The annual budget of an HOA is set to "zero out", with income from assessments, rentals, etc. equalling expenses. Associations with maintenance needs often have special savings funds called Reserve Funds, which set aside funds for large expenses such as paving private roads or re-roofing a community of townhomes.

Benefits

The purpose of a homeowners association is to maintain, enhance and protect the common areas and interests of an association (also callled a subdivision or neighborhood). This can allow an individual homeowner access to an amenity (pond, pool, clubhouse, etc.) that he may not be able to afford on his own. It also ensures that his property values will not be lowered by a neighbor's "violation" of the protective covenants of the association. Each member of a homeowners association pays assessments. The assessments are pooled and pay for a variety of benefits to the association. Some examples are entrance monuments, landscaping for the common area, amenities like clubhouses, tennis courts, or walking trails, insurance for commonly-owned structures and areas, mailing costs for newsletters or other correspondence, a management company or on-site manager, or any other item delineated in the governing documents or agreed to by the Board of Directors.

Allegations of 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. However, homeowners association assessments pay for private amenities which are not maintained by state or local governments.

Financial Risk for Homeowners

In some U.S. states, including California and Texas, 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. Foreclosure without a judicial hearing can occur when a power of sale clause exists in a mortgage or deed of trust.

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. Embezzlement from associations has occurred, as a result of dishonest board members or community managers. Losses have been in the millions of dollars. This is extremely rare, and associations generally have a "D&O" (Directors and Officers) portion of the association's insurance policy that financially protects the HOA in case of Board member or employee dishonesty or theft. The large budgets and expertise required to run such groups are a part of the arguments behind mandating manager certification (through Community Association Institute, state real estate boards, or other agencies).


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.

Checks and Balances

Certain states are pushing for more checks and balances in Homeowners Association. The leaders in this movement currently are Florida and North Carolina. The North Carolina Planned Community Act, for example, requires a due process hearing to be held before any homeowner may be fined for a covenant violation. It also limits the amount of the fine and sets other restrictions.

Constitutional Challenges

Homeowners have successfully challenged political speech restrictions in Associations that federal or state constitutional guarantees as rights. These rights include the freedom of speech, due process, and the right to peaceably assemble. A recent decision in New Jersey held that private residential communities could no more deny free speech to its residents to discuss public issues than municipal governments.

Until recently, 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. 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.

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 Jersey constitution, provisions that parallel the First Amendment but are more broadly applied. 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). 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.